Quarterly report pursuant to Section 13 or 15(d)

Real Estate Dispositions, Held for Sale and Impairment Charges

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Real Estate Dispositions, Held for Sale and Impairment Charges
9 Months Ended
Sep. 30, 2018
Real Estate [Abstract]  
Real Estate Dispositions, Held for Sale and Impairment Charges
Real Estate Dispositions, Held for Sale and Impairment Charges

Real Estate Dispositions

During the nine months ended September 30, 2018, we continued to execute our capital recycling program, whereby we sold non-core properties and redeployed proceeds to fund property acquisitions in our target secondary growth markets, as well as repay outstanding debt. During the nine months ended September 30, 2018, we sold two non-core properties, located in Arlington, Texas and Tewksbury, Massachusetts, which are summarized in the table below (dollars in thousands):

Aggregate Square Footage Sold
 
Aggregate Sales Price
 
Aggregate Sales Costs
 
Aggregate Gain on Sale of Real Estate, net
166,200

 
$
11,100

 
$
327

 
$
1,844



Our dispositions during the nine months ended September 30, 2018 were not classified as discontinued operations because they did not represent a strategic shift in operations, nor will they have a major effect on our operations and financial results. Accordingly, the operating results of these properties are included within continuing operations for all periods reported.

The table below summarizes the components of operating income from the real estate and related assets disposed of during the three and nine months ended September 30, 2018, and 2017 (dollars in thousands):

 
 
For the three months ended September 30,
 
For the nine months ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Operating revenue
 
$


$
173

 
$
93


$
698

Operating expense
 

 
212

 
161


528

Other income, net
 



 
1,844

(1)

(Expense) income from real estate and related assets sold
 
$

 
$
(39
)
 
$
1,776

 
$
170


(1)
Includes a $1.8 million gain on sale of real estate, net on two properties.

Real Estate Held for Sale

At September 30, 2018, we had one property classified as held for sale, located in South Hadley, Massachusetts. We have identified a prospective buyer for this property, and have executed a purchase and sale agreement. At December 31, 2017, we had two properties classified as held for sale, located in Arlington, Texas and Tewksbury, Massachusetts. Both of these properties were sold during the nine months ended September 30, 2018.

The table below summarizes the components of the assets and liabilities held for sale reflected on the accompanying condensed consolidated balance sheets (dollars in thousands):
 
 
September 30, 2018
 
December 31, 2017
Assets Held for Sale
 
 
 
Real estate, at cost
$
2,287

 
$
12,997

Less: accumulated depreciation
857

 
3,970

Total real estate held for sale, net
1,430

 
9,027

Lease intangibles, net
6

 
9

Deferred rent receivable, net

 
10

Total Assets Held for Sale
$
1,436

 
$
9,046

Liabilities Held for Sale
 
 
 
Asset retirement obligation
$
297

 
$
114

Total Liabilities Held for Sale
$
297

 
$
114



Impairment Charges

We evaluated our portfolio for triggering events to determine if any of our held and used assets were impaired during the nine months ended September 30, 2018 and did not identify any held and used assets which were impaired.

We classified one property as held for sale at September 30, 2018. We performed an analysis of the property classified as held for sale, and compared the fair market value of the asset less selling costs against the carrying value of assets available for sale. We did not record an impairment charge during the three and nine months ended September 30, 2018, as the fair market value was greater than the carrying value.

Fair market value for this asset was calculated using Level 3 inputs (defined in Note 6 “Mortgage Notes Payable and Credit Facility”), which were determined using a negotiated sales price from an executed purchase and sale agreement with a third party. We continue to evaluate our properties on a quarterly basis for changes that could create the need to record impairment. Future impairment losses may result, and could be significant, should market conditions deteriorate in the markets in which we hold our assets or we are unable to secure leases at terms that are favorable to us, which could impact the estimated cash flow of our properties over the period in which we plan to hold our properties. Additionally, changes in management’s decisions to either own and lease long-term or sell a particular asset will have an impact on this analysis.

We recognized $4.0 million of impairment charges on two properties during the nine months ended September 30, 2017. These properties were impaired through our held for sale carrying value analysis, during the three and nine months ended September 30, 2017, and we concluded that the fair market value less selling costs was below the carrying value of the respective properties. We sold both of these properties during the year ended December 31, 2017.