Real Estate (Tables)

9 Months Ended

Sep. 30, 2016

Aggregate purchase price of the acquisitions

The purchase price and other acquisition items for the land parcels and properties acquired during the nine months ended September 30, 2016 are shown below (see Note 4, Investments, for additional detail):



Land Parcel/Property	Location	Tenant/Major Lessee	Acquisition Date	Purchase Price			Square Feet	Acquisition Fees Paid to the Advisor ⁽²⁾		Year of Lease Expiration
Lynnwood III	Lynnwood, WA	—	3/17/2016	$	1,538		43,000	$	46	—
Lynnwood IV	Lynnwood, WA	—	3/17/2016	$	1,244		34,800	$	37	—
HealthSpring	Nashville, TN	HealthSpring, Inc.	4/27/2016	$	41,300	⁽¹⁾	170,500	$	1.239	2022


(1)	The Company acquired a 10% beneficial interest in April 2013, which is included in the total purchase price at fair value.


(2)	The Advisor is entitled to receive acquisition fees equal to 2.5% and acquisition expense reimbursement of up to 0.5% of the contract purchase price for each property acquired.

Summary of purchase price allocation

The following summarizes the purchase price allocations of the Highway 94 and HealthSpring properties acquired during the year ended December 31, 2015 and the nine months ended September 30, 2016, respectively:



Property	Land		Building and improvements		Tenant origination and absorption costs		In-place lease valuation - above/(below) market			Debt discount		Total
Highway 94 ⁽¹⁾	$	5,637	$	18,592	$	6,688	$	(272	)	$	1,295	$	31,940
HealthSpring	$	8,126	$	26,441	$	5,006	$	1,192		$	535	$	41,300


(1)	The purchase price allocation of the Highway 94 property was finalized during the three months ended March 31, 20

Pro-forma financial information

The following condensed pro forma operating information is presented as if the Company’s property acquired during the three and nine months ended September 30, 2016, had been included in operations as of January 1, 2015. The pro forma operating information excludes certain nonrecurring adjustments, such as acquisition fees and expenses incurred, to reflect the pro forma impact the acquisition would have on earnings on a continuous basis:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Revenue	$	85,786		$	83,794		$	258,437		$	202,458
Net income	$	7,116		$	10,456		$	27,789		$	32,940
Net income attributable to noncontrolling interests	$	200		$	230		$	781		$	515
Distributions to redeemable noncontrolling interests attributable to common stockholders	$	(90	)	$	(91	)	$	(268	)	$	(268	)
Net income attributable to common stockholders ⁽¹⁾	$	6,826		$	7,806		$	26,740		$	14,808
Net income to common stockholders per share, basic and diluted	$	0.04		$	0.04		$	0.15		$	0.10


(1)	Amount is net of net income attributable to noncontrolling interests and distributions to redeemable noncontrolling interests attributable to common stockholder

Schedule of future minimum net rent payments

The future minimum contractual rent payments pursuant to the current lease terms are shown in the table below. The Company's current leases have expirations ranging from 2016 to 2036.

Schedule of in-place lease valuation

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, net of the write-off of intangibles as of September 30, 2016 and December 31, 2015. In-place 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.

Schedule of amortization expense

. The amortization of the intangible assets and other leasing costs for the respective periods is as follows:

Schedule of amortization (income) expense, future amortization



	Amortization (income) expense for the nine months ended September 30,
	2016		2015
In-place lease valuation, net	$	2,219	$	(2,147	)
Tenant origination and absorption cost	$	53,613	$	46,202
Ground leasehold amortization (below market)	$	21	$	21
Other leasing costs amortization	$	968	$	192

The following table sets forth the estimated annual amortization (income) expense for in-place lease valuation, net, tenant origination and absorption costs, ground leasehold improvements, and other leasing costs as of September 30, 2016 for the next five years

Schedule of restricted cash

. Additionally, an ongoing replacement reserve is funded by certain tenants pursuant to each tenant’s respective lease as follows:



Description	Balance as of December 31, 2015		Additions		Deductions			Balance as of September 30, 2016
Tenant improvement reserves⁽¹⁾	$	13,406	$	308	$	(2,553	)	$	11,161
Midland mortgage loan repairs reserves ⁽²⁾	453		—		(385		)	68
Real estate tax reserve (Emporia Partners, TW Telecom, DynCorp, and Mercedes-Benz) ⁽³⁾	1,891		1,725		(1,695		)	1,921
Property insurance reserve (Emporia Partners) ⁽³⁾	301		—		(172		)	129
Restricted deposits/Leasing commission reserve	68		25		(5		)	88
Midland mortgage loan restricted lockbox ⁽⁴⁾	2,044		1,569		(2,044		)	1,569
Restricted rent receipts ⁽⁵⁾	6,585		375		(6,585		)	375
Total	$	24,748	$	4,002	$	(13,439	)	$	15,311


(1)	Additions represent tenant improvement reserves funded by the tenant and held by the lender. Deductions represent tenant improvement reimbursements made to certain tenants during the current period.


(2)	Represents a deferred maintenance reserve funded by the Company as part of the refinancing that occurred on February 28, 2013, whereby certain properties became collateral for the Midland mortgage loan.


(3)	Additions represent monthly funding of real estate taxes and insurance by the tenants during the current period. Deductions represent reimbursements to the tenant for payment of real estate taxes and insurance premiums made during the current period.


(4)	As part of the terms of the Midland mortgage loan, rent collections from the eight properties which serve as collateral thereunder are received in a designated cash collateral account which is controlled by the lender until the designated payment date, as defined in the loan agreement, and the excess cash is transferred to the operating account.


(5)	Addition represents rent collections from the Mercedes-Benz property, which is to be held in a designated cash collateral account controlled by the lender until the designated payment date, as defined in the loan agreement. The excess cash is transferred to the operating accoun