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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
 
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number: 001-38597
https://cdn.kscope.io/0d0d69de9eee6987aaf0c90c8d8918b3-arct5logocolornotickera11.jpg
American Finance Trust, Inc.
(Exact name of registrant as specified in its charter)
Maryland
 
  
 
90-0929989
(State or other jurisdiction of incorporation or organization)
 
  
 
(I.R.S. Employer Identification No.)

650 Fifth Ave.30th Floor, New YorkNY                 10019
____________________________________________________________________________ ___________________________________________________________________________
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (212) 415-6500
Securities registered pursuant to section 12(b) of the Act:
Title of each class
 
Trading Symbols
 
Name of each exchange on which registered
Class A Common Stock, $0.01 par value
 
AFIN
 
The Nasdaq Global Select Market
7.50% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value
 
AFINP
 
The Nasdaq Global Select Market
Preferred Stock Purchase Rights
 
 
 
The Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer

 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes No



As of May 1, 2020, the registrant had 108,527,734 shares of common stock outstanding.
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

AMERICAN FINANCE TRUST, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
 
March 31,
2020
 
December 31,
2019
ASSETS
(Unaudited)
 
 
Real estate investments, at cost:
 
 
 
Land
$
705,761

 
$
685,889

Buildings, fixtures and improvements
2,739,793

 
2,681,485

Acquired intangible lease assets
448,642

 
448,175

Total real estate investments, at cost
3,894,196

 
3,815,549

Less: accumulated depreciation and amortization
(554,271
)
 
(529,052
)
Total real estate investments, net
3,339,925

 
3,286,497

Cash and cash equivalents
175,745

 
81,898

Restricted cash
18,192

 
17,942

Deposits for real estate investments
1,140

 
85

Deferred costs, net
16,934

 
17,467

Straight-line rent receivable
49,272

 
46,976

Operating lease right-of-use assets
18,841

 
18,959

Prepaid expenses and other assets (including $659 and $503 due from related parties as of March 31, 2020 and December 31, 2019, respectively)
20,142

 
19,188

Assets held for sale
5,937

 
1,176

Total assets
$
3,646,128

 
$
3,490,188

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Mortgage notes payable, net
$
1,309,513

 
$
1,310,943

Credit facility
483,147

 
333,147

Below market lease liabilities, net
82,624

 
84,041

Accounts payable and accrued expenses (including $473 and $1,153 due to related parties as of March 31, 2020 and December 31, 2019, respectively)
53,333

 
26,817

Operating lease liabilities
19,305

 
19,318

Deferred rent and other liabilities
8,685

 
10,392

Dividends payable
3,619

 
3,300

Total liabilities
1,960,226

 
1,787,958

 
 
 
 
7.50% Series A cumulative redeemable perpetual preferred stock, $0.01 par value, liquidation preference $25.00 per share, 8,796,000 shares authorized, 7,719,689 and 6,917,230 issued and outstanding as of March 31, 2020 and December 31, 2019, respectively
77

 
69

Common stock, $0.01 par value per share, 300,000,000 shares authorized, 108,475,266 and 108,475,266 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively
1,085

 
1,085

Additional paid-in capital
2,634,953

 
2,615,089

Distributions in excess of accumulated earnings
(972,019
)
 
(932,912
)
Total stockholders’ equity
1,664,096

 
1,683,331

Non-controlling interests
21,806

 
18,899

Total equity
1,685,902

 
1,702,230

Total liabilities and equity
$
3,646,128

 
$
3,490,188

The accompanying notes are an integral part of these consolidated financial statements.
 
Three Months Ended March 31,
 
2020
 
2019
Revenue from tenants
$
74,564

 
$
71,541

 
 
 
 
Operating expenses:
 
 
 
Asset management fees to related party
6,905

 
6,038

Property operating expense
12,282

 
12,836

Impairment of real estate investments

 
823

Acquisition, transaction and other costs
452

 
854

Equity-based compensation
3,211

 
3,021

General and administrative
5,328

 
6,061

Depreciation and amortization
34,335

 
32,086

Total operating expenses
62,513

 
61,719

          Operating income before gain on sale of real estate investments
12,051

 
9,822

Gain on sale of real estate investments
1,440

 
2,873

   Operating income
13,491

 
12,695

Other (expense) income:
 
 
 
Interest expense
(19,106
)
 
(18,440
)
Other income
72

 
2,545

Total other expense, net
(19,034
)
 
(15,895
)
Net loss
(5,543
)
 
(3,200
)
Net loss attributable to non-controlling interests
9

 
3

Preferred stock dividends
(3,619
)
 
(30
)
Net loss attributable to common stockholders
(9,153
)
 
(3,227
)
 
 
 
 
Other comprehensive loss:
 
 
 
Change in unrealized loss on derivatives

 
(473
)
Comprehensive loss attributable to common stockholders
$
(9,153
)
 
$
(3,700
)
 
 
 
 
Weighted-average shares outstanding — Basic and Diluted
108,364,082

 
106,076,588

Net loss per share attributable to common stockholders — Basic and Diluted
$
(0.08
)
 
$
(0.03
)
 

The accompanying notes are an integral part of these consolidated financial statements.

