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, 2013 and December 31, 2012 (in thousands):

 

		June 30, 2013				December 31, 2012
Real estate:
Land		$	72,271			$	69,126
Building and improvements			468,243				442,451
Tenant improvements			24,438				22,176
Accumulated depreciation			(72,712	)			(65,730	)
Real estate, net		$	492,240			$	468,023

 

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 the 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
Brookwood, 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):

 

		Acquisition				For the three months ended June 30, 2013								For the six months ended June 30, 2013
Location		Date				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.

 

Pro Forma

We acquired three properties during the six months ended June 30, 2013. The following table reflects pro-forma condensed consolidated statements of operations as if the properties were acquired as of the beginning of the previous period. The pro-forma earnings for the three and six months ended June 30, 2013, were adjusted to exclude $0.3 million and $0.4 million, respectively, of acquisition-related costs incurred during 2013 (dollars in thousands, except per share data):

 

		For the three months ended June 30,								For the six months ended June 30,
		2013				2012				2013				2012
		(unaudited)								(unaudited)
Operating Data:
Total operating revenue		$	14,548			$	13,071			$	29,374			$	26,073
Total operating expenses			(7,284	)			(6,036	)			(14,922	)			(12,273	)
Other expenses			(6,574	)			(5,658	)			(13,141	)			(10,837	)
Net income			690				1,377				1,311				2,963
Dividends attributable to preferred and senior common stock			(1,092	)			(1,046	)			(2,168	)			(2,088	)
Net (loss) income available to common stockholders		$	(402	)		$	331			$	(857	)		$	875
Share and Per Share Data:
Basic & diltued (loss) earnings per share of common stock		$	(0.03	)		$	0.03			$	(0.07	)		$	0.08
Diluted earnings per share of common stock		$	(0.03	)		$	0.03			$	(0.07	)		$	0.08
Weighted average shares outstanding-basic			12,380,402				10,945,379				11,808,701				10,945,379
Weighted average shares outstanding-diluted			12,380,402				11,018,870				11,808,701				11,011,259

2012 Real Estate Activity

During the six months ended June 30, 2012, we acquired five properties, which are summarized below (dollars in thousands):

 

Location		Acquisition Date				Square Footage				Lease Term				Renewal Options				Total Purchase Price				Acquistion Expenses				Annualized Straight Line Rent				Debt Issued
Ashburn, VA			1/25/2012				52,130				15 years				2 (5 years each	)		$	10,775			$	102			$	989			$	N/A
Ottumwa, IA			5/30/2012				352,860				11.5 years				3 (5 years each	)			7,100				47				684				5,000
New Albany, OH			6/5/2012				89,000				10.5 years				2 (5 years each	)			13,333				188				1,361				N/A
Columbus, GA			6/21/2012				32,000				11.5 years				2 (5 years each	)			7,320				126				656				4,750
Columbus, OH			6/28/2012				31,293				10 years				N/A				4,037				59				342				N/A
Total							557,283											$	42,565			$	522			$	4,032			$	9,750

In accordance with ASC 805, we determined the fair value of acquired assets related to the properties acquired during the six months ended June 30, 2012 as follows (in thousands):

 

		Land				Building				Tenant Improvements				In-place Leases				Leasing Costs				Customer Relationships				Above Market Leases				Below Market Leases				Total Purchase Price
Ashburn, VA		$	706			$	6,551			$	1,307			$	804			$	908			$	499			$	—			$	—			$	10,775
Ottumwa, IA			212				4,743				329				940				484				499				—				(107	)			7,100
New Albany, OH			1,658				7,511				1,235				1,122				857				903				47				—				13,333
Columbus, GA			1,378				3,894				626				574				473				375				—				—				7,320
Columbus, OH			542				1,856				597				391				213				325				113				—				4,037
		$	4,496			$	24,555			$	4,094			$	3,831			$	2,935			$	2,601			$	160			$	(107	)		$	42,565

 

Below is a summary of the total revenue and earnings recognized on the properties acquired during the six months ended June 30, 2012 (dollars in thousands):

 

						For the three months ended June 30, 2012								For the six months ended June 30, 2012
Location		Acquisition Date				Rental Revenue				Earnings (1)				Rental Revenue				Earnings (1)
Ashburn, VA			1/25/2012			$	247			$	147			$	431			$	160
Ottumwa, IA			5/30/2012				61				30				61				30
New Albany, OH			6/5/2012				98				51				98				51
Columbus, GA			6/21/2012				18				11				18				11
Columbus, OH			6/28/2012				3				3				3				3
						$	427			$	242			$	611			$	255

 

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

The weighted average amortization periods in years for the intangible assets acquired and liabilities assumed during the six months ended June 30, 2013 and 2012, respectively, were as follows:

 

Intangible Assets & Liabilities		2013				2012
In-place leases			9.3				11.0
Leasing costs			9.3				11.0
Customer relationships			14.2				15.2
Above market leases			—				10.4
Below market leases			—				11.6
All intangible assets & liabilities			10.9				12.4

Future Lease Payments

Future operating lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses, for the remainder of 2013 and each of the five succeeding fiscal years and thereafter is as follows (in thousands):

 

Year		Tenant Lease Payments
Six Months ending December 31, 2013		$	27,152
2014			54,022
2015			52,560
2016			49,330
2017			47,279
2018			45,230
Thereafter			255,699

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 property taxes on the respective properties in the event the tenants fail to pay them. The total annual property taxes for all properties owned by us at June 30, 2013, were $9.4 million.

Existing Real Estate Activity

On January 14, 2013, we extended the lease with the tenant occupying our property located in Champaign, Illinois. The lease covering this property was extended for an additional 11 years through December 2024. The lease was originally set to expire in December 2013. The lease provides for prescribed rent escalations over the life of the lease, with annualized straight line rents of approximately $1.4 million. In connection with the extension of the lease and the modification of certain terms under the lease, we paid $0.4 million in leasing commissions.

 

On April 10, 2013, we extended the lease with the tenant occupying our property located in Akron, Ohio. The lease covering this property was extended for an additional 10 years, through January 2024. The lease was originally set to expire in January 2014. The lease provides for prescribed rent escalations over the life of the lease, with annualized straight line rents of approximately $0.3 million. In connection with the extension of the lease and the modification of certain terms under the lease, we provided a tenant allowance of $0.5 million.

On April 11, 2013, we funded a $3.3 million 102,400 square foot recently completed expansion of our property located in Clintonville, Wisconsin. In connection with the expansion of the property, we executed a lease amendment to extend the lease for an additional eight years, through October 2028. The lease was originally set to expire in October 2020. The lease was also amended to provide for an increase to the rental income over the life of the lease, with annualized straight line rents of approximately $1.0 million, up from $0.6 million today.

Intangible Assets

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

 

		June 30, 2013								December 31, 2012
		Lease Intangibles				Accumulated Amortization				Lease Intangibles				Accumulated Amortization
In-place leases		$	37,101			$	(13,366	)		$	34,085			$	(12,125	)
Leasing costs			26,035				(8,087	)			24,071				(7,103	)
Customer relationships			28,373				(9,259	)			26,671				(8,345	)
		$	91,509			$	(30,712	)		$	84,827			$	(27,573	)

The estimated aggregate amortization expense for the remainder of 2013 and for each of the five succeeding fiscal years and thereafter is as follows (in thousands):

 

Year		Estimated Amortization Expense
Six Months ending December 31, 2013		$	4,001
2014			7,361
2015			6,838
2016			6,084
2017			5,890
2018			5,327
Thereafter			25,296