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REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS | 12 Months Ended
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Dec. 31, 2011
REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS |
REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS |
NOTE 3—REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS Real Estate Acquisitions The following chart details the Company's real estate acquisitions during 2011 and 2010 (amounts in thousands):
Description of Property |  | Date(s) Acquired |  | Contract Purchase Price |  | Terms of Payment |  | Third Party Real Estate Acquisition Costs(a) |
--- | --- | --- | --- | --- | --- | --- | --- | --- | ---
Retail discount store, Bolingbrook, Illinois |  | March 4, 2011 |  | $ | 2,325 |  | All cash |  | $ | 22 |
Shipping distribution center, Durham, North Carolina |  | July 29, 2011 |  |  | 3,975 |  | All cash |  |  | 35 |
Health club, Hamilton, Ohio |  | August 9, 2011 |  |  | 7,900 |  | All cash |  |  | 54 |
Two retail stores, Niles and Crystal Lake, Illinois |  | September 14, 2011 |  |  | 8,000 |  | All cash |  |  | 76 |
Retail property—redevelopment, Cherry Hill, New Jersey(b) |  | October 27, 2011 |  |  | 5,800 |  | All cash |  |  | — | (b)
Other |  |  |  |  | — |  |  |  |  | 26 |
Total for 2011 |  |  |  | $ | 28,000 |  |  |  | $ | 213 |
Community shopping center, Royersford, Pennsylvania |  | February 28, 2010 |  | $ | 23,500 |  | Cash and $17,700 mortgage assumption. Mortgage matures May 2014 with interest at 5.67% per annum. |  | $ | 399 |
Retail store, Monroeville, Pennsylvania |  | April 28, 2010 |  |  | 1,313 | (c) | All cash |  |  | 54 |
Retail department store, Kansas City, Missouri |  | June 30, 2010 |  |  | 8,950 |  | All cash |  |  | 46 |
Six fast food restaurants, Pennsylvania (sale/leaseback transactions) |  | July 30, 2010 and August 31, 2010 |  |  | 7,958 |  | All cash |  |  | 216 |
Supermarket and related parking lot, West Hartford, Connecticut |  | October 7, 2010 |  |  | 20,550 |  | Cash and $13,000 mortgage assumption. Mortgage matures May 2016 with interest at 6.1% per annum. |  |  | 205 |
Two retail stores, Houston, Texas |  | November 17, 2010 |  |  | 7,434 |  | Cash and $2,900 mortgage assumption. Mortgage matures January 2017 with interest at 5.98% per annum. |  |  | 70 |
Restaurant, Island Park, New York |  | December 22, 2010 |  |  | 2,600 |  | All cash |  |  | 20 |
Total for 2010 |  |  |  | $ | 72,305 |  |  |  | $ | 1,010 |
(a) Included in the accompanying consolidated statements of income. (b) Owned by a consolidated joint venture in which the Company has a 90% interest. Transaction costs of $578,000 incurred with this asset acquisition were capitalized. (c) Purchase price includes $300 of contracted building improvements. With the exception of the Cherry Hill, New Jersey and the Royersford, Pennsylvania properties, all of the properties purchased by the Company in 2011 and 2010 are currently 100% occupied and are each leased by a single tenant pursuant to a long term net lease. The Cherry Hill, New Jersey retail property is being redeveloped and is currently 61% leased by one major tenant pursuant to a long term net lease, with a contractual rent commencement date of April 1, 2012. The Royersford, Pennsylvania community shopping center is currently leased to nine separate tenants and a significant portion of the rental income from this property is derived from ground leases. As a result of the 2011 and 2010 purchases, the Company recorded intangible lease assets of $2,387,000 and $5,500,000, respectively, and intangible lease liabilities of $614,000 and $1,040,000, respectively, representing the value of the acquired leases and origination costs. As of December 31, 2011, the weighted average amortization period for the 2011 and 2010 acquisitions is 10.3 and 12.1 years for the intangible lease assets and 24.0 and 24.1 years for the intangible lease liabilities, respectively. At December 31, 2011 and 2010, accumulated amortization of intangible lease assets was $4,081,000 and $3,046,000, respectively and accumulated amortization of intangible lease liabilities was $2,053,000 and $1,622,000, respectively. The mortgages assumed by the Company in 2010 were determined to be at market. The Company recognized a net (decrease) increase in rental revenue of $(37,000), $442,000 and ($23,000) for the amortization of the above/below market leases for 2011, 2010 and 2009, respectively. For 2011, 2010 and 2009, the Company recognized amortization expense of $844,000, $620,000, and $534,000, respectively, relating to the amortization of the origination costs. The results for 2011 and 2010 include an increase in rental revenue of $7,000 and $462,000, respectively, and additional amortization expense of $5,000 and $115,000, respectively, resulting from the accelerated expiration of certain leases The unamortized balance of intangible lease assets as a result of acquired above market leases at December 31, 2011 will be deducted from rental income through 2027 as follows (amounts in thousands):
2012 |  | $ | 394 |
2013 |  |  | 393 |
2014 |  |  | 387 |
2015 |  |  | 382 |
2016 |  |  | 372 |
Thereafter |  |  | 1,323 |
Total |  | $ | 3,251 |
The unamortized balance of intangible lease liabilities as a result of acquired below market leases at December 31, 2011 will be added to rental income through 2041 as follows (amounts in thousands):
