Real Estate and Intangible Assets (Tables)
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12 Months Ended |
Dec. 31, 2017 |
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| Real Estate [Abstract] |
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| Components of Investments in Real Estate |
The following table sets forth the components of our investments in real estate as of December 31, 2017 and 2016, respectively, excluding real estate held for sale as of December 31, 2017 and 2016, respectively (dollars in thousands):
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December 31, 2017 |
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December 31, 2016 |
Real estate: |
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Land |
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$ |
121,783 |
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$ |
104,719 |
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Building and improvements |
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708,948 |
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662,661 |
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Tenant improvements |
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63,122 |
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|
54,369 |
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Accumulated depreciation |
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(149,417 |
) |
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(131,661 |
) |
Real estate, net |
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$ |
744,436 |
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$ |
690,088 |
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| Summary of Properties Acquired |
During the year ended December 31, 2017 and 2016 we acquired seven and three properties, respectively, which are summarized below (dollars in thousands):
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Year Ended |
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Aggregate Square Footage |
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Weighted Average Lease Term |
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Aggregate Purchase Price |
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Acquisition Costs |
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Aggregate Annualized GAAP Rent |
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Aggregate Debt Issued or Assumed |
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December 31, 2017 |
(1) |
871,038 |
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10.1 Years |
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$ |
132,157 |
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$ |
1,356 |
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(3) |
$ |
15,507 |
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$ |
54,887 |
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(4) |
December 31, 2016 |
(2) |
329,620 |
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10.5 Years |
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$ |
66,570 |
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$ |
179 |
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$ |
5,589 |
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$ |
38,800 |
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(1) |
On June 22, 2017, we acquired a 60,016 square foot property in Conshohocken, Pennsylvania for $15.7 million. We assumed $11.2 million of mortgage debt in connection with this acquisition. The annualized GAAP rent on the 8.5 year lease is $1.7 million. On July 7, 2017, we acquired a 300,000 square foot property in Philadelphia, Pennsylvania for $27.1 million. We issued $14.9 million of mortgage debt with a fixed interest rate of 3.75% in connection with this acquisition. The annualized GAAP rent on the 15.4 year lease is $2.3 million. On July 31, 2017, we acquired a 306,435 square foot three property portfolio located in Maitland, Florida for $51.6 million. We issued $28.8 million of mortgage debt with a fixed interest rate of 3.89% in connection with this acquisition. This portfolio has a weighted average lease term of 8.6 years, and annualized GAAP rent of $6.8 million. On December 1, 2017, we acquired a 102,559 square foot property in Columbus, Ohio for $17.3 million. The annualized GAAP rent on the weighted average 6.9 year leases is $1.7 million. On December 1, 2017, we acquired a 102,028 square foot property in Salt Lake City, Utah for $20.5 million. The annualized GAAP rent on the 10.1 year lease is $3.0 million.
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(2) |
On May 26, 2016, we acquired a 107,062 square foot property in Salt Lake City, Utah for $17.0 million. We borrowed $9.9 million to fund the acquisition. The annualized GAAP rent on the 6.0 year lease is $1.4 million. On September 12, 2016 we acquired a 119,224 square foot property in Fort Lauderdale, Florida for $23.9 million. We borrowed $14.1 million to fund the acquisition. The annualized GAAP rent on the 9.0 year lease is $2.0 million. On December 14, 2016, we acquired a 103,334 square foot property in King of Prussia, Pennsylvania for $25.7 million, including $0.2 million of acquisition-related costs that were allocated among the identifiable assets acquired. These acquisition-related costs are not included in the aggregated costs in the table above. We borrowed $14.8 million to fund the acquisition. The annualized GAAP rent on the 15.0 year lease is $2.2 million. Our King of Prussia, PA acquisition in the fourth quarter was accounted for as an asset acquisition under ASC 360.
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(3) |
We adopted ASU 2017-01 during the quarter ended December 31, 2016. As a result, we treated our acquisitions during the year ended December 31, 2017 as asset acquisitions rather than business combinations. As a result of this treatment, we capitalized $1.4 million of acquisition costs that would otherwise have been expensed under business combination treatment.
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(4) |
We assumed an interest rate swap in connection with $11.2 million of assumed debt on our Conshohocken, Pennsylvania acquisition, pursuant to which we will pay our counterparty a fixed interest rate of 1.80%, and receive a variable interest rate of one month LIBOR from our counterparty. Our total interest rate is fixed at 3.55%. The interest rate swap had a fair value of $0.04 million upon the date of assumption, and subsequently increased in value to $0.3 million at December 31, 2017. We have elected to treat this interest rate swap as a cash flow hedge, and all changes in fair market value will be recorded to accumulated other comprehensive income on the consolidated balance sheets.
