| 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, 2018 and December 31, 2017, excluding real estate held for sale as of June 30, 2018 and December 31, 2017 (dollars in thousands):
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June 30, 2018 |
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December 31, 2017 |
Real estate: |
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Land |
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$ |
122,010 |
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$ |
121,783 |
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Building and improvements |
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719,603 |
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708,948 |
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Tenant improvements |
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63,736 |
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63,122 |
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Accumulated depreciation |
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(163,349 |
) |
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(149,417 |
) |
Real estate, net |
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$ |
742,000 |
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$ |
744,436 |
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Real estate depreciation expense on building and tenant improvements was $7.5 million and $14.8 million for the three and six months ended June 30, 2018, respectively, and $6.4 million and $12.8 million for the three and six months ended June 30, 2017, respectively.
Acquisitions
We acquired one property during the six months ended June 30, 2018, and one property during the six months ended June 30, 2017. Both acquisitions are summarized below (dollars in thousands):
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Six Months Ended |
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Square Footage |
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Lease Term |
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Purchase Price |
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Acquisition Expenses |
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Annualized GAAP Rent |
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Debt Issued or Assumed |
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June 30, 2018 |
(1) |
127,444 |
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9.8 Years |
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$ |
14,341 |
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$ |
91 |
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(3) |
$ |
1,087 |
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$ |
— |
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June 30, 2017 |
(2) |
60,016 |
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8.5 Years |
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15,697 |
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247 |
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(3) |
1,680 |
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11,179 |
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(4) |
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(1) |
On March 9, 2018, we acquired a 127,444 square foot property in Vance, Alabama for $14.3 million. The annualized GAAP rent on the 9.8 year lease is $1.1 million.
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(2) |
On June 22, 2017, we acquired a 60,016 square foot property in Conshohocken, Pennsylvania for $15.7 million. We assumed $11.2 million of mortgage debt. The annualized GAAP rent on the 8.5 year lease is $1.7 million.
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(3) |
We accounted for this transaction under ASU 2017-01, “Clarifying the Definition of a Business.” As a result, we treated our acquisitions during the six months ended June 30, 2018 and 2017 as asset acquisitions rather than business combinations. As a result of this treatment, we capitalized $0.1 million and $0.2 million, respectively, of acquisition costs that would otherwise have been expensed under business combination treatment.
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(4) |
We assumed an interest rate swap in connection with $11.2 million of assumed debt on our Conshohocken, Pennsylvania acquisition, pursuant to which we will pay our counterparty a fixed interest rate of 1.80%, and receive a variable interest rate of one month LIBOR from our counterparty. Our total interest rate on this debt is fixed at 3.55%. The interest rate swap had a fair value of $0.04 million upon the date of assumption, and subsequently increased in value to $0.7 million at June 30, 2018. We have elected to treat this interest rate swap as a cash flow hedge, and all changes in fair market value will be recorded to accumulated other comprehensive income on the consolidated balance sheets.
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We determined the fair value of assets acquired and liabilities assumed related to the properties acquired during the six months ended June 30, 2018 and 2017 as follows (dollars in thousands):
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Six months ended June 30, 2018 |
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Six months ended June 30, 2017 |
Acquired assets and liabilities |
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Purchase price |
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Purchase price |
Land |
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$ |
459 |
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$ |
1,996 |
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Building |
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11,609 |
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9,975 |
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Tenant Improvements |
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615 |
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905 |
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In-place Leases |
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509 |
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1,690 |
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Leasing Costs |
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534 |
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464 |
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Customer Relationships |
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566 |
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1,256 |
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Above Market Leases |
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49 |
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— |
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Below Market Leases |
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— |
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(1,030 |
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Discount on Assumed Debt |
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— |
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399 |
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Fair Value of Interest Rate Swap Assumed |
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— |
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42 |
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Total Purchase Price |
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$ |
14,341 |
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$ |
15,697 |
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Significant Real Estate Activity on Existing Assets
During the six months ended June 30, 2018 and 2017, we executed one and one new lease, respectively, which are summarized below (dollars in thousands):
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Six Months Ended |
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Aggregate Square Footage |
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Weighted Average Lease Term |
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Aggregate Annualized GAAP Rent |
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Aggregate Tenant Improvement |
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Aggregate Leasing Commissions |
June 30, 2018 |
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34,441 |
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3.6 years |
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$ |
97 |
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$ |
— |
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$ |
14 |
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June 30, 2017 |
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83,662 |
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11.3 years |
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1,683 |
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1,020 |
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445 |
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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, 2018 and December 31, 2017, excluding real estate held for sale, as of June 30, 2018 and December 31, 2017 (dollars in thousands):
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June 30, 2018 |
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December 31, 2017 |
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Lease Intangibles |
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Accumulated Amortization |
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Lease Intangibles |
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Accumulated Amortization |
In-place leases |
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$ |
80,638 |
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$ |
(36,834 |
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$ |
80,355 |
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$ |
(33,201 |
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Leasing costs |
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56,147 |
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(25,458 |
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55,695 |
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(23,016 |
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Customer relationships |
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59,276 |
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(21,791 |
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58,892 |
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(19,798 |
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$ |
196,061 |
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$ |
(84,083 |
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$ |
194,942 |
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$ |
(76,015 |
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Deferred Rent Receivable/(Liability) |
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Accumulated (Amortization)/Accretion |
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Deferred Rent Receivable/(Liability) |
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Accumulated (Amortization)/Accretion |
Above market leases |
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$ |
14,511 |
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$ |
(8,439 |
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$ |
14,425 |
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$ |
(7,962 |
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Below market leases and deferred revenue |
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(26,752 |
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11,474 |
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(26,725 |
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10,475 |
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$ |
(12,241 |
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$ |
3,035 |
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$ |
(12,300 |
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$ |
2,513 |
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Total amortization expense related to in-place leases, leasing costs and customer relationship lease intangible assets was $4.3 million and $8.6 million for the three and six months ended June 30, 2018, respectively, and $3.5 million and $7.0 million for the three and six months ended June 30, 2017, respectively, and is included in depreciation and amortization expense in the condensed consolidated statements of operations and comprehensive income.
Total amortization related to above-market lease values was $0.2 million and $0.5 million for the three and six months ended June 30, 2018, respectively, and $0.1 million and $0.3 million for the three and six months ended June 30, 2017, respectively, and is included in rental revenue in the condensed consolidated statements of operations and comprehensive income. Total amortization related to below-market lease values was $0.5 million and $1.0 million for the three and six months ended June 30, 2018, respectively, and $0.3 million and $0.7 million for the three and six months ended June 30, 2017, respectively, and is included in rental revenue in the condensed consolidated statements of operations and comprehensive income.
The weighted average amortization periods in years for the intangible assets acquired during the six months ended June 30, 2018 and 2017 were as follows:
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Intangible Assets & Liabilities |
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2018 |
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2017 |
In-place leases |
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9.8 |
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8.5 |
Leasing costs |
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9.8 |
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8.5 |
Customer relationships |
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14.8 |
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13.5 |
Above market leases |
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9.8 |
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0.0 |
Below market leases |
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0.0 |
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8.5 |
All intangible assets & liabilities |
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11.1 |
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9.8 |
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