4. Real Estate and Intangible Assets

Real Estate

The following table sets forth the components of our investments in real estate as of March 31, 2016 and December 31, 2015 (dollars in thousands):

 

		March 31, 2016 (1)				December 31, 2015 (2)
Real estate:
Land		$	96,884			$	97,117
Building			632,609				635,728
Tenant improvements			47,508				47,532
Accumulated depreciation			(117,162	)			(112,243	)
Real estate, net		$	659,839			$	668,134

 

(1)	Does not include real estate held for sale as of March 31, 2016.

(2)	Does not include real estate held for sale as of December 31, 2015.

Real estate depreciation expense on building and tenant improvements were $5.9 million and $5.2 million for the three months ended March 31 2016 and 2015, respectively.

Pro Forma

The following table reflects pro-forma consolidated statements of operations as if the properties acquired during the three months ended March 31, 2016 and the twelve months ended December 31, 2015, respectively, were acquired as of January 1, 2015. We did not complete any acquisitions during the three months ended March 31, 2016, and pro-forma net loss is identical to the income statement for the same period. The pro-forma earnings for the three months ended March 31, 2014 were adjusted to assume that the acquisition-related costs were incurred as of the previous period (dollars in thousands, except per share amounts):

 

		For the three months ended March 31, (unaudited)
		2016				2015
Operating Data:
Total operating revenue		$	21,527			$	21,389
Total operating expenses			(13,257	)			(12,664	)
Other expenses			(7,417	)			(7,856	)
Net income			853	(1)			869
Dividends attributable to preferred and senior common stock			(1,279	)			(1,247	)
Net loss attributable to common stockholders		$	(426	)		$	(378	)
Share and Per Share Data:
Basic and diluted loss per share of common stock - pro forma		$	(0.02	)		$	(0.02	)
Basic and diluted loss per share of common stock - actual		$	(0.02	)		$	(0.03	)
Weighted average shares outstanding-basic and diluted			22,545,285				20,210,975

 

(1)	Includes a $0.04 million impairment charge recognized on our Dayton, Ohio property during the three months ended March 31, 2016.

Significant Real Estate Activity on Existing Assets

During the three months ended March 31, 2016, we executed a lease on one property, which is summarized below (dollars in thousands):

 

Location		Lease Commencement Date		Square Footage (unaudited)				Lease Term		Renewal Options		Annualized GAAP Rent				Tenant Improvement				Leasing Commissions
Bolingbrook, IL		7/1/2016			13,816	(1)		7.2 Years		1 (5 year)		$	70			$	69			$	28

 

(1)	Tenant’s lease is for 24.9% of the building. The building is now 62.7% leased.

2015 Real Estate Activity

Q1 2015 Investment Activity

During the three months ended March 31, 2015, we acquired two 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			$	112			$	2,708			$	14,573
Birmingham, AL		3/20/2015			30,850			8.5 Years		1 (5 years)			3,648				76				333				N/A
Total					186,834							$	28,348			$	188			$	3,041			$	14,573

 

(1)	The tenant occupying this property is subject to a gross lease.

In accordance with ASC 805, we determined the fair value of the acquired assets and assumed liabilities related to the two properties acquired during the three months ended March 31, 2015, as follows (dollars in thousands):

 

		Land				Building				Tenant Improvements				In-place Leases				Leasing Costs				Customer Relationships				Above Market Leases				Total Purchase Price
Richardson, TX		$	2,728			$	12,591			$	2,781			$	2,060			$	1,804			$	1,929			$	807			$	24,700
Birmingham, AL			650				1,683				351				458				146				360				—				3,648
		$	3,378			$	14,274			$	3,132			$	2,518			$	1,950			$	2,289			$	807			$	28,348

Below is a summary of the total revenue and earnings recognized on the two properties acquired during the three months ended March 31, 2015 (dollars in thousands):

 

				For the three months ended March 31,
				2015
Location		Acquisition Date		Rental Revenue				Earnings (1)
Richardson, TX		3/6/2015		$	182			$	51
Birmingham, AL		3/20/2015			11				4
				$	193			$	55

 

(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.

Q1 2015 Leasing Activity

During the three months ended March 31, 2015, we amended four of our leases, which are summarized below (dollars in thousands):

 

Location		New Lease Effective Date		Square Footage (unaudited)				New Lease Term		Renewal Options		Annualized GAAP Rent				Tenant Improvement				Leasing Commissions
Indianapolis, IN		1/1/2015			3,546			8.3 Years		N/A		$	64			$	64			$	28
Indianapolis, IN		2/1/2015			8,275			3.0 Years		N/A			124				—				—
Raleigh, NC		2/1/2015			58,926			5.5 Years		2 (5 year)			711				—				144
Raleigh, NC		2/1/2015			21,300	(1)		5.5 Years		2 (5 year)			239				100				32
					92,047							$	1,138			$	164			$	204

 

(1)	Tenant’s lease is for 18.3% of the building. The building is now 93.2% leased.

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 March 31, 2016 and December 31, 2015 respectively (in thousands):

 

		March 31, 2016 (1)								December 31, 2015 (2)
		Lease Intangibles				Accumulated Amortization				Lease Intangibles				Accumulated Amortization
In-place leases		$	65,882			$	(23,941	)		$	66,244			$	(22,679	)
Leasing costs			44,415				(15,760	)			44,360				(14,774	)
Customer relationships			46,468				(15,493	)			46,485				(14,722	)
		$	156,765			$	(55,194	)		$	157,089			$	(52,175	)
		Deferred Rent Receivable/(Liability)				Accumulated (Amortization)/Accretion				Deferred Rent Receivable/(Liability)				Accumulated (Amortization)/Accretion
Above market leases		$	10,176			$	(6,936	)		$	10,176			$	(6,818	)
Below market leases and deferred revenue			(17,273	)			8,110				(17,951	)			8,294
		$	(7,097	)		$	1,174			$	(7,775	)		$	1,476

 

(1)	Does not include real estate held for sale as of March 31, 2016.

(2)	Does not include real estate held for sale as of December 31, 2015.

Total amortization expense related to in-place leases, leasing costs and customer relationship lease intangible assets was $3.3 million and $3.0 million for the three months ended March 31, 2016 and 2015, 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 for both the three months ended March 31, 2016 and 2015, respectively, and is included in rental income in the condensed consolidated statement of operations. Total amortization related to below-market lease values was $0.2 million for both the three months ended March 31, 2016 and 2015, respectively, and is included in rental income in the condensed consolidated statement of operations.