Annual report pursuant to Section 13 and 15(d)

Real Estate and Intangible Assets (Tables)

v3.6.0.2
Real Estate and Intangible Assets (Tables)
 12 Months Ended
Dec. 31, 2016
Real Estate [Abstract]  
Components of Investments in Real Estate
The following table sets forth the components of our investments in real estate as of December 31, 2016 and 2015, respectively, excluding real estate held for sale as of December 31, 2016 and 2015, respectively (dollars in thousands):
 
 
 
December 31, 2016
 
December 31, 2015
Real estate:
 
 
 
 
Land
 
$
104,719

 
$
97,117

Building and improvements
 
662,661

 
635,728

Tenant improvements
 
54,369

 
47,532

Accumulated depreciation
 
(131,661
)
 
(112,243
)
Real estate, net
 
$
690,088

 
$
668,134

Summary of Properties Acquired
During the year ended December 31, 2016 and 2015 we acquired three and six properties, respectively, which are summarized below (dollars in thousands):

Year Ended
 
Aggregate Square Footage
 
Weighted Average Lease Term
 
Aggregate Purchase Price
 
Acquisition Costs
 
Aggregate Annualized GAAP Rent
 
Aggregate Debt Issued
December 31, 2016
(1)
329,620

 
10.5 Years
 
$
66,570

 
$
179

 
$
5,589

 
$
38,800

December 31, 2015
(2)
520,053

 
9.9 Years
 
$
77,798

 
$
586

 
$
7,984

 
$
43,379

(1) On May 26, 2016 we acquired a 107,062 square foot property in Salt Lake City, UT for $17.0 million. We borrowed $9.9 million to fund the acquisition. The annualized GAAP rent on the 6 years lease is $1.4 million. On September 12, 2016 we acquired a 119,224 square foot property in Fort Lauderdale, FL for $23.9 million. We borrowed $14.1 million to fund the acquisition. The annualized GAAP rent on the 9 years lease is $2.0 million. On December 14, 2016 we acquired a 103,334 square foot property in King of Prussia, PA for $25.7 million, including $0.2 million of acquisition-related costs that were allocated among the identifiable assets acquired. These acquisition-related costs are not included in the aggregated costs in the table above. We borrowed $14.8 million to fund the acquisition. The annualized GAAP rent on the 15 years lease is $2.2 million. Our King of Prussia, PA acquisition in the fourth quarter was accounted for as an asset acquisition under ASC 360.
(2) On March 6, 2015 we acquired a 155,984 square foot property in Richardson, TX for $24.7 million. We borrowed $14.6 million to fund the acquisition. The annualized GAAP rent on the 9.5 years lease is $2.7 million. On March 20, 2015 we acquired a 30,850 square foot property in Birmingham, AL for $3.6 million. The annualized GAAP rent on the 8.5 years lease is $0.3 million. On May 28, 2015 we acquired a 78,033 square foot property in Columbus, OH for $7.7 million. We borrowed $4.5 million to fund the acquisition. The annualized GAAP rent on the 15 years lease is $0.6 million. On May 29, 2015 we acquired a 86,409 square foot property in Salt Lake City, UT for $22.2 million. We borrowed $13.0 million to fund the acquisition. The annualized GAAP rent on the 6.5 years lease is $2.4 million. On July 15, 2015 we acquired a 78,151 square foot property in Atlanta, GA for $13.0 million. We borrowed $7.5 million to fund the acquisition. The property is fully leased to one tenant through two leases, with 30% of the building leased for 15 years and the remainder leased for 7 years. The annualized GAAP rent on the leases is $1.3 million. On October 20, 2015 we acquired a 90,626 square foot property in Villa Rica, GA for $6.6 million. We borrowed $3.8 million to fund the acquisition. The annualized GAAP rent on the 18 years lease is $0.6 million.
Fair Value of Acquired Assets and Liabilities Assumed
We determined the fair value of assets acquired and liabilities assumed related to the properties acquired during the year ended December 31, 2016 and 2015, respectively, as follows (dollars in thousands):

