Real Estate and Intangible Assets

9 Months Ended

Sep. 30, 2020

Real Estate

The following table sets forth the components of our investments in real estate as of September 30, 2020 and December 31, 2019, excluding real estate held for sale as of September 30, 2020 and December 31, 2019, respectively (dollars in thousands):


	September 30, 2020		December 31, 2019
Real estate:
Land (1)	$	140,465	$	137,532
Building and improvements	886,138		851,245
Tenant improvements	68,251		68,201
Accumulated depreciation	(221,849)		(207,523)
Real estate, net	$	873,005	$	849,455

(1)This amount includes $4,436 of land value subject to land lease agreements which we may purchase at our option for a nominal fee.

Real estate depreciation expense on building and tenant improvements was $9.0 million and $27.2 million for the three and nine months ended September 30, 2020, respectively. Real estate depreciation expense on building and tenant improvements was $8.3 million and $24.4 million for the three and nine months ended September 30, 2019, respectively.

Acquisitions

We acquired six properties during the nine months ended September 30, 2020, and nine properties during the nine months ended September 30, 2019. The acquisitions are summarized below (dollars in thousands):


Nine Months Ended		Aggregate Square Footage	Weighted Average Lease Term	Aggregate Purchase Price		Capitalized Acquisition Expenses			Aggregate Annualized GAAP Fixed Lease Payments		Aggregate Debt Issued or Assumed
September 30, 2020	(1)	1,043,638	14.2 years	$	82,599	$	339	(3)	$	6,146	$	35,855
September 30, 2019	(2)	1,463,763	14.8 years	67,272		621		(3)	5,437		8,900

(1)On January 8, 2020, we acquired a 64,800 square foot property in Indianapolis, Indiana for $5.3 million. The property is leased to three tenants with a weighted average lease term of 7.2 years with annualized GAAP rent of $0.5 million. On January 27, 2020, we acquired a 320,838 square foot, three-property portfolio in Houston, Texas, Charlotte, North Carolina, and St. Charles, Missouri for $34.7 million. The portfolio has a weighted average lease term of 20.0 years, and an annualized GAAP rent of $2.6 million. We issued $18.3 million of mortgage debt with a fixed interest rate of 3.625% in connection with the acquisition. On March 9, 2020, we acquired a 504,400 square foot property in Chatsworth, Georgia for $32.0 million. We entered into an interest rate swap in connection with our $17.5 million of issued debt, resulting in a fixed interest rate of 2.8%. The annualized GAAP rent on the 10.5 year lease is $2.2 million. On September 1, 2020, we acquired a 153,600 square foot property in Indianapolis, Indiana for $10.6 million. The annualized GAAP rent on the 9.7 year lease is $0.8 million.

(2)On February 8, 2019, we acquired a 26,050 square foot property in a suburb of Philadelphia, Pennsylvania, for $2.7 million. The annualized GAAP rent on the 15.1 year lease is $0.2 million. On February 28, 2019, we acquired a 34,800 square foot property in Indianapolis, Indiana for $3.6 million. The annualized GAAP rent on the 10.0 year lease is $0.3 million. On April 5, 2019, we acquired a 207,000 square foot property in Ocala, Florida, for $11.9 million. The annualized GAAP rent on the 20.1 year lease is $0.8 million. On April 5, 2019, we acquired a 176,000 square foot property in Ocala, Florida, for $7.3 million. The annualized GAAP rent on the 20.1 year lease is $0.7 million. On April 30, 2019, we acquired a 54,430 square foot property in Columbus, Ohio, for $3.2 million. The annualized GAAP rent on the 7.0 year lease is $0.2 million. On June 18, 2019, we acquired a 676,031 square foot property in Tifton, Georgia, for $17.9 million. The annualized GAAP rent on the 8.5 year lease is $1.6 million. We issued $8.9 million of mortgage debt with a fixed interest rate of 4.35% in connection with this acquisition. On July 30, 2019, we acquired a 78,452 square foot property in Denton, Texas, for $6.6 million. The annualized GAAP rent on the 11.9 year lease is $0.5 million. On September 26, 2019, we acquired a 211,000 square foot two property portfolio in Temple, Texas, for $14.1 million. The annualized GAAP rent on the 20.0 year lease is $1.2 million.

(3)We treated our acquisitions during the nine months ended September 30, 2020 and 2019 as asset acquisitions rather than business combinations. As a result of this treatment, we capitalized $0.3 million and $0.6 million, respectively, of acquisition costs that would otherwise have been expensed under business combination treatment.

We determined the fair value of assets acquired and liabilities assumed related to the properties acquired during the nine months ended September 30, 2020 and 2019 as follows (dollars in thousands):


	Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019
Acquired assets and liabilities	Purchase price		Purchase price
Land (1)	$	7,798	$	5,046
Building and improvements	61,930		48,898
Tenant Improvements	1,431		1,541
In-place Leases	5,411		4,868
Leasing Costs	4,664		4,481
Customer Relationships	2,808		2,200
Above Market Leases (2)	309		1,865
Below Market Leases (3)	(1,752)		(1,627)


Total Purchase Price	$	82,599	$	67,272

(1)This amount includes $2,711 of land value subject to a land lease agreement, which we may purchase for a nominal fee.

