| Real Estate and Intangible Assets |
Real Estate and Intangible Assets
Real Estate
The following table sets forth the components of our investments in real estate as of September 30, 2016 and December 31, 2015, excluding real estate held for sale as of September 30, 2016 and December 31, 2015, respectively (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016 |
|
December 31, 2015 |
|
Real estate: |
|
|
|
|
|
Land |
|
$ |
102,101 |
|
|
$ |
97,117 |
|
|
Building |
|
644,662 |
|
|
635,728 |
|
|
Tenant improvements |
|
50,352 |
|
|
47,532 |
|
|
Accumulated depreciation |
|
(125,250 |
) |
|
(112,243 |
) |
|
Real estate, net |
|
$ |
671,865 |
|
|
$ |
668,134 |
|
|
Real estate depreciation expense on building and tenant improvements was $6.1 million and $17.9 million for the three and nine months ended September 30, 2016, respectively, and $5.7 million and $16.4 million for the three and nine months ended September 30, 2015, respectively.
2016 Real Estate Activity
During the nine months ended September 30, 2016, 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 |
Salt Lake City, UT |
|
5/26/2016 |
|
107,062 |
|
|
6 Years |
|
2 (3 Years and 2 Years) |
|
$ |
17,000 |
|
|
$ |
105 |
|
|
$ |
1,393 |
|
|
$ |
9,900 |
|
Fort Lauderdale, FL |
|
9/12/2016 |
|
119,224 |
|
|
9 Years |
|
2 (5 Years) |
|
23,900 |
|
|
74 |
|
|
1,974 |
|
|
14,100 |
|
Total |
|
|
|
226,286 |
|
|
|
|
|
|
$ |
40,900 |
|
|
$ |
179 |
|
|
$ |
3,367 |
|
|
$ |
24,000 |
|
In accordance with Accounting Standards Codification, or ASC, 805, "Business Combinations," we determined the fair value of the acquired assets related to the two properties acquired during the nine months ended September 30, 2016 as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location |
|
Land |
|
Building |
|
Tenant Improvements |
|
In-place Leases |
|
Leasing Costs |
|
Customer Relationships |
|
Below Market Leases |
|
Total Purchase Price |
Salt Lake City, UT |
|
$ |
3,008 |
|
|
$ |
8,973 |
|
|
$ |
1,685 |
|
|
$ |
1,352 |
|
|
$ |
337 |
|
|
$ |
1,675 |
|
|
$ |
(30 |
) |
|
$ |
17,000 |
|
Fort Lauderdale, FL |
|
4,117 |
|
|
13,961 |
|
|
1,555 |
|
|
2,003 |
|
|
1,100 |
|
|
1,415 |
|
|
(251 |
) |
|
23,900 |
|
|
|
$ |
7,125 |
|
|
$ |
22,934 |
|
|
$ |
3,240 |
|
|
$ |
3,355 |
|
|
$ |
1,437 |
|
|
$ |
3,090 |
|
|
$ |
(281 |
) |
|
$ |
40,900 |
|
Below is a summary of the total revenue and earnings recognized on the two properties acquired during the nine months ended September 30, 2016 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, |
|
For the nine months ended September 30, |
|
|
|
|
|
2016 |
|
2016 |
|
Location |
|
Acquisition Date |
|
Rental Revenue |
|
Earnings |
|
Rental Revenue |
|
Earnings |
|
Salt Lake City, UT |
|
5/26/2016 |
|
$ |
358 |
|
|
$ |
(22 |
) |
|
$ |
497 |
|
|
$ |
(143 |
) |
(1) |
Fort Lauderdale, FL |
|
9/12/2016 |
|
106 |
|
|
(60 |
) |
(2) |
106 |
|
|
(60 |
) |
(2) |
|
|
|
|
$ |
464 |
|
|
$ |
(82 |
) |
|
$ |
603 |
|
|
$ |
(203 |
) |
|
|
|
(1) |
Includes $0.1 million of non-recurring acquisition costs.
|
|
|
(2) |
Includes $0.07 million of non-recurring acquisition costs.