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| Fair Value of Acquired Assets and Liabilities Assumed |
We determined the fair value of assets acquired and liabilities assumed related to the properties acquired during the year ended December 31, 2017 and 2016, respectively, as follows (dollars in thousands):
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Business Combinations |
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Year ended December 31, 2017 |
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Year ended December 31, 2016 |
Acquired assets and liabilities |
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Purchase price |
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Purchase price |
Land |
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$ |
— |
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$ |
7,125 |
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Building and improvements |
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— |
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22,934 |
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Tenant Improvements |
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— |
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3,240 |
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In-place Leases |
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— |
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3,355 |
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Leasing Costs |
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— |
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1,437 |
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Customer Relationships |
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— |
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3,090 |
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Above Market Leases |
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— |
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— |
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Below Market Leases |
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— |
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(281 |
) |
Total Purchase Price |
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$ |
— |
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$ |
40,900 |
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Asset Acquisitions |
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Year ended December 31, 2017 |
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Year ended December 31, 2016 |
Acquired assets and liabilities |
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Purchase price |
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Purchase price |
Land |
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$ |
21,509 |
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$ |
3,681 |
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Building |
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68,617 |
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11,682 |
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Tenant Improvements |
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9,977 |
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4,057 |
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In-place Leases |
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12,018 |
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2,669 |
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Leasing Costs |
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7,066 |
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1,987 |
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Customer Relationships |
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10,806 |
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1,406 |
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Above Market Leases |
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3,824 |
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188 |
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Below Market Leases |
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(2,101 |
) |
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— |
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Discount on Assumed Debt |
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399 |
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— |
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Fair Value of Interest Rate Swap Assumed |
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42 |
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— |
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Total Purchase Price |
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$ |
132,157 |
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$ |
25,670 |
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Total Purchase Price on all Acquisitions |
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$ |
132,157 |
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$ |
66,570 |
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| Schedule of Revenue and Earnings Recognized on Properties Acquired |
Below is a summary of the total revenue and earnings recognized on the two and six asset acquisitions treated as business combinations completed during the years ended December 31, 2016 and 2015 respectively (dollars in thousands):
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For the year ended December 31, 2016 |
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For the year ended December 31, 2015 |
Rental Revenue |
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$ |
1,462 |
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$ |
4,919 |
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Earnings |
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162 |
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63 |
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| Pro-Forma Condensed Consolidated Statements of Operations |
The following table reflects pro-forma consolidated statements of operations as if the business combinations completed in 2016, were completed as of January 1, 2015, and the business combinations completed during 2015, were completed as of January 1, 2014. The pro-forma earnings for the years ended December 31, 2016 and 2015 were adjusted to assume that the acquisition-related costs were incurred as of the beginning of the comparative period (dollars in thousands, except per share amounts):
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For the year ended December 31, |
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(unaudited) |
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2016 |
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2015 |
Operating Data: |
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Total operating revenue |
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$ |
88,304 |
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$ |
89,720 |
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Total operating expenses |
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(56,697 |
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(54,480 |
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Other expenses, net |
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(27,429 |
) |
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(31,014 |
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Net income |
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4,178 |
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4,226 |
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Dividends attributable to preferred and senior common stock |
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(7,656 |
) |
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(5,101 |
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Net loss attributable to common stockholders |
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$ |
(3,478 |
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$ |
(875 |
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Share and Per Share Data: |
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Basic and diluted loss per share of common stock - pro forma |
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$ |
(0.15 |
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$ |
(0.04 |
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Basic and diluted loss per share of common stock - actual |
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$ |
(0.16 |
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$ |
(0.07 |
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Weighted average shares outstanding-basic and diluted |
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23,193,962 |
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21,159,597 |
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| Summary of Leased Properties |
During the year ended December 31, 2017 and 2016, we executed nine and nine leases, respectively, which are aggregated below (dollars in thousands):
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Year Ended |
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Aggregate Square Footage |
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Weighted Average Lease Term |
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Aggregate Annualized GAAP Rent |
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Aggregate Tenant Improvement |
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Aggregate Leasing Commissions |
December 31, 2017 |
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880,749 |
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9.2 Years |
(1) |
$ |
6,976 |
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$ |
1,264 |
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$ |
742 |
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December 31, 2016 |
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551,335 |
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3.9 Years |
(2) |
$ |
2,478 |
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$ |
1,244 |
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$ |
436 |
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(1) |
Weighted average lease term is weighted according to the annualized GAAP rent earned by each lease. Our leases have terms ranging from 1 year to 11.3 years.
