Quarterly report pursuant to Section 13 or 15(d)

Real Estate and Intangible Assets

v3.19.3
Real Estate and Intangible Assets
9 Months Ended
Sep. 30, 2019
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 September 30, 2019 and December 31, 2018, excluding real estate held for sale as of December 31, 2018 (dollars in thousands):
 
 
 
September 30, 2019

December 31, 2018
Real estate:
 
 
 
 
Land
 
$
130,962

 
$
125,905

Building and improvements
 
810,774

 
755,584

Tenant improvements
 
66,702

 
65,160

Accumulated depreciation
 
(202,480
)
 
(178,257
)
Real estate, net
 
$
805,958

 
$
768,392


Real estate depreciation expense on building and tenant improvements was $8.3 million and $24.4 million for the three and nine months ended September 30, 2019, respectively, and $7.5 million and $22.3 million for the three and nine months ended September 30, 2018, respectively.
Acquisitions

We acquired nine properties during the nine months ended September 30, 2019, and two properties during the nine months ended September 30, 2018. The acquisitions are summarized below (dollars in thousands):

Nine Months Ended
 
Aggregate Square Footage
 
Weighted Average Lease Term
 
Aggregate Purchase Price
 
Acquisition Expenses
 
Aggregate Annualized GAAP Rent
 
Aggregate Debt Issued or Assumed
September 30, 2019
(1)
1,463,763

 
14.8 Years
 
$
67,272

 
$
621

(3)
$
5,437

 
$
8,900

September 30, 2018
(2)
285,254

 
11.7 Years
 
22,800

 
225

(3)
1,851

 
4,745


(1)
On February 8, 2019, we acquired a 26,050 square foot property in a suburb of Philadelphia, Pennsylvania, for $2.7 million. The annualized GAAP rent on the 15.1 year lease is $0.2 million. On February 28, 2019, we acquired a 34,800 square foot property in Indianapolis, Indiana for $3.6 million. The annualized GAAP rent on the 10.0 year lease is $0.3 million. On April 5, 2019, we acquired a 207,000 square foot property in Ocala, Florida, for $11.9 million. The annualized GAAP rent on the 20.1 year lease is $0.8 million. On April 5, 2019, we acquired a 176,000 square foot property in Ocala, Florida, for $7.3 million. The annualized GAAP rent on the 20.1 year lease is $0.7 million. On April 30, 2019, we acquired a 54,430 square foot property in Columbus, Ohio, for $3.2 million. The annualized GAAP rent on the 7.0 year lease is $0.2 million. On June 18, 2019, we acquired a 676,031 square foot property in Tifton, Georgia, for $17.9 million. The annualized GAAP rent on the 8.5 year lease is $1.6 million. We issued $8.9 million of mortgage debt with a fixed interest rate of 4.35% in connection with this acquisition. On July 30, 2019, we acquired a 78,452 square foot property in Denton, Texas, for $6.6 million. The annualized GAAP rent on the 11.9 year lease is $0.5 million. On September 26, 2019, we acquired a 211,000 square foot two property portfolio in Temple, Texas, for $14.1 million. The annualized GAAP rent on the 20.0 year lease is $1.2 million.
(2)
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. On September 20, 2018, we acquired a 157,810 square foot property in Columbus, Ohio for $8.5 million. We issued $4.7 million of mortgage debt in connection with this acquisition. The annualized GAAP rent on the 15.0 year lease is $0.8 million.
(3)
We accounted for these transactions under ASU 2017-01, “Clarifying the Definition of a Business.” As a result, we treated our acquisitions during the nine months ended September 30, 2019 and 2018 as asset acquisitions rather than business combinations. As a result of this treatment, we capitalized $0.6 million and $0.2 million, respectively, of acquisition costs that would otherwise have been expensed under business combination treatment.

