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Real Estate and Intangible Assets | 12 Months Ended
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Dec. 31, 2016
Real Estate [Abstract] |
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 December 31, 2016 and 2015, respectively, excluding real estate held for sale as of December 31, 2016 and 2015, respectively (dollars in thousands):
|  | December 31, 2016 |  | December 31, 2015
Real estate: |  |  |  |
Land |  | $ | 104,719 |  |  | $ | 97,117 |
Building and improvements |  | 662,661 |  |  | 635,728 |
Tenant improvements |  | 54,369 |  |  | 47,532 |
Accumulated depreciation |  | (131,661 | ) |  | (112,243 | )
Real estate, net |  | $ | 690,088 |  |  | $ | 668,134 |
Real estate depreciation expense on building and tenant improvements was $24.1 million, $22.2 million, and $18.8 million for the years ended December 31, 2016, 2015, and 2014 respectively. Acquisitions Certain acquisitions during the year ended December 31, 2016, were accounted for as business combinations in accordance with Accounting Standards Codification ("ASC") 805, as there was a prior leasing history on the property. The fair value of all assets acquired and liabilities assumed were determined in accordance with ASC 805, and all acquisition-related costs were expensed as incurred. Commencing in the fourth quarter of 2016, we early adopted ASU 2017-01 "Clarifying the Definition of a Business," which narrows the scope of transactions that would be accounted under ASC 805 Business Combinations. Under ASU 2017-01, if substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the grouping is not a business, and rather an asset acquisition. Our fourth quarter 2016 acquisition has been deemed an asset acquisition when evaluated under the new guidance, and all acquisition-related costs have been capitalized. During the year ended December 31, 2016 and 2015 we acquired three and six properties, respectively, which are summarized below (dollars in thousands):
Year Ended |  | Aggregate Square Footage |  | Weighted Average Lease Term |  | Aggregate Purchase Price |  | Acquisition Costs |  | Aggregate Annualized GAAP Rent |  | Aggregate Debt Issued
December 31, 2016 | (1) | 329,620 |  |  | 10.5 Years |  | $ | 66,570 |  |  | $ | 179 |  |  | $ | 5,589 |  |  | $ | 38,800 |
December 31, 2015 | (2) | 520,053 |  |  | 9.9 Years |  | $ | 77,798 |  |  | $ | 586 |  |  | $ | 7,984 |  |  | $ | 43,379 |
(1) On May 26, 2016 we acquired a 107,062 square foot property in Salt Lake City, UT for $17.0 million. We borrowed $9.9 million to fund the acquisition. The annualized GAAP rent on the 6 years lease is $1.4 million. On September 12, 2016 we acquired a 119,224 square foot property in Fort Lauderdale, FL for $23.9 million. We borrowed $14.1 million to fund the acquisition. The annualized GAAP rent on the 9 years lease is $2.0 million. On December 14, 2016 we acquired a 103,334 square foot property in King of Prussia, PA 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 years 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. (2) On March 6, 2015 we acquired a 155,984 square foot property in Richardson, TX for $24.7 million. We borrowed $14.6 million to fund the acquisition. The annualized GAAP rent on the 9.5 years lease is $2.7 million. On March 20, 2015 we acquired a 30,850 square foot property in Birmingham, AL for $3.6 million. The annualized GAAP rent on the 8.5 years lease is $0.3 million. On May 28, 2015 we acquired a 78,033 square foot property in Columbus, OH for $7.7 million. We borrowed $4.5 million to fund the acquisition. The annualized GAAP rent on the 15 years lease is $0.6 million. On May 29, 2015 we acquired a 86,409 square foot property in Salt Lake City, UT for $22.2 million. We borrowed $13.0 million to fund the acquisition. The annualized GAAP rent on the 6.5 years lease is $2.4 million. On July 15, 2015 we acquired a 78,151 square foot property in Atlanta, GA for $13.0 million. We borrowed $7.5 million to fund the acquisition. The property is fully leased to one tenant through two leases, with 30% of the building leased for 15 years and the remainder leased for 7 years. The annualized GAAP rent on the leases is $1.3 million. On October 20, 2015 we acquired a 90,626 square foot property in Villa Rica, GA for $6.6 million. We borrowed $3.8 million to fund the acquisition. The annualized GAAP rent on the 18 years lease is $0.6 million. We determined the fair value of assets acquired and liabilities assumed related to the properties acquired during the year ended December 31, 2016 and 2015, respectively, as follows (dollars in thousands):
