UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended SeptemberJune 30, 20192020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 1-34907
STAG Industrial, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Maryland | | | 27-3099608 |
(State or other jurisdiction of | | | (IRS Employer Identification No.) |
incorporation or organization) | | | |
| | | |
One Federal Street
| | | |
23rd Floor | | | |
Boston, | Massachusetts | | 02110 |
(Address of principal executive offices) | | | (Zip code) |
(617) 574-4777
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common stock, $0.01 par value per share | STAG | New York Stock Exchange |
6.875% Series C Cumulative Redeemable Preferred Stock ($0.01 par value) | STAG-PC | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of common stock outstanding at October 29, 2019July 27, 2020 was 132,957,164.149,141,565.
STAG Industrial, Inc.
Table of Contents
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Item 3. | | |
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Item 4. | | |
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PART II. | | |
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Item 1A. | | |
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Item 2. | | |
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Item 3. | | |
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Item 4. | | |
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Part I. Financial Information
Item 1. Financial Statements
STAG Industrial, Inc.
Consolidated Balance Sheets
(unaudited, in thousands, except share data)
| | | September 30, 2019 | | December 31, 2018 | | June 30, 2020 | | December 31, 2019 |
Assets | Assets | | | | Assets | | | |
Rental Property: | Rental Property: | | | | Rental Property: | | | |
Land | Land | $ | 420,215 | | | $ | 364,023 | | Land | $ | 444,489 | | | $ | 435,923 | |
Buildings and improvements, net of accumulated depreciation of $367,088 and $316,930, respectively | 2,788,766 | | | 2,285,663 | | |
Deferred leasing intangibles, net of accumulated amortization of $241,323 and $246,502, respectively | 413,955 | | | 342,015 | | |
Buildings and improvements, net of accumulated depreciation of $446,361 and $387,633, respectively | | Buildings and improvements, net of accumulated depreciation of $446,361 and $387,633, respectively | 3,141,970 | | | 3,087,435 | |
Deferred leasing intangibles, net of accumulated amortization of $267,553 and $241,304, respectively | | Deferred leasing intangibles, net of accumulated amortization of $267,553 and $241,304, respectively | 451,738 | | | 475,149 | |
Total rental property, net | Total rental property, net | 3,622,936 | | | 2,991,701 | | Total rental property, net | 4,038,197 | | | 3,998,507 | |
Cash and cash equivalents | Cash and cash equivalents | 6,540 | | | 7,968 | | Cash and cash equivalents | 102,097 | | | 9,041 | |
Restricted cash | Restricted cash | 2,733 | | | 14,574 | | Restricted cash | 12,505 | | | 2,823 | |
Tenant accounts receivable | Tenant accounts receivable | 50,460 | | | 42,236 | | Tenant accounts receivable | 65,122 | | | 57,592 | |
Prepaid expenses and other assets | Prepaid expenses and other assets | 46,707 | | | 36,902 | | Prepaid expenses and other assets | 39,347 | | | 38,231 | |
Interest rate swaps | Interest rate swaps | 488 | | | 9,151 | | Interest rate swaps | — | | | 303 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | 15,425 | | | — | | Operating lease right-of-use assets | 22,168 | | | 15,129 | |
| Assets held for sale, net | | Assets held for sale, net | — | | | 43,019 | |
Total assets | Total assets | $ | 3,745,289 | | | $ | 3,102,532 | | Total assets | $ | 4,279,436 | | | $ | 4,164,645 | |
Liabilities and Equity | Liabilities and Equity | | | | | | Liabilities and Equity | | | |
Liabilities: | Liabilities: | | | | | | Liabilities: | | | |
Unsecured credit facility | Unsecured credit facility | $ | 78,000 | | | $ | 100,500 | | Unsecured credit facility | $ | — | | | $ | 146,000 | |
Unsecured term loans, net | Unsecured term loans, net | 771,037 | | | 596,360 | | Unsecured term loans, net | 970,282 | | | 871,375 | |
Unsecured notes, net | Unsecured notes, net | 572,783 | | | 572,488 | | Unsecured notes, net | 573,082 | | | 572,883 | |
Mortgage notes, net | Mortgage notes, net | 55,210 | | | 56,560 | | Mortgage notes, net | 52,827 | | | 54,755 | |
Accounts payable, accrued expenses and other liabilities | Accounts payable, accrued expenses and other liabilities | 63,572 | | | 45,507 | | Accounts payable, accrued expenses and other liabilities | 58,783 | | | 53,737 | |
Interest rate swaps | Interest rate swaps | 24,812 | | | 4,011 | | Interest rate swaps | 50,731 | | | 18,819 | |
Tenant prepaid rent and security deposits | Tenant prepaid rent and security deposits | 21,131 | | | 22,153 | | Tenant prepaid rent and security deposits | 24,542 | | | 21,993 | |
Dividends and distributions payable | Dividends and distributions payable | 16,293 | | | 13,754 | | Dividends and distributions payable | 18,301 | | | 17,465 | |
Deferred leasing intangibles, net of accumulated amortization of $11,259 and $12,764, respectively | 20,237 | | | 21,567 | | |
Deferred leasing intangibles, net of accumulated amortization of $13,117 and $12,064, respectively | | Deferred leasing intangibles, net of accumulated amortization of $13,117 and $12,064, respectively | 26,292 | | | 26,738 | |
Operating lease liabilities | Operating lease liabilities | 17,259 | | | — | | Operating lease liabilities | 24,279 | | | 16,989 | |
Total liabilities | Total liabilities | 1,640,334 | | | 1,432,900�� | | Total liabilities | 1,799,119 | | | 1,800,754 | |
Commitments and contingencies (Note 11) | Commitments and contingencies (Note 11) | | | | Commitments and contingencies (Note 11) | | | |
Equity: | Equity: | | | | | | Equity: | | | |
Preferred stock, par value $0.01 per share, 20,000,000 and 15,000,000 shares authorized at September 30, 2019 and December 31, 2018, respectively, | | | | | | |
Series C, 3,000,000 shares (liquidation preference of $25.00 per share) issued and outstanding at September 30, 2019 and December 31, 2018 | 75,000 | | | 75,000 | | |
Common stock, par value $0.01 per share, 300,000,000 and 150,000,000 shares authorized at September 30, 2019 and December 31, 2018, respectively, 132,958,388 and 112,165,786 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively | 1,330 | | | 1,122 | | |
Preferred stock, par value $0.01 per share, 20,000,000 shares authorized at June 30, 2020 and December 31, 2019, | | Preferred stock, par value $0.01 per share, 20,000,000 shares authorized at June 30, 2020 and December 31, 2019, | | | |
Series C, 3,000,000 shares (liquidation preference of $25.00 per share) issued and outstanding at June 30, 2020 and December 31, 2019 | | Series C, 3,000,000 shares (liquidation preference of $25.00 per share) issued and outstanding at June 30, 2020 and December 31, 2019 | 75,000 | | | 75,000 | |
Common stock, par value $0.01 per share, 300,000,000 shares authorized at June 30, 2020 and December 31, 2019, respectively, 148,941,121 and 142,815,593 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively | | Common stock, par value $0.01 per share, 300,000,000 shares authorized at June 30, 2020 and December 31, 2019, respectively, 148,941,121 and 142,815,593 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively | 1,489 | | | 1,428 | |
Additional paid-in capital | Additional paid-in capital | 2,687,118 | | | 2,118,179 | | Additional paid-in capital | 3,148,163 | | | 2,970,553 | |
Cumulative dividends in excess of earnings | Cumulative dividends in excess of earnings | (690,324) | | | (584,979) | | Cumulative dividends in excess of earnings | (750,770) | | | (723,027) | |
Accumulated other comprehensive income (loss) | | (24,030) | | | 4,481 | | |
Accumulated other comprehensive loss | | Accumulated other comprehensive loss | (49,837) | | | (18,426) | |
Total stockholders’ equity | Total stockholders’ equity | 2,049,094 | | | 1,613,803 | | Total stockholders’ equity | 2,424,045 | | | 2,305,528 | |
Noncontrolling interest | Noncontrolling interest | 55,861 | | | 55,829 | | Noncontrolling interest | 56,272 | | | 58,363 | |
Total equity | Total equity | 2,104,955 | | | 1,669,632 | | Total equity | 2,480,317 | | | 2,363,891 | |
Total liabilities and equity | Total liabilities and equity | $ | 3,745,289 | | | $ | 3,102,532 | | Total liabilities and equity | $ | 4,279,436 | | | $ | 4,164,645 | |
The accompanying notes are an integral part of these consolidated financial statements.
STAG Industrial, Inc.
Consolidated Statements of Operations
(unaudited, in thousands, except per share data)
| | | Three months ended September 30, | | | Nine months ended September 30, | | | Three months ended June 30, | | | Six months ended June 30, | |
| | 2019 | | 2018 | | 2019 | | 2018 | | 2020 | | 2019 | | 2020 | | 2019 |
Revenue | Revenue | | | | | | | | Revenue | | | | | | | |
Rental income | Rental income | $ | 102,294 | | | $ | 88,677 | | | $ | 294,271 | | | $ | 256,670 | | Rental income | $ | 117,471 | | | $ | 96,362 | | | $ | 235,810 | | | $ | 191,977 | |
Other income | Other income | 127 | | | 269 | | | 498 | | | 1,033 | | Other income | 146 | | | 284 | | | 355 | | | 371 | |
Total revenue | Total revenue | 102,421 | | | 88,946 | | | 294,769 | | | 257,703 | | Total revenue | 117,617 | | | 96,646 | | | 236,165 | | | 192,348 | |
Expenses | Expenses | | | | | | | | | | | Expenses | | | | | | | |
Property | Property | 18,157 | | | 17,112 | | | 54,623 | | | 50,735 | | Property | 20,392 | | | 16,955 | | | 42,339 | | | 36,466 | |
General and administrative | General and administrative | 8,924 | | | 8,911 | | | 26,723 | | | 25,637 | | General and administrative | 9,406 | | | 8,587 | | | 19,779 | | | 17,799 | |
| Depreciation and amortization | Depreciation and amortization | 46,908 | | | 44,355 | | | 133,844 | | | 125,221 | | Depreciation and amortization | 53,606 | | | 44,633 | | | 106,294 | | | 86,936 | |
Loss on impairments | Loss on impairments | 4,413 | | | — | | | 9,757 | | | 2,934 | | Loss on impairments | — | | | — | | | — | | | 5,344 | |
| Other expenses | Other expenses | 458 | | | 223 | | | 1,284 | | | 864 | | Other expenses | 588 | | | 427 | | | 1,064 | | | 826 | |
Total expenses | Total expenses | 78,860 | | | 70,601 | | | 226,231 | | | 205,391 | | Total expenses | 83,992 | | | 70,602 | | | 169,476 | | | 147,371 | |
Other income (expense) | Other income (expense) | | | | | | | | | | | Other income (expense) | | | | | | | |
Interest and other income | Interest and other income | 12 | | | 3 | | | 30 | | | 16 | | Interest and other income | 156 | | | 2 | | | 235 | | | 18 | |
Interest expense | Interest expense | (14,053) | | | (12,698) | | | (39,080) | | | (35,602) | | Interest expense | (15,333) | | | (12,193) | | | (30,197) | | | (25,027) | |
Loss on extinguishment of debt | Loss on extinguishment of debt | — | | | (13) | | | — | | | (13) | | Loss on extinguishment of debt | (834) | | | — | | | (834) | | | — | |
Gain on involuntary conversion | | Gain on involuntary conversion | 657 | | | — | | | 657 | | | — | |
Gain on the sales of rental property, net | Gain on the sales of rental property, net | | 1,670 | | | 3,239 | | | 3,261 | | | 32,276 | | Gain on the sales of rental property, net | 1,045 | | | 317 | | | 47,804 | | | 1,591 | |
Total other income (expense) | Total other income (expense) | (12,371) | | | (9,469) | | | (35,789) | | | (3,323) | | Total other income (expense) | (14,309) | | | (11,874) | | | 17,665 | | | (23,418) | |
Net income | Net income | | $ | 11,190 | | | $ | 8,876 | | | $ | 32,749 | | | $ | 48,989 | | Net income | $ | 19,316 | | | $ | 14,170 | | | $ | 84,354 | | | $ | 21,559 | |
Less: income attributable to noncontrolling interest after preferred stock dividends | Less: income attributable to noncontrolling interest after preferred stock dividends | | 290 | | | 281 | | | 912 | | | 1,589 | | Less: income attributable to noncontrolling interest after preferred stock dividends | 407 | | | 408 | | | 2,005 | | | 622 | |
Net income attributable to STAG Industrial, Inc. | Net income attributable to STAG Industrial, Inc. | | $ | 10,900 | | | $ | 8,595 | | | $ | 31,837 | | | $ | 47,400 | | Net income attributable to STAG Industrial, Inc. | $ | 18,909 | | | $ | 13,762 | | | $ | 82,349 | | | $ | 20,937 | |
Less: preferred stock dividends | Less: preferred stock dividends | 1,289 | | | 1,289 | | | 3,867 | | | 6,315 | | Less: preferred stock dividends | 1,289 | | | 1,289 | | | 2,578 | | | 2,578 | |
Less: redemption of preferred stock | — | | | — | | | — | | | 2,661 | | |
| Less: amount allocated to participating securities | Less: amount allocated to participating securities | 78 | | | 69 | | | 236 | | | 209 | | Less: amount allocated to participating securities | 68 | | | 79 | | | 136 | | | 158 | |
Net income attributable to common stockholders | Net income attributable to common stockholders | | $ | 9,533 | | | $ | 7,237 | | | $ | 27,734 | | | $ | 38,215 | | Net income attributable to common stockholders | $ | 17,552 | | | $ | 12,394 | | | $ | 79,635 | | | $ | 18,201 | |
Weighted average common shares outstanding — basic | Weighted average common shares outstanding — basic | 127,272 | | | 105,783 | | | 122,460 | | | 101,095 | | Weighted average common shares outstanding — basic | 148,663 | | | 125,251 | | | 148,116 | | | 120,015 | |
Weighted average common shares outstanding — diluted | Weighted average common shares outstanding — diluted | 127,469 | | | 106,333 | | | 122,720 | | | 101,495 | | Weighted average common shares outstanding — diluted | 149,027 | | | 125,560 | | | 148,341 | | | 120,306 | |
Net income per share — basic and diluted | Net income per share — basic and diluted | | | | | | | | | | | | Net income per share — basic and diluted | | | | | | | |
| Net income per share attributable to common stockholders — basic | Net income per share attributable to common stockholders — basic | $ | 0.07 | | | $ | 0.07 | | | $ | 0.23 | | | $ | 0.38 | | Net income per share attributable to common stockholders — basic | $ | 0.12 | | | $ | 0.10 | | | $ | 0.54 | | | $ | 0.15 | |
Net income per share attributable to common stockholders — diluted | Net income per share attributable to common stockholders — diluted | $ | 0.07 | | | $ | 0.07 | | | $ | 0.23 | | | $ | 0.38 | | Net income per share attributable to common stockholders — diluted | $ | 0.12 | | | $ | 0.10 | | | $ | 0.54 | | | $ | 0.15 | |
The accompanying notes are an integral part of these consolidated financial statements.
