Basis of Presentation and Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2012

Basis of Presentation and Significant Accounting Policies

Real Estate

Real Estate

As of September 30, 2012 and December 31, 2011, the cost basis and accumulated depreciation and amortization related to our consolidated real estate properties and related lease intangibles were as follows (in thousands):

				Lease Intangibles
				Assets						Liabilities
							Acquired			Acquired
	Buildings and			Other Lease			Above-Market			Below-Market
as of September 30, 2012	Improvements			Intangibles			Leases			Leases
Cost	$	2,953,655		$	421,767		$	28,595		$	(125,520	)
Less: accumulated depreciation and amortization	(631,024		)	(219,126		)	(17,689		)	71,168
Net	$	2,322,631		$	202,641		$	10,906		$	(54,352	)

				Lease Intangibles
				Assets						Liabilities
							Acquired			Acquired
	Buildings and			Other Lease			Above-Market			Below-Market
as of December 31, 2011	Improvements			Intangibles			Leases			Leases
Cost	$	3,159,260		$	468,960		$	34,509		$	(141,795	)
Less: accumulated depreciation and amortization	(617,402		)	(229,211		)	(20,628		)	73,017
Net	$	2,541,858		$	239,749		$	13,881		$	(68,778	)

We amortize the value of in-place leases, in-place tenant improvements and in-place leasing commissions to expense over the initial term of the respective leases.  The tenant relationship values are amortized to expense over the tenants’ respective initial lease terms and any anticipated renewal periods, but in no event does the amortization period for intangible assets or liabilities exceed the remaining depreciable life of the building.  Should a tenant terminate its lease, the unamortized portion of the acquired lease intangibles related to that tenant would be charged to expense.  The estimated remaining average useful lives for acquired lease intangibles range from an ending date of October 2012 to an ending date of November 2025.  Anticipated amortization associated with the acquired lease intangibles for each of the following five years is as follows (in thousands):

October - December 2012	$	5,809
2013	$	19,777
2014	$	16,265
2015	$	11,167
2016	$	8,232

Impairment

Impairment

For our consolidated real estate assets, we monitor events and changes in circumstances that may indicate that carrying amounts of the real estate assets may not be recoverable.  When such events or changes in circumstances are present, we assess potential impairment by comparing estimated future undiscounted cash flows expected to be generated over the life of the asset including its eventual disposition, to the carrying amount of the asset.  In the event that the carrying amount exceeds the estimated future undiscounted cash flows, we recognize an impairment loss to adjust the carrying amount of the asset to estimated fair value.

For the three months ended September 30, 2012 and 2011, we recorded non-cash impairment charges of approximately $8.3 million and $82.0 million, respectively, related to the impairment of consolidated real estate assets, including discontinued operations.  For the nine months ended September 30, 2012 and 2011, we recorded non-cash impairment charges of approximately $25.1 million and $89.0 million, respectively, related to the impairment of consolidated real estate assets, including discontinued operations.  Primarily, changes in management’s estimate of the intended hold periods for certain of our properties resulted in an assessment of these properties for impairment for both the current year and the prior year periods.

If our assumptions regarding the cash flows expected to result from the use and eventual disposition of our properties decrease or our expected hold periods decrease, we may incur future impairment charges on our real estate related assets.  In addition, we may incur impairment charges on assets classified as held for sale in the future if the carrying amount of the assets upon classification as held for sale exceeds the estimated fair value, less costs to sell.

Accounts Receivable, net

Accounts Receivable, net

The following is a summary of our accounts receivable as of September 30, 2012 and December 31, 2011 (in thousands):

	September 30, 2012			December 31, 2011
Straight-line rental revenue receivable	$	101,179		$	94,541
Tenant receivables	11,808			11,933
Non-tenant receivables	542			938
Allowance for doubtful accounts	(2,900		)	(1,459		)
Total	$	110,629		$	105,953

Deferred Financing Fees, net

Deferred Financing Fees, net

Deferred financing fees are recorded at cost and are amortized to interest expense using a straight-line method that approximates the effective interest method over the anticipated life of the related debt.  Deferred financing fees, net of accumulated amortization, totaled approximately $16.7 million and $22.6 million at September 30, 2012 and December 31, 2011, respectively.  Accumulated amortization of deferred financing fees was approximately $18.4 million and $14.1 million as of September 30, 2012 and December 31, 2011, respectively.