|
Pro Forma
The following table reflects pro-forma consolidated statements of operations as if the properties acquired during the nine months ended September 30, 2016, were acquired as of January 1, 2015, and the properties acquired during 2015, were acquired as of January 1, 2014. The pro-forma earnings for the nine months ended September 30, 2016 and 2015 were adjusted to assume that the acquisition-related costs were incurred as of the assumed acquisition date (dollars in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, |
|
For the nine months ended September 30, |
|
|
(unaudited) |
|
(unaudited) |
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Operating Data: |
|
|
|
|
|
|
|
|
Total operating revenue |
|
$ |
22,012 |
|
|
$ |
22,463 |
|
|
$ |
66,406 |
|
|
$ |
67,222 |
|
Total operating expenses |
|
(15,205 |
) |
|
(13,785 |
) |
|
(42,968 |
) |
|
(41,204 |
) |
Other expenses |
|
(6,612 |
) |
|
(8,159 |
) |
|
(21,453 |
) |
|
(24,499 |
) |
Net income |
|
195 |
|
|
519 |
|
|
1,985 |
|
|
1,519 |
|
Dividends attributable to preferred and senior common stock |
|
(2,256 |
) |
|
(1,286 |
) |
|
(5,050 |
) |
|
(3,818 |
) |
Net loss attributable to common stockholders |
|
$ |
(2,061 |
) |
|
$ |
(767 |
) |
|
$ |
(3,065 |
) |
|
$ |
(2,299 |
) |
Share and Per Share Data: |
|
|
|
|
|
|
|
|
Basic and diluted loss per share of common stock - pro forma |
|
$ |
(0.09 |
) |
|
$ |
(0.04 |
) |
|
$ |
(0.13 |
) |
|
$ |
(0.11 |
) |
Basic and diluted loss per share of common stock - actual |
|
$ |
(0.10 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.15 |
) |
|
$ |
(0.13 |
) |
Weighted average shares outstanding-basic and diluted |
|
23,509,054 |
|
|
21,403,808 |
|
|
22,915,086 |
|
|
20,820,559 |
|
Significant Real Estate Activity on Existing Assets
During the nine months ended September 30, 2016, we executed seven leases, which are summarized below (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location |
|
Lease Commencement Date |
|
Square Footage
(unaudited) |
|
Lease Term |
|
Renewal Options |
|
Annualized GAAP Rent |
|
Tenant Improvement |
|
Leasing Commissions |
Maple Heights, OH |
|
6/1/2016 |
|
40,606 |
|
(1) |
5.2 Years |
|
2 (3 year) |
|
$ |
109 |
|
|
$ |
— |
|
|
$ |
34 |
|
Bolingbrook, IL |
|
7/1/2016 |
|
13,816 |
|
(2) |
7.2 Years |
|
1 (5 year) |
|
70 |
|
|
69 |
|
|
28 |
|
Richmond, VA |
|
N/A |
|
42,213 |
|
(3) |
3 Years |
|
N/A |
|
228 |
|
|
— |
|
|
— |
|
Maple Heights, OH |
|
N/A |
|
180,000 |
|
(4) |
1 Year |
|
N/A |
|
530 |
|
|
60 |
|
|
— |
|
Burnsville, MN |
|
12/1/2016 |
|
12,663 |
|
(5) |
5.3 Years |
|
1 (5 year) |
|
143 |
|
|
— |
|
|
104 |
|
South Hadley, MA |
|
N/A |
|
150,000 |
|
(6) |
1 Year |
|
1 (1 year) |
|
288 |
|
|
— |
|
|
7 |
|
Bolingbrook, IL |
|
1/2/2017 |
|
20,719 |
|
(7) |
7.3 Years |
|
1 (5 year) |
|
107 |
|
|
204 |
|
|
48 |
|
|
|
(1) |
Tenant's lease is for 11.7% of the building. The building is now 63.5% leased.
|
|
|
(2) |
Tenant’s lease is for 24.9% of the building. The building is now 100.0% leased.
