Real Estate and Intangible Assets

6 Months Ended

Jun. 30, 2023

Real Estate

The following table sets forth the components of our investments in real estate as of June 30, 2023 and December 31, 2022, respectively, excluding real estate held for sale as of June 30, 2023 and December 31, 2022 (dollars in thousands):


	June 30, 2023		December 31, 2022
Real estate:
Land (1)	$	144,228	$	152,916
Building and improvements	1,029,967		1,069,407
Tenant improvements	58,665		64,974
Accumulated depreciation	(286,911)		(286,150)
Real estate, net	$	945,949	$	1,001,147

(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 $11.8 million and $22.3 million for the three and six months ended June 30, 2023, respectively. Real estate depreciation expense on building and tenant improvements was $10.1 million and $20.0 million for the three and six months ended June 30, 2022, respectively.

Acquisitions

We acquired one property during the six months ended June 30, 2023, and acquired seven industrial properties during the six months ended June 30, 2022. The acquisitions are summarized below (dollars in thousands):


Six Months Ended		Aggregate Square Footage	Weighted Average Lease Term	Aggregate Purchase Price		Aggregate Capitalized Acquisition Costs
June 30, 2023	(1)	76,089	20.0 years	$	5,363	$	98
June 30, 2022	(2)	742,303	11.7 years	$	51,919	$	519

(1)On April 14, 2023, we acquired a 76,089 square foot property in Riverdale, Illinois for $5.4 million. The property is fully leased to one tenant and had 20.0 years of remaining lease term at the time we acquired the property.

(2)On February 24, 2022, we acquired an 80,000 square foot property in Wilkesboro, North Carolina for $7.5 million. The property is fully leased to one tenant and had 12.7 years of remaining lease term at the time we acquired the property. On March 11, 2022, we acquired a 56,000 square foot property in Oklahoma City, Oklahoma for $6.0 million. The property is fully leased to one tenant and had 7.0 years of remaining lease term at the time we acquired the property. On May 4, 2022, we acquired a two-property, 260,719 square foot portfolio in Cleveland, Ohio and Fort Payne, Alabama for $19.5 million. The properties are fully leased to one tenant and had 11.4 years of remaining lease term at the time we acquired the properties. On May 12, 2022, we acquired a three-property, 345,584 square foot portfolio in Wilmington, North Carolina for $18.9 million. The properties are fully leased to one tenant and had 13.1 years of remaining lease term at the time we acquired the properties.

We determined the fair value of assets acquired and liabilities assumed related to the properties acquired during the six months ended June 30, 2023 and 2022 as follows (dollars in thousands):


	Six Months Ended June 30, 2023		Six Months Ended June 30, 2022
Acquired assets and liabilities	Purchase price		Purchase price
Land	$	675	$	3,380
Building	3,678		40,855
Tenant Improvements	184		768
In-place Leases	307		2,952
Leasing Costs	405		2,296
Customer Relationships	114		1,932
Above Market Leases	—		319
Below Market Leases	—		(583)		(1)


Total Purchase Price	$	5,363	$	51,919

(1)This amount includes $17 of prepaid rent included in Other liabilities on the condensed consolidated balance sheets.

Future Lease Payments

Future operating lease payments from tenants under non-cancelable leases, excluding tenant reimbursement of expenses, for the six months ending December 31, 2023 and each of the five succeeding fiscal years and thereafter is as follows, excluding real estate held for sale as of June 30, 2023 (dollars in thousands):


Year	Tenant Lease Payments
Six Months Ending December 31, 2023	$	57,904
2024	112,610
2025	111,833
2026	106,202
2027	89,935
2028	74,706
Thereafter	334,312

In accordance with the lease terms, substantially all operating expenses are required to be paid by the tenant directly, or reimbursed to us from the tenant; however, we would be required to pay operating expenses on the respective properties in the event the tenants fail to pay them.

Lease Revenue Reconciliation

The table below sets forth the allocation of lease revenue between fixed contractual payments and variable lease payments for the three and six months ended June 30, 2023 and 2022, respectively (dollars in thousands):


	For the three months ended June 30,
	(Dollars in Thousands)
Lease revenue reconciliation	2023		2022		$ Change		% Change
Fixed lease payments	$	34,380	$	31,878	$	2,502	7.8	%
Variable lease payments	4,278		4,521		(243)		(5.4)	%
	$	38,658	$	36,399	$	2,259	6.2	%


	For the six months ended June 30,
	(Dollars in Thousands)
Lease revenue reconciliation	2023		2022		$ Change		% Change
Fixed lease payments	$	66,521	$	63,210	$	3,311	5.2	%
Variable lease payments	8,691		8,720		(29)		(0.3)	%
	$	75,212	$	71,930	$	3,282	4.6	%

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 June 30, 2023 and December 31, 2022, respectively, excluding real estate held for sale as of June 30, 2023 and December 31, 2022 (dollars in thousands):


	June 30, 2023				December 31, 2022
	Lease Intangibles		Accumulated Amortization		Lease Intangibles		Accumulated Amortization
In-place leases	$	99,022	$	(61,538)	$	104,394	$	(63,240)
Leasing costs	82,946		(44,538)		85,038		(45,501)
Customer relationships	64,266		(35,719)		69,586		(38,655)
	$	246,234	$	(141,795)	$	259,018	$	(147,396)

	Deferred Rent Receivable/(Liability)		Accumulated (Amortization)/Accretion		Deferred Rent Receivable/(Liability)		Accumulated (Amortization)/Accretion
Above market leases	$	13,826	$	(10,663)	$	15,371	$	(11,909)
Below market leases and deferred revenue	(63,100)		27,339		(66,138)		26,141

Total amortization expense related to in-place leases, leasing costs and customer relationship lease intangible assets was $5.2 million and $9.3 million for the three and six months ended June 30, 2023, respectively, and $5.0 million and $9.8 million for the three and six months ended June 30, 2022, 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 $0.1 million and $0.3 million for the three and six months ended June 30, 2023, respectively, and $0.2 million and $0.4 million for the three and six months ended June 30, 2022, 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 $2.5 million and $4.4 million for the three and six months ended June 30, 2023, respectively, and $0.8 million and $1.6 million for the three and six months ended June 30, 2022, 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 and liabilities assumed during the six months ended June 30, 2023 and 2022, were as follows:


Intangible Assets & Liabilities	June 30, 2023	June 30, 2022
In-place leases	20.1	11.6
Leasing costs	20.1	11.6
Customer relationships	25.1	18.9
Above market leases	0.0	12.1
Below market leases	0.0	11.2
All intangible assets & liabilities	21.7	13.3