Real Estate

6 Months Ended

Jun. 30, 2012

Real Estate [Abstract]

Real Estate

3. Real Estate

Acquisition of Travelers Property

On June 29, 2012, the Company, through the Operating Partnership, acquired a three-story office facility located in Greenwood Village, Colorado (the “Travelers property”) from an unaffiliated third party. The Travelers property is 100% leased to a single tenant, The Travelers Indemnity Company (“Travelers”), on a net lease basis, obligating Travelers to all costs and expenses to operate and maintain the property, including capital expenditures, subject to an expense cap on controllable expenses. On the acquisition date the remaining term of the lease was 12 years.

The purchase price of the Travelers property was $16.1 million. The purchase price was substantially financed with a draw from the Credit Facility with KeyBank in the amount of $9.7 million, and with the Bridge Loan from KeyBank in the amount of $6.2 million, as discussed in Note 4, Debt. Additionally, $0.2 million in good faith deposits, net of closing fees and expenses, were applied at closing. The following table provides the purchase price allocation and related financing activity:

Land	$	2,600,000
Building and improvements		9,062,597
Tenant origination and absorption cost		4,437,403
	$	16,100,000
Credit Facility draw	$	9,660,000
Bridge Loan		6,200,000
Prepaid rent		13,000
Cash used and credits received to acquire property (deposits and closing costs, net)		227,000
	$	16,100,000

Acquisition of GE Property

On May 31, 2012, the Company, through a wholly-owned subsidiary of the Operating Partnership, acquired an assembly and manufacturing facility located in Whippany, New Jersey (the “GE property”) from an unaffiliated third party. The GE property is 100% leased to a single tenant, GE Aviation Systems, LLC (“GE”), on a net lease basis, obligating GE to all costs and expenses to operate and maintain the property, including capital expenditures. On the acquisition date the remaining term of the lease was approximately six years.

The purchase price of the GE property was $13.0 million. The purchase price was substantially financed with mezzanine debt pursuant to the Mezzanine Loan with KeyBank in the amount of $6.0 million and the assumption of $6.9 million in existing mortgage debt related to the GE property (the “GE mortgage debt”), as discussed in Note 4, Debt. Additionally, good faith deposits in the amount of $0.1 million, net of closing fees and expenses, were applied at closing. The following table provides the purchase price allocation and related financing activity:

Land	$	3,773,000
Building and improvements		7,707,174
Tenant origination and absorption cost		1,322,919
In-place lease valuation (above market)		408,330
Debt premium		(211,423	)
	$	13,000,000
Mortgage payable assumed	$	6,908,270
Mezzanine Loan		5,971,385
Prepaid rent		2,912
Cash used and credits received to acquire property (deposits and closing costs, net)		117,433
	$	13,000,000

Acquisition of Westinghouse Property

On March 22, 2012, the Company, through a wholly-owned subsidiary of the Operating Partnership, acquired an office building located in Cranberry Township, Pennsylvania (the “Westinghouse property”) from an unaffiliated third party. The Westinghouse property is 100% leased to a single tenant, Westinghouse Electric Company (“Westinghouse”), on a net lease basis, obligating Westinghouse to all costs and expenses to operate and maintain the property, including capital expenditures. On the acquisition date the remaining term of the lease was approximately 14 years. The purchase price of the Westinghouse property was $36.2 million. The purchase price was substantially financed with a draw from the amended and restated credit agreement with KeyBank as discussed in Note 4, Debt, in the amount of $27.1 million, and mezzanine debt pursuant to the mezzanine credit agreement with KeyBank, as discussed in Note 4, Debt, in the amount of $9.0 million. Additionally, good faith deposits in the amount of $0.7 million were applied at closing and offset by $0.6 million in related closing fees and expenses. The following table provides the purchase price allocation and related financing activity:

Land	$	2,650,000
Building and improvements		22,024,952
Tenant origination and absorption cost		7,070,642
In-place lease valuation (above market)		4,454,406
	$	36,200,000
Credit Facility draw	$	27,095,000
Mezzanine Loan		9,000,000
Rent		70,000
Cash used to acquire property (deposits and closing costs, net)		35,000
	$	36,200,000

Acquisition of AT&T Property

On January 31, 2012, the Company, through the Operating Partnership, acquired a three-building, two-story office and data center facility located in Redmond, Washington (the “AT&T property”) from an unaffiliated third party. The AT&T property is 100% leased to a single tenant, AT&T Services, Inc., on behalf of AT&T Wireless Services, Inc., a wholly-owned subsidiary of AT&T, Inc., pursuant to three long-term, net leases, obligating AT&T Services, Inc. to all costs and expenses to operate and maintain the property, including capital expenditures. On the acquisition date the remaining term of the lease was approximately eight years.

