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Investment in Real Estate | 9 Months Ended
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Sep. 30, 2012
Investment in Real Estate | 3. Investment in Real Estate Acquisitions During the nine months ended September 30, 2012, we acquired one industrial property comprising approximately 0.4 million square feet of GLA through the purchase of the 85% equity interest in one property from the institutional investor in the 2003 Net Lease Joint Venture (see Note 4) and several land parcels. The gross agreed-upon fair value for the industrial property was $21,819, excluding costs incurred in conjunction with the acquisition of the industrial property. The acquisition was funded through the assumption of a mortgage loan, which was subsequently paid off on the date of acquisition and whose carrying value approximated fair market value, in the amount of $12,026 and a cash payment of $8,324 (85% of the net fair value of the acquisition). We accounted for this transaction as a step acquisition utilizing the purchase method of accounting. Due to the change in control that occurred, we recorded a gain during the nine months ended September 30, 2012 of approximately $776 related to the difference between our carrying value and fair value of our equity interest on the acquisition date. The purchase price of the land parcels was approximately $46,675, excluding costs incurred in conjunction with the acquisition of the land parcels. During the nine months ended September 30, 2011, we acquired one industrial property comprising approximately 0.7 million square feet of GLA through the purchase of the 85% equity interest in one property from the institutional investor in the 2003 Net Lease Joint Venture. The gross agreed-upon fair value for the industrial property was $30,625, excluding costs incurred in conjunction with the acquisition of the industrial property. The acquisition was funded through the assumption of a mortgage loan, whose carrying value approximated fair market value, in the amount of $24,417 and a cash payment of $5,277 (85% of the net fair value of the acquisition). We accounted for this transaction as a step acquisition utilizing the purchase method of accounting. Due to the change in control that occurred, we recorded a gain during the nine months ended September 30, 2011 of approximately $689 related to the difference between our carrying value and fair value of our equity interest on the acquisition date. Intangible Assets (Liabilities) Subject to Amortization in the Period of Acquisition The fair value at the date of acquisition of in-place leases, tenant relationships, above market leases and below market leases recorded due to the real estate property acquired during the nine months ended September 30, 2012 and 2011, which is recorded as deferred leasing intangibles, is as follows:
|  | Nine Months Ended September 30, 2012 |  |  | Nine Months Ended September 30, 2011 |
In-Place Leases |  | $ | 1,750 |  |  | $ | 2,511 |
Tenant Relationships |  | $ | 1,012 |  |  | $ | 1,553 |
Above Market Leases |  | $ | — |  |  | $ | 2,883 |
Below Market Leases |  | $ | (102 | ) |  | $ | — |
The weighted average life in months of in-place leases, tenant relationships, above market leases and below market leases recorded at the time of acquisition as a result of the real estate property acquired during the nine months ended September 30, 2012 and 2011 is as follows:
|  | Nine Months Ended September 30, 2012 |  |  | Nine Months Ended September 30, 2011 |
In-Place Leases |  |  | 118 |  |  |  | 56 |
Tenant Relationships |  |  | 178 |  |  |  | 116 |
Above Market Leases |  |  | N/A |  |  |  | 56 |
Below Market Leases |  |  | 118 |  |  |  | N/A |
Sales and Discontinued Operations During the nine months ended September 30, 2012, we sold 25 industrial properties comprising approximately 4.1 million square feet of GLA and one land parcel. Gross proceeds from the sales of the 25 industrial properties and one land parcel were approximately $80,374. The gain on sale of real estate was approximately $15,782, $12,005 of which is shown in discontinued operations. The 25 sold industrial properties meet the criteria to be included in discontinued operations. Therefore the results of operations and gain on sale of real estate for the 25 industrial properties sold are included in discontinued operations. The results of operations and gain on sale of real estate for the one land parcel that does not meet the criteria to be included in discontinued operations are included in continuing operations. At September 30, 2012, we had four industrial properties comprising approximately 0.2 million square feet of GLA held for sale. The results of operations of the four industrial properties held for sale at September 30, 2012 are included in discontinued operations. There can be no assurance that such industrial properties held for sale will be sold. Income from discontinued operations for the nine months ended September 30, 2011 reflects the results of operations of the 25 industrial properties that were sold during the nine months ended September 30, 2012, the results of operations of 36 industrial properties that were sold during the year ended December 31, 2011, the results of operations of the four industrial properties identified as held for sale at September 30, 2012 and the gain on sale of real estate relating to 30 industrial properties that were sold during the nine months ended September 30, 2011. The following table discloses certain information regarding the industrial properties included in discontinued operations for the three and nine months ended September 30, 2012 and 2011:
|  | Three Months Ended September 30, 2012 |  |  | Three Months Ended September 30, 2011 |  |  | Nine Months Ended September 30, 2012 |  |  | Nine Months Ended September 30, 2011 |
Total Revenues |  | $ | 1,778 |  |  | $ | 4,271 |  |  | $ | 7,121 |  |  | $ | 14,394 |
Property Expenses |  |  | (635 | ) |  |  | (1,640 | ) |  |  | (2,852 | ) |  |  | (5,838 | )
Impairment of Real Estate |  |  | — |  |  |  | (1,387 | ) |  |  | (1,411 | ) |  |  | (4,828 | )
Depreciation and Amortization |  |  | (137 | ) |  |  | (1,150 | ) |  |  | (1,263 | ) |  |  | (3,320 | )
Interest Expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (63 | )
Gain on Sale of Real Estate |  |  | 4,420 |  |  |  | 6,010 |  |  |  | 12,005 |  |  |  | 13,351 |
Provision for Income Taxes |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (2,048 | )
Income from Discontinued Operations |  | $ | 5,426 |  |  | $ | 6,104 |  |  | $ | 13,600 |  |  | $ | 11,648 |
