4. Real Estate and Intangible Assets

Real Estate

The following table sets forth the components of our investments in real estate as of December 31, 2013 and 2012 (dollars in thousands):

 

		December 31, 2013				December 31, 2012
Real estate:
Land		$	79,153			$	69,126
Building and improvements			527,230				442,451
Tenant improvements			35,970				22,176
Accumulated depreciation			(81,241	)			(65,730	)
Real estate, net		$	561,112			$	468,023

 

2013 Real Estate Activity

During the year ended December 31, 2013, we acquired seven 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			5/9/2013				170,000			10 years			2 (5 years)				13,388				186				1,173				—
Blaine, MN			5/10/2013				92,275			7 years			2 (5 years)				14,450				79				1,475				8,200
Austin, TX			7/9/2013				320,000			7 years			3 (3 years)				57,000				155				4,641				35,300
Allen, TX			7/10/2013				115,200			9 years			2 (5 years)				15,150				81				1,478				8,900
Englewood, CO			12/11/2013				99,797			8 years			2 (5 years)				18,250				66				1,497				11,315
Novi, MI			12/27/2013				156,200			10 years			1 (5 years)				7,300				42				684				4,380
Total							1,085,129									$	134,438			$	761			$	12,399			$	71,795

 

(1)	The Clintonville, WI property was originally acquired in November 2005 for $5.3 million. After the expansion was 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 and assumed liabilities related to the seven properties acquired during the year ended December 31, 2013 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
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
Austin, TX			2,330				37,207				6,814				6,118				1,906				3,793				—				(1,168	)			57,000
Allen, TX			2,699				5,758				2,187				1,525				1,146				1,499				336				—				15,150
Englewood, CO			1,503				9,889				1,850				2,036				1,178				1,850				—				(56	)			18,250
Novi, MI			352				5,354				272				663				434				225				—				—				7,300
		$	10,028			$	80,011			$	13,385			$	13,358			$	6,225			$	9,069			$	336			$	(1,224	)		$	131,188

Below is a summary of the total revenue and earnings recognized on the seven properties acquired during the year ended December 31, 2013 (dollars in thousands):

 

						For the year ended December 31,
						2013
Location		Acquisition Date				Rental Revenue				Earnings (1)
Egg Harbor Township, NJ			3/28/2013			$	373			$	209
Vance, AL			5/9/2013				757				363
Blaine, MN			5/10/2013				947				424
Austin, TX			7/9/2013				2,299				655
Allen, TX			7/10/2013				685				300
Englewood, CO			12/11/2013				85				25
Novi, MI			12/27/2013				9				5
						$	5,155			$	1,981

 

(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

We acquired seven properties during the year ended December 31, 2013, eight properties during the year ended December 31, 2012, and seven properties during the year ended December 31, 2011. The following table reflects pro-forma consolidated statements of operations as if the properties were acquired as of the beginning of the previous period. The pro-forma earnings for the years ended December 31, 2013, 2012 and 2011 were adjusted assume that acquisition-related costs were incurred as of the beginning of the previous period (dollars in thousands, except per share data):

 

		For the year ended December 31,
		2013				2012				2011
		(unaudited)
Operating Data:
Total operating revenue		$	67,818			$	68,940			$	56,954
Total operating expenses			(36,979	)			(37,457	)			(29,013	)
Other expenses			(29,283	)			(28,754	)			(21,797	)
Net income			1,556				2,729				6,144
Dividends attributable to preferred and senior common stock			(4,394	)			(4,206	)			(4,156	)
Net (loss) income available to common stockholders		$	(2,838	)		$	(1,477	)			1,988
Share and Per Share Data:
Basic (loss) earnings per share of common stock		$	(0.22	)		$	(0.13	)		$	0.19
Diluted (loss) earnings per share of common stock		$	(0.22	)		$	(0.13	)		$	0.19
Weighted average shares outstanding-basic			13,164,244				10,953,325				10,236,859
Weighted average shares outstanding-diluted			13,164,244				10,953,325				10,288,711

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 Canton, 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 under the original lease.

On May 14, 2013, our tenant occupying our Dayton, Ohio property notified us of their intention to exercise their early termination option. The lease requires the tenant to continue to pay monthly rent through the effective termination date of June 30, 2015.

On July 17, 2013, we executed a lease with a tenant to occupy our previously vacant property located in Hazelwood, Missouri. The lease commenced on August 1, 2013 and expires in May 2023. The tenant has two options to purchase the property: one option in March 2017 and the other option in May 2023. The lease provides for prescribed rent escalations over the life of the lease, with annualized straight line rents of approximately $0.2 million. In connection with the extension of the lease and the modification of certain terms under the lease, we paid $0.1 million in leasing commissions and $0.3 million in tenant improvements.

 

On August 7, 2013, we extended the lease with the tenant occupying our property located in South Hadley, Massachusetts. The lease covering this property was extended for an additional year through January 2015. The lease was originally set to expire in January 2014. The lease provides a scheduled rent increase over the previous 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 paid $3,400 in leasing commissions.