|
|
|
(3) |
Tenant extended their current lease for an additional 3 years, expiring December 2019. |
|
|
(4) |
Tenant extended their current lease for an additional year, expiring December 2019. The tenant also exercised their contraction right and downsized their square footage. The building is now 63.5% leased.
|
|
|
(5) |
Tenant's lease is for 11.0% of the building. The building is now 80.4% leased.
|
|
|
(6) |
Tenant extended their current lease for an additional year, expiring February 2018. |
|
|
(7) |
Tenant’s lease is for 37.3% of the building. The building is now 100.0% leased.
|
On May 31, 2016, we reached a legal settlement with the previous tenant at our currently vacant Newburyport, Massachusetts property to compensate us for deferred capital obligations and repairs they were required to perform during their tenancy. We recognized $0.3 million, recorded in other income on the condensed consolidated statement of operations, related to reimbursed deferred capital obligations, and received $0.9 million as a reimbursement of repairs incurred during the three and nine months ended September 30, 2016 in connection with the legal settlement received, which was recorded net against operating expenses on the condensed consolidated statement of operations.
2015 Real Estate Activity
Investment 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 |
|
|
$ |
112 |
|
|
$ |
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 |
|
|
$ |
518 |
|
|
$ |
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. The lease for 30% of the space expires in July 2030 and the lease for the remaining space expires in July 2022.
|
In accordance with ASC 805, we determined the fair value of the acquired assets and assumed liabilities related to the five properties acquired during the nine months ended September 30, 2015, as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location |
|
Land |
|
Building |
|
Tenant Improvements |
|
In-place Leases |
|
Leasing Costs |
|
Customer Relationships |
|
Above Market Leases |
|
Below 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 |
|
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 |
|
|
|
$ |
10,235 |
|
|
$ |
37,508 |
|
|
$ |
6,863 |
|
|
$ |
6,808 |
|
|
$ |
4,151 |
|
|
$ |
5,257 |
|
|
$ |
1,672 |
|
|
$ |
(1,246 |
) |
|
$ |
71,248 |
|
Below is a summary of the total revenue and earnings recognized on the five properties acquired during the three and 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 |
|
|
$ |
(57 |
) |
|
$ |
1,496 |
|
|
$ |
(22 |
) |
(1) |
Birmingham, AL |
|
3/20/2015 |
|
83 |
|
|
(28 |
) |
|
177 |
|
|
6 |
|
(2) |
Columbus, OH |
|
5/28/2015 |
|
177 |
|
|
(28 |
) |
|
244 |
|
|
32 |
|
(3) |
Salt Lake City, UT |
|
5/29/2015 |
|
572 |
|
|
14 |
|
|
780 |
|
|
122 |
|
(4) |
Atlanta, GA |
|
7/15/2015 |
|
274 |
|
|
28 |
|
(5) |
274 |
|
|
28 |
|
(5) |
|
|
|
|
$ |
1,762 |
|
|
$ |
(71 |
) |
|
$ |
2,971 |
|
|
$ |
166 |
|
|
|
|
(1) |
Includes $0.1 million of non-recurring acquisition costs.
|
|
|
(2) |
Includes $0.08 million of non-recurring acquisition costs.
|
|
|
(3) |
Includes $0.07 million of non-recurring acquisition costs.
|
|
|
(4) |
Includes $0.1 million of non-recurring acquisition costs.
|
|
|
(5) |
Includes $0.1 million of non-recurring acquisition costs.
