Quarterly report pursuant to Section 13 or 15(d)

Real Estate and Intangible Assets

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Real Estate and Intangible Assets
9 Months Ended
Sep. 30, 2015
Text Block [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 September 30, 2015 and December 31, 2014 (dollars in thousands):

 

     September 30, 2015 (1)      December 31, 2014  

Real estate:

     

Land

   $ 93,265       $ 88,394   

Building and improvements

     620,794         593,155   

Tenant improvements

     47,399         41,016   

Accumulated depreciation

     (104,877      (92,133
  

 

 

    

 

 

 

Real estate, net

   $ 656,581       $ 630,432   
  

 

 

    

 

 

 

 

(1) Does not include real estate held for sale as of September 30, 2015.

Real estate depreciation expense on the building and tenant improvement assets were $5.7 million and $16.4 million for the three and nine months ended September 30, 2015, respectively, and $4.9 million and $13.8 million for the three and nine months ended September 30, 2014, respectively.

2015 Real Estate Activity

During the nine months ended September 30, 2015, we acquired five 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      $ 108      $ 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        149        2,411        13,000   

Atlanta, GA (2)

    7/15/2015        78,151      Multiple (2)   2 (5 years)     13,000        109        1,291        7,540   
   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Total

      429,427          $ 71,248      $ 514      $ 7,380      $ 39,579   
   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) The tenant occupying this property is subject to a gross lease.
(2) This building is 100% leased to one tenant through two leases. 30% of this space is leased for 15 years, while the remaining space is leased for 7 years.

 

 

In accordance with Accounting Standards Codification, or ASC, 805, “Business Combinations,” we determined the fair value of the acquired assets related to the five properties acquired during the nine months ended September 30, 2015, as follows (dollars in thousands):

 

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

Richardson, TX

   $ 2,709       $ 12,503       $ 2,761       $ 2,046       $ 1,791       $ 1,915       $ 975       $ —        $ 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   

Atlanta, GA

     2,271         7,862         916         750         548         723         44         (114     13,000   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 10,216       $ 37,420       $ 6,843       $ 6,794       $ 4,138       $ 5,243       $ 1,840       $ (1,246   $ 71,248   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Below is a summary of the total revenue and earnings recognized on the five properties acquired during the nine months ended September 30, 2015 (dollars in thousands):

 

            For the three months ended September 30,     For the nine months ended September 30,  
            2015     2015  

Location

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

Richardson, TX

     3/6/2015       $ 656       $ 96      $ 1,496       $ 423   

Birmingham, AL

     3/20/2015         83         (22     177         84   

Columbus, OH

     5/28/2015         177         18        244         166   

Salt Lake City, UT

     5/29/2015         572         163        780         441   

Atlanta, GA

     7/15/2015         274         214        274         214   
     

 

 

    

 

 

   

 

 

    

 

 

 
      $ 1,762       $ 469      $ 2,971       $ 1,328   
     

 

 

    

 

 

   

 

 

    

 

 

 

 

(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 three and nine months ended September 30, 2015 and the twelve months ended December 31, 2014, respectively were acquired as of January 1, 2014. The pro-forma earnings for the three and nine months ended September 30, 2015 and 2014 were adjusted to assume that acquisition-related costs were incurred as of the previous period (dollars in thousands, except per share amounts):

 

    For the three months ended September 30,
(unaudited)
    For the nine months ended September 30,
(unaudited)
 
    2015     2014     2015     2014  

Operating Data:

       

Total operating revenue

  $ 21,402      $ 21,624      $ 64,059      $ 65,425   

Total operating expenses

    (13,539     (13,222     (38,651     (53,311

Other expenses

    (7,820     (8,029     (23,485     (23,120 )(1) 
 

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    43        373        1,923        (11,006

Dividends attributable to preferred and senior common stock

    (1,286     (1,160     (3,818     (3,417
 

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

  $ (1,243   $ (787   $ (1,895   $ (14,423
 

 

 

   

 

