Quarterly report pursuant to Section 13 or 15(d)

Real Estate Investments and Related Intangibles

v3.23.3
Real Estate Investments and Related Intangibles
 9 Months Ended
Sep. 30, 2023
Real Estate [Abstract]  
Real Estate Investments and Related Intangibles Note 3 – Real Estate Investments and Related Intangibles
Property Acquisitions
During the three and nine months ended September 30, 2023, the Company had no acquisitions. During the nine months ended September 30, 2022, the Company acquired for no consideration the fee interest in one parcel of land in connection with the maturity of the tax advantaged bond and ground lease structure. As a result of the transaction, $4.7 million that was previously classified as a finance lease right-of-use asset with respect to such land parcel previously subject to the ground lease was reclassified from other assets, net to real estate investments in the Company’s consolidated balance sheet as of September 30, 2022. The Company did not have any other acquisitions during the three and nine months ended September 30, 2022.
Property Dispositions and Real Estate Assets Held for Sale
The following table summarizes the Company’s property dispositions for the three and nine months ended September 30, 2023 and 2022 (dollars in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
Total dispositions 2  4  2  5 
Aggregate gross sales price $ 14,050  $ 19,530  $ 14,050  $ 23,130 
Gain on disposition of real estate assets $ 18  $ 1,059  $ 18  $ 1,059 
Property count 2  3  2  3 
Impairments on disposition of real estate assets $ —  $ 21  $ —  $ 1,098 
Property count —  1  —  2 
As of September 30, 2023, the Company had two properties classified as held for sale with a carrying value of $3.8 million, primarily comprised of land of $1.1 million and building, fixtures and improvements, net, of $2.7 million, included in real estate assets held for sale, net in the accompanying consolidated balance sheets, which it expects to be sold in the next 12 months as part of its portfolio management strategy. During the nine months ended September 30, 2023 and 2022, the Company recorded losses of $4.4 million and $6.0 million, respectively, related to held for sale properties, which are included in impairments in the accompanying consolidated statements of operations. One of the properties classified as held for sale as of September 30, 2023 was sold during October 2023. See Note 15 – Subsequent Events, below.
Intangible Lease Assets and Liabilities
Intangible lease assets and liabilities consisted of the following (in thousands, except weighted-average useful life):
Weighted-Average Useful Life (Years) September 30, 2023 December 31, 2022
Intangible lease assets:
In-place leases, net of accumulated amortization of $185,587 and $144,798, respectively
 6.1 $ 121,165  $ 177,698 
Leasing commissions, net of accumulated amortization of $2,651 and $1,553, respectively
 12.4 13,493  13,614 
Above-market lease assets, net of accumulated amortization of $13,798 and $11,391, respectively
 6.5 6,052  9,826 
Deferred lease incentives, net of accumulated amortization of $303 and $116, respectively
 9.1 3,594  1,694 
Total intangible lease assets, net $ 144,304  $ 202,832 
Intangible lease liabilities:
Below-market leases, net of accumulated amortization of $21,769 and $17,249, respectively
 9.9 $ 9,481  $ 14,068 
The aggregate amount of amortization of above-market and below-market leases included as a net increase to rental revenue was $0.3 million and $0.8 million for the three and nine months ended September 30, 2023, respectively, and $0.3 million and $0.9 million for the three and nine months ended September 30, 2022, respectively. The aggregate amount of amortization of deferred lease incentives included as a net decrease to rental revenue was $0.2 million for the nine months ended September 30, 2023, as compared to less than $0.1 million for the three and nine months ended September 30, 2022. The aggregate amount of in-place leases, leasing commissions and other lease intangibles amortized and included in depreciation and amortization expense was $18.5 million and $57.4 million for the three and nine months ended September 30, 2023, respectively, and $23.7 million and $73.5 million for the three and nine months ended September 30, 2022, respectively.
The following table provides the projected amortization expense and adjustments to rental revenue related to the intangible lease assets and liabilities for the next five years as of September 30, 2023 (in thousands):
Remainder of 2023 2024 2025 2026 2027 2028
In-place leases:
Total projected to be included in amortization expense $ 17,157  $ 49,039  $ 21,608  $ 15,499  $ 7,441  $ 4,592 
Leasing commissions:
Total projected to be included in amortization expense $ 373  $ 1,450  $ 1,382  $ 1,379  $ 1,356  $ 1,207 
Above-market lease assets:
Total projected to be deducted from rental revenue $ 1,042  $ 2,964  $ 850  $ 682  $ 237  $ 115 
Deferred lease incentives:
Total projected to be deducted from rental revenue $ 84  $ 338  $ 321  $ 223  $ 200  $ 186 
Below-market lease liabilities:
Total projected to be added to rental revenue $ 1,407  $ 3,786  $ 1,036  $ 817  $ 655  $ 571 
Investment in Unconsolidated Joint Venture
The following is a summary of the Company’s investment in the Arch Street Joint Venture, as of September 30, 2023 and December 31, 2022 and for the nine months ended September 30, 2023 and 2022 (dollars in thousands):
Ownership % (1)
Number of Properties Carrying Value of
Investment		 Equity in Loss, Net
Nine Months Ended
Investment September 30, 2023 September 30, 2023 December 31, 2022 September 30, 2023 September 30, 2022
Arch Street Joint Venture (2) (3)
20% 6 $ 14,124  15,824  $ (326) (252)
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(1)The Company’s ownership interest reflects its legal ownership interest. The Company’s legal ownership interest may, at times, not equal the Company’s economic interest because of various provisions in the joint venture agreement regarding capital contributions, distributions of cash flow based on capital account balances and allocations of profits and losses. As a result, the Company’s actual economic interest (as distinct from its legal ownership interest) in certain of the properties could fluctuate from time to time and may not wholly align with its legal ownership interest.
(2)During the three and nine months ended September 30, 2023 and 2022, the Arch Street Joint Venture did not acquire any properties.
(3)The total carrying value of the Company’s investment in the Arch Street Joint Venture was greater than the underlying equity in net assets by $0.5 million and $0.9 million as of September 30, 2023 and December 31, 2022, respectively. This difference is related to a step up in the fair value of the investment in the Arch Street Joint Venture in connection with the Separation and the Distribution. The step up in fair value was allocated based on the underlying assets and liabilities of the Arch Street Joint Venture and is being amortized over the estimated useful lives of the respective assets and liabilities in accordance with the Company’s accounting policies.