STAG Industrial, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(unaudited, in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | | | Nine months ended September 30, | | |
| 2019 | | 2018 | | 2019 | | 2018 |
Net income | | $ | 11,190 | | | $ | 8,876 | | | $ | 32,749 | | | $ | 48,989 | |
Other comprehensive income (loss): | | | | | | | | | | | | |
Income (loss) on interest rate swaps | | (6,435) | | | 2,060 | | | (29,441) | | | 12,811 | |
Other comprehensive income (loss) | | (6,435) | | | 2,060 | | | (29,441) | | | 12,811 | |
Comprehensive income | | 4,755 | | | 10,936 | | | 3,308 | | | 61,800 | |
Income attributable to noncontrolling interest after preferred stock dividends | | (290) | | | (281) | | | (912) | | | (1,589) | |
Other comprehensive (income) loss attributable to noncontrolling interest | | 176 | | | (76) | | | 930 | | | (509) | |
Comprehensive income attributable to STAG Industrial, Inc. | | $ | 4,641 | | | $ | 10,579 | | | $ | 3,326 | | | $ | 59,702 | |
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| Three months ended June 30, | | | | Six months ended June 30, | | |
| 2020 | | 2019 | | 2020 | | 2019 |
Net income | $ | 19,316 | | | $ | 14,170 | | | $ | 84,354 | | | $ | 21,559 | |
Other comprehensive loss: | | | | | | | |
Loss on interest rate swaps | (2,009) | | | (16,028) | | | (32,200) | | | (23,006) | |
Other comprehensive loss | (2,009) | | | (16,028) | | | (32,200) | | | (23,006) | |
Comprehensive income (loss) | 17,307 | | | (1,858) | | | 52,154 | | | (1,447) | |
Income attributable to noncontrolling interest after preferred stock dividends | (407) | | | (408) | | | (2,005) | | | (622) | |
Other comprehensive loss attributable to noncontrolling interest | 32 | | | 510 | | | 789 | | | 754 | |
Comprehensive income (loss) attributable to STAG Industrial, Inc. | $ | 16,932 | | | $ | (1,756) | | | $ | 50,938 | | | $ | (1,315) | |
The accompanying notes are an integral part of these consolidated financial statements.
STAG Industrial, Inc.
Consolidated Statements of Equity
(unaudited, in thousands, except share data)
| | | Preferred Stock | | Common Stock | | | Additional Paid-in Capital | | Cumulative Dividends in Excess of Earnings | | Accumulated Other Comprehensive Income (Loss) | | | Total Stockholders’ Equity | | Noncontrolling Interest - Unit Holders in Operating Partnership | | Total Equity | | Preferred Stock | | Common Stock | | | Additional Paid-in Capital | | Cumulative Dividends in Excess of Earnings | | Accumulated Other Comprehensive Loss | | Total Stockholders’ Equity | | Noncontrolling Interest - Unit Holders in Operating Partnership | | Total Equity |
| | | | Shares | | Amount | | | | | | | | | | | | | | Preferred Stock | | | | | Additional Paid-in Capital | Cumulative Dividends in Excess of Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | | Noncontrolling Interest - Unit Holders in Operating Partnership | | Total Equity | | | | | |
Three months ended September 30, 2019 | | | | | | | | | | | | | | | | | | |
Balance, June 30, 2019 | $ | 75,000 | | | 126,372,945 | | | $ | 1,264 | | | $ | 2,501,013 | | | $ | (653,759) | | | $ | (17,771) | | | $ | 1,905,747 | | | $ | 57,505 | | | $ | 1,963,252 | | |
Three months ended June 30, 2020 | | Three months ended June 30, 2020 | | | | | | | | | | | | | | | | | |
Balance, March 31, 2020 | | Balance, March 31, 2020 | $ | 75,000 | | | 148,708,031 | | | $ | 1,487 | | | $ | 3,142,495 | | | $ | (714,799) | | | $ | (47,860) | | | $ | 2,456,323 | | | $ | 60,791 | | | $ | 2,517,114 | |
Proceeds from sales of common stock, net | Proceeds from sales of common stock, net | — | | | 6,375,129 | | | 64 | | | 183,148 | | | — | | | — | | | 183,212 | | | — | | | 183,212 | | Proceeds from sales of common stock, net | — | | | — | | | — | | | (67) | | | — | | | — | | | (67) | | | — | | | (67) | |
| Dividends and distributions, net | Dividends and distributions, net | — | | | — | | | — | | | — | | | (47,465) | | | — | | | (47,465) | | | (1,375) | | | (48,840) | | Dividends and distributions, net | — | | | — | | | — | | | — | | | (54,880) | | | — | | | (54,880) | | | (2,105) | | | (56,985) | |
Non-cash compensation activity, net | Non-cash compensation activity, net | — | | | 3,162 | | | — | | | 1,675 | | | — | | | — | | | 1,675 | | | 901 | | | 2,576 | | Non-cash compensation activity, net | — | | | 4,750 | | | — | | | 1,970 | | | — | | | — | | | 1,970 | | | 978 | | | 2,948 | |
Redemption of common units to common stock | Redemption of common units to common stock | — | | | 207,152 | | | 2 | | | 3,001 | | | — | | | — | | | 3,003 | | | (3,003) | | | — | | Redemption of common units to common stock | — | | | 228,340 | | | 2 | | | 3,656 | | | — | | | — | | | 3,658 | | | (3,658) | | | — | |
Rebalancing of noncontrolling interest | Rebalancing of noncontrolling interest | — | | | — | | | — | | | (1,719) | | | — | | | — | | | (1,719) | | | 1,719 | | | — | | Rebalancing of noncontrolling interest | — | | | — | | | — | | | 109 | | | — | | | — | | | 109 | | | (109) | | | — | |
Other comprehensive loss | Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (6,259) | | | (6,259) | | | (176) | | | (6,435) | | Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | (1,977) | | | (1,977) | | | (32) | | | (2,009) | |
Net income | Net income | | — | | | — | | | — | | | — | | | 10,900 | | | — | | | 10,900 | | | 290 | | | 11,190 | | Net income | — | | | — | | | — | | | — | | | 18,909 | | | — | | | 18,909 | | | 407 | | | 19,316 | |
Balance, September 30, 2019 | $ | 75,000 | | | 132,958,388 | | | $ | 1,330 | | | $ | 2,687,118 | | | $ | (690,324) | | | $ | (24,030) | | | $ | 2,049,094 | | | $ | 55,861 | | | $ | 2,104,955 | | |
Three months ended September 30, 2018 | | | | | | | | | | | | | | | | | | |
Balance, June 30, 2018 | $ | 75,000 | | | 104,238,166 | | | $ | 1,042 | | | $ | 1,905,002 | | | $ | (559,312) | | | $ | 14,492 | | | $ | 1,436,224 | | | $ | 53,403 | | | $ | 1,489,627 | | |
Balance, June 30, 2020 | | Balance, June 30, 2020 | $ | 75,000 | | | 148,941,121 | | | $ | 1,489 | | | $ | 3,148,163 | | | $ | (750,770) | | | $ | (49,837) | | | $ | 2,424,045 | | | $ | 56,272 | | | $ | 2,480,317 | |
Three months ended June 30, 2019 | | Three months ended June 30, 2019 | | | | | | | | | | | | | | | | | |
Balance, March 31, 2019 | | Balance, March 31, 2019 | $ | 75,000 | | | 118,174,102 | | | $ | 1,182 | | | $ | 2,266,695 | | | $ | (621,225) | | | $ | (2,253) | | | $ | 1,719,399 | | | $ | 55,442 | | | $ | 1,774,841 | |
Proceeds from sales of common stock, net | Proceeds from sales of common stock, net | — | | | 3,568,382 | | | 36 | | | 98,481 | | | — | | | — | | | 98,517 | | | — | | | 98,517 | | Proceeds from sales of common stock, net | — | | | 8,180,794 | | | 82 | | | 236,254 | | | — | | | — | | | 236,336 | | | — | | | 236,336 | |
| Dividends and distributions, net | Dividends and distributions, net | — | | | — | | | — | | | — | | | (39,094) | | | — | | | (39,094) | | | (1,443) | | | (40,537) | | Dividends and distributions, net | — | | | — | | | — | | | — | | | (46,296) | | | — | | | (46,296) | | | (2,326) | | | (48,622) | |
Non-cash compensation activity, net | Non-cash compensation activity, net | — | | | (757) | | | — | | | 1,361 | | | — | | | — | | | 1,361 | | | 893 | | | 2,254 | | Non-cash compensation activity, net | — | | | 3,190 | | | — | | | 1,656 | | | — | | | — | | | 1,656 | | | 899 | | | 2,555 | |
Redemption of common units to common stock | Redemption of common units to common stock | — | | | 20,000 | | | — | | | 261 | | | — | | | — | | | 261 | | | (261) | | | — | | Redemption of common units to common stock | — | | | 14,859 | | | — | | | 207 | | | — | | | — | | | 207 | | | (207) | | | — | |
Rebalancing of noncontrolling interest | Rebalancing of noncontrolling interest | — | | | — | | | — | | | (1,122) | | | — | | | — | | | (1,122) | | | 1,122 | | | — | | Rebalancing of noncontrolling interest | — | | | — | | | — | | | (3,799) | | | — | | | — | | | (3,799) | | | 3,799 | | | — | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 1,993 | | | 1,993 | | | 67 | | | 2,060 | | |
Other comprehensive loss | | Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | (15,518) | | | (15,518) | | | (510) | | | (16,028) | |
Net income | Net income | | — | | | — | | | — | | | — | | | 8,621 | | | — | | | 8,621 | | | 255 | | | 8,876 | | Net income | — | | | — | | | — | | | — | | | 13,762 | | | — | | | 13,762 | | | 408 | | | 14,170 | |
Balance, September 30, 2018 | $ | 75,000 | | | 107,825,791 | | | $ | 1,078 | | | $ | 2,003,983 | | | $ | (589,785) | | | $ | 16,485 | | | $ | 1,506,761 | | | $ | 54,036 | | | $ | 1,560,797 | | |
Balance, June 30, 2019 | | Balance, June 30, 2019 | $ | 75,000 | | | 126,372,945 | | | $ | 1,264 | | | $ | 2,501,013 | | | $ | (653,759) | | | $ | (17,771) | | | $ | 1,905,747 | | | $ | 57,505 | | | $ | 1,963,252 | |
| Nine months ended September 30, 2019 | | |
Balance, December 31, 2018 | $ | 75,000 | | | 112,165,786 | | | $ | 1,122 | | | $ | 2,118,179 | | | $ | (584,979) | | | $ | 4,481 | | | $ | 1,613,803 | | | $ | 55,829 | | | $ | 1,669,632 | | |
Leases cumulative effect adjustment (Note 2) | — | | | — | | | — | | | — | | | (214) | | | — | | | (214) | | | — | | | (214) | | |
Six months ended June 30, 2020 | | Six months ended June 30, 2020 | |
Balance, December 31, 2019 | | Balance, December 31, 2019 | $ | 75,000 | | | 142,815,593 | | | $ | 1,428 | | | $ | 2,970,553 | | | $ | (723,027) | | | $ | (18,426) | | | $ | 2,305,528 | | | $ | 58,363 | | | $ | 2,363,891 | |
Proceeds from sales of common stock, net | Proceeds from sales of common stock, net | — | | | 19,997,332 | | | 201 | | | 567,876 | | | — | | | — | | | 568,077 | | | — | | | 568,077 | | Proceeds from sales of common stock, net | — | | | 5,600,000 | | | 56 | | | 172,600 | | | — | | | — | | | 172,656 | | | — | | | 172,656 | |
| Dividends and distributions, net | Dividends and distributions, net | — | | | — | | | — | | | — | | | (136,595) | | | — | | | (136,595) | | | (5,247) | | | (141,842) | | Dividends and distributions, net | — | | | — | | | — | | | — | | | (109,702) | | | — | | | (109,702) | | | (3,001) | | | (112,703) | |
Non-cash compensation activity, net | Non-cash compensation activity, net | — | | | 134,188 | | | 1 | | | 2,198 | | | (373) | | | — | | | 1,826 | | | 4,168 | | | 5,994 | | Non-cash compensation activity, net | — | | | 77,798 | | | 1 | | | 1,112 | | | (390) | | | — | | | 723 | | | 3,596 | | | 4,319 | |
Redemption of common units to common stock | Redemption of common units to common stock | — | | | 661,082 | | | 6 | | | 9,232 | | | — | | | — | | | 9,238 | | | (9,238) | | | — | | Redemption of common units to common stock | — | | | 447,730 | | | 4 | | | 7,082 | | | — | | | — | | | 7,086 | | | (7,086) | | | — | |
| Rebalancing of noncontrolling interest | Rebalancing of noncontrolling interest | — | | | — | | | — | | | (10,367) | | | — | | | — | | | (10,367) | | | 10,367 | | | — | | Rebalancing of noncontrolling interest | — | | | — | | | — | | | (3,184) | | | — | | | — | | | (3,184) | | | 3,184 | | | — | |
Other comprehensive loss | Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (28,511) | | | (28,511) | | | (930) | | | (29,441) | | Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | (31,411) | | | (31,411) | | | (789) | | | (32,200) | |
Net income | Net income | | — | | | — | | | — | | | — | | | 31,837 | | | — | | | 31,837 | | | 912 | | | 32,749 | | Net income | — | | | — | | | — | | | — | | | 82,349 | | | — | | | 82,349 | | | 2,005 | | | 84,354 | |
Balance, September 30, 2019 | $ | 75,000 | | | 132,958,388 | | | $ | 1,330 | | | $ | 2,687,118 | | | $ | (690,324) | | | $ | (24,030) | | | $ | 2,049,094 | | | $ | 55,861 | | | $ | 2,104,955 | | |
Nine months ended September 30, 2018 | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2017 | $ | 145,000 | | | 97,012,543 | | | $ | 970 | | | $ | 1,725,825 | | | $ | (516,691) | | | $ | 3,936 | | | $ | 1,359,040 | | | $ | 51,267 | | | $ | 1,410,307 | | |
Cash flow hedging instruments cumulative effect adjustment | — | | | — | | | — | | | — | | | (258) | | | 247 | | | (11) | | | 11 | | | — | | |
Balance, June 30, 2020 | | Balance, June 30, 2020 | $ | 75,000 | | | 148,941,121 | | | $ | 1,489 | | | $ | 3,148,163 | | | $ | (750,770) | | | $ | (49,837) | | | $ | 2,424,045 | | | $ | 56,272 | | | $ | 2,480,317 | |
Six months ended June 30, 2019 | | Six months ended June 30, 2019 | | | | | | | | | | | | | | | | | |
Balance, December 31, 2018 | | Balance, December 31, 2018 | $ | 75,000 | | | 112,165,786 | | | $ | 1,122 | | | $ | 2,118,179 | | | $ | (584,979) | | | $ | 4,481 | | | $ | 1,613,803 | | | $ | 55,829 | | | $ | 1,669,632 | |
Leases cumulative effect adjustment | | Leases cumulative effect adjustment | — | | | — | | | — | | | — | | | (214) | | | — | | | (214) | | | — | | | (214) | |