Business Combinations
 
 
 
 
 
 
Year ended December 31, 2016
 
Year ended December 31, 2015
Acquired assets and liabilities
 
Purchase price
 
Purchase price
Land
 
$
7,125

 
$
10,528

Building and improvements
 
22,934

 
42,652

Tenant Improvements
 
3,240

 
6,996

In-place Leases
 
3,355

 
7,410

Leasing Costs
 
1,437

 
4,338

Customer Relationships
 
3,090

 
5,408

Above Market Leases
 
—

 
1,712

Below Market Leases
 
(281
)
 
(1,246
)
Total Purchase Price
 
$
40,900

 
$
77,798

 
 
 
 
 
Asset Acquisitions
 
 
 
 
 
 
Year ended December 31, 2016
 
Year ended December 31, 2015
Acquired assets and liabilities
 
Purchase price
 
Purchase price
Land
 
$
3,681

 
$
—

Building and improvements
 
11,682

 
—

Tenant Improvements
 
4,057

 
—

In-place Leases
 
2,669

 
—

Leasing Costs
 
1,987

 
—

Customer Relationships
 
1,406

 
—

Above Market Leases
 
188

 
—

Total Purchase Price
 
$
25,670

 
$
—

 
 
 
 
 
Total Purchase Price on all Acquisitions
 
$
66,570

 
$
77,798


Schedule of Revenue and Earnings Recognized on Properties Acquired
Below is a summary of the total revenue and earnings recognized on the 2, 6 and 11 asset acquisitions treated as business combinations completed during the years ended December 31, 2016, 2015, and 2014 respectively (dollars in thousands):
 
 
 
For the year ended December 31, 2016
 
For the year ended December 31, 2015
 
For the year ended December 31, 2014
Rental Revenue
 
$
1,462

 
$
4,919

 
$
5,605

Earnings
 
(162
)
 
(63
)
 
36

Pro-Forma Condensed Consolidated Statements of Operations
The following table reflects pro-forma consolidated statements of operations as if the business combinations acquired through December 31, 2016, were acquired as of January 1, 2015, and the properties acquired during 2015, were acquired as of January 1, 2014. The pro-forma earnings for the years ended December 31, 2016, 2015 and 2014 were adjusted to assume that the acquisition-related costs were incurred as of the beginning of the comparative period (dollars in thousands, except per share amounts):
 
 
 
For the year ended December 31,
 
 
 
(unaudited)
 
 
 
2016
 
2015
 
2014
 
Operating Data:
 
 
 
 
 
 
 
Total operating revenue
 
$
88,304

 
$
89,720

 
$
87,439

 
Total operating expenses
 
(56,697
)

(54,480
)

(66,052
)

Other expenses
 
(27,429
)
 
(31,014
)
 
(26,014
)
 
Net income (loss)
 
4,178

 
4,226

 
(4,627
)

Dividends attributable to preferred and senior common stock
 
(7,656
)
 
(5,101
)
 
(4,636
)
 
Net loss attributable to common stockholders
 
$
(3,478
)
 
$
(875
)
 
$
(9,263
)
 
Share and Per Share Data:
 
 
 
 
 
 
 
Basic and diluted loss per share of common stock - pro forma
 
$
(0.15
)
 
$
(0.04
)
 
$
(0.54
)
 
Basic and diluted loss per share of common stock - actual
 
$
(0.16
)
 
$
(0.07
)
 
$
(0.61
)
 
Weighted average shares outstanding-basic and diluted
 
23,193,962

 
21,159,597

 
17,253,503

 
 
Summary of Leased Properties
During the year ended December 31, 2016 and 2015, we executed 9 and 15 leases, respectively, which are aggregated below (dollars in thousands):