(2)This amount includes $53 of loans receivable included in Other assets on the condensed consolidated balance sheets.

(3)This amount includes $62 of prepaid rent included in Other liabilities on the condensed consolidated balance sheets.

Significant Real Estate Activity on Existing Assets

During the nine months ended September 30, 2020 and 2019, we executed 13 and five leases, respectively, which are summarized below (dollars in thousands):


Nine Months Ended	Aggregate Square Footage	Weighted Average Remaining Lease Term	Aggregate Annualized GAAP Fixed Lease Payments		Aggregate Tenant Improvement		Aggregate Leasing Commissions
September 30, 2020	987,902	7.9 years	$	8,340	$	2,903	$	1,285
September 30, 2019	230,264	8.8 years	3,366		785		910

During the nine months ended September 30, 2020 and 2019, we had one lease termination each, which are summarized below (dollars in thousands):


Nine Months Ended	Aggregate Square Footage Reduced	Aggregate Termination Fee		Aggregate Deferred Rent Write Off
September 30, 2020	61,358	$	1,119	$	225
September 30, 2019	16,566	61		—

Future Lease Payments

Future operating lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses, for the three months ending December 31, 2020 and each of the five succeeding fiscal years and thereafter is as follows (dollars in thousands):


Year	Tenant Lease Payments
Three Months Ending 2020	$	27,401
2021	109,326
2022	103,896
2023	96,136
2024	87,999
2025	79,061
Thereafter	305,402
	$	809,221

We account for all of our real estate leasing arrangements as operating leases. A majority of our leases are subject to fixed rental increases, but a small subset of our lease portfolio has variable lease payments that are driven by the consumer price index. Many of our tenants have renewal options in their respective leases, but we seldom include option periods in the determination of lease term, as we generally will not enter into leasing arrangements with bargain renewal options. A small number of tenants have termination options.

Lease Revenue Reconciliation

The table below sets forth the allocation of lease revenue between fixed contractual payments and variable lease payments for the nine months ended September 30, 2020 and 2019, respectively (dollars in thousands):


	For the three months ended September 30,				For the nine months ended September 30,
Lease revenue reconciliation	2020		2019		2020		2019
Fixed lease payments	$	29,116	$	27,660	$	88,286	$	82,076
Variable lease payments	4,026		1,007		12,001		2,925
	$	33,142	$	28,667	$	100,287	$	85,001

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, 2020 and December 31, 2019, excluding real estate held for sale as of September 30, 2020 and December 31, 2019, respectively (dollars in thousands):


	September 30, 2020				December 31, 2019
	Lease Intangibles		Accumulated Amortization		Lease Intangibles		Accumulated Amortization
In-place leases	$	96,058	$	(52,589)	$	92,906	$	(48,468)
Leasing costs	72,604		(36,920)		68,256		(33,705)
Customer relationships	66,276		(31,187)		65,363		(28,887)
	$	234,938	$	(120,696)	$	226,525	$	(111,060)

	Deferred Rent Receivable/(Liability)		Accumulated (Amortization)/Accretion		Deferred Rent Receivable/(Liability)		Accumulated (Amortization)/Accretion
Above market leases	$	14,857	$	(10,462)	$	16,502	$	(10,005)
Below market leases and deferred revenue	(36,793)		17,020		(34,322)		15,000
	$	(21,936)	$	6,558	$	(17,820)	$	4,995

Total amortization expense related to in-place leases, leasing costs and customer relationship lease intangible assets was $4.8 million and $14.9 million for the three and nine months ended September 30, 2020, respectively, and $4.7 million and $14.2 million for the three and nine months ended September 30, 2019, respectively, and is included in depreciation and amortization expense in the condensed consolidated statements of operations and comprehensive income.

Total amortization related to above-market lease values was $0.2 million and $0.6 million for the three and nine months ended September 30, 2020, respectively, and $0.3 million and $0.8 million for the three and nine months ended September 30, 2019, respectively, and is included in lease revenue in the condensed consolidated statements of operations and comprehensive income. Total amortization related to below-market lease values was $0.7 million and $2.1 million for the three and nine months ended September 30, 2020, respectively, and $0.7 million and $1.8 million for the three and nine months ended September 30, 2019, respectively, and is included in lease revenue in the condensed consolidated statements of operations and comprehensive income.

The weighted average amortization periods in years for the intangible assets acquired during the nine months ended September 30, 2020 and 2019 were as follows:


Intangible Assets & Liabilities	2020	2019
In-place leases	15.7	15.9
Leasing costs	15.7	15.9
Customer relationships	18.9	20.6
Above market leases	16.6	9.3
Below market leases	14.2	9.6
All intangible assets & liabilities	16.3	17.3