Quarterly report pursuant to Section 13 or 15(d)

Real Estate and Intangible Assets

v3.5.0.2
Real Estate and Intangible Assets
6 Months Ended
Jun. 30, 2016
Real Estate [Abstract]  
Real Estate and Intangible Assets
Real Estate and Intangible Assets
Real Estate
The following table sets forth the components of our investments in real estate as of June 30, 2016 and December 31, 2015 (dollars in thousands):
 
 
 
June 30, 2016
(1)
December 31, 2015
(2)
Real estate:
 
 
 
 
 
Land
 
$
99,780

 
$
97,117

 
Building
 
641,266

 
635,728

 
Tenant improvements
 
49,186

 
47,532

 
Accumulated depreciation
 
(122,827
)
 
(112,243
)
 
Real estate, net
 
$
667,405

 
$
668,134

 
 
(1)
Does not include real estate held for sale as of June 30, 2016.
(2)
Does not include real estate held for sale as of December 31, 2015.
Real estate depreciation expense on building and tenant improvements was $5.9 million and $11.8 million for the three and six months ended June 30, 2016, respectively, and $5.5 million and $10.7 million for the three and six months ended June 30, 2015, respectively.

2016 Real Estate Activity

During the six months ended June 30, 2016, we acquired one property, which is summarized below (dollars in thousands):

Location
 
Acquisition Date
 
Square Footage (unaudited)
 
Lease Term
 
Renewal Options
 
Total Purchase Price
 
Acquisition Expenses
 
Annualized GAAP Rent
 
Debt Issued
Salt Lake City, UT
 
5/26/2016
 
107,062

 
6 Years
 
2 (3 Years and 2 Years)
 
$
17,000

 
$
109

 
$
1,393

 
$
9,900



In accordance with Accounting Standards Codification, or ASC, 805, "Business Combinations," we determined the fair value of the acquired assets related to the one property acquired during the six months ended June 30, 2016 as follows (dollars in thousands):

Location
 
Land
 
Building
 
Tenant Improvements
 
In-place Leases
 
Leasing Costs
 
Customer Relationships
 
Below Market Leases
 
Total Purchase Price
Salt Lake City, UT
 
$
3,008

 
$
8,973

 
$
1,685

 
$
1,352

 
$
337

 
$
1,675

 
$
(30
)
 
$
17,000



Below is a summary of the total revenue and earnings recognized on the one property acquired during the six months ended June 30, 2016 (dollars in thousands):

 
 
 
 
For the three months ended June 30,
 
For the six months ended June 30,
 
 
 
 
2016
 
2016
Location
 
Acquisition Date
 
Rental Revenue
 
Earnings (1)
 
Rental Revenue
 
Earnings (1)
Salt Lake City, UT
 
5/26/2016
 
$
139

 
$
35

 
$
139

 
$
35

(1)
Earnings is calculated as net income exclusive of both interest expense and acquisition related costs that are required to be expensed under ASC 805.


Pro Forma
The following table reflects pro-forma consolidated statements of operations as if the properties acquired during the six months ended June 30, 2016 and the twelve months ended December 31, 2015, respectively, were acquired as of January 1, 2015. The pro-forma earnings for the six months ended June 30, 2016 and 2015 were adjusted to assume that the acquisition-related costs were incurred as of the previous period (dollars in thousands, except per share amounts):
 
 
 
For the three months ended June 30,
 
For the six months ended June 30,
 
 
(unaudited)
 
(unaudited)
 
 
2016
 
2015
 
2016
 
2015
Operating Data:
 
 
 
 
 
 
 
 
Total operating revenue
 
$
21,465

 
$
21,955

 
$
43,349

 
$
43,420

Total operating expenses
 
(13,485
)
 
(13,382
)
 
(27,005
)
 
(26,037
)
Other expenses
 
(7,004
)
 
(8,024
)
 
(14,540
)
 
(15,993
)
Net income
 
976

 
549

 
1,804

 
1,390

Dividends attributable to preferred and senior common stock
 
(1,514
)
 
(1,284
)
 
(2,794
)
 
(2,532
)
Net loss attributable to common stockholders
 
$
(538
)
 
$
(735
)
 
$
(990
)
 
$
(1,142
)
Share and Per Share Data:
 
 
 
 
 
 
 
 
Basic and diluted loss per share of common stock - pro forma
 
$
(0.02
)
 
$
(0.04
)
 
$
(0.04
)
 
$
(0.06
)
Basic and diluted loss per share of common stock - actual
 
$
(0.03
)
 
$
(0.04
)
 
$
(0.05
)
 