 

   

 

 

   

 

 

 

Share and Per Share Data:

       

Basic (loss) earnings per share of common stock - pro forma

  $ (0.06   $ (0.04   $ (0.09   $ (0.86

Diluted (loss) earnings per share of common stock - pro forma

  $ (0.06   $ (0.04   $ (0.09   $ (0.86

Basic (loss) earnings per share of common stock - actual

  $ (0.06   $ (0.05   $ (0.13   $ (0.93

Diluted (loss) earnings per share of common stock - actual

  $ (0.06   $ (0.05   $ (0.13   $ (0.93

Weighted average shares outstanding-basic

    21,403,808        17,739,084        20,820,559        16,685,162   

Weighted average shares outstanding-diluted

    21,403,808        17,739,084        20,820,559        16,685,162   

 

(1)  $14.0 million of other expenses relates to the impairment charge recorded in operating expenses during the nine months ended September 30, 2014.

Significant Real Estate Activity on Existing Assets

On July 13, 2015 we executed a lease with a new tenant in our Raleigh, North Carolina property to occupy 86,886 square feet, representing 75.0% of the total square footage. The current tenant retained 18.0% of the space. Therefore, the building is approximately 93.0% occupied. The lease commenced on August 1, 2015 and will expire on December 31, 2027. The new lease provides for prescribed rent escalations over its life, with annualized straight line rents of approximately $0.5 million. The lease grants the tenant two extension options for an additional five years each. In connection with the execution of the lease, we provided $0.8 million in tenant improvements and $0.4 million in leasing commissions.

 

On August 28, 2015 we modified a lease with one of our tenants in our multi-tenant Indianapolis, Indiana property. The tenant, which previously occupied 4,512 square feet, increased its square footage to 6,903 square feet and extended their lease term an additional 3 years through September 2021. The original lease term would have expired in October 2018. This lease contains prescribed rent escalations over its life with annualized straight line rents of approximately $0.1 million, a $0.03 million increase over the previous lease. In connection with the extension of the lease and modification of certain of its terms, we provided $0.06 million in tenant improvements.

On September 18, 2015 we executed a lease with a tenant to occupy a portion of our previously vacant property located in Baytown, Texas. The lease is for 57.0% of the building, and is for a seven year term. The lease provides for prescribed rent escalations over its life, with annualized straight line rents of approximately $0.13 million. The tenant has two options to renew the lease for an additional period of five years each. In connection with the execution of the lease, we provided $0.2 million in tenant improvements and $0.06 million in leasing commissions.

2014 Real Estate Activity

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

 

                Lease         Total Purchase     Acquisition     Annualized Straight     Debt Issued &  

Location

  Acquisition Date     Square Footage     Term   Renewal Options     Price     Expenses     Line Rent     Assumed  

Allen, TX

    3/27/2014        21,154      12 Years     4 (5 years each)      $ 5,525      $ 33      $ 570      $ 3,481   

Colleyville, TX

    3/27/2014        20,355      12 Years     4 (5 years each)        4,523        33        467        2,849   

Rancho Cordova, CA (4)

    4/22/2014        61,358      10 Years     1 (5 year)        8,225        73        902        4,935   

Coppell, TX

    5/8/2014        21,171      12 Years     4 (5 years each)        5,838        26        601        3,816   

Columbus, OH

    5/13/2014        114,786      9.5 Years (1)     N/A (1)      11,800        70        1,278 (3)      N/A   

Taylor, PA

    6/9/2014        955,935      10 Years     4 (5 years each)        39,000        730        3,400        22,600   

Aurora, CO

    7/1/2014        124,800      15 Years     2 (5 years each)        8,300        91        768        N/A   

Indianapolis, IN (4)

    9/3/2014        86,495      11.5 Years (2)     2 (5 years each) (2)      10,500        58        1,504 (3)      6,100   
   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

Total

      1,406,054          $ 93,711      $ 1,114      $ 9,490      $ 43,781   
   

 

 

       

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Lease term and renewal options are reflective of the largest tenant. The smaller tenant’s lease terminates in November 2016 and contains no renewal options.
(2) Lease term and renewal options are reflective of the largest tenant. The other tenants in the building have varying lease expirations from December 2015 to October 2018. No other tenants have renewal options.
(3) Rent figure is reflective of aggregate rent among all tenants occupying the building.
(4) Tenants occupying these properties are subject to a gross lease.