Proceeds from sales of common stock, net | Proceeds from sales of common stock, net | — | | | 10,387,962 | | | 104 | | | 273,224 | | | — | | | — | | | 273,328 | | | — | | | 273,328 | | Proceeds from sales of common stock, net | — | | | 13,622,203 | | | 137 | | | 384,728 | | | — | | | — | | | 384,865 | | | — | | | 384,865 | |
Redemption of preferred stock | (70,000) | | | — | | | — | | | 5,141 | | | (5,158) | | | — | | | (70,017) | | | — | | | (70,017) | | |
| Dividends and distributions, net | Dividends and distributions, net | — | | | — | | | — | | | — | | | (114,541) | | | — | | | (114,541) | | | (5,253) | | | (119,794) | | Dividends and distributions, net | — | | | — | | | — | | | — | | | (89,130) | | | — | | | (89,130) | | | (3,872) | | | (93,002) | |
Non-cash compensation activity, net | Non-cash compensation activity, net | — | | | 73,231 | | | 1 | | | 1,829 | | | (537) | | | — | | | 1,293 | | | 3,880 | | | 5,173 | | Non-cash compensation activity, net | — | | | 131,026 | | | 1 | | | 523 | | | (373) | | | — | | | 151 | | | 3,267 | | | 3,418 | |
Redemption of common units to common stock | Redemption of common units to common stock | — | | | 352,055 | | | 3 | | | 4,398 | | | — | | | — | | | 4,401 | | | (4,401) | | | — | | Redemption of common units to common stock | — | | | 453,930 | | | 4 | | | 6,231 | | | — | | | — | | | 6,235 | | | (6,235) | | | — | |
| Rebalancing of noncontrolling interest | Rebalancing of noncontrolling interest | — | | | — | | | — | | | (6,434) | | | — | | | — | | | (6,434) | | | 6,434 | | | — | | Rebalancing of noncontrolling interest | — | | | — | | | — | | | (8,648) | | | — | | | — | | | (8,648) | | | 8,648 | | | — | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 12,302 | | | 12,302 | | | 509 | | | 12,811 | | |
Other comprehensive loss | | Other comprehensive loss | — | | | — | | | — | | | — | | | — | | | (22,252) | | | (22,252) | | | (754) | | | (23,006) | |
Net income | Net income | | — | | | — | | | — | | | — | | | 47,400 | | | — | | | 47,400 | | | 1,589 | | | 48,989 | | Net income | — | | | — | | | — | | | — | | | 20,937 | | | — | | | 20,937 | | | 622 | | | 21,559 | |
Balance, September 30, 2018 | $ | 75,000 | | | 107,825,791 | | | $ | 1,078 | | | $ | 2,003,983 | | | $ | (589,785) | | | $ | 16,485 | | | $ | 1,506,761 | | | $ | 54,036 | | | $ | 1,560,797 | | |
Balance, June 30, 2019 | | Balance, June 30, 2019 | $ | 75,000 | | | 126,372,945 | | | $ | 1,264 | | | $ | 2,501,013 | | | $ | (653,759) | | | $ | (17,771) | | | $ | 1,905,747 | | | $ | 57,505 | | | $ | 1,963,252 | |
The accompanying notes are an integral part of these consolidated financial statements.
STAG Industrial, Inc.
Consolidated Statements of Cash Flows
(unaudited, in thousands)
| | | Nine months ended September 30, | | | Six months ended June 30, | |
| | 2019 | | 2018 | | | 2020 | | 2019 | |
Cash flows from operating activities: | Cash flows from operating activities: | | | | | Cash flows from operating activities: | | | | |
Net income | Net income | | $ | 32,749 | | | $ | 48,989 | | | Net income | $ | 84,354 | | | $ | 21,559 | | |
Adjustment to reconcile net income to net cash provided by operating activities: | | | | | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation and amortization | Depreciation and amortization | 133,844 | | | 125,221 | | | Depreciation and amortization | 106,294 | | | 86,936 | | |
Loss on impairments | Loss on impairments | 9,757 | | | 2,934 | | | Loss on impairments | — | | | 5,344 | | |
| Gain on involuntary conversion | | Gain on involuntary conversion | (657) | | | — | | |
Non-cash portion of interest expense | Non-cash portion of interest expense | 1,909 | | | 1,698 | | | Non-cash portion of interest expense | 1,422 | | | 1,236 | | |
Amortization of above and below market leases, net | Amortization of above and below market leases, net | 3,344 | | | 3,206 | | | Amortization of above and below market leases, net | 2,152 | | | 2,102 | | |
Straight-line rent adjustments, net | Straight-line rent adjustments, net | (8,586) | | | (8,297) | | | Straight-line rent adjustments, net | (5,498) | | | (5,522) | | |
Dividends on forfeited equity compensation | Dividends on forfeited equity compensation | 7 | | | 15 | | | Dividends on forfeited equity compensation | — | | | 7 | | |
| Loss on extinguishment of debt | Loss on extinguishment of debt | — | | | 13 | | | Loss on extinguishment of debt | 834 | | | — | | |
Gain on the sales of rental property, net | Gain on the sales of rental property, net | (3,261) | | | (32,276) | | | Gain on the sales of rental property, net | (47,804) | | | (1,591) | | |
Non-cash compensation expense | Non-cash compensation expense | 7,371 | | | 6,671 | | | Non-cash compensation expense | 5,790 | | | 4,815 | | |
| Change in assets and liabilities: | Change in assets and liabilities: | | | | | Change in assets and liabilities: | | | | |
Tenant accounts receivable | Tenant accounts receivable | 509 | | | 501 | | | Tenant accounts receivable | (475) | | | 1,389 | | |
| Prepaid expenses and other assets | Prepaid expenses and other assets | (10,525) | | | (9,597) | | | Prepaid expenses and other assets | (4,116) | | | (3,338) | | |
Accounts payable, accrued expenses and other liabilities | Accounts payable, accrued expenses and other liabilities | 8,834 | | | 9,249 | | | Accounts payable, accrued expenses and other liabilities | 3,243 | | | (1,433) | | |
Tenant prepaid rent and security deposits | Tenant prepaid rent and security deposits | (1,022) | | | 283 | | | Tenant prepaid rent and security deposits | 2,549 | | | (933) | | |
Total adjustments | Total adjustments | 142,181 | | | 99,621 | | | Total adjustments | 63,734 | | | 89,012 | | |
Net cash provided by operating activities | Net cash provided by operating activities | | 174,930 | | | 148,610 | | | Net cash provided by operating activities | 148,088 | | | 110,571 | | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | | Cash flows from investing activities: | | | | |
Acquisitions of land and buildings and improvements | Acquisitions of land and buildings and improvements | (616,647) | | | (382,981) | | | Acquisitions of land and buildings and improvements | (110,121) | | | (368,188) | | |
Additions of land and building and improvements | Additions of land and building and improvements | (40,193) | | | (23,578) | | | Additions of land and building and improvements | (27,299) | | | (18,949) | | |
Acquisitions of other assets | Acquisitions of other assets | (2,513) | | | (794) | | | Acquisitions of other assets | (450) | | | (1,049) | | |
Acquisitions of other liabilities | — | | | 242 | | | |
| Proceeds from sales of rental property, net | Proceeds from sales of rental property, net | 23,700 | | | 89,407 | | | Proceeds from sales of rental property, net | 101,881 | | | 17,688 | | |
| Proceeds from involuntary conversion | | Proceeds from involuntary conversion | 782 | | | — | | |
Acquisition deposits, net | Acquisition deposits, net | (1,190) | | | (695) | | | Acquisition deposits, net | 660 | | | 2,142 | | |
Acquisitions of deferred leasing intangibles | Acquisitions of deferred leasing intangibles | (128,832) | | | (74,851) | | | Acquisitions of deferred leasing intangibles | (20,542) | | | (76,188) | | |
Net cash used in investing activities | Net cash used in investing activities | | (765,675) | | | (393,250) | | | Net cash used in investing activities | (55,089) | | | (444,544) | | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | | Cash flows from financing activities: | | | | |
| Proceeds from unsecured credit facility | Proceeds from unsecured credit facility | 768,000 | | | 643,000 | | | Proceeds from unsecured credit facility | 387,000 | | | 381,000 | | |
Repayment of unsecured credit facility | Repayment of unsecured credit facility | (790,500) | | | (819,000) | | | Repayment of unsecured credit facility | (533,000) | | | (352,500) | | |
Proceeds from unsecured term loans | Proceeds from unsecured term loans | 175,000 | | | 150,000 | | | Proceeds from unsecured term loans | 400,000 | | | — | | |
Repayment of unsecured term loans | | Repayment of unsecured term loans | (300,000) | | | — | | |
| Proceeds from unsecured notes | — | | | 175,000 | | | |
| Repayment of mortgage notes | Repayment of mortgage notes | (1,441) | | | (1,379) | | | Repayment of mortgage notes | (1,993) | | | (961) | | |
Payment of loan fees and costs | Payment of loan fees and costs | (1,226) | | | (4,451) | | | Payment of loan fees and costs | (1,129) | | | (48) | | |
Payment of defeasance fees and other costs | | Payment of defeasance fees and other costs | (425) | | | — | | |
Proceeds from sales of common stock, net | | Proceeds from sales of common stock, net | 172,626 | | | 384,913 | | |
| Proceeds from sales of common stock, net | 568,390 | | | 273,266 | | | |
Redemption of preferred stock | — | | | (70,000) | | | |
| Dividends and distributions | Dividends and distributions | (139,303) | | | (117,146) | | | Dividends and distributions | (111,868) | | | (89,934) | | |
Repurchase and retirement of share-based compensation | Repurchase and retirement of share-based compensation | (1,444) | | | (1,524) | | | Repurchase and retirement of share-based compensation | (1,472) | | | (1,444) | | |
| Net cash provided by financing activities | Net cash provided by financing activities | | 577,476 | | | 227,766 | | | Net cash provided by financing activities | 9,739 | | | 321,026 | | |
Decrease in cash and cash equivalents and restricted cash | | (13,269) | | | (16,874) | | | |
Increase (decrease) in cash and cash equivalents and restricted cash | | Increase (decrease) in cash and cash equivalents and restricted cash | 102,738 | | | (12,947) | | |
Cash and cash equivalents and restricted cash—beginning of period | Cash and cash equivalents and restricted cash—beginning of period | 22,542 | | | 28,129 | | | Cash and cash equivalents and restricted cash—beginning of period | 11,864 | | | 22,542 | | |
Cash and cash equivalents and restricted cash—end of period | Cash and cash equivalents and restricted cash—end of period | $ | 9,273 | | | $ | 11,255 | | | Cash and cash equivalents and restricted cash—end of period | $ | 114,602 | | | $ | 9,595 | | |
Supplemental disclosure: | Supplemental disclosure: | | | | | Supplemental disclosure: | | | | |
Cash paid for interest, net of capitalized interest | Cash paid for interest, net of capitalized interest | $ | 35,372 | | | $ | 31,875 | | | Cash paid for interest, net of capitalized interest | $ | 28,520 | | | $ | 21,965 | | |
Supplemental schedule of non-cash investing and financing activities | Supplemental schedule of non-cash investing and financing activities | | | | | Supplemental schedule of non-cash investing and financing activities | | | | |
| Acquisitions of land and buildings and improvements | Acquisitions of land and buildings and improvements | $ | (72) | | | $ | (232) | | | Acquisitions of land and buildings and improvements | $ | (111) | | | $ | (72) | | |
Acquisitions of deferred leasing intangibles | Acquisitions of deferred leasing intangibles | $ | (24) | | | $ | (48) | | | Acquisitions of deferred leasing intangibles | $ | (33) | | | $ | (24) | | |
| Change in additions of land, building, and improvements included in accounts payable, accrued expenses, and other liabilities | Change in additions of land, building, and improvements included in accounts payable, accrued expenses, and other liabilities | $ | (10,824) | | | $ | (1,475) | | | Change in additions of land, building, and improvements included in accounts payable, accrued expenses, and other liabilities | $ | 683 | | | $ | (7,351) | | |
Additions to building and other capital improvements from non-cash compensation | Additions to building and other capital improvements from non-cash compensation | $ | (59) | | | $ | (20) | | | Additions to building and other capital improvements from non-cash compensation | $ | (17) | | | $ | (40) | | |
| Change in loan fees, costs, and offering costs included in accounts payable, accrued expenses, and other liabilities | Change in loan fees, costs, and offering costs included in accounts payable, accrued expenses, and other liabilities | $ | (314) | | | $ | 48 | | | Change in loan fees, costs, and offering costs included in accounts payable, accrued expenses, and other liabilities | $ | (1,020) | | | $ | (62) | | |
Reclassification of preferred stock called for redemption to liability | $ | — | | | $ | 70,000 | | | |
Leases cumulative effect adjustment (Note 2) | $ | (214) | | | $ | — | | | |
| Leases cumulative effect adjustment | | Leases cumulative effect adjustment | $ | — | | | $ | (214) | | |