$
(0.07
)
Weighted average shares outstanding-basic and diluted
 
22,684,391

 
20,833,787

 
22,614,838

 
20,524,101

Significant Real Estate Activity on Existing Assets
During the six months ended June 30, 2016, we executed leases on three properties, which are summarized below (dollars in thousands):
 
Location
 
Lease Commencement Date
 
Square Footage
(unaudited)
 
Lease Term
 
Renewal Options
 
Annualized GAAP Rent
 
Tenant Improvement
 
Leasing Commissions
Maple Heights, OH
 
6/1/2016
 
40,606

(1)
5.2 Years
 
2 (3 year)
 
$
109

 
$

 
$
34

Bolingbrook, IL
 
7/1/2016
 
13,816

(2)
7.2 Years
 
1 (5 year)
 
70

 
69

 
28

Burnsville, MN
 
12/1/2016
 
12,663

(3)
5.3 Years
 
1 (5 year)
 
143

 

 
104

 
(1)
Tenant's lease is for 11.7% of the building. The building is now 92.8% leased.
(2)
Tenant’s lease is for 24.9% of the building. The building is now 62.7% leased.
(3)
Tenant's lease is for 11.0% of the building. The building is now 80.4% leased.
On May 31, 2016, we reached a legal settlement with the previous tenant at our currently vacant Newburyport, Massachusetts property to compensate us for deferred capital obligations and repairs they were required to perform during their tenancy. We recognized $0.3 million, recorded in other income on the condensed consolidated statement of operations, related to reimbursed deferred capital obligations, and received $0.9 million as a reimbursement of repairs incurred during the three and six months ended June 30, 2016 in connection with the legal settlement received.

2015 Real Estate Activity
Investment Activity
During the six months ended June 30, 2015, we acquired four properties, which are summarized below (dollars in thousands):
 
Location
 
Acquisition Date
 
Square Footage (unaudited)
 
Lease Term
 
Renewal Options
 
Total Purchase Price
 
Acquisition Expenses
 
Annualized GAAP Rent
 
 Debt Issued
Richardson, TX
(1)
3/6/2015
 
155,984

 
9.5 Years
 
2 (5 years each)
 
$
24,700

 
$
112

 
$
2,708

 
$
14,573

Birmingham, AL
 
3/20/2015
 
30,850

 
8.5 Years
 
1 (5 years)
 
3,648

 
76

 
333

 
 N/A

Columbus, OH
 
5/28/2015
 
78,033

 
15.0 Years
 
2 (5 years each)
 
7,700

 
72

 
637

 
4,466

Salt Lake City, UT
(1)
5/29/2015
 
86,409

 
6.5 Years
 
1 (5 years)
 
22,200

 
144

 
2,411

 
13,000

Total
 
 
 
351,276

 
 
 
 
 
$
58,248

 
$
404

 
$
6,089

 
$
32,039

 
(1)
The tenant occupying this property is subject to a gross lease.

In accordance with ASC 805, we determined the fair value of the acquired assets and assumed liabilities related to the four properties acquired during the six months ended June 30, 2015, as follows (dollars in thousands):
 
Location
 
Land
 
Building
 
Tenant Improvements
 
In-place Leases
 
Leasing Costs
 
Customer Relationships
 
Above Market Leases
 
Below Market Leases
 
Total Purchase Price
Richardson, TX
 
$
2,728

 
$
12,591

 
$
2,781

 
$
2,060

 
$
1,804

 
$
1,929

 
$
807

 
$

 
$
24,700

Birmingham, AL
 
650

 
1,683

 
351

 
458

 
146

 
360

 

 

 
3,648

Columbus, OH
 
1,338

 
3,511

 
1,547

 
1,144

 
672

 
567

 

 
(1,079
)
 
7,700

Salt Lake City, UT
 
3,248

 
11,861

 
1,268

 
2,396

 
981

 
1,678

 
821

 
(53
)
 
22,200

 
 
$
7,964

 
$
29,646

 
$
5,947

 
$
6,058

 
$
3,603

 
$
4,534

 
$
1,628

 
$
(1,132
)
 
$
58,248


Below is a summary of the total revenue and earnings recognized on the four properties acquired during the three and six months ended June 30, 2015 (dollars in thousands):
 
 
 
 
 
For the three months ended June 30,
 
For the six months ended June 30,
 
 
 
 
2015
 
2015
Location
 
Acquisition
Date
 
Rental Revenue
 
Earnings (1)
 
Rental Revenue
 
Earnings (1)
Richardson, TX
 
3/6/2015
 
$
657

 
$
90

 
$
839

 
$
328

Birmingham, AL
 
3/20/2015
 
83

 
(22
)
 
94

 
106

Columbus, OH
 
5/28/2015
 
67

 
149

 
67

 
149

Salt Lake City, UT
 
5/29/2015
 
207

 
278

 
207

 
278

 
 