|
Leasing Activity
During the nine months ended September 30, 2015, we amended nine 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 |
|
|
5.5 Years |
|
2 (5 year) |
|
239 |
|
|
100 |
|
|
32 |
|
Columbus, OH |
|
12/1/2016 |
|
9,484 |
|
(1) |
7.1 Years |
|
N/A |
|
1,246 |
|
|
142 |
|
|
29 |
|
Raleigh, NC |
|
8/1/2015 |
|
86,886 |
|
(2) |
12.4 Years |
|
2 (5 year) |
|
534 |
|
|
800 |
|
|
398 |
|
Indianapolis, IN |
|
8/1/2015 |
|
6,903 |
|
|
3 Years |
|
N/A |
|
111 |
|
|
64 |
|
|
16 |
|
Baytown, TX |
|
9/18/2015 |
|
6,791 |
|
(3) |
7 Years |
|
2 (5 year) |
|
132 |
|
|
360 |
|
|
71 |
|
Indianapolis, IN |
|
10/1/2015 |
|
1,427 |
|
(4) |
3 Years |
|
N/A |
|
22 |
|
|
— |
|
|
4 |
|
|
|
|
|
203,538 |
|
|
|
|
|
|
3,183 |
|
|
1,530 |
|
|
722 |
|
|
|
(1) |
The anchor tenant currently occupying 92.0% of the building will expand into the remaining space, currently occupied by another tenant through November 30, 2016.
|
|
|
(2) |
Tenant's lease is for 74.8% of the building. The building is now 93.2% leased.
|
|
|
(3) |
Tenant's lease is for 56.6% of the building. The building is now 56.6% leased.
|
|
|
(4) |
Tenant's lease is for 1.6% of the building. The building is now 95.9% 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 September 30, 2016 and December 31, 2015, excluding real estate held for sale as of September 30, 2016 and December 31, 2015, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016 |
|
December 31, 2015 |
|
|
|
Lease Intangibles |
|
Accumulated Amortization |
|
Lease Intangibles |
|
Accumulated Amortization |
|
In-place leases |
|
$ |
68,681 |
|
|
$ |
(26,469 |
) |
|
$ |
66,244 |
|
|
$ |
(22,679 |
) |
|
Leasing costs |
|
45,555 |
|
|
(17,320 |
) |
|
44,360 |
|
|
(14,774 |
) |
|
Customer relationships |
|
48,774 |
|
|
(16,456 |
) |
|
46,485 |
|
|
(14,722 |
) |
|
|
|
$ |
163,010 |
|
|
$ |
(60,245 |
) |
|
$ |
157,089 |
|
|
$ |
(52,175 |
) |
|
|
|
Deferred Rent Receivable/(Liability) |
|
Accumulated (Amortization)/Accretion |
|
Deferred Rent Receivable/(Liability) |
|
Accumulated (Amortization)/Accretion |
|
Above market leases |
|
$ |
10,292 |
|
|
$ |
(7,175 |
) |
|
$ |
10,176 |
|
|
$ |
(6,818 |
) |
|
Below market leases and deferred revenue |
|
(19,813 |
) |
|
8,538 |
|
|
(17,951 |
) |
|
8,294 |
|
|
|
|
$ |
(9,521 |
) |
|
$ |
1,363 |
|
|
$ |
(7,775 |
) |
|
$ |
1,476 |
|
|
Total amortization expense related to in-place leases, leasing costs and customer relationship lease intangible assets was $3.4 million and $9.9 million for the three and nine months ended September 30, 2016, respectively, and $3.3 million and $9.7 million for the three and nine months ended September 30, 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 and $0.4 million for the three and nine months ended September 30, 2016, respectively, and $0.1 million and $0.3 million for the three and nine months ended September 30, 2015, respectively, and is included in rental revenue in the condensed consolidated statement of operations. Total amortization related to below-market lease values was $0.3 million and $0.7 million for the three and nine months ended September 30, 2016, respectively, and $0.2 million and $0.7 million for the three and nine months ended September 30, 2015, respectively, and is included in rental revenue in the condensed consolidated statement of operations.
The weighted average amortization periods in years for the intangible assets acquired and liabilities assumed during the nine months ended September 30, 2016 and 2015, respectively, were as follows:
|
|
|
|
|
|
|
Intangible Assets & Liabilities |
|
2016 |
|
2015 |
In-place leases |
|
7.9 |
|
|
11.5 |
Leasing costs |
|
7.9 |
|
|
11.5 |
Customer relationships |
|
12.2 |
|
|
16.1 |
Above market leases |
|
— |
|
|
17.2 |
Below market leases |
|
7.9 |
|
|
13.5 |
All intangible assets & liabilities |
|
9.0 |
|
|
12.9 |
|