3

AMERICAN FINANCE TRUST, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except share data)
(Unaudited)

 
Three Months Ended March 31, 2020
 
Preferred Stock
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of
Shares
 
Par Value
 
Number of
Shares
 
Par Value
 
Additional Paid-in
Capital
 
Accumulated Other Comprehensive income (loss)
 
Distributions in excess of accumulated earnings
 
Total Stockholders’ Equity
 
Non-controlling Interests
 
Total Equity
Balance, December 31, 2019
6,917,230

 
$
69

 
108,475,266

 
$
1,085

 
$
2,615,089

 
$

 
$
(932,912
)
 
$
1,683,331

 
$
18,899

 
$
1,702,230

Issuance of Common Stock, net

 

 

 

 
(48
)
 

 

 
(48
)
 

 
(48
)
Issuance of Preferred Stock, net
802,459

 
8

 

 

 
19,665

 

 

 
19,673

 

 
19,673

Equity-based compensation

 

 

 

 
247

 

 

 
247

 
2,964

 
3,211

Dividends declared on Common Stock, $0.28 per share

 

 

 

 

 

 
(29,831
)
 
(29,831
)
 

 
(29,831
)
Dividends declared on Preferred Stock, $0.38 per share

 

 

 

 

 

 
(3,619
)
 
(3,619
)
 

 
(3,619
)
Dividends to non-controlling interest holders

 

 

 

 

 

 
(123
)
 
(123
)
 
(48
)
 
(171
)
Net loss

 

 

 

 

 

 
(5,534
)
 
(5,534
)
 
(9
)
 
(5,543
)
Balance, March 31, 2020
7,719,689

 
$
77

 
108,475,266

 
$
1,085

 
$
2,634,953

 
$

 
$
(972,019
)
 
$
1,664,096

 
$
21,806

 
$
1,685,902


 
Three Months Ended March 31, 2019
 
Preferred Stock
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of
Shares
 
Par Value
 
Number of
Shares
 
Par Value
 
Additional Paid-in
Capital
 
Accumulated Other Comprehensive Loss
 
Distributions in excess of accumulated earnings
 
Total Stockholders’ Equity
 
Non-controlling Interests
 
Total Equity
Balance, December 31, 2018

 
$

 
106,230,901

 
$
1,063

 
$
2,412,915

 
$
(531
)
 
$
(812,047
)
 
$
1,601,400

 
$
8,335

 
$
1,609,735

Impact of adoption of new accounting pronouncement for leases (Note 2)

 

 

 

 

 

 
(170
)
 
(170
)
 

 
(170
)
Issuance of Preferred Stock, net
1,200,000

 
12

 

 

 
28,584

 

 

 
28,596

 

 
28,596

Common stock repurchases

 

 
(19,870
)
 
(1
)
 
(273
)
 

 

 
(274
)
 

 
(274
)
Equity-based compensation

 

 

 

 
269

 

 

 
269

 
2,752

 
3,021

 Dividends declared on Common Stock, $0.28 per share

 

 

 

 

 

 
(29,207
)
 
(29,207
)
 

 
(29,207
)
Dividends declared on Preferred Stock, $0.38 per share

 

 

 

 

 

 
(30
)
 
(30
)
 

 
(30
)
Dividends to non-controlling interest holders

 

 

 

 

 

 
(122
)
 
(122
)
 
(47
)
 
(169
)
Net loss

 

 

 

 

 

 
(3,197
)
 
(3,197
)
 
(3
)
 
(3,200
)
Other comprehensive loss

 

 

 

 

 
(473
)
 

 
(473
)
 

 
(473
)
Balance, March 31, 2019
1,200,000

 
$
12

 
106,211,031

 
$
1,062

 
$
2,441,495

 
$
(1,004
)
 
$
(844,773
)
 
$
1,596,792

 
$
11,037

 
$
1,607,829


The accompanying notes are an integral part of these consolidated financial statements.

4

AMERICAN FINANCE TRUST, INC.
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Three Months Ended March 31,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net loss
$
(5,543
)
 
$
(3,200
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation
20,953

 
19,168

Amortization of in-place lease assets
12,996

 
12,600

Amortization of deferred leasing costs
386

 
318

Amortization (including accelerated write-off) of deferred financing costs
1,581

 
1,311

Amortization of mortgage discounts (premiums) on borrowings, net
(560
)
 
(794
)
Amortization (accretion) of market lease and other intangibles, net
(992
)
 
(1,844
)
Equity-based compensation
3,211

 
3,021

Gain on sale of real estate investments
(1,440
)
 
(2,873
)
Impairment of real estate investments

 
823

Payments of prepayment costs on mortgages
80

 
413

Changes in assets and liabilities:
 
 
 
Straight-line rent receivable
(2,348
)
 
(2,118
)
Straight-line rent payable
83

 
922

Prepaid expenses and other assets
(2,438
)
 
873

Accounts payable and accrued expenses
(182
)
 
(4,314
)
Deferred rent and other liabilities
(1,707
)
 
(3,911
)
Net cash provided by operating activities
24,080

 
20,395

Cash flows from investing activities:
 
 
 
Capital expenditures
(3,309
)
 
(547
)
Investments in real estate and other assets
(63,429
)
 
(114,312
)
Proceeds from sale of real estate investments
2,314

 
3,122

Deposits
(1,055
)
 
1,877

Net cash used in investing activities
(65,479
)
 
(109,860
)
Cash flows from financing activities:
 
 
 

Proceeds from mortgage notes payable

 

Payments on mortgage notes payable
(756
)
 
(639
)
Proceeds from credit facility
170,000

 
108,000

Payments on credit facility
(20,000
)
 

Payments of financing costs
(175
)
 

Payments of prepayment costs on mortgages
(80
)
 
(413
)
Common stock repurchases

 
(274
)
Distributions on LTIP Units and Class A Units
(171
)
 
(131
)
Dividends paid on common stock
(29,831
)
 
(29,248
)
Dividends paid on preferred stock
(3,300
)
 

Common stock offering costs
(73
)
 

   Proceeds from issuance of preferred stock, net
19,882

 
28,956

Net cash provided by financing activities
135,496

 
106,251

Net change in cash, cash equivalents and restricted cash
94,097

 
16,786

Cash, cash equivalents and restricted cash beginning of period
99,840

 
109,631

Cash, cash equivalents and restricted cash end of period
$
193,937

 
$
126,417


The accompanying notes are an integral part of these consolidated financial statements.