Business Combinations |  |  |  |
|  | Year ended December 31, 2016 |  | Year ended December 31, 2015
Acquired assets and liabilities |  | Purchase price |  | Purchase price
Land |  | $ | 7,125 |  |  | $ | 10,528 |
Building and improvements |  | 22,934 |  |  | 42,652 |
Tenant Improvements |  | 3,240 |  |  | 6,996 |
In-place Leases |  | 3,355 |  |  | 7,410 |
Leasing Costs |  | 1,437 |  |  | 4,338 |
Customer Relationships |  | 3,090 |  |  | 5,408 |
Above Market Leases |  | — |  |  | 1,712 |
Below Market Leases |  | (281 | ) |  | (1,246 | )
Total Purchase Price |  | $ | 40,900 |  |  | $ | 77,798 |
Asset Acquisitions |  |  |  |
|  | Year ended December 31, 2016 |  | Year ended December 31, 2015
Acquired assets and liabilities |  | Purchase price |  | Purchase price
Land |  | $ | 3,681 |  |  | $ | — |
Building and improvements |  | 11,682 |  |  | — |
Tenant Improvements |  | 4,057 |  |  | — |
In-place Leases |  | 2,669 |  |  | — |
Leasing Costs |  | 1,987 |  |  | — |
Customer Relationships |  | 1,406 |  |  | — |
Above Market Leases |  | 188 |  |  | — |
Total Purchase Price |  | $ | 25,670 |  |  | $ | — |
Total Purchase Price on all Acquisitions |  | $ | 66,570 |  |  | $ | 77,798 |
Below is a summary of the total revenue and earnings recognized on the 2, 6 and 11 asset acquisitions treated as business combinations completed during the years ended December 31, 2016, 2015, and 2014 respectively (dollars in thousands):
|  | For the year ended December 31, 2016 |  | For the year ended December 31, 2015 |  | For the year ended December 31, 2014
Rental Revenue |  | $ | 1,462 |  |  | $ | 4,919 |  |  | $ | 5,605 |
Earnings |  | (162 | ) |  | (63 | ) |  | 36 |
Pro Forma The following table reflects pro-forma consolidated statements of operations as if the business combinations acquired through December 31, 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 years ended December 31, 2016, 2015 and 2014 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):
|  | For the year ended December 31, |
|  | (unaudited) |
|  | 2016 |  | 2015 |  | 2014 |
Operating Data: |  |  |  |  |  |  |
Total operating revenue |  | $ | 88,304 |  |  | $ | 89,720 |  |  | $ | 87,439 |  |
Total operating expenses |  | (56,697 | ) |  | (54,480 | ) |  | (66,052 | ) |
Other expenses |  | (27,429 | ) |  | (31,014 | ) |  | (26,014 | ) |
Net income (loss) |  | 4,178 |  |  | 4,226 |  |  | (4,627 | ) |
Dividends attributable to preferred and senior common stock |  | (7,656 | ) |  | (5,101 | ) |  | (4,636 | ) |
Net loss attributable to common stockholders |  | $ | (3,478 | ) |  | $ | (875 | ) |  | $ | (9,263 | ) |
Share and Per Share Data: |  |  |  |  |  |  |
Basic and diluted loss per share of common stock - pro forma |  | $ | (0.15 | ) |  | $ | (0.04 | ) |  | $ | (0.54 | ) |
Basic and diluted loss per share of common stock - actual |  | $ | (0.16 | ) |  | $ | (0.07 | ) |  | $ | (0.61 | ) |
Weighted average shares outstanding-basic and diluted |  | 23,193,962 |  |  | 21,159,597 |  |  | 17,253,503 |  |
Significant Real Estate Activity on Existing Assets During the year ended December 31, 2016 and 2015, we executed 9 and 15 leases, respectively, which are aggregated below (dollars in thousands):
Year Ended |  | Aggregate Square Footage |  | Weighted Average Lease Term |  | Aggregate Annualized GAAP Rent |  | Aggregate Tenant Improvement |  | Aggregate Leasing Commissions
December 31, 2016 |  | 551,335 |  |  | 3.9 Years | (1) | $ | 2,478 |  |  | $ | 1,244 |  |  | $ | 436 |
December 31, 2015 |  | 890,092 |  |  | 7.3 Years | (2) | $ | 7,514 |  |  | $ | 2,881 |  |  | $ | 1,925 |
(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 7.7 years.