Dividends and distributions accrued | Dividends and distributions accrued | $ | 16,293 | | | $ | 14,530 | | | Dividends and distributions accrued | $ | 18,301 | | | $ | 16,822 | | |
The accompanying notes are an integral part of these consolidated financial statements.
STAG Industrial, Inc.
Notes to Consolidated Financial Statements
(unaudited)
1. Organization and Description of Business
STAG Industrial, Inc. (the “Company”) is an industrial real estate operating company focused on the acquisition and operation of single-tenant, industrial properties throughout the United States. The Company was formed as a Maryland corporation and has elected to be treated and intends to continue to qualify as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. The Company is structured as an umbrella partnership REIT, commonly called an UPREIT, and owns substantially all of its assets and conducts substantially all of its business through its operating partnership, STAG Industrial Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”). As of SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company owned a 97.2%97.7% and 96.5%97.5%, respectively, common equity interest in the Operating Partnership. The Company, through its wholly owned subsidiary, is the sole general partner of the Operating Partnership. As used herein, the “Company” refers to STAG Industrial, Inc. and its consolidated subsidiaries and partnerships, including the Operating Partnership, except where context otherwise requires.
As of SeptemberJune 30, 2019,2020, the Company owned 430457 buildings in 3738 states with approximately 86.091.8 million rentable square feet, consisting of 356379 warehouse/distribution buildings, 6670 light manufacturing buildings, and 8 flex/office buildings.
COVID-19 Pandemic
Currently, one of the most significant risks and uncertainties facing the Company and the real estate industry generally is the potential adverse effect of the ongoing public health crisis of the novel coronavirus disease (“COVID-19”) pandemic.
The Company closely monitors the effect of the COVID-19 pandemic on all aspects of its business, including how the pandemic will affect its tenants and business partners. While the Company did not incur significant disruptions from the COVID-19 pandemic during the six months ended June 30, 2020, a number of the Company’s tenants requested rent deferral or rent abatement as a result of the pandemic and other tenants may make requests in the future. The Company entered into a limited number of rent deferral agreements during the three months ended June 30, 2020, which resulted in approximately $1.5 million of rent deferrals during the three and six months ended June 30, 2020. The Company evaluates tenant rent relief requests on an individual basis, considering a number of factors. Not all tenant requests will ultimately result in modified agreements, nor is the Company foregoing its contractual rights under its lease agreements.
The Company is unable to predict the impact that the pandemic will have on its financial condition, results of operations and cash flows due to numerous uncertainties. The extent to which the COVID-19 pandemic affects the Company’s operations and those of its tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.
2. Summary of Significant Accounting Policies
Interim Financial Information
The accompanying interim financial statements have been presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Regulation S-X for interim financial information. Accordingly, these statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying interim financial statements include all adjustments, consisting of normal recurring items, necessary for their fair statement in conformity with GAAP. Interim results are not necessarily indicative of results for a full year. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2019.
Basis of Presentation
The Company’s consolidated financial statements include the accounts of the Company, the Operating Partnership, and their subsidiaries. Interests in the Operating Partnership not owned by the Company are referred to as “Noncontrolling Common Units.” These Noncontrolling Common Units are held by other limited partners in the form of common units (“(��Other Common Units”) and long term incentive plan units (“LTIP units”) issued pursuant to the STAG Industrial, Inc. 2011 Equity Incentive Plan, as amended and restated (the “2011 Plan”). All significant intercompany balances and transactions have been eliminated in the consolidation of entities. The financial statements of the Company are presented on a consolidated basis for all periods presented.
New Accounting Standards and Reclassifications
New Accounting Standards Adopted
In July 2018,March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-112020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the quarter ended March 31, 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which amends Topic 842, Leases, and provides lessorsfuture hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with a practical expedient, by classpast presentation. The Company continues to evaluate the impact of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance and both of the following are met: i) the timing and pattern of transfer of the non-lease component(s) and associated lease component are the same; and ii) the lease component, if accounted for separately, would be classifiedmay apply other elections as an operating lease. Under this new expedient, if the non-lease components associated with the lease component are the predominant component of the combined component, a company should account for the combined component in accordance with Topic 606, Revenue from Contracts with Customers. Otherwise, the company should account for the combined componentapplicable as an operating lease in accordance with Topic 842. In December 2018, the FASB issued ASU 2018-20 which amends Topic 842, Leases, and allows lessors to continue to exclude from revenue the lessor costs that are paid by lessees directly to third parties. The Company adopted Topic 842 on
January 1, 2019, using the practical expedient, and it did not have a material impact on the Company’s consolidated financial statements. The Company determined that for all leases where the Company is the lessor, that the timing and pattern of transfer of the non-lease components and associated lease components are the same, and that the lease components, if accounted for separately, would be classified as an operating lease. Accordingly, the Company has made an accounting policy election to recognize the combined component in accordance with Topic 842 as rental income on the accompanying Consolidated Statements of Operations.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), and various subsequent ASU’s, which set out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). Topic 842 superseded the previous leases standard, Topic 840, Leases. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less are accounted for similar to the previous guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to the previous guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 impacted the Company’s consolidated financial statements as the Company has ground leases and its corporate office lease for which it is the lessee, which resultedadditional changes in the recording of a right-of-use asset and the related lease liability.market occur.
The Company adopted ASU 2016-02 on January 1, 2019, using the modified retrospective transition method. The adoption of this standard resulted in a cumulative effect adjustment of approximately $0.2 million recorded as an increase to cumulative dividends in excess of earnings as of January 1, 2019 in the accompanying Consolidated Statements of Equity. The cumulative effect adjustment related to initial direct costs of leases where the Company is the lessor and that, as of January 1, 2019, had not begun to amortize and are no longer allowed to be capitalized under the new standard. On January 1, 2019, the Company recognized operating lease right-of-use assets of approximately $16.3 million and related operating lease liabilities of approximately $18.0 million on the accompanying Consolidated Balance Sheets, related to the leases where the Company is the lessee. The Company adopted the new standard using the practical expedient package which allowed the Company to (i) not reassess whether any expired or existing contracts are or contain leases; (ii) not reassess the lease classification for any expired or existing leases; and (iii) not reassess initial direct costs for any existing leases. This practical expedient allows the Company to continue to account for its ground leases as operating leases. Prospectively, any new or modified ground leases may be classified as a financing lease. The adoption of this standard by the Company has been applied as of January 1, 2019, and the comparative periods have not been restated.
For leases in which the Company is the lessee, the Company recognizes a right-of-use asset and corresponding lease liability on the accompanying Consolidated Balance Sheets equal to the present value of the fixed lease payments. In determining operating right-of-use asset and lease liability for the Company’s existing operating leases upon the adoption of the new lease guidance, the Company was required to estimate an appropriate incremental borrowing rate on a fully-collateralized basis for the terms of the leases. The Company utilized a market-based approach to estimate the incremental borrowing rate for each individual lease. Since the terms under the ground leases are significantly longer than the terms of borrowings available to the Company on a fully-collateralized basis, the estimate of this rate required significant judgment, and considered factors such as yields on outstanding public debt and other market based pricing on longer duration financing instruments.
The new leases standard requires the Company to evaluate cash basis versus accrual basis of rental income recognition based on the collectability of future lease payments.
Reclassifications
Prior period amounts have been reclassified to conform to the current year presentation due to the adoption of ASU 2016-02. Amounts previously classified as rental income and tenant recoveries in the prior period are now classified as rental income on the accompanying Consolidated Statements of Operations, as the Company has made an accounting policy election to combine these amounts that are accounted for under the new leases standard.
Certain other prior period amounts have been reclassified to conform to the current year presentation.
Restricted Cash
The following table presents a reconciliation of cash and cash equivalents and restricted cash reported on the accompanying Consolidated Balance Sheets to amounts reported on the accompanying Consolidated Statements of Cash Flows.
| Reconciliation of cash and cash equivalents and restricted cash (in thousands) | Reconciliation of cash and cash equivalents and restricted cash (in thousands) | | September 30, 2019 | | December 31, 2018 | | Reconciliation of cash and cash equivalents and restricted cash (in thousands) | | June 30, 2020 | | December 31, 2019 | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 6,540 | | | $ | 7,968 | | | Cash and cash equivalents | | $ | 102,097 | | | $ | 9,041 | | |
Restricted cash | Restricted cash | | 2,733 | | | 14,574 | | | Restricted cash | | 12,505 | | | 2,823 | | |
Total cash and cash equivalents and restricted cash | Total cash and cash equivalents and restricted cash | | $ | 9,273 | | | $ | 22,542 | | | Total cash and cash equivalents and restricted cash | | $ | 114,602 | | | $ | 11,864 | | |
Taxes
Federal Income Taxes
The Company’s taxable REIT subsidiaries recognized net income (loss) of approximately $0, $0, $0.3 million $(22,000) and $(0.1)$0.3 million for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively, which has been included on the accompanying Consolidated Statements of Operations.
State and Local Income, Excise, and Franchise Tax
State and local income, excise, and franchise taxes in the amount of $0.3$0.5 million, $0.9 million, $0.1$0.4 million and $0.6 million have been recorded in other expenses on the accompanying Consolidated Statements of Operations for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively.
Uncertain Tax Positions
As of SeptemberJune 30, 20192020 and December 31, 2018,2019, there were 0 liabilities for uncertain tax positions.
Concentrations of Credit Risk
Management believes the current credit risk of the Company’s portfolio is reasonably well diversified and does not contain any unusual concentration of credit risk.