5

AMERICAN FINANCE TRUST, INC.
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

 
Three Months Ended March 31,
 
2020
 
2019
Cash and cash equivalents, end of period
$
175,745

 
$
108,042

Restricted cash, end of period
18,192

 
18,375

Cash, cash equivalents and restricted cash end of period
$
193,937

 
$
126,417

 
 
 
 
Supplemental Disclosures:
 
 
 
Cash paid for interest, net of amounts capitalized
$
17,955

 
$
17,905

Cash paid for income taxes
218

 
200

 
 
 
 
Non-Cash Investing and Financing Activities:
 
 
 
Accrued Preferred Stock offering costs
$
210

 
$
359

Preferred dividend declared
$
3,619

 
$

Proceeds from real estate sales used to pay off related mortgage notes payable
$
1,277

 
$
11,606

Mortgage notes payable released in connection with disposition of real estate
$
(1,277
)
 
$
(11,606
)
Increase in accounts payable related to investments in real estate
$
26,518

 
$

Investments in real estate
$
(26,518
)
 
$

Accrued capital expenditures
$
908

 
$
2,764



































The accompanying notes are an integral part of these consolidated financial statements.

6

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(Unaudited)


Note 1 — Organization
American Finance Trust, Inc. (the “Company”), incorporated on January 22, 2013, is a Maryland corporation that elected to be taxed as a real estate investment trust (“REIT”) for United States (“U.S.”) federal income tax purposes beginning with the taxable year ended December 31, 2013. The Company’s Class A common stock, $0.01 par value per share, is listed on The Nasdaq Global Select Market (“Nasdaq”) under the symbol “AFIN.” In addition, the Company’s 7.50% Series A Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value per share (“Series A Preferred Stock”), is listed on Nasdaq under the symbol “AFINP”.
The Company is a diversified REIT focused on acquiring and managing a diversified portfolio of primarily service-oriented and traditional retail and distribution related commercial real estate properties in the U.S. The Company owns a diversified portfolio of commercial properties comprised primarily of freestanding single-tenant properties that are net leased to investment grade and other creditworthy tenants and a portfolio of multi-tenant retail properties consisting primarily of power centers and lifestyle centers. The Company intends to focus its future acquisitions primarily on net leased service retail properties, defined as single-tenant retail properties leased to tenants in the retail banking, restaurant, grocery, pharmacy, gas, convenience, fitness, and auto services sectors. As of March 31, 2020, the Company owned 848 properties, comprised of 18.9 million rentable square feet, which were 94.7% leased, including 815 single-tenant net leased commercial properties (777 of which are retail properties) and 33 multi-tenant retail properties.
The Company has no employees. Substantially all of the Company’s business is conducted through American Finance Operating Partnership, L.P. (the “OP”), a Delaware limited partnership, and its wholly-owned subsidiaries. The Company has retained American Finance Advisors, LLC (the “Advisor”) to manage the Company’s affairs on a day-to-day basis. American Finance Properties, LLC (the “Property Manager”) serves as the Company’s property manager. The Advisor and the Property Manager are under common control with AR Global Investments, LLC (the successor business to AR Capital, LLC, “AR Global”), and these related parties of the Company receive compensation, fees and expense reimbursements for services related to managing the Company’s business. Lincoln Retail REIT Services, LLC (“Lincoln”) and its affiliates provide services to the Advisor in connection with the Company’s multi-tenant retail properties that are not net leased. The Advisor has informed the Company that the Advisor has agreed to pass through to Lincoln a portion of the fees and other expense reimbursements otherwise payable to the Advisor or its affiliates by the Company for services rendered by Lincoln. The Company is not a party to any contract with, and has no obligation to, Lincoln.
Note 2 — Summary of Significant Accounting Policies
Basis of Accounting
The accompanying unaudited consolidated financial statements of the Company included herein were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to this Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information furnished includes all adjustments and accruals of a normal recurring nature, which, in the opinion of management, are necessary for a fair statement of results for the interim periods. All intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results for the entire year or any subsequent interim periods.
These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of, and for the year ended December 31, 2019, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on February 27, 2020. Except for those required by new accounting pronouncements discussed below, there have been no significant changes to the Company’s significant accounting policies during the three months ended March 31, 2020.
Principles of Consolidation
The accompanying unaudited consolidated financial statements include the accounts of the Company, the OP and its subsidiaries. All inter-company accounts and transactions are eliminated in consolidation. In determining whether the Company has a controlling financial interest in a joint venture and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and contractual and substantive participating rights of the other partners or members as well as whether the entity is a variable interest entity (“VIE”) for which the Company is the primary beneficiary. The Company has determined the OP is a VIE of which the Company is the primary beneficiary. Substantially all of the Company’s assets and liabilities are held by the OP. The Company has determined the OP is a VIE of which the Company

7

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(Unaudited)