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

 

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

Aurora, CO

    2,882        3,825        92        413        806        282        —          —          —          8,300   

Indianapolis, IN

    502        5,334        1,088        1,990        741        732        126        (13     —          10,500   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 11,827      $ 54,623      $ 4,721      $ 11,590      $ 5,050      $ 5,781      $ 387      $ (19   $ (249   $ 93,711   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

            For the three months ended September 30,      For the nine months ended September 30,  
            2014      2014  

Location

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

Allen, TX

     3/27/2014       $ 143       $ 101       $ 293       $ 167   

Colleyville, TX

     3/27/2014         117         83         240         138   

Rancho Cordova, CA

     4/22/2014         226         104         399         168   

Coppell, TX

     5/8/2014         150         116         239         139   

Columbus, OH (2)

     5/13/2014         311         115         479         184   

Taylor, PA

     6/9/2014         850         395         1,058         493   

Aurora, CO

     7/1/2014         192         124         192         124   

Indianapolis, IN (2)

     9/3/2014         116         9         116         9   
     

 

 

    

 

 

    

 

 

    

 

 

 
      $ 2,105       $ 1,047       $ 3,016       $ 1,422   
     

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.
(2) Rental revenue and earnings is reflective of aggregate rent and operating expenses among all tenants occupying the building.

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, 2015 and December 31, 2014 respectively (in thousands):

 

     September 30, 2015 (1)      December 31, 2014  
     Lease Intangibles      Accumulated
Amortization
     Lease Intangibles      Accumulated
Amortization
 

In-place leases

   $ 65,642       $ (21,198    $ 59,233       $ (17,379

Leasing costs

     42,936         (13,803      38,305         (11,411

Customer relationships

     46,230         (13,844      41,243         (11,177
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 154,808       $ (48,845    $ 138,781       $ (39,967
  

 

 

    

 

 

    

 

 

    

 

 

 
     Deferred Rent
Receivable/(Liability)
     Accumulated
Amortization
     Deferred Rent
Receivable/(Liability)
     Accumulated
Amortization
 

Above market leases

   $ 9,591       $ (6,307    $ 8,314       $ (6,384

Below market leases

     16,946         (7,932      15,939         (7,345
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 26,537       $ (14,239    $ 24,253       $ (13,729
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 181,345       $ (63,084    $ 163,034       $ (53,696
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Does not include real estate held for sale as of September 30, 2015.

Total amortization expense related to in-place leases, leasing costs and customer relationship lease intangible assets was $3.3 million and $9.7 million for the three and nine months ended September 30, 2015, respectively, and $2.6 million and $7.3 million for the three and nine months ended September 30, 2014, 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 $0.3 million for the three and nine months ended September 30, 2015, respectively, and $0.1 million and $0.2 million for the three and nine months ended September 30, 2014, respectively. Total amortization related to below-market lease values was $0.2 million and $0.7 million for the three and nine months ended September 30, 2015, respectively, and $0.2 million and $0.5 million for the three and nine months ended September 30, 2014, respectively.

The weighted average amortization periods in years for the intangible assets acquired and liabilities assumed during the nine months ended September 30, 2015 and 2014, respectively, were as follows:

 

Intangible Assets & Liabilities

   2015      2014  

In-place leases

     11.5         10.2   

Leasing costs

     11.5         10.2   

Customer relationships

     16.1         14.6   

Above market leases

     17.2         9.3   

Below market leases

     13.5         9.9   
  

 

 

    

 

 

 

All intangible assets & liabilities

     12.9         11.5