Quarterly report pursuant to Section 13 or 15(d)

Real Estate and Intangible Assets

v2.4.0.8
Real Estate and Intangible Assets
6 Months Ended
Jun. 30, 2014
Property Plant And Equipment [Abstract]  
Real Estate and Intangible Assets

4. Real Estate and Intangible Assets

Real Estate

The following table sets forth the components of our investments in real estate as of June 30, 2014 and December 31, 2013 (dollars in thousands):

 

     June 30, 2014     December 31, 2013  

Real estate:

    

Land

   $ 83,352      $ 79,153   

Building and improvements

     561,138        527,230   

Tenant improvements

     39,511        35,970   

Accumulated depreciation

     (88,520     (81,241
  

 

 

   

 

 

 

Real estate, net

   $ 595,481      $ 561,112   
  

 

 

   

 

 

 

 

2014 Real Estate Activity

During the six months ended June 30, 2014, we acquired six properties, which are summarized in the table below (dollars in thousands):

 

Location

  Acquisition Date     Square Footage    

Lease Term

 

Renewal Options

  Total Purchase
Price
    Acquisition
Expenses
    Annualized Straight
Line Rent
    Debt Issued &
Assumed
 

Allen, TX

    3/27/2014        21,154      12 Years   4 (5 years each)   $ 5,525      $ 29      $ 570      $ 3,481   

Colleyville, TX

    3/27/2014        20,355      12 Years   4 (5 years each)     4,523        29        467        2,849   

Rancho Cordova, CA

    4/22/2014        61,358      10 Years   1 (5 year)     8,225        65        902        4,935   

Coppell, TX

    5/8/2014        21,171      12 Years   4 (5 years each)     5,838        22        601        3,816   

Columbus, OH

    5/13/2014        114,786      9.5 Years   N/A     11,800        65        1,278        N/A   

Taylor, PA

    6/9/2014        955,935      10 Years   4 (5 years each)     39,000        714        3,400        22,600   
   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Total

      1,194,759          $ 74,911      $ 924      $ 7,218      $ 37,681   
   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

In accordance with ASC 805, we determined the fair value of the acquired assets related to the six properties acquired during the six months ended June 30, 2014 as follows (in thousands):

 

    Land     Building     Tenant
Improvements
    In-place
Leases
    Leasing
Costs
    Customer
Relationships
    Above Market
Leases
    Below Market
Leases
    Premium on
Assumed Debt
    Total Purchase
Price
 

Allen, TX

  $ 874      $ 3,509      $ 125      $ 598      $ 273      $ 218      $ —        $ —        $ (72   $ 5,525   

Colleyville, TX

    1,277        2,307        117        486        220        181        —          (6     (59     4,523   

Rancho Cordova, CA

    752        5,898        278        473        546        278        —          —          —          8,225   

Coppell, TX

    1,448        3,221        128        636        293        230        —          —          (118     5,838   

Columbus, OH

    990        6,080        1,937        823        719        990        261        —          —          11,800   

Taylor, PA

    3,102        24,449        956        6,171        1,452        2,870        —          —          —          39,000   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 8,443      $ 45,464      $ 3,541      $ 9,187      $ 3,503      $ 4,767      $ 261      $ (6   $ (249   $ 74,911   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Below is a summary of the total revenue and earnings recognized on the six properties acquired during the three and six months ended June 30, 2014 (dollars in thousands):

 

            For the three months ended June 30,      For the six months ended June 30,  
            2014      2014  

Location

   Acquisition
Date
     Rental Revenue      Earnings (1)      Rental Revenue      Earnings (1)  

Allen, TX

     3/27/2014       $ 142       $ 81       $ 150       $ 86   

Colleyville, TX

     3/27/2014         117         67         123         71   

Rancho Cordova, CA

     4/22/2014         173         65         173         65   

Coppell, TX

     5/8/2014         89         52         89         52   

Columbus, OH

     5/13/2014         167         68         167         68   

Taylor, PA

     6/9/2014         208         98         208         98   
     

 

 

    

 

 

    

 

 

    

 

 

 
      $ 896       $ 431       $ 910       $ 440   
     

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 six properties acquired during the three and six months ended June 30, 2014 were acquired as of the beginning of the previous period. The pro-forma earnings for the three and six months ended June 30, 2014 and 2013 were adjusted to assume that acquisition-related costs were incurred as of the beginning 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,  
    2014     2013     2014     2013  
    (unaudited)     (unaudited)  

Operating Data:

       

Total operating revenue

  $ 19,339      $ 18,822      $ 38,316      $ 37,628   

Total operating expenses

    (10,986     (11,090     (35,799 )(1)      (21,608

Other expenses

    (6,202     (7,566     (13,655     (15,355
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    2,151        166        (11,138     665   

Dividends attributable to preferred and senior common stock

    (1,133     (1,092     (2,257     (2,169
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) available (attributable) to common stockholders

  $ 1,018      $ (926   $ (13,395   $ (1,504
 

 

 

   

 

 

   

 

 

   

 

 

 

Share and Per Share Data:

       

Basic and diluted earnings (loss) per share of common stock

  $ 0.06      $ (0.07   $ (0.83   $ (0.13

Weighted average shares outstanding-basic

    16,547,793        12,380,402        16,149,467        11,808,701   

Weighted average shares outstanding-diluted

    16,894,973        12,380,402        16,149,467        11,808,701   

 

(1) $14.0 million relates to the impairment charge recorded in operating expenses during the three months ended March 31, 2014.