3. Rental Property
The following table summarizes the components of rental property as of SeptemberJune 30, 20192020 and December 31, 2018.2019.
| Rental Property (in thousands) | Rental Property (in thousands) | | September 30, 2019 | | December 31, 2018 | Rental Property (in thousands) | | June 30, 2020 | | December 31, 2019 |
Land | Land | | $ | 420,215 | | | $ | 364,023 | | Land | | $ | 444,489 | | | $ | 435,923 | |
Buildings, net of accumulated depreciation of $240,968 and $199,497, respectively | | 2,520,684 | | | 2,082,781 | | |
Tenant improvements, net of accumulated depreciation of $20,979 and $36,450, respectively | | 33,829 | | | 30,704 | | |
Building and land improvements, net of accumulated depreciation of $105,141 and $80,983, respectively | | 210,558 | | | 168,229 | | |
Buildings, net of accumulated depreciation of $292,467 and $254,458, respectively | | Buildings, net of accumulated depreciation of $292,467 and $254,458, respectively | | 2,833,458 | | | 2,787,234 | |
Tenant improvements, net of accumulated depreciation of $23,724 and $21,487, respectively | | Tenant improvements, net of accumulated depreciation of $23,724 and $21,487, respectively | | 38,638 | | | 38,339 | |
Building and land improvements, net of accumulated depreciation of $130,170 and $111,688, respectively | | Building and land improvements, net of accumulated depreciation of $130,170 and $111,688, respectively | | 239,214 | | | 232,456 | |
Construction in progress | Construction in progress | | 23,695 | | | 3,949 | | Construction in progress | | 30,660 | | | 29,406 | |
Deferred leasing intangibles, net of accumulated amortization of $241,323 and $246,502, respectively | | 413,955 | | | 342,015 | | |
Deferred leasing intangibles, net of accumulated amortization of $267,553 and $241,304, respectively | | Deferred leasing intangibles, net of accumulated amortization of $267,553 and $241,304, respectively | | 451,738 | | | 475,149 | |
Total rental property, net | Total rental property, net | | $ | 3,622,936 | | | $ | 2,991,701 | | Total rental property, net | | $ | 4,038,197 | | | $ | 3,998,507 | |
Acquisitions
The following table summarizes the acquisitions of the Company during the three and ninesix months ended SeptemberJune 30, 2019.2020.
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Market (1) | | Date Acquired | | Square Feet | | Buildings | | Purchase Price (in thousands) |
Cincinnati/Dayton, OH | | January 24, 2019 | | 176,000 | | | 1 | | | $ | 9,965 | |
Pittsburgh, PA | | February 21, 2019 | | 455,000 | | | 1 | | | 28,676 | |
Boston, MA | | February 21, 2019 | | 349,870 | | | 1 | | | 26,483 | |
Minneapolis/St Paul, MN | | February 28, 2019 | | 248,816 | | | 1 | | | 21,955 | |
Greenville/Spartanburg, SC | | March 7, 2019 | | 331,845 | | | 1 | | | 24,536 | |
Philadelphia, PA | | March 7, 2019 | | 148,300 | | | 1 | | | 10,546 | |
Omaha/Council Bluffs, NE-IA | | March 11, 2019 | | 237,632 | | | 1 | | | 20,005 | |
Houston, TX | | March 28, 2019 | | 132,000 | | | 1 | | | 17,307 | |
Baltimore, MD | | March 28, 2019 | | 167,410 | | | 1 | | | 13,648 | |
Houston, TX | | March 28, 2019 | | 116,750 | | | 1 | | | 12,242 | |
Three months ended March 31, 2019 | | | | 2,363,623 | | | 10 | | | 185,363 | |
Minneapolis/St Paul, MN | | April 2, 2019 | | 100,600 | | | 1 | | | 9,045 | |
West Michigan, MI | | April 8, 2019 | | 230,200 | | | 1 | | | 15,786 | |
Greensboro/Winston-Salem, NC | | April 12, 2019 | | 129,600 | | | 1 | | | 7,771 | |
Greenville/Spartanburg, SC | | April 25, 2019 | | 319,660 | | | 2 | | | 15,432 | |
Charleston/N Charleston, SC | | April 29, 2019 | | 500,355 | | | 1 | | | 40,522 | |
Houston, TX | | April 29, 2019 | | 128,136 | | | 1 | | | 13,649 | |
Richmond, VA | | May 16, 2019 | | 109,520 | | | 1 | | | 9,467 | |
Laredo, TX | | June 6, 2019 | | 213,982 | | | 1 | | | 18,972 | |
Baton Rouge, LA | | June 18, 2019 | | 252,800 | | | 2 | | | 20,041 | |
Philadelphia, PA | | June 19, 2019 | | 187,569 | | | 2 | | | 13,645 | |
Columbus, OH | | June 28, 2019 | | 857,390 | | | 1 | | | 95,828 | |
Three months ended June 30, 2019 | | | | 3,029,812 | | | 14 | | | 260,158 | |
Kansas City, MO | | July 10, 2019 | | 304,840 | | | 1 | | | 13,450 | |
Houston, TX | | July 22, 2019 | | 199,903 | | | 1 | | | 11,287 | |
Charleston/N Charleston, SC | | July 22, 2019 | | 88,583 | | | 1 | | | 7,166 | |
Tampa, FL | | August 5, 2019 | | 78,560 | | | 1 | | | 8,168 | |
Philadelphia, PA | | August 6, 2019 | | 120,000 | | | 1 | | | 10,880 | |
Milwaukee/Madison, WI | | August 16, 2019 | | 224,940 | | | 3 | | | 13,981 | |
Houston, TX | | August 19, 2019 | | 45,000 | | | 1 | | | 6,190 | |
West Michigan, MI | | August 19, 2019 | | 210,120 | | | 1 | | | 10,407 | |
Pittsburgh, PA | | August 21, 2019 | | 410,389 | | | 1 | | | 31,219 | |
Boston, MA | | August 22, 2019 | | 80,100 | | | 1 | | | 14,253 | |
Las Vegas, NV | | August 27, 2019 | | 80,422 | | | 2 | | | 12,602 | |
Nashville, TN | | August 29, 2019 | | 348,880 | | | 1 | | | 20,267 | |
Columbia, SC | | August 30, 2019 | | 200,000 | | | 1 | | | 13,670 | |
Pittsburgh, PA | | September 6, 2019 | | 138,270 | | | 1 | | | 9,323 | |
Omaha/Council Bluffs, NE-IA | | September 11, 2019 | | 128,200 | | | 2 | | | 8,509 | |
Pittsburgh, PA | | September 16, 2019 | | 315,634 | | | 1 | | | 28,712 | |
Memphis, TN | | September 19, 2019 | | 1,135,453 | | | 1 | | | 50,941 | |
Memphis, TN | | September 26, 2019 | | 629,086 | | | 1 | | | 31,542 | |
Three months ended September 30, 2019 | | | | 4,738,380 | | | 22 | | | 302,567 | |
Nine months ended September 30, 2019 | | | | 10,131,815 | | | 46 | | | $ | 748,088 | |
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Market (1) | | Date Acquired | | Square Feet | | Buildings | | Purchase Price (in thousands) |
Detroit, MI | | January 10, 2020 | | 491,049 | | | 1 | | | $ | 29,543 | |
Rochester, NY | | January 10, 2020 | | 124,850 | | | 1 | | | 8,565 | |
Minneapolis/St Paul, MN | | February 6, 2020 | | 139,875 | | | 1 | | | 10,460 | |
Sacramento, CA | | February 6, 2020 | | 160,534 | | | 1 | | | 18,468 | |
Richmond, VA | | February 6, 2020 | | 78,128 | | | 1 | | | 5,481 | |
Milwaukee/Madison, WI | | February 7, 2020 | | 81,230 | | | 1 | | | 7,219 | |
Detroit, MI | | February 11, 2020 | | 311,123 | | | 1 | | | 23,141 | |
Philadelphia, PA | | March 9, 2020 | | 78,000 | | | 1 | | | 6,571 | |
Tulsa, OK | | March 9, 2020 | | 134,600 | | | 1 | | | 9,895 | |
Three months ended March 31, 2020 | | | | 1,599,389 | | | 9 | | | 119,343 | |
Sacramento, CA | | June 11, 2020 | | 54,463 | | | 1 | | | 5,730 | |
Chicago, IL | | June 29, 2020 | | 67,817 | | | 1 | | | 6,184 | |
Three months ended June 30, 2020 | | | | 122,280 | | | 2 | | | 11,914 | |
Six months ended June 30, 2020 | | | | 1,721,669 | | | 11 | | | $ | 131,257 | |
(1) As defined by CoStar Realty Information Inc (“CoStar”). If the building is located outside of a CoStar defined market, the city and state is reflected.
The following table summarizes the allocation of the consideration paid at the date of acquisition during the ninesix months ended SeptemberJune 30, 20192020 for the acquired assets and liabilities in connection with the acquisitions identified in the table above.
| | Acquired Assets and Liabilities | Acquired Assets and Liabilities | | Purchase Price (in thousands) | | Weighted Average Amortization Period (years) of Intangibles at Acquisition | | Acquired Assets and Liabilities | | Purchase Price (in thousands) | | Weighted Average Amortization Period (years) of Intangibles at Acquisition | |
Land | Land | | $ | 63,317 | | | N/A | | Land | | $ | 10,498 | | | N/A | |
Buildings | Buildings | | 499,255 | | | N/A | | Buildings | | 92,860 | | | N/A | |
Tenant improvements | Tenant improvements | | 6,246 | | | N/A | | Tenant improvements | | 1,535 | | | N/A | |
Building and land improvements | Building and land improvements | | 45,869 | | | N/A | | Building and land improvements | | 4,670 | | | N/A | |
Construction in progress | Construction in progress | | 2,032 | | | N/A | | Construction in progress | | 669 | | | N/A | |
Other assets | Other assets | | 2,513 | | | N/A | | Other assets | | 450 | | | N/A | |
Deferred leasing intangibles - In-place leases | Deferred leasing intangibles - In-place leases | | 76,628 | | | 8.9 | | Deferred leasing intangibles - In-place leases | | 14,963 | | | 7.9 | |
Deferred leasing intangibles - Tenant relationships | Deferred leasing intangibles - Tenant relationships | | 36,008 | | | 11.7 | | Deferred leasing intangibles - Tenant relationships | | 7,115 | | | 11.1 | |
Deferred leasing intangibles - Above market leases | Deferred leasing intangibles - Above market leases | | 19,449 | | | 12.8 | | Deferred leasing intangibles - Above market leases | | 1,069 | | | 6.3 | |
Deferred leasing intangibles - Below market leases | Deferred leasing intangibles - Below market leases | | (3,229) | | | 6.9 | | Deferred leasing intangibles - Below market leases | | (2,572) | | | 5.4 | |
| Total purchase price | Total purchase price | | $ | 748,088 | | | | | Total purchase price | | $ | 131,257 | | | | |
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The following table summarizes the results of operations for the three and ninesix months ended SeptemberJune 30, 20192020 for the buildings acquired during the ninesix months ended SeptemberJune 30, 20192020 included in the Company’s Consolidated Statements of Operations from the date of acquisition.
| Results of Operations (in thousands) | Results of Operations (in thousands) | | Three months ended September 30, 2019 | | Nine months ended September 30, 2019 | Results of Operations (in thousands) | | Three months ended June 30, 2020 | | Six months ended June 30, 2020 |
Total revenue | Total revenue | | $ | 10,616 | | | $ | 17,307 | | Total revenue | | $ | 2,807 | | | $ | 4,748 | |
Net income | Net income | | | $ | 2,173 | | | $ | 2,985 | | Net income | | $ | 609 | | | $ | 861 | |
Dispositions
During the ninesix months ended SeptemberJune 30, 2019,2020, the Company sold 64 buildings and 2 land parcelsto third parties comprised of approximately 1.11.2 million rentable square feet with a net book value of approximately $20.4 million to third parties.$54.1 million. These buildings and land parcels contributed approximately $20,000, $0.8 million, $1.5$0, $0, $1.1 million and $5.3$2.5 million to revenue for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively. These buildings and land parcels contributed approximately $(0.1) million,$(49,000), $(0.2) million, $0.5 million,$(35,000) and $0.9$0.4 million to net income (loss) (exclusive of loss on impairments and gain on the sales of rental property, net)net and loss on extinguishment of debt) for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively. Net proceeds from the sales of rental property were approximately $23.7$101.9 million and the Company recognized the full gain on the sales of rental property, net, of approximately $3.3$47.8 million for the ninesix months ended SeptemberJune 30, 2019.2020.
Loss on Impairments
The following table summarizesDuring the Company’sthree and six months ended June 30, 2020, the Company did not recognize any loss on impairments. During the three and six months ended June 30, 2019, the Company recognized approximately $0 and $5.3 million of loss on impairments for assets held and used during the nine months ended September 30, 2019.