is the primary beneficiary. Except for the OP, as of March 31, 2020 and December 31, 2019, the Company had no interests in entities that were not wholly owned.
Impacts of the COVID-19 Pandemic
The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. During the first quarter of 2020, there was a global outbreak of a novel coronavirus, or COVID-19, which has spread to over 200 countries and territories, including the United States, and has spread to every state in the United States. The World Health Organization has designated COVID-19 as a pandemic, and numerous countries, including the United States, have declared national emergencies with respect to COVID-19. The global impact of the outbreak has been rapidly evolving, and as cases of COVID-19 have continued to be identified in additional countries, many countries have reacted by instituting quarantines and restrictions on travel, closing financial markets and/or restricting trading and operations of non-essential offices and retail centers. Such actions are creating disruption in global supply chains, and adversely impacting many industries. The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions. The Company believes the estimates and assumptions underlying its consolidated financial statements are reasonable and supportable based on the information available as of March 31, 2020, however uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of March 31, 2020 inherently less certain than they would be absent the current and potential impacts of COVID-19. Actual results may ultimately differ from those estimates.
The financial stability and overall health of tenants is critical to the Company’s business. The negative effects that the global pandemic has had on the economy includes the closure or reduction in activity for many retail operations such as some of those operated by the Company’s tenants (e.g., restaurants). This has impacted the ability of some of the Company’s tenants to pay their monthly rent either temporarily or in the long term. The Company has already experienced delays in rent collections in the month of April. The Company has taken a proactive approach to achieve mutually agreeable solutions with its tenants and in some cases the Company has executed rent deferral agreements in April 2020. For accounting purposes, in accordance with ASC 842: Leases, normally a Company would be required to assess the modification to determine if the lease modification should be treated as a separate lease and if not, modification accounting would be applied which would require a Company to reassess the classification of the lease. However, in light of the COVID-19 pandemic in which many leases are being modified, the FASB and SEC has provided relief that will allow companies to make a policy election as to whether they treat COVID-19 related lease amendments as a provision included in the pre-concession arrangement, and therefore, not a lease modification, or to treat the lease amendment as a modification. In order to be considered COVID-19 related, cash flows must be substantially the same or less than those prior to the concession. If the cash flows are substantially the same or less, there are two methods to potentially account for such rent deferrals under the relief, (1) As if no changes to the lease contract were made. Under that accounting, a lessor would increase its lease receivable and a lessee would increase its accounts payable as receivables/payments accrue. In its income statement, a lessor would continue to recognize expense during the deferral period or (2) As if the deferred payments are variable lease payments. The Company has elected to use this relief and therefore will have no change in the current classification of its leases in connection with many of the leases impacted by negotiations with its tenants.
In addition to the proactive measures taken on rent collections, the Company has taken additional steps to maximize its flexibility related to its liquidity and minimize the related risk during this uncertain time. In March 2020, consistent with the Company’s plans to acquire additional properties, the Company borrowed an additional $150.0 million, net under its Credit Facility. Additionally, on March 30, 2020, the Company announced a reduction in the Company’s dividend, beginning in the second quarter of 2020, reducing the cash needed to fund dividend payments by approximately $27.2 million per year. However, the ultimate impact on the Company’s future results of operations, its liquidity and the ability of its tenants to continue to pay rent will depend on the overall length and severity of the COVID-19 pandemic, which management is unable to predict.
Out-of-Period Adjustments
During the three months ended March 31, 2019, the Company identified certain historical errors in its accounting for its land leases (as lessee) which impacted the previously issued quarterly and annual financial statements. Specifically, the Company did not consider whether a penalty would be considered to exist for impairment of leasehold improvements when considering whether to include certain extension options in the lease term for accounting purposes. The land leases related to property acquired between 2013 and 2017. As of December 31, 2018, the cumulative impact of using the appropriate lease term in its straight line rent expense calculations for the operating leases was an understatement of rent expense and accrued rent liability of $0.9 million. The Company

8

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(Unaudited)

concluded that the errors noted above were not material to the current period or any historical periods presented and, accordingly, the Company adjusted the amounts on a cumulative basis in the first quarter of 2019.
Revenue Recognition
The Company’s revenues, which are derived primarily from lease contracts, include rents that each tenant pays in accordance with the terms of each lease reported on a straight-line basis over the initial term of the lease. As of March 31, 2020, these leases had an average remaining lease term of 8.9 years. Because many of the Company’s leases provide for rental increases at specified intervals, straight-line basis accounting requires the Company to record a receivable for, and include in revenue from tenants, unbilled rents receivable that the Company will only receive if the tenant makes all rent payments required through the expiration of the initial term of the lease. When the Company acquires a property, acquisition date is considered to be the commencement date for purposes of this calculation. For new leases after acquisition, the commencement date is considered to be the date the tenant takes control of the space. For lease modifications, the commencement date is considered to be the date the lease modification is executed. The Company defers the revenue related to lease payments received from tenants in advance of their due dates. Pursuant to certain of the Company’s lease agreements, tenants are required to reimburse the Company for certain property operating expenses, in addition to paying base rent, whereas under certain other lease agreements, the tenants are directly responsible for all operating costs of the respective properties. Upon adoption of the new lease accounting standard effective January 1, 2019, the Company elected to report combined lease and non-lease components in a single line “Revenue from tenants.” For expenses paid directly by the tenant, under both ASC 842 and 840, the Company has reflected them on a net basis.
The following table presents future base rent payments on a cash basis due to the Company for the remainder of 2020 and each of the subsequent five years thereafter. These amounts exclude tenant reimbursements and contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to sales thresholds and increases in annual rent based on exceeding certain economic indexes among other items.
As of March 31, 2020:
(In thousands)
 
Future  Base Rent Payments
2020 (remainder)
 
$
194,429

2021
 
252,022

2022
 
241,267

2023
 
228,847

2024
 
210,238

2025
 
192,550

Thereafter
 
1,174,917

 
 
$
2,494,270


The Company owns certain properties with leases that include provisions for the tenant to pay contingent rental income based on a percent of the tenant’s sales upon the achievement of certain sales thresholds or other targets which may be monthly, quarterly or annual targets. As the lessor to the aforementioned leases, the Company defers the recognition of contingent rental income, until the specified target that triggered the contingent rental income is achieved, or until such sales upon which percentage rent is based are known. For the three months ended March 31, 2020 and 2019, approximately $0.2 million and $0.2 million, respectively, in contingent rental income is included in revenue from tenants in the accompanying consolidated statements of operations and comprehensive loss.
The Company continually reviews receivables related to rent and unbilled rents receivable and determines collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. Under the new leasing standard (see the “Recently Issued Accounting Pronouncements” section below), the Company is required to assess, based on credit risk only, if it is probable that the Company will collect virtually all of the lease payments at lease commencement date and it must continue to reassess collectability periodically thereafter based on new facts and circumstances affecting the credit risk of the tenant. Partial reserves, or the ability to assume partial recovery are no longer permitted. If the Company determines that it’s probable it will collect virtually all of the lease payments (rent and common area maintenance), the lease will continue to be accounted for on an accrual basis (i.e. straight-line). However, if the Company determines it’s not probable that it will collect virtually all of the lease payments, the lease will be accounted for on a cash basis and a full reserve would be recorded on previously

