Real Estate Assets (Notes)

9 Months Ended

Sep. 30, 2020

Real Estate Assets [Abstract]

Business Combination Disclosure

The Company allocated the purchase prices and capitalized acquisition costs to the acquired assets and liabilities based upon their fair values, as shown in the following table. The purchase price allocations were based upon the Company's best estimates of the fair values of the acquired assets and liabilities.

	Multifamily Community acquired during the nine-month period ended
(In thousands, except amortization period data)	September 30, 2020
Land	$	12,945
Buildings and improvements	100,113
Furniture, fixtures and equipment	26,284
Lease intangibles	5,968
Prepaids & other assets	24
Accrued taxes	(437)
Security deposits, prepaid rents, and other liabilities	(384)
Net assets acquired	$	144,513
Cash paid	$	99,476
Mortgage debt, net	45,037
Total consideration	$	144,513
Three-months ended September 30, 2020
Revenue	$	2,883
Net income (loss)	$	(1,832)
Nine-months ended September 30, 2020
Revenue	$	5,258
Net income (loss)	$	(4,018)
Capitalized acquisition costs incurred by the Company	$	4,085
Acquisition costs paid to related party (included above)	$	—
Remaining amortization period of intangible
assets and liabilities (months)	11.5

The Company had no acquisitions of student housing property assets during the nine-month period ended September 30, 2020.

During the nine-month period ended September 30, 2019, the Company completed the acquisition of Haven49, a 322-unit, 887-bed student housing property adjacent to the University of North Carolina at Charlotte. The Company effectuated the acquisition via a negotiated agreement whereby the Company accepted the membership interest in the Haven49 project entity in satisfaction of the project indebtedness owed to the Company. See Note 4.

The Company allocated the asset's fair value and capitalized acquisition costs to the acquired assets and liabilities based upon their fair values, as shown in the following table. The purchase price allocations were based upon the Company's best estimates of the fair values of the acquired assets and liabilities.

	Student housing property acquired during the nine-month period ended
(In thousands, except amortization period data)	September 30, 2019
Land	$	7,289
Buildings and improvements	68,163
Furniture, fixtures and equipment	16,966
Lease intangibles	983
Accrued taxes	(158)
Security deposits, prepaid rents, and other liabilities	(2,579)
Net assets acquired	$	90,664
Satisfaction of loan receivables	$	46,397
Cash paid	2,717
Mortgage debt, net	41,550
Total consideration	$	90,664
Three-months ended September 30, 2020
Revenue	$	2,042
Net income (loss)	$	36
Nine-months ended September 30, 2020
Revenue	$	5,980
Net income (loss)	$	307
Capitalized acquisition costs incurred by the Company	$	1,016
Acquisition costs paid to related party	$	936
Remaining amortization period of intangible
assets and liabilities (months)	0

On March 20, 2020, we delivered a written termination notice to the prospective purchaser of six of our student housing properties for their failure to consummate the purchase. Accordingly, we received an additional $2.75 million of forfeited earnest money as liquidated damages.

New Market Properties assets acquired

During the nine-month periods ended September 30, 2020 and 2019, the Company completed the acquisition of the following grocery-anchored shopping centers:

Acquisition date	Property	Location	Gross leasable area (square feet)
1/29/2020	Wakefield Crossing	Raleigh, North Carolina	75,927
3/19/2020	Midway Market	Dallas, Texas	85,599
			161,526
1/17/2019	Gayton Crossing	Richmond, Virginia	158,316
5/28/2019	Free State Shopping Center	Washington, D.C.	264,152
6/12/2019	Disston Plaza	Tampa - St. Petersburg, Florida	129,150
6/12/2019	Polo Grounds Mall	West Palm Beach, Florida	130,285
8/16/2019	Fairfield Shopping Center (1)	Virginia Beach, VA	231,829
			913,732
(1) Property is owned through a consolidated joint venture.

The aggregate purchase price of the New Market Properties acquisitions for the nine-month periods ended September 30, 2020 and 2019 was approximately $27.7 million and $178.5 million respectively, exclusive of acquired escrows, security deposits, prepaid assets, capitalized acquisition costs and other miscellaneous assets and assumed liabilities.

The Company allocated the purchase prices to the acquired assets and liabilities based upon their fair values, as shown in the following table. The purchase price allocation was based upon the Company's best estimates of the fair values of the acquired assets and liabilities.