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Market(1) | | Buildings | | Event or Change in Circumstance Leading to Impairment Evaluation(2) | | Valuation technique utilized to estimate fair value | | Fair Value(3) | | Loss on Impairments |
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Rapid City, SD(4) | | 1 | | | Change in estimated hold period | (5) | Discounted cash flows | (6) | | | |
Three months ended March 31, 2019 | | | | | | | | $ | 4,373 | | | $ | 5,344 | |
Belfast, ME(4) | | 5 | | | Market leasing conditions | | Discounted cash flows | (7) | | | |
Three months ended September 30, 2019 | | | | | | | | $ | 5,950 | | | $ | 4,413 | |
Nine months ended September 30, 2019 | | | | | | | | $ | 10,323 | | | $ | 9,757 | |
(1)As defined by CoStar. If the building is located outside of a CoStar defined market, the city and state is reflected.
(2)The Company tested the asset group for impairment utilizing a probability weighted recovery analysis of certain scenarios, and it was determined that the carrying value of the property and intangibles were not recoverable from the estimated future undiscounted cash flows.
(3)The estimated fair value of the property is based on Level 3 inputs and is a non-recurring fair value measurement. Level 3 is defined as unobservable inputs in which little or no market data exists, therefore requiring an entityrelated to develop its own assumptions.
(4)Flex/office buildings.
(5)This property was sold during the three months ended September 30, 2019.
(6)Level 3 inputs used to determine fair value for the property impaired for the three months ended March 31, 2019: discount rate of 12.0% and exit capitalization rate of 12.0%.
(7)Level 3 inputs used to determine fair value for the property impaired for the three months ended September 30, 2019: discount rate of 13.0% and exit capitalization rate of 12.0%.1 building.
Gain on Involuntary Conversion
12During the three and six months ended June 30, 2020, the Company recognized a gain on involuntary conversion of approximately $0.7 million related to an eminent domain taking of a portion of a parcel of land. During the three and six months ended June 30, 2019, the Company did not recognize any gain on involuntary conversion.
Deferred Leasing Intangibles
The following table summarizes the deferred leasing intangibles on the accompanying Consolidated Balance Sheets as of SeptemberJune 30, 20192020 and December 31, 2018.2019.
| | | September 30, 2019 | | | December 31, 2018 | | | June 30, 2020 | | | December 31, 2019 | |
Deferred Leasing Intangibles (in thousands) | Deferred Leasing Intangibles (in thousands) | | Gross | | | Accumulated Amortization | | | Net | | Gross | | Accumulated Amortization | | Net | Deferred Leasing Intangibles (in thousands) | | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
Above market leases | Above market leases | | $ | 88,388 | | | $ | (33,439) | | | $ | 54,949 | | | $ | 73,122 | | | $ | (31,059) | | | $ | 42,063 | | Above market leases | | $ | 92,793 | | | $ | (36,413) | | | $ | 56,380 | | | $ | 92,607 | | | $ | (32,115) | | | $ | 60,492 | |
Other intangible lease assets | Other intangible lease assets | | 566,890 | | | (207,884) | | | 359,006 | | | 515,395 | | | (215,443) | | | 299,952 | | Other intangible lease assets | | 626,498 | | | (231,140) | | | 395,358 | | | 623,846 | | | (209,189) | | | 414,657 | |
Total deferred leasing intangible assets | Total deferred leasing intangible assets | | $ | 655,278 | | | $ | (241,323) | | | $ | 413,955 | | | $ | 588,517 | | | $ | (246,502) | | | $ | 342,015 | | Total deferred leasing intangible assets | | $ | 719,291 | | | $ | (267,553) | | | $ | 451,738 | | | $ | 716,453 | | | $ | (241,304) | | | $ | 475,149 | |
| Below market leases | Below market leases | | $ | 31,496 | | | $ | (11,259) | | | $ | 20,237 | | | $ | 34,331 | | | $ | (12,764) | | | $ | 21,567 | | Below market leases | | $ | 39,409 | | | $ | (13,117) | | | $ | 26,292 | | | $ | 38,802 | | | $ | (12,064) | | | $ | 26,738 | |
Total deferred leasing intangible liabilities | Total deferred leasing intangible liabilities | | $ | 31,496 | | | $ | (11,259) | | | $ | 20,237 | | | $ | 34,331 | | | $ | (12,764) | | | $ | 21,567 | | Total deferred leasing intangible liabilities | | $ | 39,409 | | | $ | (13,117) | | | $ | 26,292 | | | $ | 38,802 | | | $ | (12,064) | | | $ | 26,738 | |
The following table summarizes the amortization expense and the net decrease to rental income for the amortization of deferred leasing intangibles during the three and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019.
| | | | Three months ended September 30, | | | Nine months ended September 30, | | | | Three months ended June 30, | | | Six months ended June 30, | |
Deferred Leasing Intangibles Amortization (in thousands) | Deferred Leasing Intangibles Amortization (in thousands) | | 2019 | | 2018 | | 2019 | | 2018 | Deferred Leasing Intangibles Amortization (in thousands) | | 2020 | | 2019 | | 2020 | | 2019 |
Net decrease to rental income related to above and below market lease amortization | Net decrease to rental income related to above and below market lease amortization | | $ | 1,248 | | | $ | 1,150 | | | $ | 3,361 | | | $ | 3,206 | | Net decrease to rental income related to above and below market lease amortization | | $ | 1,174 | | | $ | 1,146 | | | $ | 2,164 | | | $ | 2,113 | |
Amortization expense related to other intangible lease assets | Amortization expense related to other intangible lease assets | | $ | 18,472 | | | $ | 20,361 | | | $ | 53,185 | | | $ | 56,698 | | Amortization expense related to other intangible lease assets | | $ | 21,076 | | | $ | 17,899 | | | $ | 41,378 | | | $ | 34,713 | |
The following table summarizes the amortization of deferred leasing intangibles over the next five calendar years beginning with 20192020 as of SeptemberJune 30, 2019.2020.
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Year | | Amortization Expense Related to Other Intangible Lease Assets (in thousands) | | Net Decrease to Rental Income Related to Above and Below Market Lease Amortization (in thousands) |
Remainder of 2019 | | $ | 18,698 | | | $ | 1,283 | |
2020 | | $ | 66,090 | | | $ | 4,870 | |
2021 | | $ | 54,264 | | | $ | 3,559 | |
2022 | | $ | 45,234 | | | $ | 2,657 | |
2023 | | $ | 37,492 | | | $ | 2,608 | |
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Year | | Amortization Expense Related to Other Intangible Lease Assets (in thousands) | | Net Decrease to Rental Income Related to Above and Below Market Lease Amortization (in thousands) |
Remainder of 2020 | | $ | 36,982 | | | $ | 1,827 | |
2021 | | $ | 65,116 | | | $ | 2,717 | |
2022 | | $ | 55,459 | | | $ | 2,190 | |
2023 | | $ | 46,930 | | | $ | 2,395 | |
2024 | | $ | 38,019 | | | $ | 2,703 | |
4. Debt
The following table summarizes the Company’s outstanding indebtedness, including borrowings under the Company’s unsecured credit facility, unsecured term loans, unsecured notes, and mortgage notes as of SeptemberJune 30, 20192020 and December 31, 2018.2019.
| Loan | Loan | | Principal Outstanding as of September 30, 2019 (in thousands) | | Principal Outstanding as of December 31, 2018 (in thousands) | | Interest Rate (1)(2) | | Maturity Date | | | Prepayment Terms (3) | Loan | | Principal Outstanding as of June 30, 2020 (in thousands) | | Principal Outstanding as of December 31, 2019 (in thousands) | | Interest Rate(1)(2) | | Maturity Date | | Prepayment Terms(3) |
Unsecured credit facility: | Unsecured credit facility: | | | | | | | | | | | Unsecured credit facility: | | | | | | | | | | |
Unsecured Credit Facility (4) | Unsecured Credit Facility (4) | | $ | 78,000 | | | $ | 100,500 | | | L + 0.90% | | | January 15, 2023 | | i | Unsecured Credit Facility(4) | | $ | — | | | $ | 146,000 | | | L + 0.90% | | January 12, 2024 | | i |
Total unsecured credit facility | Total unsecured credit facility | | 78,000 | | | 100,500 | | | | | | | | | Total unsecured credit facility | | — | | | 146,000 | | | | | | | |
| Unsecured term loans: | Unsecured term loans: | | | | | | | | | | | | Unsecured term loans: | | | | | | | | | | |
Unsecured Term Loan C(5) | Unsecured Term Loan C(5) | | 150,000 | | | 150,000 | | | 2.39 | % | | September 29, 2020 | | i | Unsecured Term Loan C(5) | | — | | | 150,000 | | | 2.39 | % | | September 29, 2020 | | i |
Unsecured Term Loan B(5) | Unsecured Term Loan B(5) | | 150,000 | | | 150,000 | | | 3.05 | % | | March 21, 2021 | | i | Unsecured Term Loan B(5) | | — | | | 150,000 | | | 3.05 | % | | March 21, 2021 | | i |
Unsecured Term Loan A | Unsecured Term Loan A | | 150,000 | | | 150,000 | | | 2.70 | % | | March 31, 2022 | | i | Unsecured Term Loan A | | 150,000 | | | 150,000 | | | 3.38 | % | | March 31, 2022 | | i |
Unsecured Term Loan D | Unsecured Term Loan D | | 150,000 | | | 150,000 | | | 2.85 | % | | January 4, 2023 | | i | Unsecured Term Loan D | | 150,000 | | | 150,000 | | | 2.85 | % | | January 4, 2023 | | i |
Unsecured Term Loan G(6) | | Unsecured Term Loan G(6) | | 300,000 | | | — | | | 3.31 | % | | April 18, 2023 | | i |
Unsecured Term Loan E | Unsecured Term Loan E | | 175,000 | | | — | | | 3.92 | % | | January 15, 2024 | | i | Unsecured Term Loan E | | 175,000 | | | 175,000 | | | 3.92 | % | | January 15, 2024 | | i |
Unsecured Term Loan F (5) | | — | | | — | | | 3.11 | % | | January 12, 2025 | | i | |
Unsecured Term Loan F | | Unsecured Term Loan F | | 200,000 | | | 100,000 | | | L + 1.00% | | January 12, 2025 | | i |
Total unsecured term loans | Total unsecured term loans | | 775,000 | | | 600,000 | | | Total unsecured term loans | | 975,000 | | | 875,000 | | |
Less: Total unamortized deferred financing fees and debt issuance costs | Less: Total unamortized deferred financing fees and debt issuance costs | | (3,963) | | | (3,640) | | | Less: Total unamortized deferred financing fees and debt issuance costs | | (4,718) | | | (3,625) | | |
Total carrying value unsecured term loans, net | Total carrying value unsecured term loans, net | | 771,037 | | | 596,360 | | | | | | | | | Total carrying value unsecured term loans, net | | 970,282 | | | 871,375 | | | | | | | |
| Unsecured notes: | Unsecured notes: | | | | | | | | | | | | Unsecured notes: | | | | | | | | | | |
Series F Unsecured Notes | Series F Unsecured Notes | | 100,000 | | | 100,000 | | | 3.98 | % |
| January 5, 2023 | | ii | Series F Unsecured Notes | | 100,000 | | | 100,000 | | | 3.98 | % |
| January 5, 2023 | | ii |
Series A Unsecured Notes | Series A Unsecured Notes | | 50,000 | | | 50,000 | | | 4.98 | % | | October 1, 2024 | | ii | Series A Unsecured Notes | | 50,000 | | | 50,000 | | | 4.98 | % | | October 1, 2024 | | ii |
Series D Unsecured Notes | Series D Unsecured Notes | | 100,000 | | | 100,000 | | | 4.32 | % | | February 20, 2025 | | ii | Series D Unsecured Notes | | 100,000 | | | 100,000 | | | 4.32 | % | | February 20, 2025 | | ii |
Series G Unsecured Notes | Series G Unsecured Notes | | 75,000 | | | 75,000 | | | 4.10 | % | | June 13, 2025 | | ii | Series G Unsecured Notes | | 75,000 | | | 75,000 | | | 4.10 | % | | June 13, 2025 | | ii |
Series B Unsecured Notes | Series B Unsecured Notes | | 50,000 | | | 50,000 | | | 4.98 | % | | July 1, 2026 | | ii | Series B Unsecured Notes | | 50,000 | | | 50,000 | | | 4.98 | % | | July 1, 2026 | | ii |
Series C Unsecured Notes | Series C Unsecured Notes | | 80,000 | | | 80,000 | | | 4.42 | % | | December 30, 2026 | | ii | Series C Unsecured Notes | | 80,000 | | | 80,000 | | | 4.42 | % | | December 30, 2026 | | ii |
Series E Unsecured Notes | Series E Unsecured Notes | | 20,000 | | | 20,000 | | | 4.42 | % | | February 20, 2027 | | ii | Series E Unsecured Notes | | 20,000 | | | 20,000 | | | 4.42 | % | | February 20, 2027 | | ii |
Series H Unsecured Notes | Series H Unsecured Notes | | 100,000 | | | 100,000 | | | 4.27 | % | | June 13, 2028 | | ii | Series H Unsecured Notes | | 100,000 | | | 100,000 | | | 4.27 | % | | June 13, 2028 | | ii |
Total unsecured notes | Total unsecured notes | | 575,000 | | | 575,000 | | |
| | Total unsecured notes | | 575,000 | | | 575,000 | | |
| |
Less: Total unamortized deferred financing fees and debt issuance costs | Less: Total unamortized deferred financing fees and debt issuance costs | | (2,217) | | | (2,512) | | |
| | Less: Total unamortized deferred financing fees and debt issuance costs | | (1,918) | | | (2,117) | | |
| |
Total carrying value unsecured notes, net | Total carrying value unsecured notes, net | | 572,783 | | | 572,488 | | | | |
| | | | Total carrying value unsecured notes, net | | 573,082 | | | 572,883 | | | |
| | | |
| | | | | |
| | | | | | |
| |
Mortgage notes (secured debt): | Mortgage notes (secured debt): | | | | | | |
| | | | Mortgage notes (secured debt): | | | | |
| | | |
Wells Fargo Bank, National Association CMBS Loan | Wells Fargo Bank, National Association CMBS Loan | | 51,861 | | | 53,216 | | | | 4.31 | % | | December 1, 2022 | | iii | Wells Fargo Bank, National Association CMBS Loan | | 49,473 | | | 51,406 | | | 4.31 | % | | December 1, 2022 | | iii |
Thrivent Financial for Lutherans | Thrivent Financial for Lutherans | | 3,709 | | | 3,795 | | | 4.78 | % | | December 15, 2023 | | iv | Thrivent Financial for Lutherans | | 3,619 | | | 3,679 | | | 4.78 | % | | December 15, 2023 | | iv |
Total mortgage notes | Total mortgage notes | | 55,570 | | | 57,011 | | | | | | Total mortgage notes | | 53,092 | | | 55,085 | | | | |
Add: Total unamortized fair market value premiums | Add: Total unamortized fair market value premiums | | 42 | | | 50 | | | | | Add: Total unamortized fair market value premiums | | 34 | | | 39 | | | | |
Less: Total unamortized deferred financing fees and debt issuance costs | Less: Total unamortized deferred financing fees and debt issuance costs | | (402) | | | (501) | | | Less: Total unamortized deferred financing fees and debt issuance costs | | (299) | | | (369) | | |
Total carrying value mortgage notes, net | Total carrying value mortgage notes, net | | 55,210 | | | 56,560 | | | | | Total carrying value mortgage notes, net | | 52,827 | | | 54,755 | | | | |
Total / weighted average interest rate (6) | | $ | 1,477,030 | | | $ | 1,325,908 | | | 3.58 | % | | |
Total / weighted average interest rate(7) | | Total / weighted average interest rate(7) | | $ | 1,596,191 | | | $ | 1,645,013 | | | 3.48 | % | |
(1)Interest rate as of SeptemberJune 30, 2019.2020. At SeptemberJune 30, 2019,2020, the one-month LIBOR (“L”) was 2.01563%0.16225%. The current interest rate is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums. The spread over the applicable rate for the Company’s unsecured credit facility and unsecured term loans is based on the Company’s debt rating, as defined in the respective loan agreements.