Year Ended
 
Aggregate Square Footage
 
Weighted Average Lease Term
 
Aggregate Annualized GAAP Rent
 
Aggregate Tenant Improvement
 
Aggregate Leasing Commissions
December 31, 2016
 
551,335

 
3.9 Years
(1)
$
2,478

 
$
1,244

 
$
436

December 31, 2015
 
890,092

 
7.3 Years
(2)
$
7,514

 
$
2,881

 
$
1,925

(1)
Weighted average lease term is weighted according to the annualized GAAP rent earned by each lease. Our leases have terms ranging from 1 year to 7.7 years.
(2)
Weighted average lease term is weighted according to the annualized GAAP rent earned by each lease. Our leases have terms ranging from 1 year to 12.4 years.

Future Operating Lease Payments from Tenants under Non-Cancelable Leases
Future operating lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses and excluding real estate held for sale as of December 31, 2016, for each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):
 
Year
Tenant Lease Payments
2017
$
84,787

2018
85,509

2019
86,273

2020
78,683

2021
69,827

Thereafter
275,938

 
$
681,017

Carrying Value of Intangible Assets and Accumulated Amortization
The following table summarizes the carrying value of intangible assets, liabilities and the accumulated amortization for each intangible asset and liability class as of December 31, 2016 and 2015, excluding real estate held for sale as of December 31, 2016 and 2015, respectively (in thousands):
 
 
 
December 31, 2016
 
December 31, 2015
 
 
Lease Intangibles
 
Accumulated Amortization
 
Lease Intangibles
 
Accumulated Amortization
In-place leases
 
$
71,482

 
$
(28,182
)
 
$
66,244

 
$
(22,679
)
Leasing costs
 
48,000

 
(18,599
)
 
44,360

 
(14,774
)
Customer relationships
 
50,252

 
(17,400
)
 
46,485

 
(14,722
)
 
 
$
169,734

 
$
(64,181
)
 
$
157,089

 
$
(52,175
)
 
 
Deferred Rent Receivable/(Liability)
 
Accumulated (Amortization)/Accretion
 
Deferred Rent Receivable/(Liability)
 
Accumulated (Amortization)/Accretion
Above market leases
 
$
10,479

 
$
(7,296
)
 
$
10,176

 
$
(6,818
)
Below market leases and deferred revenue
 
(21,606
)
 
8,959

 
(17,951
)
 
8,294

 
 
$
(11,127
)
 
$
1,663

 
$
(7,775
)
 
$
1,476


Weighted Average Amortization Period for Intangible Assets Acquired and Liabilities Assumed
The weighted average amortization periods in years for the intangible assets acquired and liabilities assumed during the years ended December 31, 2016 and 2015, respectively, were as follows:
 
Intangible Assets & Liabilities
 
2016
 
2015
In-place leases
 
11.5
 
13.0
Leasing costs
 
11.5
 
13.0
Customer relationships
 
15.8
 
17.5
Above market leases
 
5.2
 
18.6
Below market leases
 
7.9
 
13.5
All intangible assets & liabilities
 
12.5
 
14.3
Estimated Aggregate Amortization Expense
The estimated aggregate amortization expense to be recorded for in-place leases, leasing costs and customer relationships for each of the five succeeding fiscal years and thereafter is as follows, excluding real estate held for sale as of December 31, 2016 (dollars in thousands):
 
Year
Estimated Amortization Expense
of In-Place Leases, Leasing
Costs and Customer
Relationships
2017
$
15,522

2018
15,459

2019
15,451

2020
13,827

2021
11,879

Thereafter
33,415


$
105,553


Summary of Estimated Aggregate Rental Income
The estimated aggregate rental income to be recorded for the amortization of both above and below market leases for each of the five succeeding fiscal years and thereafter is as follows, excluding real estate held for sale as of December 31, 2016 (dollars in thousands):
 
Year
Net Increase to Rental Income
Related to Above and Below
Market Leases
2017
$
743

2018
743

2019
743

2020
797

2021
705

Thereafter
5,594


$
9,325

(1) Does not include ground lease amortization of $139.