Quarterly report pursuant to Section 13 or 15(d)

Property Portfolio

v3.19.1
Property Portfolio
 3 Months Ended
Mar. 31, 2019
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment Disclosure [Text Block]
Note 3 – Property Portfolio
 
Summary of Properties Acquired During the Three Months Ended March 31, 2019
 
During the three months ended March 31, 2019 the Company completed two acquisitions. For both acquisitions, substantially all of the fair value was concentrated in a single identifiable asset or group of similar identifiable assets and, therefore, represent asset acquisitions. Accordingly, transaction costs for these acquisitions were capitalized.
 
A rollforward of the gross investment in land, building and improvements as of March 31, 2019 resulting from these acquisitions as well as other tenant improvements is as follows:
 
 
 
Land
 
 
Building
 
 
Site & Tenant

Improvements
 
 
Acquired Lease

Intangibles
 
 
Gross Investment in

Real Estate
 
Balances as of December 31, 2018
 
$
63,710
 
 
$
518,451
 
 
$
22,237
 
 
$
43,152
 
 
$
647,550
 
Facility Acquired – Date Acquired:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Zachary – 2/28/19
 
 
-
 
 
 
3,336
 
 
 
512
 
 
 
835
 
 
 
4,683
 
Gilbert and Chandler – 3/19/19
 
 
4,616
 
 
 
11,643
 
 
 
-
 
 
 
-
 
 
 
16,259
 
Tenant improvements
(1)
 
 
-
 
 
 
-
 
 
 
439
 
 
 
-
 
 
 
439
 
Total Additions
(2)
:
 
 
4,616
 
 
 
14,979
 
 
 
951
 
 
 
835
 
 
 
21,381
 
Balances as of March 31, 2019
 
$
68,326
 
 
$
533,430
 
 
$
23,188
 
 
$
43,987
 
 
$
668,931
 
 
(1)
Represents tenant improvements that were completed and placed in service during the three months ended March 31, 2019 related to the Sherman facility that was acquired in June 2017.
(2)
The Zachary facility acquisition included OP Units with a value of $506 that were issued as part of the total consideration for that transaction. Additionally, an aggregate of $34 of intangible liabilities were acquired from the acquisitions that occurred during the three months ended March 31, 2019. Accordingly, the total addition to gross investment in real estate funded with cash was $20,841.
 
Depreciation expense was $3,867 and $2,906 for the three months ended March 31, 2019 and 2018, respectively.
 
As of March 31, 2019, the Company had aggregate capital improvement commitments and obligations to improve, expand, and maintain the Company’s facilities of $20,825. Many of these allowances are subject to contingencies that make it difficult to predict when such allowances will be utilized, if at all. In accordance with the terms of a number of the Company’s leases, capital improvement obligations in 2019 could total up to approximately $12,790.
 
The following is a summary of the acquisitions completed during the three months ended March 31, 2019.
 
Zachary Facility
 
On February 28, 2019, the Company assumed the following leasehold interests in the real property located in Zachary, Louisiana for a purchase price of $4.6 million:
(i) the interest, as ground lessee, in an existing ground lease of the facility with the fee owner as ground lessor, with approximately 46 years remaining in the initial term with no extension options; (ii) the interest arising under the ground lease in and to the long-term acute-care hospital located at the facility; and (iii) the interest, as landlord, in an existing lease of the facility with LTAC Hospital of Feliciana, LLC, as tenant, with approximately 16 years remaining in the initial term with three consecutive 10-year extension options.
The following table presents the details of the tangible and intangible assets acquired and liabilities assumed:
 