(2)The unsecured term loans have a stated interest rate of one-month LIBOR plus a spread of 1.0%, with the exception of the Unsecured Term Loan G which has a spread of 1.5% and is subject to a minimum rate for LIBOR of 0.25%. As of SeptemberJune 30, 2019,2020, one-month LIBOR for the Unsecured Term Loans A, B, C, D, E, and G was swapped to a fixed rate of 2.38%, 1.85%, 2.92%, and 1.72%, respectively. One-month LIBOR for the Unsecured Term Loan F was swapped to a fixed rate of 1.70%, 2.05%, 1.39%, 1.85%, 2.92%,2.11% effective July 15, 2020. One-month LIBOR for the Unsecured Term Loan G will be swapped to a fixed rate of 1.17% effective September 29, 2020 and 2.11%, respectively.0.28% effective March 19, 2021.
(3)Prepayment terms consist of (i) pre-payable with no penalty; (ii) pre-payable with penalty; (iii) pre-payable without penalty three months prior to the maturity date, however can be defeased; and (iv) pre-payable without penalty three months prior to the maturity date.
(4)The capacity of the unsecured credit facility is $500.0 million. Deferred financing fees and debt issuance costs, net of accumulated amortization related to the unsecured credit facility of approximately $2.6$2.0 million and $3.2$2.4 million is included in prepaid expenses and other assets on the accompanying Consolidated Balance Sheets as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively. The initial maturity date is January 15, 2023, which may be extended pursuant to 2 six-month extension options exercisable by the Company in its discretion upon advance written notice. Exercise of each six-month option is subject to the following conditions: (i) absence of a default immediately before the extension and immediately after giving effect to the extension, (ii) accuracy of representations and warranties as of the extension date (both immediately before and after the extension), as if made on the extension date, and (iii) payment of a fee. Neither extension option is subject to lender consent, assuming proper notice and satisfaction of the conditions.
(5)CapacityThe Unsecured Term Loan B and the Unsecured Term Loan C were paid in full on April 17, 2020 in connection with the execution of $200.0 million,the Unsecured Term Loan G.
(6)The initial maturity date is April 16, 2021, which may be extended pursuant to two one-year extension options exercisable by the Company has until July 12, 2020in its discretion upon advance written notice. Exercise of each one-year option is subject to draw.the following conditions: (i) absence of a default immediately before the extension and immediately after giving effect to the extension, (ii) accuracy of representations and warranties as of the extension date (both immediately before and after the extension), as if made on the extension date, and (iii) payment of a fee. Neither extension option is subject to lender consent, assuming proper notice and satisfaction of the conditions.
(6)(7)The weighted average interest rate was calculated using the fixed interest rate swapped on the notional amount of $775.0 million of debt, and is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums.
The aggregate undrawn nominal commitment on the unsecured credit facility and unsecured term loans as of SeptemberJune 30, 20192020 was approximately $616.0$497.0 million, including issued letters of credit. The Company’s actual borrowing capacity at any given point in time may be less and is restricted to a maximum amount based on the Company’s debt covenant compliance. Total accrued interest for the Company’s indebtedness was approximately $7.6$6.1 million and $5.9$6.3 million as of SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively, and is included in accounts payable, accrued expenses and other liabilities on the accompanying Consolidated Balance Sheets.
The following table summarizes the costs included in interest expense related to the Company’s debt arrangements on the accompanying Consolidated Statement of Operations for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019.
| | | Three months ended September 30, | | | Nine months ended September 30, | | | Three months ended June 30, | | | Six months ended June 30, | |
Costs Included in Interest Expense (in thousands) | Costs Included in Interest Expense (in thousands) | | 2019 | | 2018 | | 2019 | | 2018 | Costs Included in Interest Expense (in thousands) | | 2020 | | 2019 | | 2020 | | 2019 |
Amortization of deferred financing fees and debt issuance costs and fair market value premiums | Amortization of deferred financing fees and debt issuance costs and fair market value premiums | | $ | 673 | | | $ | 617 | | | $ | 1,909 | | | $ | 1,698 | | Amortization of deferred financing fees and debt issuance costs and fair market value premiums | | $ | 746 | | | $ | 618 | | | $ | 1,422 | | | $ | 1,236 | |
Facility, unused, and other fees | Facility, unused, and other fees | | $ | 348 | | | $ | 275 | | | $ | 1,118 | | | $ | 928 | | Facility, unused, and other fees | | $ | 316 | | | $ | 387 | | | $ | 680 | | | $ | 770 | |
On July 25, 2019,April 29, 2020, the Company drew $175.0mortgage note associated with the Wells Fargo, National Association CMBS Loan was partially defeased in the amount of approximately $1.0 million in connection with the sale of the $175.0Johnstown, NY property, which had served as partial collateral for the mortgage note. The associated defeasance fees and unamortized deferred financing fees and debt issuance costs of approximately $0.1 million Unsecured Term Loan E that was entered intowere written off to loss on July 26, 2018.extinguishment of debt in the accompanying Consolidated Statement of Operations during the three and six months ended June 30, 2020.
On July 12, 2019,April 17, 2020, the Company entered into the $200.0$300.0 million unsecured Unsecured Term Loan F. AsG with Wells Fargo, National Association, as administrative agent on behalf of September 30, 2019, the interest rate onvarious lenders under the agreement. In connection with execution of the Unsecured Term Loan F wasG, the Unsecured Term Loan B and Unsecured Term Loan C were paid in full. As of June 30, 2020, the Unsecured Term Loan G bore an interest rate of LIBOR plus a spread of 1.00%1.5% based on the Company’s debt rating, as defined in the loan agreement. Unless otherwise terminated pursuantagreement, and subject to a minimum rate for LIBOR of 0.25%. The Unsecured Term Loan G matures on April 16, 2021, subject to 2 one-year extension options at the loan agreement,Company's discretion, and subject to certain conditions (other than lender discretion) such as the absence of default and the payment of an extension fee. The Company intends to exercise both extension options. To exercise the extension options the Company is required pay a fee equal to (i) 0.15% of the outstanding amount on the effective day of the first extension period and (ii) 0.20% of the outstanding amount on the effective day of the second extension period. In connection with the refinancing, the Company incurred approximately $2.1 million in deferred financing fees, including approximately $1.1 million of accrued extension fees, which are being amortized through the extended maturity date of April 18, 2023. In connection with the refinancing, the Company also recognized a loss on extinguishment of debt of approximately $0.7 million related to associated unamortized deferred financing fees and debt issuance costs related to the Unsecured Term Loan F will mature on January 12, 2025.B and the Unsecured Term Loan C and other third-party costs. The Company is required to pay an annual fee of $35,000. The Unsecured Term Loan FG has aan accordion feature that allows the Company to request an increase in the aggregate size of the unsecured term loan of upits borrowing capacity to $400.0$600.0 million, subject to the satisfaction of certain conditions and lender consents. The agreement includes a delayed draw feature that allows the Company to draw up to 6 advances of at least $25.0 million each until July 12, 2020. To the extent that the Company does not request advances of the $200.0 million of aggregate commitments by July 12, 2020, the unadvanced commitments terminate. The Unsecured Term Loan F has an unused commitment fee equal to 0.15% of its unused commitments, which began to accrue on October 10, 2019 and is due and payable monthly until the earlier of (i) the date that aggregate commitments of $200.0 million have been fully advanced, (ii) July 12, 2020, and (iii) the date that aggregate commitments have been reduced to zero pursuant to the terms of the agreement. The Company is required to pay an annual administrative agent fee of $35,000. The Company and certain wholly owned subsidiaries of the Operating Partnership are guarantors of the Unsecured Term Loan F.G. The agreement also contains financial and other covenants substantially similar to the covenants in the Company's unsecured credit facility. As
On March 25, 2020, the Company drew the remaining $100.0 million of September 30, 2019, no amounts were outstanding under the $200.0 million Unsecured Term Loan F.F that was entered into on July 12, 2019.
Financial Covenant Considerations
The Company was in compliance with all financial and other covenants as of SeptemberJune 30, 20192020 and December 31, 20182019 related to its unsecured credit facility, unsecured term loans, unsecured notes, and mortgage notes. The real estate net book value of the properties that are collateral for the Company’s debt arrangements was approximately $86.0$82.8 million and $88.2$85.5 million at SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively, and is limited to senior, property-level secured debt financing arrangements.
Fair Value of Debt
The following table summarizes the aggregate principal outstanding under the Company’s debt arrangements and the corresponding estimate of fair value as of SeptemberJune 30, 20192020 and December 31, 2018.2019.
| | | | September 30, 2019 | | | December 31, 2018 | | | | June 30, 2020 | | | December 31, 2019 | |
Indebtedness (in thousands) | Indebtedness (in thousands) | | Principal Outstanding | | Fair Value | | Principal Outstanding | | Fair Value | Indebtedness (in thousands) | | Principal Outstanding | | Fair Value | | Principal Outstanding | | Fair Value |
Unsecured credit facility | Unsecured credit facility | | $ | 78,000 | | | $ | 78,000 | | | $ | 100,500 | | | $ | 100,500 | | Unsecured credit facility | | $ | — | | | $ | — | | | $ | 146,000 | | | $ | 146,000 | |
Unsecured term loans | Unsecured term loans | | 775,000 | | | 775,000 | | | 600,000 | | | 600,000 | | Unsecured term loans | | 975,000 | | | 964,497 | | | 875,000 | | | 875,000 | |
Unsecured notes | Unsecured notes | | 575,000 | | | 618,594 | | | 575,000 | | | 585,292 | | Unsecured notes | | 575,000 | | | 617,073 | | | 575,000 | | | 614,493 | |
Mortgage notes | Mortgage notes | | 55,570 | | | 56,627 | | | 57,011 | | | 57,289 | | Mortgage notes | | 53,092 | | | 55,227 | | | 55,085 | | | 56,021 | |
Total principal amount | Total principal amount | | 1,483,570 | | | $ | 1,528,221 | | | 1,332,511 | | | $ | 1,343,081 | | Total principal amount | | 1,603,092 | | | $ | 1,636,797 | | | 1,651,085 | | | $ | 1,691,514 | |
Add: Total unamortized fair market value premiums | Add: Total unamortized fair market value premiums | | 42 | | | | | 50 | | | | Add: Total unamortized fair market value premiums | | 34 | | | | | 39 | | | |
Less: Total unamortized deferred financing fees and debt issuance costs | Less: Total unamortized deferred financing fees and debt issuance costs | | (6,582) | | | (6,653) | | | Less: Total unamortized deferred financing fees and debt issuance costs | | (6,935) | | | (6,111) | | |
Total carrying value | Total carrying value | | $ | 1,477,030 | | | $ | 1,325,908 | | | Total carrying value | | $ | 1,596,191 | | | $ | 1,645,013 | | |
The applicable fair value guidance establishes a three tier value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The fair value of the Company’s debt is based on Level 3 inputs.