(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 12.4 years.
On May 31, 2016, we reached a legal settlement with the previous tenant on one 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 consolidated statement of operations, related to reimbursed deferred capital obligations, and received $0.9 million as a reimbursement of repairs incurred during the year ended December 31, 2016 in connection with the legal settlement received, which was recorded net against operating expenses on the consolidated statement of operations. Future Lease Payments 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, 2016, for each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):
Year | Tenant Lease Payments
2017 | $ | 84,787 |
2018 | 85,509 |
2019 | 86,273 |
2020 | 78,683 |
2021 | 69,827 |
Thereafter | 275,938 |
| $ | 681,017 |
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 operating expenses on the respective properties in the event the tenants fail to pay them. 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 December 31, 2016 and 2015, excluding real estate held for sale as of December 31, 2016 and 2015, respectively (in thousands):
|  | December 31, 2016 |  | December 31, 2015
|  | Lease Intangibles |  | Accumulated Amortization |  | Lease Intangibles |  | Accumulated Amortization
In-place leases |  | $ | 71,482 |  |  | $ | (28,182 | ) |  | $ | 66,244 |  |  | $ | (22,679 | )
Leasing costs |  | 48,000 |  |  | (18,599 | ) |  | 44,360 |  |  | (14,774 | )
Customer relationships |  | 50,252 |  |  | (17,400 | ) |  | 46,485 |  |  | (14,722 | )
|  | $ | 169,734 |  |  | $ | (64,181 | ) |  | $ | 157,089 |  |  | $ | (52,175 | )
|  | Deferred Rent Receivable/(Liability) |  | Accumulated (Amortization)/Accretion |  | Deferred Rent Receivable/(Liability) |  | Accumulated (Amortization)/Accretion
Above market leases |  | $ | 10,479 |  |  | $ | (7,296 | ) |  | $ | 10,176 |  |  | $ | (6,818 | )
Below market leases and deferred revenue |  | (21,606 | ) |  | 8,959 |  |  | (17,951 | ) |  | 8,294 |
|  | $ | (11,127 | ) |  | $ | 1,663 |  |  | $ | (7,775 | ) |  | $ | 1,476 |
Total amortization expense related to in-place leases, leasing costs and customer relationship lease intangible assets was $13.4 million, $13.1 million, and $10.1 million for the years ended December 31, 2016, 2015, and 2014, respectively, and is included in depreciation and amortization expense in the consolidated statement of operations. Total amortization related to above-market lease values was $0.5 million, $0.4 million, and $0.3 million for the years ended December 31, 2016, 2015, and 2014, respectively, and is included in rental revenue in the consolidated statement of operations. Total amortization related to below-market lease values was $1.2 million, $0.9 million, and $0.7 million for the years ended December 31, 2016, 2015, and 2014, respectively, and is included in rental revenue in the consolidated statement of operations. The weighted average amortization periods in years for the intangible assets acquired and liabilities assumed during the years ended December 31, 2016 and 2015, respectively, were as follows:
Intangible Assets & Liabilities |  | 2016 |  | 2015
In-place leases |  | 11.5 |  | 13.0
Leasing costs |  | 11.5 |  | 13.0
Customer relationships |  | 15.8 |  | 17.5
Above market leases |  | 5.2 |  | 18.6
Below market leases |  | 7.9 |  | 13.5
All intangible assets & liabilities |  | 12.5 |  | 14.3
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, 2016 (dollars in thousands):
Year | Estimated Amortization Expense of In-Place Leases, Leasing Costs and Customer Relationships
2017 | $ | 15,522 |
2018 | 15,459 |
2019 | 15,451 |
2020 | 13,827 |
2021 | 11,879 |
Thereafter | 33,415 |
| $ | 105,553 |
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, 2016 (dollars in thousands):
Year | Net Increase to Rental Income Related to Above and Below Market Leases
2017 | $ | 743 |
2018 | 743 |
2019 | 743 |
2020 | 797 |
2021 | 705 |
Thereafter | 5,594 |
| $ | 9,325 |
(1) Does not include ground lease amortization of $139.

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