	New Market Properties' acquisitions during the nine-month periods ended September 30,
(In thousands, except amortization period data)	2020		2019
Land	$	9,328	$	57,916
Buildings and improvements	12,264		101,873
Tenant improvements	2,099		8,230
In-place leases	3,043		16,080
Above market leases	107		2,759
Leasing costs	1,237		5,768
Below market leases	(359)		(10,537)
Prepaid taxes and other assets	61		98
Security deposits, prepaid rents, and other	(249)		(748)
Net assets acquired	$	27,531	$	181,439
Cash paid	$	19,640	$	65,526
Mortgage debt	7,891		115,913
Total consideration	$	27,531	$	181,439
Three-month period ended September 30, 2020
Revenue	$	678	$	3,976
Net income (loss)	$	5	$	(997)
Nine-month period ended September 30, 2020
Revenue	$	1,723	$	13,094
Net income (loss)	$	59	$	(2,126)
Capitalized acquisition costs incurred by the Company	$	470	$	4,022
Capitalized acquisition costs paid to related party (included above)	$	249	$	1,799
Remaining amortization period of intangible
assets and liabilities (years)	10.2		8.0

The Company recorded aggregate amortization and depreciation expense of:

(In thousands)	Three-month periods ended September 30,				Nine-month periods ended September 30,
	2020		2019		2020		2019
Depreciation:
Buildings and improvements	$	29,050	$	25,509	$	85,811	$	72,686
Furniture, fixtures, and equipment	12,817		12,296		38,132		37,961
	41,867		37,805		123,943		110,647
Amortization:
Acquired intangible assets	9,510		8,169		27,873		25,732
Deferred leasing costs	368		217		1,132		670
Website development costs	49		48		148		142
Total depreciation and amortization	$	51,794	$	46,239	$	153,096	$	137,191

At September 30, 2020, the Company had recorded acquired gross intangible assets of $310.6 million, accumulated amortization of $177.3 million, gross intangible liabilities of $86.0 million and accumulated amortization of $31.5 million. Net intangible assets and liabilities as of September 30, 2020 will be amortized over the weighted average remaining amortization periods of approximately 7.2 and 8.7 years, respectively.

At September 30, 2020, included in the Company's total restricted cash was approximately $18.8 million that was contractually restricted to fund capital expenditures and other property-level commitments such as tenant improvements and leasing commissions. Our lenders also require us to escrow balances for future real estate tax and insurance payments. Through our property-level mortgage refinances executed in the second and third quarters of 2020, our lenders also required us to escrow funds for potential effects from the COVID-19 pandemic. At September 30, 2020, our restricted cash for real estate taxes, insurance premiums and COVID-19 reserves was $33.6 million and $6.8 million, respectively. The remainder of the Company's restricted cash consisted primarily of resident and tenant security deposits.

Purchase Options

In the course of extending real estate loan investments for property development, the Company will often receive an exclusive option to purchase the property once development and stabilization are complete. If the Company determines that it does not wish to acquire the property, it has the right to sell its purchase option back to the borrower for a termination fee in the amount of the purchase option discount.

Effective May 7, 2018, the Company terminated its purchase options on the Bishop Street multifamily community and the Haven Charlotte student housing property, both of which were partially supported by real estate loan investments held by the Company, in exchange for termination fees aggregating approximately $5.6 million from the developers. Effective January 1, 2019, the Company terminated its purchase options on the Sanibel Straits, Newbergh, Wiregrass and Cameron Square multifamily communities and the Solis Kennesaw student housing property, all of which are partially supported by real estate loan investments held by the Company, in exchange for termination fees aggregating approximately $9.1 million from the developers. Effective March 6, 2020, the Company terminated its purchase option on the Falls at Forsyth multifamily community for $2.5 million. These fees are treated as additional interest revenue and are amortized over the period ending with the earlier of (i) the sale of the underlying property and (ii) the maturity of the real estate loans. The Company recorded approximately $4.9 million and $6.9 million of interest revenue related to these purchase option terminations for the nine-month periods ended September 30, 2020 and 2019, respectively.

Joint Venture Investment

On July 15, 2020, we contributed our Neapolitan Way grocery-anchored shopping center that was previously wholly-owned and consolidated into a joint venture in exchange for approximately $19.2 million and 50% interest in the joint venture. We realized a gain on the transaction of approximately $3.3 million. We now hold our remaining interest in the property via an unconsolidated joint venture and retain a 50% voting and financial interest. The following tables summarize the balance sheet and statements of income data for Neapolitan Way shopping center subsequent to its contribution into the joint venture as of and for the periods presented:

(in thousands)	September 30, 2020
Total assets	$	39,843
Total liabilities	$	26,142