9

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(Unaudited)

accrued amounts in cases where it was subsequently concluded that collection was not probable. Cost recoveries from tenants are included in operating revenue from tenants in accordance with new accounting rules, on the accompanying consolidated statements of operations and comprehensive loss in the period the related costs are incurred, as applicable. In fiscal 2020, this would include consideration of the impacts of the COVID-19 pandemic on the ability of the Company’s tenants to pay rents in accordance with their contracts.
In accordance with the lease accounting rules the Company records uncollectable amounts as reductions in revenue from tenants. During the three months ended March 31, 2020 and 2019, such amounts were $1.2 million and $0.9 million, respectively.
Investments in Real Estate
Investments in real estate are recorded at cost. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs and maintenance are expensed as incurred.
At the time an asset is acquired, the Company evaluates the inputs, processes and outputs of each asset acquired to determine if the transaction is a business combination or an asset acquisition. If an acquisition qualifies as a business combination, the related transaction costs are recorded as an expense in the consolidated statements of operations and comprehensive loss. If an acquisition qualifies as an asset acquisition, the related transaction costs are generally capitalized and subsequently amortized over the useful life of the acquired assets. See the Purchase Price Allocation section in this Note for a discussion of the initial accounting for investments in real estate.
Disposal of real estate investments that represent a strategic shift in operations that will have a major effect on the Company's operations and financial results are required to be presented as discontinued operations in the consolidated statements of operations. No properties were presented as discontinued operations during the three months ended March 31, 2020 and 2019. Properties that are intended to be sold are to be designated as “held for sale” on the consolidated balance sheets at the lesser of carrying amount or fair value less estimated selling costs when they meet specific criteria to be presented as held for sale, most significantly that the sale is probable within one year. The Company evaluates probability of sale based on specific facts including whether a sales agreement is in place and the buyer has made significant non-refundable deposits. Properties are no longer depreciated when they are classified as held for sale. As of March 31, 2020 and December 31, 2019, the Company had four and one properties classified as held for sale, respectively, (see Note 3Real Estate Investments, Net for additional information).
In accordance with the lease accounting standard, all of the Company’s leases as lessor prior to adoption of ASC 842 were accounted for as operating leases and will continue to be accounted for as operating leases under the transition guidance, unless the lease is modified. The Company evaluates new and modified leases (by the Company or by a predecessor lessor/owner) pursuant to ASC 842 where a lease for some or all of a building is classified by a lessor as a sales-type lease if the significant risks and rewards of ownership reside with the tenant. This situation is met if, among other things, there is an automatic transfer of title during the lease, a bargain purchase option, the non-cancelable lease term is for more than major part of remaining economic useful life of the asset (e.g., equal to or greater than 75%), if the present value of the minimum lease payments represents substantially all (e.g., equal to or greater than 90%) of the leased property’s fair value at lease inception, or if the asset so specialized in nature that it provides no alternative use to the lessor (and therefore would not provide any future value to the lessor) after the lease term. Further, such new leases would be evaluated to consider whether they would be failed sale-leaseback transactions and accounted for as financing transactions by the lessor. For the three months ended March 31, 2020 or 2019, the Company has no leases as a lessor that would be considered as sales-type leases or financings under sale-leaseback rules.
The Company is also a lessee under certain land leases which are classified as operating leases and will be re-evaluated again upon any subsequent modification. These leases are reflected on the balance sheet and the rent expense is reflected on a straight line basis over the lease term.
Purchase Price Allocation
In both a business combination and an asset acquisition, the Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets or liabilities based on their respective fair values. Tangible assets may include land, land improvements, buildings, fixtures and tenant improvements on an as if vacant basis. Intangible assets may include the value of in-place leases, above- and below-market leases and other identifiable assets or liabilities based on lease or property specific characteristics. In addition, any assumed mortgages receivable or payable and any assumed or issued non-controlling interests (in a business combination) are recorded at their estimated fair values. In allocating the fair value to assumed mortgages, amounts are recorded to debt premiums or discounts based on the present value of the estimated cash flows, which is calculated to account for either above- or below-market interest rates. In a business combination, the difference between the purchase price and the fair value of identifiable net assets acquired is either recorded as goodwill or as a bargain purchase gain. In an asset acquisition, the

10

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(Unaudited)