At September 30, 2012 and December 31, 2011, we had notes receivable outstanding of approximately $41,324 and $55,502, net of a discount of $271 and $319, respectively, which are included as a component of Prepaid Expenses and Other Assets, Net. At September 30, 2012 and December 31, 2011, the fair value of the notes receivable was $44,350 and $58,734, respectively. The fair value of our notes receivable was determined by discounting the future cash flows using current rates at which similar loans with similar remaining maturities would be made to other borrowers. The current market rates we utilized were internally estimated; therefore, we have concluded that our determination of fair value of our notes receivable was primarily based upon Level 3 inputs, as discussed below. In 2009, we originated a mortgage loan receivable with a purchaser of one of our industrial properties. During July 2012, we were notified that the sole tenant in the industrial property that serves as collateral for the mortgage loan receivable filed for Chapter 7 bankruptcy. As of the date of this filing, the mortgagor is current on its loan payments and we are not aware of any information that would cause us to believe that the mortgagor will not pay us all amounts due on the mortgage loan receivable. As of September 30, 2012, the mortgage loan receivable had an outstanding principal balance of $7,693, offset by an unamortized discount of $271, resulting in a carrying value of $7,422. Impairment Charges The net impairment charges for assets that qualify to be classified as held for sale are calculated as the difference of the carrying value of the properties and land parcels over the fair value less costs to sell. On the date an asset no longer qualifies to be classified as held for sale, the carrying value must be reestablished at the lower of the estimated fair market value of the asset or the carrying value of the asset prior to held for sale classification, adjusted for any depreciation and amortization that would have been recorded if the asset had not been classified as held for sale. Catch-up depreciation and amortization has been recorded during the three and nine months ended September 30, 2012 and 2011, if applicable, for certain assets that are no longer classified as held for sale. The net impairment charges recorded during the nine months ended September 30, 2012 are due to updated fair market values for certain industrial properties whose estimated fair market values have changed since December 31, 2011 and were either sold or were classified as held for sale at December 31, 2011, but no longer qualify to be classified as held for sale at September 30, 2012. During the three and nine months ended September 30, 2012 and 2011, we recorded the following net non-cash impairment charges:
|  | Three Months Ended September 30, 2012 |  |  | Three Months Ended September 30, 2011 |  |  | Nine Months Ended September 30, 2012 |  |  | Nine Months Ended September 30, 2011 |
Operating Properties—Held for Sale and Sold Assets |  | $ | — |  |  | $ | 1,387 |  |  | $ | 1,411 |  |  | $ | 4,828 |
Impairment—Discontinued Operations |  | $ | — |  |  | $ | 1,387 |  |  | $ | 1,411 |  |  | $ | 4,828 |
Land Parcels—Sold Assets |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (5,879 | )
Operating Properties—Held for Use |  |  | — |  |  |  | 1,173 |  |  |  | (165 | ) |  |  | (617 | )
Land Parcels—Held for Use |  |  | — |  |  |  | (40 | ) |  |  | — |  |  |  | (635 | )
Impairment—Continuing Operations |  | $ | — |  |  | $ | 1,133 |  |  | $ | (165 | ) |  | $ | (7,131 | )
Total Net Impairment |  | $ | — |  |  | $ | 2,520 |  |  | $ | 1,246 |  |  | $ | (2,303 | )
The accounting guidance for the fair value measurement provisions for the impairment of long lived assets recorded at fair value establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The fair market values were determined using widely accepted valuation techniques including discounted cash flow analyses using expected cash flows, internal valuations of real estate and third party offers. For operational real estate assets, the most significant assumptions used in the discounted cash flow analyses included the discount rate, projected occupancy levels, market rental rates, capital expenditures, and the terminal capitalization rate. For the valuation of land parcels, we reviewed recent comparable sales transactions, to the extent available, or if not available, we considered older comparable transactions, adjusted upward or downward to reflect management’s assumptions about current market conditions. In all cases, members of our management team that were responsible for the individual markets where the land parcels were located determined the internal valuations. Valuations based on third party offers include bona fide contract prices and letter of intent amounts that we believe are indicative of fair value. The following table presents information about our assets that were measured at fair value on a non-recurring basis during the nine months ended September 30, 2011. There were no assets measured at fair value as of September 30, 2012. The table indicates the fair value hierarchy of the valuation techniques we utilized to determine fair value.
|  |  |  |  | Fair Value Measurements on a Non-Recurring Basis Using: |
Description |  | Nine Months Ended September 30, 2011 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Unobservable Inputs (Level 3) |  |  | Total Impairment |
Long-lived Assets Held for Sale or Sold* |  | $ | 25,502 |  |  |  | — |  |  |  | — |  |  | $ | 25,502 |  |  | $ | (5,444 | )
Long-lived Assets Held and Used* |  | $ | 64,604 |  |  |  | — |  |  |  | — |  |  | $ | 64,604 |  |  |  | (3,369 | )
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | (8,813 | )
* | Excludes industrial properties and land parcels for which an impairment reversal of $11,116 was recorded during the nine months ended September 30, 2011, since the related assets are recorded at carrying value, which is lower than estimated fair value at September 30, 2011.

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- Definition The entire disclosure for certain real estate investment financial statements, real estate investment trust operating support agreements, real estate owned, retail land sales, time share transactions, as well as other real estate related disclosures. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 6 -Subparagraph a -Article 5 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name FASB Interpretation (FIN) -Number 46R -Paragraph 23, 24 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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