Other Intangible Assets

Other Intangible Assets

Other intangible assets include our license to use the Behringer Harvard name and logo and a ground lease on one of our properties.  As of September 30, 2012 and December 31, 2011, the cost basis and accumulated amortization related to our consolidated other intangibles assets were as follows (in thousands):

	September 30,			December 31,
Other Intangible Assets	2012			2011
Cost	$	4,422		$	2,977
Less: accumulated depreciation and amortization	(609		)	(476		)
Net	$	3,813		$	2,501

We amortize the value of other intangible assets to expense over their estimated remaining useful lives which range from an ending date of June 2015 to an ending date of January 2050.   Anticipated amortization associated with other intangible assets for each of the following five years is as follows (in thousands):

October - December 2012	$	157
2013	$	629
2014	$	629
2015	$	374
2016	$	119

Derivative Financial Instruments

Derivative Financial Instruments

We record all derivatives on the balance sheet at fair value.  The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.  Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges.  For derivatives designated as fair value hedges, the changes in the fair value of both the derivative instrument and the hedged items are recorded in earnings. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.  For derivatives designated as cash flow hedges, the effective portions of changes in the fair value of the derivative are reported in accumulated other comprehensive income (loss) and are subsequently reclassified into earnings when the hedged item affects earnings.  Changes in the fair value of derivative instruments not designated as hedges and ineffective portions of hedges are recognized in earnings in the affected period.  Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation.  Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.  We may enter into derivative contracts that are intended to economically hedge certain of our risk, even though hedge accounting does not apply or we elect not to apply hedge accounting.

As of September 30, 2012 and December 31, 2011, we do not have any derivatives designated as fair value hedges or hedges of net investments in foreign operations, nor are derivatives being used for trading or speculative purposes.

Revenue Recognition

Revenue Recognition

We recognize rental income generated from all leases of consolidated real estate assets on a straight-line basis over the terms of the respective leases, including the effect of rent holidays, if any.  The total net increase to rental revenues due to straight-line rent adjustments for the three months ended September 30, 2012 and 2011 was approximately $2.6 million and $6.7 million, respectively, and includes amounts recognized in discontinued operations.  The total net increase to rental revenues due to straight-line rent adjustments for the nine months ended September 30, 2012 and 2011 was approximately $13.7 million and $17.9 million, respectively, and includes amounts recognized in discontinued operations.  As discussed above, our rental revenue also includes amortization of acquired above- and below-market leases.  The total net increase to rental revenues due to the amortization of acquired above- and below-market leases for the three months ended September 30, 2012 and 2011 was approximately $3.4 million and $2.9 million, respectively, and includes amounts recognized in discontinued operations. The total net increase to rental revenues due to the amortization of acquired above- and below-market leases for the nine months ended September 30, 2012 and 2011 was approximately $9.4 million and $15.4 million, respectively, and includes amounts recognized in discontinued operations. Revenues relating to lease termination fees are recognized on a straight-line basis amortized from the time that a tenant’s right to occupy the leased space is modified through the end of the revised lease term.  We recognized lease termination fees of approximately $0.2 million and $0.8 million for the three months ended September 30, 2012 and 2011, respectively, which includes amounts recognized in discontinued operations.  We recognized lease termination fees of approximately $1.2 million and $6.4 million for the nine months ended September 30, 2012 and 2011, respectively, which includes amounts recognized in discontinued operations.

Income Taxes

Income Taxes

We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), and have qualified as a REIT since the year ended December 31, 2004.  To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income (excluding net capital gains) to our stockholders.  As a REIT, we generally will not be subject to federal income tax at the corporate level (except to the extent we distribute less than 100% of our taxable income and/or net taxable capital gains).

We acquired IPC (US), Inc. on December 12, 2007 and have elected that it be taxed as a REIT for federal income tax purposes since the tax year ended December 31, 2008.  We believe IPC (US), Inc. is organized and operates in a manner to qualify for this election.  Prior to acquisition, IPC (US), Inc. was a taxable C-corporation, and for the balance of the year ended December 31, 2007, IPC (US), Inc. was treated as a taxable REIT subsidiary of the Company for federal income tax purposes.

As of September 30, 2012, we have deferred tax liabilities of approximately $2.3 million and deferred tax assets, net of related valuation allowances, of approximately $0.5 million related to various state taxing jurisdictions.  At December 31, 2011, we had deferred tax liabilities of approximately $2.6 million and deferred tax assets, net of related valuation allowances, of approximately $0.3 million related to various state taxing jurisdictions.

We recognize in our financial statements the impact of our tax return positions if it is more likely than not that the tax position will be sustained upon examination (defined as a likelihood of more than fifty percent of being sustained upon audit, based on the technical merits of the tax position). Tax positions that meet the more likely than not threshold are measured at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. We recognize the tax implications of the portion of a tax position that does not meet the more likely than not threshold together with the accrued interest and penalties in the financial statements as a component of the provision for income taxes. For the three months ended September 30, 2012 and 2011, we recognized a benefit from income taxes, including amounts recognized in discontinued operations, of approximately $0.5 million and $0.3 million, respectively, related to certain state and local income taxes.  For the nine months ended September 30, 2012 we recognized a benefit from income taxes of less than $0.1 million, including amounts recognized in discontinued operations.  For the nine months ended September 30, 2011 we recognized a provision for income taxes, including amounts recognized in discontinued operations, of approximately $0.2 million, related to certain state and local income taxes.