The purchase price of the AT&T property was $40.0 million, which was substantially funded with a draw from the amended and restated credit agreement with KeyBank as discussed in Note 4, Debt, in the amount of $22.0 million, and mezzanine debt pursuant to the mezzanine credit agreement with KeyBank, as discussed in Note 4, Debt, in the amount of $12.4 million. The remaining purchase price and related closing fees and expenses were funded with $5.6 million and $0.3 million, respectively, in cash raised in the Public Offering. The following table provides the purchase price allocation and related financing activity:

Land	$	6,770,223
Building and improvements		26,357,255
Tenant origination and absorption cost		6,063,085
In-place lease valuation (above market)		809,437
	$	40,000,000
Credit Facility draw	$	22,000,000
Mezzanine Loan		12,400,000
Cash used to acquire property		5,600,000
	$	40,000,000

As of June 30, 2012, the Company’s real estate portfolio consisted of 11 properties including office, warehouse, and manufacturing facilities with a combined carrying value of $270.0 million, including the allocation of the purchase price to above and below-market lease valuation. The lease expirations of the 11 properties range from 2016 to 2025. The future minimum net rent payments pursuant to the lease terms are shown in a table below.

Intangibles

The Company allocated a portion of the acquired and contributed real estate asset value to in-place lease valuation and tenant origination and absorption cost, as discussed above and as shown below. The leases were measured against comparable leasing information and the present value of the difference between the contractual, in-place rent and the fair market rent was calculated using, as the discount rate, the capitalization rate utilized to compute the value of the real estate at acquisition or contribution. The discount rate used to compute the present value of the intangible assets for the Westinghouse property was adjusted to consider the potential risk that the tenant would exercise the termination option as pursuant to the lease. The Emporia Partners property in-place lease was considered to be at market, therefore none of the purchase price was allocated to an in-place lease valuation intangible.

	Balance June 30, 2012			Balance December 31,  2011
In-place lease valuation (above market)	$	7,510,077		$	1,837,903
In-place lease valuation (above market)- accumulated amortization		(567,405	)		(321,965	)
In-place lease valuation (above market), net	$	6,942,672		$	1,515,938
In-place lease valuation (below market)	$	(9,950,752	)	$	(9,950,752	)
In-place lease valuation (below market)- accumulated amortization		1,106,177			661,345
In-place lease valuation (below market), net	$	(8,844,575	)	$	(9,289,407	)
Tenant origination and absorption cost	$	53,294,720		$	34,400,671
Tenant origination and absorption cost- accumulated amortization		(6,011,876	)		(3,924,882	)
Tenant origination and absorption cost, net	$	47,282,844		$	30,475,789

The intangible assets are amortized over the remaining lease term of each property, as shown in the table below. On a weighted-average basis, the remaining lease term of the properties was 9.7 years and 9.4 years as of June 30, 2012 and December 31, 2011, respectively. As of June 30, 2012, amortization expense for in-place lease valuation, net, and tenant origination and absorption cost is expected to be $(0.2) million and $5.1 million, respectively, each year for the next five years. As of December 31, 2011, amortization expense for in-place lease valuation and tenant origination and absorption cost was expected to be $0.7 million and $3.2 million, respectively, each year for the succeeding five years.