We determined the fair value of assets acquired and liabilities assumed related to the properties acquired during the nine months ended September 30, 2019 and 2018 as follows (dollars in thousands):

 
 
Nine months ended September 30, 2019
 
Nine months ended September 30, 2018
Acquired assets and liabilities
 
Purchase price
 
Purchase price
Land
 
$
5,046

 
$
1,140

Building
 
48,898

 
17,849

Tenant Improvements
 
1,541

 
776

In-place Leases
 
4,868

 
1,249

Leasing Costs
 
4,481

 
1,245

Customer Relationships
 
2,200

 
792

Above Market Leases
 
1,865

 
49

Below Market Leases
 
(1,627
)
 
(300
)
Total Purchase Price
 
$
67,272

 
$
22,800



Significant Real Estate Activity on Existing Assets

During the nine months ended September 30, 2019 and 2018, we executed five leases and two leases, respectively, which are summarized below (dollars in thousands):

Nine Months Ended
 
Aggregate Square Footage
 
Weighted Average Remaining Lease Term
 
Aggregate Annualized GAAP Rent
 
Aggregate Tenant Improvement
 
Aggregate Leasing Commissions
September 30, 2019
 
230,264

 
8.8 years
 
$
3,366

 
$
785

 
$
910

September 30, 2018
(1)
184,441

 
1.6 years
 
391

 

 
14


(1)
One of the new leases we entered into was on our South Hadley, Massachusetts property, which was classified as held for sale on the condensed consolidated balance sheets as of September 30, 2018.

Future Lease Payments

Future operating lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses, for the three months ending December 31, 2019 and each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):

Year
Tenant Lease Payments
Three Months Ending 2019
$
27,585

2020
102,850

2021
96,826

2022
89,192

2023
81,303

2024
72,155

Thereafter
275,658

 
$
745,569



We account for all of our real estate leasing arrangements as operating leases. A majority of our leases are subject to fixed rental increases, but a small subset of our lease portfolio has variable lease payments that are driven by the consumer price index. Many of our tenants have renewal options in their respective leases, but we seldom include option periods in the determination of lease term, as we generally will not enter into leasing arrangements with bargain renewal options. A small number of tenants have termination options.

Future minimum lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses and real estate held for sale as of December 31, 2018, for each of the five succeeding fiscal years and thereafter, is as follows (dollars in thousands):
 
Year
Tenant Lease Payments
2019
$
103,322

2020
97,302

2021
89,057

2022
82,336

2023
74,337

Thereafter
279,424

 
$
725,778


 
In accordance with the lease terms, substantially all operating expenses are required to be paid by the tenant; however, we would be required to pay operating expenses on the respective properties in the event the tenants fail to pay them.

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 September 30, 2019 and December 31, 2018, excluding real estate held for sale as of December 31, 2018 (dollars in thousands):

 
 
September 30, 2019

December 31, 2018
 
 
Lease Intangibles
 
Accumulated Amortization
 
Lease Intangibles
 
Accumulated Amortization
In-place leases
 
$
88,762

 
$
(46,418
)
 
$
83,894

 
$
(40,445
)
Leasing costs
 
64,986

 
(32,252
)
 
59,671

 
(28,092
)
Customer relationships
 
62,656

 
(27,537
)
 
60,455

 
(24,035
)
 
 
$
216,404

 
$
(106,207
)
 
$
204,020

 
$
(92,572
)
 
 
 
 
 
 
 
 
 
 
 
Deferred Rent Receivable/(Liability)
 
Accumulated (Amortization)/Accretion
 
Deferred Rent Receivable/(Liability)
 
Accumulated (Amortization)/Accretion
Above market leases
 
$
16,417

 
$
(9,723
)
 
$
14,551

 
$
(8,981
)
Below market leases and deferred revenue
 
(34,098
)
 
14,344

 
(29,807
)
 
12,502

 
 
$
(17,681
)
 
$
4,621

 
$
(15,256
)
 
$
3,521



Total amortization expense related to in-place leases, leasing costs and customer relationship lease intangible assets was $4.7 million and $14.2 million for the three and nine months ended September 30, 2019, respectively, and $4.3 million and $12.9 million for the three and nine months ended September 30, 2018, 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 $0.3 million and $0.8 million for the three and nine months ended September 30, 2019, respectively, and $0.2 million and $0.7 million for the three and nine months ended September 30, 2018, respectively, and is included in lease revenue in the condensed consolidated statements of operations and comprehensive income. Total amortization related to below-market lease values was $0.7 million and $1.8 million for the three and nine months ended September 30, 2019, respectively, and $0.5 million and $1.5 million for the three and nine months ended September 30, 2018, respectively, and is included in lease 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 nine months ended September 30, 2019 and 2018 were as follows:
 
Intangible Assets & Liabilities
 
2019
 
2018
In-place leases
 
15.9
 
13.0
Leasing costs
 
15.9
 
13.0
Customer relationships
 
20.6
 
21.2
Above market leases
 
9.3
 
9.8
Below market leases
 
9.6
 
15.0
All intangible assets & liabilities
 
17.3
 
15.0