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(2) |
Weighted average lease term is weighted according to the annualized GAAP rent earned by each lease. Our leases have terms ranging from 1 year to 7.7 years.
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| Future Operating Lease Payments from Tenants under Non-Cancelable Leases |
Future operating lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses and excluding real estate held for sale as of December 31, 2017, for each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):
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Year |
Tenant Lease Payments |
2018 |
$ |
98,379 |
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2019 |
98,805 |
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2020 |
91,777 |
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2021 |
83,241 |
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2022 |
76,481 |
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Thereafter |
313,241 |
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$ |
761,924 |
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| Carrying Value of Intangible Assets and Accumulated Amortization |
The following table summarizes the carrying value of intangible assets, liabilities and the accumulated amortization for each intangible asset and liability class as of December 31, 2017 and 2016, excluding real estate held for sale as of December 31, 2017 and 2016, respectively (in thousands):
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December 31, 2017 |
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December 31, 2016 |
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Lease Intangibles |
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Accumulated Amortization |
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Lease Intangibles |
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Accumulated Amortization |
In-place leases |
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$ |
80,355 |
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$ |
(33,201 |
) |
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$ |
71,482 |
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$ |
(28,182 |
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Leasing costs |
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55,695 |
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(23,016 |
) |
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48,000 |
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(18,599 |
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Customer relationships |
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58,892 |
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(19,798 |
) |
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50,252 |
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(17,400 |
) |
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$ |
194,942 |
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$ |
(76,015 |
) |
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$ |
169,734 |
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$ |
(64,181 |
) |
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Deferred Rent Receivable/(Liability) |
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Accumulated (Amortization)/Accretion |
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Deferred Rent Receivable/(Liability) |
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Accumulated (Amortization)/Accretion |
Above market leases |
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$ |
14,425 |
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$ |
(7,962 |
) |
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$ |
10,479 |
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$ |
(7,296 |
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Below market leases and deferred revenue |
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(26,725 |
) |
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10,475 |
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(21,606 |
) |
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8,959 |
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$ |
(12,300 |
) |
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$ |
2,513 |
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$ |
(11,127 |
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$ |
1,663 |
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| Weighted Average Amortization Period for Intangible Assets Acquired and Liabilities Assumed |
The weighted average amortization periods in years for the intangible assets acquired and liabilities assumed during the years ended December 31, 2017 and 2016, respectively, were as follows:
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Intangible Assets & Liabilities |
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2017 |
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2016 |
In-place leases |
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9.4 |
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11.5 |
Leasing costs |
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9.4 |
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11.5 |
Customer relationships |
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12.8 |
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15.8 |
Above market leases |
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10.0 |
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5.2 |
Below market leases |
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8.4 |
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7.9 |
All intangible assets & liabilities |
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10.2 |
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12.5 |
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| Estimated Aggregate Amortization Expense |
The estimated aggregate amortization expense to be recorded for in-place leases, leasing costs and customer relationships for each of the five succeeding fiscal years and thereafter is as follows, excluding real estate held for sale as of December 31, 2017 (dollars in thousands):
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Year |
Estimated Amortization Expense
of In-Place Leases, Leasing
Costs and Customer
Relationships |
2018 |
$ |
19,100 |
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2019 |
19,086 |
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2020 |
17,323 |
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2021 |
14,808 |
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2022 |
12,561 |
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Thereafter |
36,049 |
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$ |
118,927 |
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| Summary of Estimated Aggregate Rental Income |
The estimated aggregate rental income to be recorded for the amortization of both above and below market leases for each of the five succeeding fiscal years and thereafter is as follows, excluding real estate held for sale as of December 31, 2017 (dollars in thousands):
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Year |
Net Increase to Rental Income
Related to Above and Below
Market Leases |
2018 |
$ |
1,023 |
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2019 |
1,023 |
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2020 |
1,079 |
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2021 |
1,021 |
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2022 |
1,180 |
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Thereafter |
4,291 |
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$ |
9,617 |
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(1) Does not include ground lease amortization of $170.
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