On August 15, 2013, we extended the lease with the tenant occupying our property located in Lexington, North Carolina. The lease covering this property was extended for an additional 12 years through April 2026. The lease was originally set to expire in April 2014. The lease provides for prescribed rent escalations over the life of the lease, with annualized straight line rents of approximately $0.4 million. In connection with the extension of the lease and the modification of certain terms under the lease, we provided a tenant allowance of $0.05 million, and we paid $0.2 million in leasing commissions

On August 15, 2013, we extended the lease with the tenant occupying our property located in Crenshaw, Pennsylvania. The lease covering this property was extended for an additional 12 years through April 2026. The lease was originally set to expire in April 2014. 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 the modification of certain terms under the lease, we provided a tenant allowance of $0.08 million, and we paid $0.4 million in leasing commissions.

On November 11, 2013, we amended the lease with the tenant occupying our property located in Canton, North Carolina. The amended lease provided that we construct an expansion to the premises of approximately 150,000 rentable square feet. The term of the lease will be extended so that after substantial completion of the expansion, the term remaining under the lease is 20 years. The lease was originally set to expire in July 2024. During the extended term of the lease, rent shall be equal to our incurred construction costs times 9.25% per annum, and subject to a 2% rental increase per year.

2012 Real Estate Activity

During the year ended December 31, 2012, we acquired eight 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 / Assumed
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				49				684				5,000
New Albany, OH			6/5/2012				89,000			10.5 years			2 (5 years each)				13,333				196				1,361				N/A
Columbus, GA			6/21/2012				32,000			11.5 years			2 (5 years each)				7,320				71				656				4,750
Columbus, OH			6/28/2012				31,293			10 years			N/A				4,037				66				342				N/A
Jupiter, FL			9/26/2012				60,000			10.5 years			2 (5 years each)				15,500				61				1,372				10,758	(1)
Fort Worth, TX			11/8/2012				208,234			14 years			N/A				19,950				128				1,628				14,168	(1)
Columbia, SC			11/21/2012				146,483			10 years			3 (5 years each)				29,150				105				2,614				19,000
Total							972,000									$	107,165			$	778			$	9,646			$	53,676

 

(1)	Debt assumed as part of acquisition.

 

In accordance with ASC 805, we determined the fair value of acquired assets related to the eight properties acquired during the year ended December 31, 2012 as follows (dollars in thousands):

 

		Land				Building				Tenant Improvements				In-place Leases				Leasing Costs				Customer Relationships				Above Market Leases				Below Market Leases				Discount/ (Premium) on Assumed Debt				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
Jupiter, FL			1,160				11,249				745				1,603				701				909				—				—				(867	)			15,500
Fort Worth, TX			963				15,507				140				1,579				2,107				517				—				—				(863	)			19,950
Columbia, SC			1,905				17,765				2,883				2,454				1,490				1,919				734				—				—				29,150
		$	8,524			$	69,076			$	7,862			$	9,467			$	7,233			$	5,946			$	894			$	(107	)		$	(1,730	)		$	107,165

Below is a summary of the total revenue and earnings recognized on the eight properties acquired during the year ended December 31, 2012 (dollars in thousands):

 

						For the Year Ended December 31,
						2012
Location		Acquisition Date				Rental Revenue				Earnings (1)
Ashburn, VA			1/25/2012			$	925			$	555
Ottumwa, IA			5/30/2012				408				200
New Albany, OH			6/5/2012				776				445
Columbus, GA			6/21/2012				346				186
Columbus, OH			6/28/2012				168				65
Jupiter, FL			9/26/2012				362				191
Fort Worth, TX			11/8/2012				240				118
Columbia, SC			11/21/2012				282				123
						$	3,507			$	1,883

 

(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.

Future Lease Payments

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

 

Year		Tenant Lease Payments
2014		$	62,160
2015			59,885
2016			56,004
2017			54,332
2018			52,527
Thereafter			286,016

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 as of December 31, 2013, were $10.8 million.

 

Intangible Assets

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

 

		December 31, 2013								December 31, 2012
		Lease Intangibles				Accumulated Amortization				Lease Intangibles				Accumulated Amortization
In-place leases		$	47,442			$	(15,158	)		$	34,085			$	(12,125	)
Leasing costs			31,339				(9,323	)			24,071				(7,103	)
Customer relationships			35,739				(10,407	)			26,671				(8,345	)
		$	114,520			$	(34,888	)		$	84,827			$	(27,573	)

The weighted average amortization periods in years for the intangible assets acquired and liabilities assumed during the years ended December 31, 2013 and 2012, respectively, were as follows:

 

Intangible Assets & Liabilities		2013				2012
In-place leases			8.9				11.2
Leasing costs			8.9				11.2
Customer relationships			13.7				14.6
Above market leases			8.8				10.1
Below market leases			7.5				11.3
All intangible assets & liabilities			10.0				12.1

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

 

Year		Estimated Amortization Expense
2014		$	10,490
2015			9,903
2016			9,075
2017			8,898
2018			8,330
Thereafter			32,936