	Amortization expense for the
	Six Months Ended June 30, 2012		Year Ended December 31, 2011
In-place lease valuation	$	199,392	$	381,670
Tenant origination and absorption cost	$	2,086,995	$	2,636,137

Restricted Cash

As part of the real estate asset acquisitions and contributions, the Company assumed certain building and tenant improvement reserves, which are included on the consolidated balance sheets as restricted cash. Additionally, an ongoing replacement reserve is funded by certain tenants pursuant to each tenant’s respective lease as follows:

	Balance December 31,  2011		Additions		Utilizations			Balance June 30,  2012
Plainfield (1)	$	408,333	$	50,000	$	(11,786	)	$	446,547
Will Partners (1)		152,319		52,515		—			204,834
Emporia Partners (2)		715,001		166,392		—			881,393
ITT (3)		344,212		—		—			344,212
Quad/Graphics (3)		260,000		—		—			260,000
GE ( 4 )		—		5,000		—			5,000
Total	$	1,879,865	$	273,907	$	(11,786	)	$	2,141,986

(1) Additions to the reserve balance are funded by the tenant.

(2) The balance at June 30, 2012 consisted of a replacement reserve of $0.5 million, which was funded by the contributing entity. Additionally, tax and insurance reserves totaling $0.4 million were funded by the tenant.

(3) Balance represents remaining reserves, which were initially funded by the Company at closing.

(4) Balance represents a restricted cash account controlled by the lender.

Rent

The following summarizes the future minimum net rent payments pursuant to the lease terms for the properties discussed above as of June 30, 2012:

2012	$	10,944,174
2013		22,128,564
2014		22,595,902
2015		22,890,763
2016		23,288,221
Thereafter		121,018,453
Total	$	222,866,077

For the six months ended June 30, 2012, the Company’s 11 properties, based on rental income received from such properties as a percentage of aggregate rental income received by the Company, were as follows:

Property	Location	Revenue as a  percentage of total rent
LTI	Carlsbad, CA		22.1	%
Plainfield	Plainfield, IL		14.0
AT&T (1)	Redmond, WA		13.6
Will Partners	Monee, IL		12.5
Renfro	Clinton, SC		10.1
Westinghouse ( 2 )	Cranberry Township, PA		8.5
Emporia Partners	Emporia, KS		7.4
Quad/Graphics	Loveland, CO		6.6
ITT	Los Angeles, CA		4.1
GE (3 )	Whippany, NJ		1.0
Travelers (4 )	Greenwood Village, CO		0.1
Total			100.0	%

(1) Total rental income for the AT&T property for the six months ended June 30, 2012 was $1.3 million, consisting of five months of rent based on an acquisition date of January 31, 2012.

(2) Total rental income for the Westinghouse property includes only three full months of rental income for the six months ended June 30, 2012, totaling $0.8 million, based on an acquisition date of March 22, 2012.

(3) Total rental income for the GE property for the six months ended June 30, 2012 was $0.1 million, consisting of one month of rent based on an acquisition date of May 31, 2012.

(4) Total rental income for the Travelers property for the six months ended June 30, 2012 was $0.01 million, consisting of two days of rent based on an acquisition date of June 29, 2012.

Approximately 27% and 26% of the Company’s rental income was concentrated in Illinois and California, respectively, as of June 30, 2012. Tenant security deposits as of June 30, 2012 and December 31, 2011, which were included in the accounts payable and other liabilities balance on the consolidated balance sheets, totaled $0.03 million, as required pursuant to the lease for the ITT property. No collateral was received for the other eight tenant leases and, therefore, the Company bears the full risk of tenant rent collections. There were no tenant receivables as of June 30, 2012 and December 31, 2011.

Pro Forma Financial Information (unaudited)

The following condensed pro forma operating information is presented as if the Company’s properties acquired in 2012 and 2011 had been included in operations as of January 1, 2011. The pro forma operating information includes certain nonrecurring adjustments, such as acquisition fees and expenses incurred as a result of the assets acquired in the acquisitions:

	Three Months Ended June 30,					Six Months Ended June 30,
	2012		2011			2012		2011
Revenue	$	6,913,180	$	6,924,892		$	13,852,975	$	13,824,335
Net income (loss)	$	112,610	$	(165,493	)	$	397,361	$	(4,681,716	)
Net income (loss) attributable to common stockholders	$	16,431	$	(76,789	)	$	147,798	$	(2,008,456	)
Net income (loss) per share	$	—	$	(0.03	)	$	0.02	$	(0.77	)