difference between the acquisition price (including capitalized transaction costs) and the fair value of identifiable net assets acquired is allocated to the non-current assets. All acquisitions during the three month periods ended March 31, 2020 and 2019 were asset acquisitions.
For acquired properties with leases classified as operating leases, the Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets acquired and liabilities assumed, based on their respective fair values. In making estimates of fair values for purposes of allocating purchase price, the Company utilizes a number of sources, including independent appraisals that may be obtained in connection with the acquisition or financing of the respective property and other market data. The Company also considers information obtained about each property as a result of the Company’s pre-acquisition due diligence in estimating the fair value of the tangible and intangible assets acquired and intangible liabilities assumed.
Tangible assets include land, land improvements, buildings, fixtures and tenant improvements on an as-if vacant basis. The Company utilizes various estimates, processes and information to determine the as-if vacant property value. Estimates of value are made using customary methods, including data from appraisals, comparable sales, discounted cash flow analysis and other methods. Fair value estimates are also made using significant assumptions such as capitalization rates, discount rates, fair market lease rates and land values per square foot.
Identifiable intangible assets include amounts allocated to acquire leases for above- and below-market lease rates and the value of in-place leases, as applicable. Factors considered in the analysis of the in-place lease intangibles include an estimate of carrying costs during the expected lease-up period for each property, taking into account current market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at contract rates during the expected lease-up period, which typically ranges from six to 24 months. The Company also estimates costs to execute similar leases including leasing commissions, legal and other related expenses.
Above-market and below-market lease values for acquired properties are initially recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining initial term of the lease for above-market leases and the remaining initial term plus the term of any below-market fixed rate renewal options for below-market leases.
Gain on Dispositions of Real Estate Investments
Gains on sales of rental real estate will generally be recognized pursuant to the provisions included in ASC 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets (“ASC 610-20”).
Impairment of Long-Lived Assets
When circumstances indicate the carrying value of a property may not be recoverable, the Company reviews the property for impairment. This review is based on an estimate of the future undiscounted cash flows expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If an impairment exists, due to the inability to recover the carrying value of a property, the Company would recognize an impairment loss in the consolidated statement of operations and comprehensive loss to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss recorded would equal the adjustment to fair value less estimated cost to dispose of the asset. These assessments have a direct impact on net income because recording an impairment loss results in an immediate negative adjustment to net earnings.
Depreciation and Amortization
Depreciation is computed using the straight-line method over the estimated useful lives of up to 40 years for buildings, 15 years  for land improvements, 5 years for fixtures and improvements and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests.
The value of in-place leases, exclusive of the value of above-market and below-market in-place leases, is amortized to expense over the remaining periods of the respective leases.
The value of customer relationship intangibles, if any, is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event does the amortization period for intangible assets exceed the remaining depreciable life of the building. If a tenant terminates its lease, the unamortized portion of the in-place lease value and customer relationship intangibles is charged to expense.

11

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(Unaudited)

Assumed mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining terms of the respective mortgages.
Above and Below-Market Lease Amortization
Capitalized above-market lease values are amortized as a reduction of revenue from tenants over the remaining terms of the respective leases and the capitalized below-market lease values are amortized as an increase to revenue from tenants over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases. If a tenant with a below-market rent renewal does not renew, any remaining unamortized amount will be taken into income at that time.
Capitalized above-market ground lease values are amortized as a reduction of property operating expense over the remaining terms of the respective leases. Capitalized below-market ground lease values are amortized as an increase to property operating expense over the remaining terms of the respective leases and expected below-market renewal option periods.
Equity-Based Compensation
The Company has a stock-based award plan for its directors, which is accounted for under the guidance for employee share based payments. The cost of services received in exchange for these stock awards is measured at the grant date fair value of the award and the expense for such an award is included in equity-based compensation and is recognized in accordance with the service period (i.e., vesting) required or when the requirements for exercise of the award have been met.
Effective at the listing of the Company’s Class A common stock on Nasdaq (the “Listing”) on July 19, 2018 (the “Listing Date”), the Company entered into a multi-year outperformance agreement with the Advisor (the “2018 OPP”) under which a new class of units of the limited partnership designated as “LTIP Units” (“LTIP Units”) were issued to the Advisor. These awards are market-based awards with a related required service period. In accordance with ASC 718, the LTIP Units were valued at their measurement date and that value is reflected as a charge to earnings evenly over the service period. Further, in the event of a modification, any incremental increase in the value of the instrument measured on the date of the modification both before and after the modification, will result in an incremental amount to be reflected prospectively as a charge to earnings over the remaining service period. The expense for these non-employee awards is included in the equity-based compensation line item of the consolidated statements of operations.
For additional information on the original terms, a March 2019 modification of the 2018 OPP and accounting for these awards, see Note 12 — Equity-Based Compensation.
Accounting for Leases
Lessor Accounting
As a lessor of real estate, the Company has elected, by class of underlying assets, to account for lease and non-lease components (such as tenant reimbursements of property operating expenses) as a single lease component as an operating lease because (a) the non-lease components have the same timing and pattern of transfer as the associated lease component; and (b) the lease component, if accounted for separately, would be classified as an operating lease. Additionally, only incremental direct leasing costs may be capitalized under the accounting guidance. Indirect leasing costs in connection with new or extended tenant leases, if any, are being expensed.
At transition to the new lease accounting rules on January 1, 2019, after assessing its reserve balances at December 31, 2018 under the guidance, the Company wrote off accounts receivable of $0.1 million and straight-line rents receivable of $0.1 million as an adjustment to the opening balance of accumulated deficit, and accordingly rent for these tenants is currently recorded on a cash basis.
Lessee Accounting
For lessees, the accounting standard requires the application of a dual lease classification approach, classifying leases as either operating or finance leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. Lease expense for operating leases is recognized on a straight-line basis over the term of the lease, while lease expense for finance leases is recognized based on an effective interest method over the term of the lease. Also, lessees must recognize a right-of-use asset (“ROU”) and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Further, certain transactions where at inception of the lease the buyer-lessor accounted for the transaction as a purchase of real estate and a new lease, may now be required to have symmetrical accounting to the seller-lessee if the transaction was not a qualified sale-leaseback and accounted for as a financing transaction. For additional information and disclosures related to the Company’s operating leases, see Note 9Commitments and Contingencies.

