Deferred Leasing Intangibles

6 Months Ended

Jun. 30, 2012

Deferred Leasing Intangibles

Deferred Leasing Intangibles

4. Deferred Leasing Intangibles

Deferred leasing intangibles included in total assets consisted of the following (in thousands):

	June 30, 2012			December 31, 2011
In-place leases	$	72,089		$	56,221
Less: Accumulated amortization	(19,779		)	(13,741		)
In-place leases, net	52,310			42,480
Above market leases	40,409			34,425
Less: Accumulated amortization	(7,258		)	(4,722		)
Above market leases, net	33,151			29,703
Tenant relationships	41,164			35,373
Less: Accumulated amortization	(7,609		)	(4,673		)
Tenant relationships, net	33,555			30,700
Leasing commissions	14,750			14,326
Less: Accumulated amortization	(4,965		)	(3,916		)
Leasing commissions, net	9,785			10,410
Total deferred leasing intangibles, net	$	128,801		$	113,293

Deferred leasing intangibles included in total liabilities consisted of the following (in thousands):

	June 30, 2012			December 31, 2011
Below market leases	$	6,784		$	3,954
Less: Accumulated amortization	(2,334		)	(2,025		)
Total deferred leasing intangibles, net	$	4,450		$	1,929

Amortization expense related to in-place leases, lease commissions and tenant relationships of deferred leasing intangibles was $5.1 million and $10.1 million for the three and six months ended June 30, 2012, respectively, $3.7 million for the period April 20, 2011 to June 30, 2011, $0.1 million for the period April 1, 2011 to April 19, 2011, and $0.7 million for the period January 1, 2011 to April 19, 2011. Rental income related to net amortization of above (below) market leases increased (decreased) by $(1.1) million and $(2.3) million for the three and six months ended June 30, 2012, respectively, $(0.9) million for the period April 20, 2011 to June 30, 2011, $(2) thousand for the period April 1, 2011 to April 19, 2011, and $2 thousand for the period January 1, 2011 to April 19, 2011.

Amortization related to deferred leasing intangibles over the next five years is as follows (in thousands):

	Estimated Net Amortization of In-Place Leases, Leasing Commissions and Tenant Relationships		Net Decrease (Increase) to Rental Income Related to Above and Below Market Leases
Remainder of 2012	$	10,267	$	2,401
2013	17,003		4,499
2014	15,304		4,126
2015	13,279		3,953
2016	11,369		3,840

The Company assesses deferred leasing intangibles for impairments on a quarterly basis when certain triggering events are met.  If events or changes in circumstances indicate that the carrying values of certain deferred lease intangibles may be impaired, a recovery analysis is performed based on undiscounted future cash flows expected to be generated from the tenant over the remaining lease term.  If the recovery analysis indicates the carrying value of the tested lease intangibles are not recoverable from estimated future cash flows, it is written down to its estimated fair value and an impairment loss is recognized.  The fair value is determined based on the contractual lease rental payments over the remaining term discounted back to the current reporting period.  On June 11, 2012, the Company received notice from a tenant that the tenant was exercising an option in their lease to downsize their space from approximately 190,000 to 60,000 rentable square feet effective March 31, 2013. After determining the undiscounted future cash flows were not recoverable, the Company calculated the fair value of the lease intangibles. Using the remaining contractual lease payments for the reduced space and discounting the cash flows at a risk adjusted return for a market participant of 11.4%, it was determined that the fair value of the lease intangibles was $0.4 million resulting in a noncash impairment loss of $0.6 million, which is reflected in the accompanying Consolidated Statements of Operations.  The fair value calculation of the lease intangibles of $0.4 million was performed using Level 3 inputs, and this is a nonrecurring fair value measurement.  The three-tier value hierarchy is explained in Note 6.