	Three months ended		Nine months ended
	September 30,		September 30,
	2020		2020
Rental and other property revenues	$	651	$	651
Total operating expenses	$	797	$	797
Interest expense	$	94	$	94
Net income (loss)	$	(240)	$	(240)
Net income (loss) attributable to the Company	$	(120)	$	(120)

Real Estate Disclosure

Real Estate Assets

The Company's real estate assets consisted of:

	As of:
	September 30, 2020	December 31, 2019
Residential properties:
Properties (1,2)	44	42
Units	12,936	12,256
Beds	6,095	6,095
New Market Properties:
Properties (2)	54	52
Gross leasable area (square feet) (3)	6,208,278	6,041,629
Preferred Office Properties:
Properties (2,4)	9	10
Rentable square feet	3,169,000	3,204,000
(1) The acquired second phases of CityPark View and Crosstown Walk communities are managed in combination with the initial phases and so together are considered a single property, as is the Regent at Lenox Village within the Lenox Portfolio.
(2) One multifamily community, two student housing properties, two grocery-anchored shopping centers and two office buildings are owned through consolidated joint ventures. One grocery-anchored shopping center is an investment in an unconsolidated joint venture.
(3) The Company also owns approximately 47,600 square feet of gross leasable area of ground floor retail space which is embedded within the Lenox Portfolio and is not included in the totals above for New Market Properties.
(4) Excludes our 251 Armour property, comprising 35,000 rentable square feet that is under development and our 4th & Brevard land parcel, that is slated for future development.

Impacts of COVID-19 Pandemic

The COVID-19 pandemic emerged in December 2019 and has since spread globally, including to every state in the United States. On March 13, 2020, the United States declared a national emergency. Since that time, efforts to contain the spread of COVID-19 have intensified. Several countries, including the United States, have taken steps to restrict travel, temporarily close businesses and issue quarantine orders. The restrictions have resulted in impacts to earnings for commercial real estate, which in turn is expected to affect asset valuations to some degree. The Company does not consider this event to be a triggering event for purposes of impairment, since no evidence of declining valuations of any consequence have emerged to cause a triggering event, as evidenced by step one analyses performed on a sample of its properties from each segment. The Company found a significant amount of cushion between the asset’s book value and the undiscounted cash flows for the properties evaluated.

The Company's monthly rent collections for the three-month period ended September 30, 2020 continue to improve across the Company's segments compared to the three-month period ended June 30, 2020, with a more pronounced improvement in collections for in-line retail tenants, whose businesses were closed during periods with state or local operating restrictions. Many tenants have reopened as restrictions were lifted and monthly rent collections are beginning to increase. Within our multifamily communities, the Company offered rent deferral plans for the months of April, May, June and July 2020. Any deferred rents would be due over the remaining lease term of the individual tenants. For retail and office tenants, the company evaluated all delinquent receivable balances by performing a detailed review of each tenant. In this review, we determined if the balances were paid in the subsequent month, if tenant had requested rent relief in the subsequent month due to COVID-19 circumstances, if the tenant was a credit tenant that was not typically late, and if the tenant had a security deposit on hand. If the likelihood of the tenant submitting payment was deemed to be less than probable based on the aforementioned criteria, we determined the tenant as being an “at risk” tenant and revenue would be recognized on a cash basis.

The Company's average recurring rental revenue collections before and after any effect of rent deferrals for the third quarter 2020 were approximately 99.0% and 99.0% respectively for multifamily communities, 99.5% and 99.8% for office properties and 95.2% and 96.6% for grocery-anchored retail properties, respectively. Rent deferments provided to residents and tenants primarily related to a change of timing of rent payments with no significant changes to total payments or term. The Company has deferred approximately $0.8 million, or 0.7% of total rental and other revenues for the three-month period ended September 30, 2020. In addition, the Company’s revenues were reduced by approximately $1.7 million, or 1.4% of rental and other revenues for the three-month period ended September 30, 2020 due to additional bad debt reserves related to the COVID-19 pandemic.

Residential properties acquired

During the nine-month period ended September 30, 2020, the Company completed the acquisition of the following multifamily communities:

Acquisition date	Property	Location	Units
3/31/2020	Horizon at Wiregrass	Tampa, Florida	392
4/30/2020	Parkside at the Beach	Panama City Beach, Florida	288
			680

The aggregate purchase prices of the multifamily acquisitions for the nine-month period ended September 30, 2020 were approximately $141.2 million, exclusive of acquired escrows, security deposits, prepaids, capitalized acquisition costs and other miscellaneous assets and assumed liabilities. The Company acquired no multifamily communities during the nine-month period ended September 30, 2019.