12

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(Unaudited)

Recently Issued Accounting Pronouncements
Adopted as of January 1, 2020:
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The objective of ASU 2018-13 is to improve the effectiveness of disclosures in the notes to the financial statements by removing, modifying, and adding certain fair value disclosure requirements to facilitate clear communication of the information required by generally accepted accounting principles. The amended guidance is effective for the Company beginning on January 1, 2020. The Company adopted the new guidance on January 1, 2020 and determined it did not have a material impact on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes how entities measure credit losses for financial assets carried at amortized cost. The update eliminates the requirement that a credit loss must be probable before it can be recognized and instead requires an entity to recognize the current estimate of all expected credit losses. Additionally, the amended standard requires credit losses on available-for-sale debt securities to be carried as an allowance rather than as a direct write-down of the asset. On July 25, 2018, the FASB proposed an amendment to ASU 2016-13 to clarify that operating lease receivables recorded by lessors (including unbilled straight-line rent) are explicitly excluded from the scope of ASU 2016-13. The new guidance is effective for the Company beginning on January 1, 2020. The Company adopted the new guidance on January 1, 2020 and determined it did not have a material impact on its consolidated financial statements.
Note 3 — Real Estate Investments
Property Acquisitions
The following table presents the allocation of real estate assets acquired and liabilities assumed during the periods presented. All acquisitions in both periods were considered asset acquisitions for accounting purposes.
 
 
Three Months Ended March 31,
(Dollar amounts in thousands)
 
2020
 
2019
Real estate investments, at cost:
 
 
 
 
Land
 
$
22,272

 
$
21,257

Buildings, fixtures and improvements
 
59,124

 
74,788

Total tangible assets
 
81,396

 
96,045

Acquired intangible assets and liabilities: (1)
 
 
 
 
In-place leases
 
8,950

 
18,182

Above-market lease assets
 

 
374

Below-market lease liabilities
 
(400
)
 
(289
)
Total intangible assets, net
 
8,550

 
18,267

Consideration paid for acquired real estate investments, net of liabilities assumed (2)
 
$
89,946

 
$
114,312

Number of properties purchased
 
31

 
64


________
(1) 
Weighted-average remaining amortization periods for in-place leases, above-market lease assets and below-market lease liabilities acquired during the three months ended March 31, 2020 were 17.4 years and 11.3 years, respectively, as of each property’s respective acquisition date.
(2) 
For the three months ended March 31, 2020, consideration for acquisition of certain properties that closed on March 31, 2020 in the amount of $26.5 million was paid on April 1, 2020. The acquisition and the related payable are included on the consolidated balance sheets as of March 31, 2020.

13

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(Unaudited)

The following table presents amortization expense and adjustments to revenue from tenants and property operating expense for intangible assets and liabilities during the periods presented:
 
 
Three Months Ended March 31,
(In thousands)
 
2020
 
2019
In-place leases, included in depreciation and amortization
 
$
12,996

 
$
12,600

 
 
 
 
 
Above-market lease intangibles
 
$
(764
)
 
$
(868
)
Below-market lease liabilities
 
1,768

 
2,729

Total included in revenue from tenants
 
$
1,004

 
$
1,861

 
 
 
 
 
Below-market ground lease asset (1)
 
$
8

 
$
18

Above-market ground lease liability (1)
 
(1
)
 
(1
)
Total included in property operating expenses
 
$
7

 
$
17

______
(1) In accordance with lease accounting rules effective January 1, 2019, intangible balances related to ground leases are included as part of the operating lease right-of-use assets presented on the consolidated balance sheet and the amortization expense of such balances is included in property operating expenses on the consolidated statement of operations and comprehensive loss.
The following table provides the projected amortization expense and adjustments to revenue from tenants and property operating expense for intangible assets and liabilities for the next five years:
(In thousands)
 
2020 (remainder)
 
2021
 
2022
 
2023
 
2024
In-place leases, to be included in depreciation and amortization
 
$
28,945

 
$
35,147

 
$
31,200

 
$
28,811

 
$
26,193

 
 
 
 
 
 
 
 
 
 
 
Above-market lease intangibles
 
$
1,893

 
$
2,283

 
$
1,914

 
$
1,666

 
$
1,529

Below-market lease liabilities
 
(5,105
)
 
(6,319
)
 
(5,958
)
 
(5,796
)
 
(5,582
)
Total to be included in revenue from tenants
 
$
(3,212
)
 
$
(4,036
)
 
$
(4,044
)
 
$
(4,130
)
 
$
(4,053
)

Real Estate Held for Sale
When assets are identified by management as held for sale, the Company ceases depreciation and amortization of the identified assets and estimates the sales price, net of costs to sell, for those assets. If the carrying amount of the assets classified as held for sale exceeds the estimated net sales price, the Company records an impairment charge equal to the amount by which the carrying amount of the assets exceeds the Company’s estimate of the net sales price of the assets. For additional information on impairment charges, see Impairment Charges section below.
As of March 31, 2020 and December 31, 2019, there were four and one properties, respectively, classified as held for sale. During the three months ended March 31, 2020, the Company sold the one property that was classified as held for sale as of December 31, 2019. The Company also classified four additional properties as held for sale during the three months ended March 31, 2020. The disposal of these properties does not represent a strategic shift. Accordingly, the operating results of these properties remain classified within continuing operations for all periods presented.