Land and site improvements
 
$
103
 
Building and tenant improvements
 
 
3,745
 
In-place leases
 
 
305
 
Above-market lease intangibles
 
 
117
 
Leasing costs
 
 
413
 
Below-market lease intangibles
 
 
(34
)
Total purchase price
 
$
4,649
 
 
Gilbert and Chandler Facilities
 
On March 19, 2019, the Company purchased the following facilities located in Gilbert, Arizona and Chandler, Arizona for a total purchase price of $
16.1
million: (i) a medical office building located in Gilbert, Arizona (the “Val Vista Facility”); (ii) a medical office building located in Gilbert, Arizona (the “Dobson Facility”); (iii) a medical office suite located in Chandler, Arizona (the “Pecos I Facility”); and (iv) a medical office suite located in Chandler, Arizona (the “Pecos II Facility”). Upon the closing of the acquisition, the Company assumed the seller’s interest, as lessor, in the existing leases of: (v)
the Pecos I Facility to Chandler Endoscopy Center LLC with approximately seven years remaining in its initial term with two consecutive five-year extension options; and (vi) the Pecos II Facility to Valley Heart Associates, P.C, with approximately four years remaining on its initial term with one three-year extension option, and Valley Anesthesiology Consultants Inc. with approximately four years remaining on its initial term with two consecutive five-year extension options.
Also upon the closing of the acquisition, the Company (i) leased the Dobson Facility to East Valley Gastroenterology & Hepatology Associates, P.C., (“EVGHA”); (ii) leased a portion of the Val Vista Facility to EVGHA; and (iii) leased another portion of the Val Vista Facility to Premier Endoscopy Center, LLC.
The Dobson Facility lease and the Val Vista Facility leases each have an initial term of 15 years with two consecutive five-year extension options.
 
Intangible Assets and Liabilities
 
The following is a summary of the carrying amount of intangible assets and liabilities as of the dates presented:
 
 
 
As of March 31, 2019
 
 
 
Cost
 
 
Accumulated
Amortization
 
 
Net
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
In-place leases
 
$
22,058
 
 
$
(4,714
)
 
$
17,344
 
Above market ground lease
 
 
708
 
 
 
(33
)
 
 
675
 
Above market leases
 
 
8,126
 
 
 
(1,368
)
 
 
6,758
 
Leasing costs
 
 
13,095
 
 
 
(2,028
)
 
 
11,067
 
 
 
$
43,987
 
 
$
(8,143
)
 
$
35,844
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
Below market leases
 
$
2,370
 
 
$
(366
)
 
$
2,004
 
 
 
 
As of December 31, 2018
 
 
 
Cost
 
 
Accumulated
Amortization
 
 
Net
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
In-place leases
 
$
21,753
 
 
$
(4,037
)
 
$
17,716
 
Above market ground lease
 
 
707
 
 
 
(28
)
 
 
679
 
Above market leases
 
 
8,009
 
 
 
(1,096
)
 
 
6,913
 
Leasing costs
 
 
12,683
 
 
 
(1,703
)
 
 
10,980
 
 
 
$
43,152
 
 
$
(6,864
)
 
$
36,288
 
Liability
 
 
 
 
 
 
 
 
 
 
 
 
Below market leases
 
$
2,336
 
 
$
(308
)
 
$
2,028
 
 
The following is a summary of the acquired lease intangible amortization:
 
 
Three Months Ended
March 31,
 
 
 
2019
 
 
2018
 
Amortization expense related to in-place leases
 
$
677
 
 
$
521
 
Amortization expense related to leasing costs
 
$
325
 
 
$
244
 
Decrease in rental revenue related to above market ground lease
 
$
5
 
 
$
4
 
Decrease in rental revenue related to above market leases
 
$
272
 
 
$
151
 
Increase in rental revenue related to below market leases
 
$
58
 
 
$
42
 
 
As of March 31, 2019, scheduled future aggregate net amortization of the acquired lease intangible assets and liabilities for each fiscal year ended December 31 is listed below:
 
 
 
Net Decrease

in Revenue
 
 
Net Increase

in Expenses
 
2019 (nine months remaining)
 
$
(557
)
 
$
2,918
 
2020
 
 
(726
)
 
 
3,873
 
2021
 
 
(729
)
 
 
3,258
 
2022
 
 
(730
)
 
 
2,949
 
2023
 
 
(708
)
 
 
2,668
 
Thereafter
 
 
(1,979
)
 
 
12,745
 
Total
 
$
(5,429
)
 
$
28,411
 
 
As of March 31, 2019 the weighted average amortization periods for asset lease intangibles and liability lease intangibles were 6.96 years and 8.53 years, respectively.