2013 Real Estate Activity

During the six months ended June 30, 2013, we acquired three properties and completed an expansion of one property, which are summarized below (dollars in thousands):

 

Location

  Acquisition/
Expansion Date
    Square Footage    

Lease
Term

 

Renewal Options

  Total Purchase/
Expansion Price
    Acquistion
Expenses
    Annualized Straight
Line Rent
    Debt
Issued
 

Egg Harbor Township, NJ

    3/28/2013        29,257      10 years   1 (5 years)   $ 5,650      $ 152      $ 490      $ 3,700   

Clintonville, WI (1)

    4/11/2013        102,400      15 years   N/A     3,250        N/A        961        —     

Vance, AL

    5/8/2013        170,000      10 years     2 (5 year options)     13,388        186        1,173        —     

Blaine, MN

    5/10/2013        92,275      6.9 years   2 (5 year options)     14,450        79        1,475        —     
   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Total

      393,932          $ 36,738      $ 417      $ 4,099      $ 3,700   
   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  The Clintonville, WI property was originally acquired in November 2005 for $5.3 million. After the expansion completed in April 2013, the total investment in the property is $8.6 million.

In accordance with ASC 805, we determined the fair value of acquired assets related to the three properties acquired during the six months ended June 30, 2013 as follows (in thousands):

 

     Land      Building      Tenant
Improvements
     In-place
Leases
     Leasing Costs      Customer
Relationships
     Total Purchase
Price
 

Egg Harbor Township, NJ

   $ 1,627       $ 2,735       $ 282       $ 558       $ 189       $ 259       $ 5,650   

Vance, AL

     457         9,721         808         1,097         678         627         13,388   

Blaine, MN

     1,060         9,347         1,172         1,361         694         816         14,450   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 3,144       $ 21,803       $ 2,262       $ 3,016       $ 1,561       $ 1,702       $ 33,488   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Below is a summary of the total revenue and earnings recognized on the three properties acquired during the six months ended June 30, 2013 (dollars in thousands):

 

Location

   Acquisition
Date
    For the three months ended June 30, 2013     For the six months ended June 30, 2013  
     Rental Revenue     Earnings (1)     Rental Revenue     Earnings (1)  

Egg Harbor Township, NJ

     3/28/2013      $ 122      $ 69      $ 128      $ 72   

Vance, AL

     5/8/2013        170        70        170        70   

Blaine, MN

     5/10/2013        210        94        210        94   
    

 

 

   

 

 

   

 

 

   

 

 

 
     $ 502      $ 233      $ 508      $ 236   
    

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

Future Lease Payments

Future operating lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses, for the remainder of 2014 and each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):

 

Year

   Tenant
Lease Payments
 

Six Months ending December 31, 2014

   $ 34,255   

2015

     65,830   

2016

     63,228   

2017

     62,763   

2018

     61,125   

2019

     61,469   

Thereafter

     274,216   

Significant Existing Real Estate Activity

On April 4, 2014, our tenant occupying our Newburyport, Massachusetts property notified us of their intention not to exercise their renewal option as the tenant is relocating to Rhode Island. The tenant will continue paying rent and operating expenses through the lease termination date of April 30, 2015.

On May 6, 2014, we extended the lease with the tenant occupying our property located in Austin, Texas. The lease covering this property was extended for an additional eight years, through June 2022. The lease was originally set to expire in June 2015. The lease provides for prescribed rent escalations over the life of the lease, with annualized straight line rents of approximately $0.7 million. In connection with the extension of the lease and modification of certain terms of the lease, we paid $0.2 million in leasing commissions, and will pay $1.3 million in tenant improvements between now and second quarter 2015.

On June 11, 2014, we extended the lease with the tenant occupying our property located in Burnsville, Minnesota. The new lease covers approximately two-thirds of the space and was extended for an additional eight years, through January 2023. The lease was originally set to expire in June 2015. The tenant in this property will continue to pay rent on the entire building through June 2015, and we are working to identify tenants to lease the remainder of the building. The new lease provides for prescribed rent escalations over the life of the lease, with annualized straight line rents of $1.0 million. Rental income per square foot increased 14% from the previous lease. The lease grants the tenant two options to extend the lease for an additional 3 years each. In connection with the extension of the lease and the modification of certain terms under the lease, we paid $0.5 million in leasing commissions, and will pay $3.3 million in tenant improvements between now and first quarter 2015.

Intangible Assets

The following table summarizes the carrying value of intangible assets and the accumulated amortization for each intangible asset class (dollars in thousands):

 

     June 30, 2014     December 31, 2013  
     Lease
Intangibles
     Accumulated
Amortization
    Lease
Intangibles
     Accumulated
Amortization
 

In-place leases

   $ 56,521       $ (17,205   $ 47,442       $ (15,158

Leasing costs

     35,251         (10,680     31,339         (9,323

Customer relationships

     39,896         (11,654     35,739         (10,407
  

 

 

    

 

 

   

 

 

    

 

 

 
   $ 131,668       $ (39,539   $ 114,520       $ (34,888
  

 

 

    

 

 

   

 

 

    

 

 

 

 

The weighted average amortization periods in years for the intangible assets acquired and liabilities assumed during the six months ended June 30, 2014 and 2013, respectively, were as follows

 

Intangible Assets & Liabilities

   2014      2013  

In-place leases

     10.7         9.3   

Leasing costs

     10.7         9.3   

Customer relationships

     15.6         14.2   

Above market leases

     8.2         —     

Below market leases

     11.9         —     
  

 

 

    

 

 

 

All intangible assets & liabilities

     12.2         10.9   
  

 

 

    

 

 

 

The estimated aggregate amortization expense for the remainder of 2014 and for each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):

 

Year

   Estimated
Amortization Expense
 

Six Months ending December 31, 2014

   $ 5,834   

2015

     11,395   

2016

     10,732   

2017

     10,539   

2018

     10,251   

2019

     10,243   

Thereafter

     33,135