14

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(Unaudited)

The following table details the major classes of assets associated with the properties that have been reclassified as held for sale as of the dates indicated:
(In thousands)
 
March 31, 2020
 
December 31, 2019
Real estate investments held for sale, at cost:
 
 
 
 
Land
 
$
1,995

 
$
563

Buildings, fixtures and improvements
 
4,817

 
750

Acquired lease intangible assets
 

 

Total real estate assets held for sale, at cost
 
6,812

 
1,313

Less accumulated depreciation and amortization
 
(875
)
 
(137
)
Total real estate investments held for sale, net
 
5,937

 
1,176

Impairment charges related to properties reclassified as held for sale (1)
 

 

Assets held for sale
 
$
5,937

 
$
1,176

Number of properties
 
4

 
1

_____
(1) Impairment charges are recorded in the period in which an asset is reclassified to held for sale.
Real Estate Sales
During the three months ended March 31, 2020, the Company sold two properties leased to Truist Bank (formerly known as SunTrust Bank, “Truist Bank”), for an aggregate contract price of $3.8 million, exclusive of closing costs and related mortgage repayments. These sales resulted in aggregate gains of $1.4 million, which are reflected in gain on sale of real estate investments on the consolidated statement of operations and comprehensive loss for the three months ended March 31, 2020.
During the three months ended March 31, 2019, the Company sold eight properties, including seven leased to Truist Bank, for an aggregate contract price of $15.1 million, exclusive of closing costs and related mortgage repayments. These sales resulted in aggregate gains of $2.9 million, which are reflected in gain on sale of real estate investments on the consolidated statement of operations and comprehensive loss for the three months ended March 31, 2019.
Real Estate Held for Use
When circumstances indicate the carrying value of a property may not be recoverable, the Company reviews the property for impairment. For the Company, the most common triggering events are (i) concerns regarding the tenant (i.e., credit or expirations) in the Company’s single tenant properties or significant vacancy in the Company’s multi-tenant properties and (ii) changes to the Company’s expected holding period as a result of business decisions or non-recourse debt maturities. As of March 31, 2020 and December 31, 2019, the Company owned one held for use single-tenant net lease property leased to Truist Bank, which had a lease term that expired on December 31, 2017 and was vacant. For held for use properties, the Company reconsiders the projected cash flows due to various performance indicators and where appropriate and the Company evaluates the impact on its ability to recover the carrying value of such properties based on the expected cash flows over the intended holding period. See Impairment Charges below for discussion of specific charges taken.
For held for use assets, the Company primarily uses a market approach to estimate the future cash flows expected to be generated. This approach involves evaluating comparable sales of properties in the same geographic region as the held for use properties in order to determine an estimated sale price. The Company makes certain assumptions including, among others, the properties in the comparable sales used in the analysis share similar characteristics to the held for use properties and market and economic conditions at the time of any potential sales of these properties, such as discount rates; demand for space; competition for tenants; changes in market rental rates; and costs to operate the property, would be similar to those in the comparable sales analyzed. Where more than one possible scenario exists, the Company uses a probability weighted approach. As these factors are difficult to predict and are subject to future events that may alter management’s assumptions, the future cash flows estimated by management in its impairment analysis may not be achieved, and actual losses or additional impairment may be realized in the future.

15

AMERICAN FINANCE TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2020
(Unaudited)

For some of the held for use properties, the Company had executed a non-binding letter of intent (“LOI”) or a definitive purchase and sale agreement (“PSA”) to sell the properties, however, these did not meet the criteria for held for sale treatment at March 31, 2020. In those instances, the Company used the sale price from the applicable LOI or PSA to estimate the future cash flows expected to be generated in the sale scenario. The Company made certain assumptions in this approach as well, mainly the sale of these properties would close at the terms specified in the LOI or PSA. There can be no guarantee the sales of these properties will close under these terms or at all.
Impairment Charges
The Company did not record any impairment charges for the three months ended March 31, 2020. The Company recorded total impairment charges of $0.8 million for the three months ended March 31, 2019. This amount is comprised of impairment charges of $0.1 million, which were recorded upon reclassification of properties to assets held for sale to adjust the properties to their fair value less estimated cost of disposal and impairment charges of $0.7 million, which was recorded on one held for use property leased to Truist Bank.
Note 4 — Mortgage Notes Payable, Net
The Company’s mortgage notes payable, net as of March 31, 2020 and December 31, 2019 consisted of the following:
 
 
 
 
Outstanding Loan Amount as of
 
Effective Interest Rate as of
 
 
 
 
 
 
Portfolio
 
Encumbered Properties
 
March 31,
2020
 
December 31,
2019
 
March 31,
2020
 
Interest Rate
 
Maturity
 
Anticipated Repayment
 
 
 
 
(In thousands)
 
(In thousands)
 
 
 
 
 
 
 
 
Class A-1 Net Lease Mortgage Notes
 
95
 
$
119,992

 
$
120,294

 
3.83
%
 
Fixed
 
May 2049
 
May 2026
Class A-2 Net Lease Mortgage Notes
 
106
 
121,000

 
121,000

 
4.52
%
 
Fixed
 
May 2049
 
May 2029
     Total Net Lease Mortgage Notes
 
201
 
240,992

 
241,294

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
SAAB Sensis I
 
1
 
6,550

 
6,660

 
5.93
%
 
Fixed
 
Apr. 2025
 
Apr. 2025
Truist Bank II
 
17
 
10,860

 
10,860

 
5.50
%
 
Fixed
 
Jul. 2031
 
Jul. 2021
Truist Bank III
 
76
 
60,952

 
62,228

 
5.50
%
 
Fixed
 
Jul. 2031
 
Jul. 2021
Truist Bank IV
 
12
 
6,626

 
6,626

 
5.50
%
 
Fixed
 
Jul. 2031
 
Jul. 2021
Sanofi US I
 
1
 
125,000

 
125,000

 
5.16
%
 
Fixed
 
Jul. 2026
 
Jan. 2021
Stop & Shop
 
4
 
45,000

 
45,000

 
3.49
%
 
Fixed
 
Jan. 2030
 
Jan. 2030
Mortgage Loan I (1)
 
244
 
497,150

 
497,150

 
4.36
%
 
Fixed
 
Sep. 2020
 
Sep. 2020
Shops at Shelby Crossing
 
1
 
22,024

 
22,139

 
4.97
%
 
Fixed
 
Mar. 2024
 
Mar. 2024
Patton Creek (1)
 
1