2012 |  | $ | 442 |
2013 |  |  | 442 |
2014 |  |  | 442 |
2015 |  |  | 442 |
2016 |  |  | 442 |
Thereafter |  |  | 2,956 |
Total |  | $ | 5,166 |
The unamortized balance of origination costs associated with in-place leases at December 31, 2011 will be charged to amortization expense through 2027 as follows (amounts in thousands):
2012 |  | $ | 930 |
2013 |  |  | 928 |
2014 |  |  | 916 |
2015 |  |  | 908 |
2016 |  |  | 830 |
Thereafter |  |  | 4,233 |
Total |  | $ | 8,745 |
Pro Forma Financial Information (unaudited) During the period January 1, 2009 through December 31, 2010, the Company acquired 14 properties for a total purchase price of approximately $72,300,000, sold five properties and conveyed to the mortgagee by deeds-in-lieu of foreclosure five properties (as discussed in Note 4). The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company for 2010 and 2009, as if all properties acquired, sold and conveyed to the mortgagee were completed as of January 1, 2009. The total acquisition costs of $1,069,000 (including $59,000 paid in 2009) paid in connection with the 2010 purchases are included below as a reduction of net income in the 2009 period. This unaudited pro forma information does not purport to represent what the actual results of operations of the Company would have been had the acquisitions, sales and conveyed properties occurred as of January 1, 2009, nor does it purport to predict the results of operations for future periods. (Amounts in thousands, except per share data.)
|  | Year Ended December 31, |
--- | --- | --- | ---
|  | 2010 |  | 2009 |
Pro forma revenues |  | $ | 45,677 |  | $ | 47,420 |
Pro forma net income |  | $ | 11,017 |  | $ | 13,601 |
Pro forma weighted average number of common shares outstanding: |  |  |  |  |  |  |
Basic |  |  | 11,465 |  |  | 10,651 |
Diluted |  |  | 11,510 |  |  | 10,812 |
Pro forma net income per common share: |  |  |  |  |  |  |
Basic |  | $ | .96 |  | $ | 1.28 |
Diluted |  | $ | .96 |  | $ | 1.26 |
Revenues and net income related to these properties already included in the 2010 results of operations amounted to $3,488,000 and $440,000, respectively. This pro forma information does not include 2011 acquisitions as such acquisitions were determined not to be material in the aggregate. Minimum Future Rentals The minimum future contractual rentals (without taking into consideration straight-line rent or amortization of intangibles) to be received over the next five years and thereafter on the operating leases in effect at December 31, 2011 are as follows (amounts in thousands):
2012 |  | $ | 45,153 |
2013 |  |  | 44,772 |
2014 |  |  | 41,922 |
2015 |  |  | 37,848 |
2016 |  |  | 36,035 |
Thereafter |  |  | 205,567 |
Total |  | $ | 411,297 |
Included in the minimum future rentals are rentals from one property pursuant to a long term ground lease from the fee owner. The Company pays annual fixed leasehold rent of $296,875 through July 2014 with 25% increases every five years through March 3, 2020 and the Company has a right to extend the lease for up to five 5-year and one seven month renewal options. Except for one vacant property, the rental properties owned at December 31, 2011 are leased under noncancellable operating leases with current expirations ranging from 2012 to 2038, with certain tenant renewal rights. Substantially all lease agreements are net lease arrangements which require the tenant to pay rent and substantially all the expenses of the leased property including maintenance, taxes, utilities and insurance. For certain properties, the tenants pay the Company, in addition to the base rent, their pro rata share of real estate taxes and operating expenses. Certain lease agreements provide for periodic rental increases and others provide for increases based on the consumer price index. Unbilled Rent Receivable At December 31, 2011 and 2010, the Company recorded an unbilled rent receivable aggregating $12,567,000 and $11,149,000, respectively, excluding $101,000 classified as assets related to property held for sale at December 31, 2010, representing rent reported on a straight-line basis in excess of rental payments required under the term of the respective leases. This amount is to be billed and received pursuant to the lease terms during the next 19 years. During 2011, the Company wrote off $118,000 of unbilled "straight-line" rent receivable, relating to a property sold during 2011. During 2010, the Company wrote off or recorded accelerated amortization of $1,152,000 of unbilled "straight-line" rent receivable, which includes $149,000 relating to a property sold during 2010 and $1,003,000 relating to Robb & Stucky. During 2009, the Company wrote-off or recorded accelerated amortization of $1,545,000 of unbilled "straight-line" rent receivable. Lease Termination Fee Income In June 2009, the Company received a $1,905,000 lease termination fee from a retail tenant that had been paying its rent on a current basis, but had vacated the property in March 2009. Offsetting this amount is the write off of the entire balance of the unbilled rent receivable and the intangible lease asset related to this property, aggregating $121,000. The net amount of $1,784,000 is recorded on the income statement as "Lease termination fee" income in the year ended December 31, 2009. The Company re-leased this property effective November 2009.

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