Quarterly report pursuant to Section 13 or 15(d)

Real Estate

v3.10.0.1
Real Estate
9 Months Ended
Sep. 30, 2018
Real Estate [Abstract]  
Real Estate
Real Estate
Investment properties consist of the following (in thousands):
 
September 30, 2018
 
December 31, 2017
 
(unaudited)
 
 
Land and land improvements
$
96,945

 
$
91,108

Land held for improvement

 
2,305

Buildings and improvements
366,217

 
312,831

Investment properties at cost
463,162

 
406,244

Less accumulated depreciation
(36,190
)
 
(31,045
)
    Investment properties, net
$
426,972

 
$
375,199


The Company’s depreciation expense on investment properties was $3.05 million and $9.55 million for the three and nine months ended September 30, 2018, respectively. The Company’s depreciation expense on investment properties was $2.65 million and $7.96 million for the three and nine months ended September 30, 2017, respectively.
A significant portion of the Company’s land, buildings and improvements serves as collateral for its mortgage loans payable portfolio. Accordingly, restrictions exist as to the encumbered property’s transferability, use and other common rights typically associated with property ownership.
Dispositions
 
 
Property
 
Contract Price
 
Gain
 
Net Proceeds
 
 
 
 
(in thousands)
January 12, 2018
 
Chipotle Ground Lease at Conyers Crossing
 
$
1,270

 
$
1,042

 
$
1,160

July 19, 2018
 
Laskin Road Land Parcel (1.5 acres)
 
2,858

 
903

 
2,747

September 27, 2018
 
Shoppes at Eagle Harbor
 
5,705

 
1,270

 
2,071

 
 
 
 
$
9,833

 
$
3,215

 
$
5,978



The sale of the Chipotle ground lease at Conyers Crossing and Shoppes at Eagle Harbor did not represent a strategic shift that has a major effect on the Company's financial position or results of operations. Accordingly, the operating results of these properties remains classified within continuing operations for all periods presented.
JANAF Acquisition
On January 18, 2018, the Company acquired JANAF, a retail shopping center located in Norfolk, Virginia, for a purchase price of $85.65 million, paid through a combination of cash, restricted cash, debt assumption and the issuance of 150,000 shares of Common Stock at $7.53 per share. The shopping center, anchored by BJ's Wholesale Club, totals 810,137 square feet and was 94% leased at the acquisition date.
The following summarizes the consideration paid and the purchase allocation of assets acquired and liabilities assumed in conjunction with the acquisition described above in accordance with ASU 2017-01, along with a description of the methods used to determine the purchase price allocation (in thousands, unaudited). In determining the purchase price allocation, the Company considered many factors including, but not limited to, cash flows, market cap rates, location, occupancy rates, appraisals, other acquisitions and management’s knowledge of the current acquisition market for similar properties.
Purchase price allocation of assets acquired:
 
 
Investment property (a)
$
75,123

 
Lease intangibles and other assets (b)
10,718

 
Above market leases (d)
2,019

 
Restricted cash (c)
2,500

 
Below market leases (d)
(4,710
)
 
Net purchase price allocation of assets acquired:
$
85,650

 
 
 
 
 
Purchase consideration:
 
 
 
Consideration paid with cash
$
23,153

 
Consideration paid with restricted cash (c)
2,500

 
Consideration paid with assumption of debt (e)
58,867

 
Consideration paid with common stock
1,130

 
 
 
 
 
 
Total consideration (f)
$
85,650

a.
Represents the purchase price allocation of the net investment properties acquired which includes land, buildings, site improvements and tenant improvements. The purchase price allocation was determined using following approaches:
i.
the market approach valuation methodology for land by considering similar transactions in the markets;
ii.
a combination of the cost approach and income approach valuation methodologies for buildings, including replacement cost evaluations, “go dark” analyses and residual calculations incorporating the land values; and
iii.
the cost approach valuation methodology for site and tenant improvements, including replacement costs and prevailing quoted market rates.
b.
Represents the purchase price allocation of lease intangibles and other assets. Lease intangibles includes in place leases and ground lease sandwich interests associated with replacing existing leases. The income approach was used to determine the allocation of these intangible assets which included estimated market rates and expenses.
c.
Represents the purchase price allocation of deleveraging reserve (the “Deleveraging Reserve”) released upon the maturity or earlier payment in full of the loan or until the reduction of the principal balance of the loan to $50,000,000.
d.
Represents the purchase price allocation of above/below market leases. The income approach was used to determine the allocation of above/below market leases using market rental rates for similar properties.
e.
Assumption of $53.71 million of debt at a rate of 4.49%, maturing July 2023 with monthly principal and interest payments of $333,159 and assumption of $5.16 million of debt at a rate of 4.95%, maturing January 2026 with monthly principal and interest payments of $29,964.
f.
Represents the components of purchase consideration paid.
Assets Held for Sale

In 2018, the Company’s management and Board of Directors committed to a plan to sell the seven undeveloped land parcels (the “Land Parcels”), along with Monarch Bank Building currently occupied by Chartway Federal Credit Union, Shoppes at Eagle Harbor, Graystone Crossing, Jenks Plaza and Perimeter Square. Accordingly, these properties have been classified as held for sale.

The sale of the Land Parcels represents discontinued operations as it is a strategic shift that has a major effect on the Company's financial position or results of operations. Accordingly, the assets and liabilities associated with the Land Parcels have been reclassified for all periods presented. See Note 5, for disclosure of operating results of discontinued operations.
    
As of September 30, 2018 and December 31, 2017, assets held for sale and associated liabilities, excluding discontinued operations, consisted of the following (in thousands):
 
 
September 30, 2018
 
December 31, 2017
 
 
(unaudited)
 
 
Investment properties, net
 
$
13,486

 
$

Rents and other tenant receivables, net
 
611

 

Above market lease, net
 
420

 

Deferred costs and other assets, net
 
307

 

Total assets held for sale, excluding discontinued operations
$
14,824

 
$

 
 
September 30, 2018
 
December 31, 2017
 
 
(unaudited)
 
 
Loans payable
 
$
11,276

 
$

Below market lease, net
 
6

 

Accounts payable
 
522

 

Total liabilities associated with assets held for sale, excluding discontinued operations
$
11,804

 
$

As of September 30, 2018 and December 31, 2017, assets held for sale and associated liabilities for discontinued operations, consisted of the following (in thousands):
 
 
September 30, 2018
 
December 31, 2017
 
 
(unaudited)
 
 
Investment properties, net
 
$
7,287

 
$
9,135

Total assets held for sale, discontinued operations
 
$
7,287

 
$
9,135

    
 
 
September 30, 2018
 
December 31, 2017
 
 
(unaudited)
 
 
Loans payable
 
$
581

 
$
747

Accounts payable
 
38

 
45

Total liabilities associated with assets held for sale, discontinued operations
$
619

 
$
792