 
 
$
1,014

 
$
495

 
$
1,207

 
$
861

 
(1)
Earnings is calculated as net income (loss) exclusive of both interest expense and acquisition related costs that are required to be expensed under ASC 805.
Leasing Activity
During the six months ended June 30, 2015, we amended six of our leases, which are summarized below (dollars in thousands):
 
Location
 
New Lease
Effective Date
 
Square Footage
(unaudited)
 
New Lease
Term
 
Renewal
Options
 
Annualized
GAAP Rent
 
Tenant
Improvement
 
Leasing
Commissions
Indianapolis, IN
 
1/1/2015
 
3,546

 
8.3 Years
 
N/A
 
$
64

 
$
64

 
$
28

Indianapolis, IN
 
2/1/2015
 
8,275

 
3.0 Years
 
N/A
 
124

 

 

Raleigh, NC
 
2/1/2015
 
58,926

 
5.5 Years
 
2 (5 year)
 
711

 

 
144

Raleigh, NC
 
2/1/2015
 
21,300

(1)
5.5 Years
 
2 (5 year)
 
239

 
100

 
32

Columbus, OH
 
12/1/2016
 
9,484

(2)
7.1 Years
 
N/A
 
1,246

 
142

 
29

Raleigh, NC
 
8/1/2015
 
86,886

(3)
12.4 Years
 
2 (5 year)
 
534

 
800

 
398

 
 
 
 
188,417

 
 
 
 
 
$
2,918

 
$
1,106

 
$
631

 
(1)
Tenant’s lease is for 18.3% of the building. The building is now 93.2% leased.
(2)
The anchor tenant currently occupying 92.0% of the building will expand into the remaining space, currently occupied by another tenant through November 30, 2016.
(3)
Tenant's lease is for 74.8% of the building. The building is now 93.2% leased.

Intangible Assets
The following table summarizes the carrying value of intangible assets, liabilities and the accumulated amortization for each intangible asset and liability class as of June 30, 2016 and December 31, 2015 respectively (in thousands):
 
 
 
June 30, 2016
(1)
 
December 31, 2015
(2)
 
 
Lease Intangibles
 
Accumulated Amortization
 
 
Lease Intangibles
 
Accumulated Amortization
 
In-place leases
 
$
67,217

 
$
(25,428
)
 
 
$
66,244

 
$
(22,679
)
 
Leasing costs
 
44,791

 
(16,748
)
 
 
44,360

 
(14,774
)
 
Customer relationships
 
48,099

 
(16,248
)
 
 
46,485

 
(14,722
)
 
 
 
$
160,107

 
$
(58,424
)
 
 
$
157,089

 
$
(52,175
)
 
 
 
Deferred Rent Receivable/(Liability)
 
Accumulated (Amortization)/Accretion
 
 
Deferred Rent Receivable/(Liability)
 
Accumulated (Amortization)/Accretion
 
Above market leases
 
$
10,232

 
$
(7,053
)
 
 
$
10,176

 
$
(6,818
)
 
Below market leases and deferred revenue
 
(17,302
)
 
8,338

 
 
(17,951
)
 
8,294

 
 
 
$
(7,070
)
 
$
1,285

 
 
$
(7,775
)
 
$
1,476

 
 
(1)
Does not include real estate held for sale as of June 30, 2016.
(2)
Does not include real estate held for sale as of December 31, 2015.
Total amortization expense related to in-place leases, leasing costs and customer relationship lease intangible assets was $3.3 million and $6.6 million for the three and six months ended June 30, 2016, respectively, and $3.5 million and $6.4 million for the three and six months ended June 30, 2015, respectively, and is included in depreciation and amortization expense in the condensed consolidated statement of operations.
Total amortization related to above-market lease values was $0.1 million and $0.2 million for the three and six months ended June 30, 2016, respectively, and $0.1 million and $0.2 million for the three and six months ended June 30, 2015, respectively, and is included in rental income in the condensed consolidated statement of operations. Total amortization related to below-market lease values was $0.2 million and $0.5 million for the three and six months ended June 30, 2016, respectively, and $0.2 million and $0.5 million for the three and six months ended June 30, 2015, respectively, and is included in rental income in the condensed consolidated statement of operations.
The weighted average amortization periods in years for the intangible assets acquired and liabilities assumed during the six months ended June 30, 2016 and 2015, respectively, were as follows:
Intangible Assets & Liabilities
 
2016
 
2015
In-place leases
 
6.1
 
10.9
Leasing costs
 
6.1
 
10.9
Customer relationships
 
9.1
 
15.6
Above market leases
 
0
 
18.9
Below market leases
 
6.1
 
12.4
All intangible assets & liabilities
 
6.9
 
12.5