5. Derivative Financial Instruments
Risk Management Objective of Using Derivatives
The Company’s use of derivative instruments is limited to the utilization of interest rate swaps to manage interest rate risk exposure on existing and future liabilities and not for speculative purposes. The principal objective of such arrangements is to minimize the risks and related costs associated with the Company’s operating and financial structure.
The following table summarizes the Company’s outstanding interest rate swaps as of SeptemberJune 30, 2019.2020. All of the Company’s interest rate swaps are designated as qualifying cash flow hedges.
| Interest Rate Derivative Counterparty | Interest Rate Derivative Counterparty | | Trade Date | | Effective Date | | Notional Amount (in thousands) | | | Fair Value (in thousands) | | Pay Fixed Interest Rate | | Receive Variable Interest Rate | | Maturity Date | Interest Rate Derivative Counterparty | | Trade Date | | Effective Date | | Notional Amount (in thousands) | | Fair Value (in thousands) | | Pay Fixed Interest Rate | | Receive Variable Interest Rate | | Maturity Date |
Regions Bank | | Mar-01-2013 | | Mar-01-2013 | | | $ | 25,000 | | | $ | 51 | | | 1.3300 | % | | One-month L | | Feb-14-2020 | |
Capital One, N.A. | | Jun-13-2013 | | Jul-01-2013 | | | $ | 50,000 | | | $ | 35 | | | 1.6810 | % | | One-month L | | Feb-14-2020 | |
Capital One, N.A. | | Jun-13-2013 | | Aug-01-2013 | | | $ | 25,000 | | | $ | 16 | | | 1.7030 | % | | One-month L | | Feb-14-2020 | |
Regions Bank | | Sep-30-2013 | | Feb-03-2014 | | | $ | 25,000 | | | $ | (12) | | | 1.9925 | % | | One-month L | | Feb-14-2020 | |
The Toronto-Dominion Bank | The Toronto-Dominion Bank | | Oct-14-2015 | | Sep-29-2016 | | | $ | 25,000 | | | $ | 66 | | | 1.3830 | % | | One-month L | | Sep-29-2020 | The Toronto-Dominion Bank | | Oct-14-2015 | | Sep-29-2016 | | $ | 25,000 | | | $ | (76) | | | 1.3830 | % | | One-month L | | Sep-29-2020 |
PNC Bank, N.A. | PNC Bank, N.A. | | Oct-14-2015 | | Sep-29-2016 | | | $ | 50,000 | | | $ | 128 | | | 1.3906 | % | | One-month L | | Sep-29-2020 | PNC Bank, N.A. | | Oct-14-2015 | | Sep-29-2016 | | $ | 50,000 | | | $ | (153) | | | 1.3906 | % | | One-month L | | Sep-29-2020 |
Regions Bank | Regions Bank | | Oct-14-2015 | | Sep-29-2016 | | | $ | 35,000 | | | $ | 91 | | | 1.3858 | % | | One-month L | | Sep-29-2020 | Regions Bank | | Oct-14-2015 | | Sep-29-2016 | | $ | 35,000 | | | $ | (106) | | | 1.3858 | % | | One-month L | | Sep-29-2020 |
U.S. Bank, N.A. | U.S. Bank, N.A. | | Oct-14-2015 | | Sep-29-2016 | | | $ | 25,000 | | | $ | 63 | | | 1.3950 | % | | One-month L | | Sep-29-2020 | U.S. Bank, N.A. | | Oct-14-2015 | | Sep-29-2016 | | $ | 25,000 | | | $ | (77) | | | 1.3950 | % | | One-month L | | Sep-29-2020 |
Capital One, N.A. | Capital One, N.A. | | Oct-14-2015 | | Sep-29-2016 | | | $ | 15,000 | | | $ | 38 | | | 1.3950 | % | | One-month L | | Sep-29-2020 | Capital One, N.A. | | Oct-14-2015 | | Sep-29-2016 | | $ | 15,000 | | | $ | (46) | | | 1.3950 | % | | One-month L | | Sep-29-2020 |
Royal Bank of Canada | Royal Bank of Canada | | Jan-08-2015 | | Mar-20-2015 | | | $ | 25,000 | | | $ | (56) | | | 1.7090 | % | | One-month L | | Mar-21-2021 | Royal Bank of Canada | | Jan-08-2015 | | Mar-20-2015 | | $ | 25,000 | | | $ | (280) | | | 1.7090 | % | | One-month L | | Mar-21-2021 |
The Toronto-Dominion Bank | The Toronto-Dominion Bank | | Jan-08-2015 | | Mar-20-2015 | | | $ | 25,000 | | | $ | (57) | | | 1.7105 | % | | One-month L | | Mar-21-2021 | The Toronto-Dominion Bank | | Jan-08-2015 | | Mar-20-2015 | | $ | 25,000 | | | $ | (280) | | | 1.7105 | % | | One-month L | | Mar-21-2021 |
The Toronto-Dominion Bank | The Toronto-Dominion Bank | | Jan-08-2015 | | Sep-10-2017 | | | $ | 100,000 | | | $ | (982) | | | 2.2255 | % | | One-month L | | Mar-21-2021 | The Toronto-Dominion Bank | | Jan-08-2015 | | Sep-10-2017 | | $ | 100,000 | | | $ | (1,493) | | | 2.2255 | % | | One-month L | | Mar-21-2021 |
Wells Fargo, N.A. | Wells Fargo, N.A. | | Jan-08-2015 | | Mar-20-2015 | | | $ | 25,000 | | | $ | (246) | | | 1.8280 | % | | One-month L | | Mar-31-2022 | Wells Fargo, N.A. | | Jan-08-2015 | | Mar-20-2015 | | $ | 25,000 | | | $ | (750) | | | 1.8280 | % | | One-month L | | Mar-31-2022 |
The Toronto-Dominion Bank | The Toronto-Dominion Bank | | Jan-08-2015 | | Feb-14-2020 | | | $ | 25,000 | | | $ | (579) | | | 2.4535 | % | | One-month L | | Mar-31-2022 | The Toronto-Dominion Bank | | Jan-08-2015 | | Feb-14-2020 | | $ | 25,000 | | | $ | (1,027) | | | 2.4535 | % | | One-month L | | Mar-31-2022 |
Regions Bank | Regions Bank | | Jan-08-2015 | | Feb-14-2020 | | | $ | 50,000 | | | $ | (1,181) | | | 2.4750 | % | | One-month L | | Mar-31-2022 | Regions Bank | | Jan-08-2015 | | Feb-14-2020 | | $ | 50,000 | | | $ | (2,072) | | | 2.4750 | % | | One-month L | | Mar-31-2022 |
Capital One, N.A. | Capital One, N.A. | | Jan-08-2015 | | Feb-14-2020 | | | $ | 50,000 | | | $ | (1,238) | | | 2.5300 | % | | One-month L | | Mar-31-2022 | Capital One, N.A. | | Jan-08-2015 | | Feb-14-2020 | | $ | 50,000 | | | $ | (2,121) | | | 2.5300 | % | | One-month L | | Mar-31-2022 |
The Toronto-Dominion Bank | The Toronto-Dominion Bank | | Jul-20-2017 | | Oct-30-2017 | | | $ | 25,000 | | | $ | (362) | | | 1.8485 | % | | One-month L | | Jan-04-2023 | The Toronto-Dominion Bank | | Jul-20-2017 | | Oct-30-2017 | | $ | 25,000 | | | $ | (1,093) | | | 1.8485 | % | | One-month L | | Jan-04-2023 |
Royal Bank of Canada | Royal Bank of Canada | | Jul-20-2017 | | Oct-30-2017 | | | $ | 25,000 | | | $ | (364) | | | 1.8505 | % | | One-month L | | Jan-04-2023 | Royal Bank of Canada | | Jul-20-2017 | | Oct-30-2017 | | $ | 25,000 | | | $ | (1,094) | | | 1.8505 | % | | One-month L | | Jan-04-2023 |
Wells Fargo, N.A. | Wells Fargo, N.A. | | Jul-20-2017 | | Oct-30-2017 | | | $ | 25,000 | | | $ | (364) | | | 1.8505 | % | | One-month L | | Jan-04-2023 | Wells Fargo, N.A. | | Jul-20-2017 | | Oct-30-2017 | | $ | 25,000 | | | $ | (1,094) | | | 1.8505 | % | | One-month L | | Jan-04-2023 |
PNC Bank, N.A. | PNC Bank, N.A. | | Jul-20-2017 | | Oct-30-2017 | | | $ | 25,000 | | | $ | (362) | | | 1.8485 | % | | One-month L | | Jan-04-2023 | PNC Bank, N.A. | | Jul-20-2017 | | Oct-30-2017 | | $ | 25,000 | | | $ | (1,093) | | | 1.8485 | % | | One-month L | | Jan-04-2023 |
PNC Bank, N.A. | PNC Bank, N.A. | | Jul-20-2017 | | Oct-30-2017 | | | $ | 50,000 | | | $ | (723) | | | 1.8475 | % | | One-month L | | Jan-04-2023 | PNC Bank, N.A. | | Jul-20-2017 | | Oct-30-2017 | | $ | 50,000 | | | $ | (2,184) | | | 1.8475 | % | | One-month L | | Jan-04-2023 |
The Toronto-Dominion Bank | The Toronto-Dominion Bank | | Jul-24-2018 | | Jul-26-2019 | | | $ | 50,000 | | | $ | (3,229) | | | 2.9180 | % | | One-month L | | Jan-12-2024 | The Toronto-Dominion Bank | | Apr-20-2020 | | Sep-29-2020 | | $ | 75,000 | | | $ | (290) | | | 0.2750 | % | | One-month L | | Apr-18-2023 |
Wells Fargo, N.A. | | Wells Fargo, N.A. | | Apr-20-2020 | | Sep-29-2020 | | $ | 75,000 | | | $ | (298) | | | 0.2790 | % | | One-month L | | Apr-18-2023 |
The Toronto-Dominion Bank | | The Toronto-Dominion Bank | | Apr-20-2020 | | Mar-19-2021 | | $ | 75,000 | | | $ | (251) | | | 0.2750 | % | | One-month L | | Apr-18-2023 |
Wells Fargo, N.A. | | Wells Fargo, N.A. | | Apr-20-2020 | | Mar-19-2021 | | $ | 75,000 | | | $ | (258) | | | 0.2800 | % | | One-month L | | Apr-18-2023 |
The Toronto-Dominion Bank | | The Toronto-Dominion Bank | | Jul-24-2018 | | Jul-26-2019 | | $ | 50,000 | | | $ | (4,932) | | | 2.9180 | % | | One-month L | | Jan-12-2024 |
PNC Bank, N.A. | PNC Bank, N.A. | | Jul-24-2018 | | Jul-26-2019 | | | $ | 50,000 | | | $ | (3,232) | | | 2.9190 | % | | One-month L | | Jan-12-2024 | PNC Bank, N.A. | | Jul-24-2018 | | Jul-26-2019 | | $ | 50,000 | | | $ | (4,932) | | | 2.9190 | % | | One-month L | | Jan-12-2024 |
Bank of Montreal | Bank of Montreal | | Jul-24-2018 | | Jul-26-2019 | | | $ | 50,000 | | | $ | (3,232) | | | 2.9190 | % | | One-month L | | Jan-12-2024 | Bank of Montreal | | Jul-24-2018 | | Jul-26-2019 | | $ | 50,000 | | | $ | (4,932) | | | 2.9190 | % | | One-month L | | Jan-12-2024 |
U.S. Bank, N.A. | U.S. Bank, N.A. | | Jul-24-2018 | | Jul-26-2019 | | | $ | 25,000 | | | $ | (1,616) | | | 2.9190 | % | | One-month L | | Jan-12-2024 | U.S. Bank, N.A. | | Jul-24-2018 | | Jul-26-2019 | | $ | 25,000 | | | $ | (2,466) | | | 2.9190 | % | | One-month L | | Jan-12-2024 |
Wells Fargo, N.A. | Wells Fargo, N.A. | | May-02-2019 | | Jul-15-2020 | | | $ | 50,000 | | | $ | (2,030) | | | 2.2460 | % | | One-month L | | Jan-15-2025 | Wells Fargo, N.A. | | May-02-2019 | | Jul-15-2020 | | $ | 50,000 | | | $ | (4,633) | | | 2.2460 | % | | One-month L | | Jan-15-2025 |
U.S. Bank, N.A. | U.S. Bank, N.A. | | May-02-2019 | | Jul-15-2020 | | | $ | 50,000 | | | $ | (2,029) | | | 2.2459 | % | | One-month L | | Jan-15-2025 | U.S. Bank, N.A. | | May-02-2019 | | Jul-15-2020 | | $ | 50,000 | | | $ | (4,632) | | | 2.2459 | % | | One-month L | | Jan-15-2025 |
Regions Bank | Regions Bank | | May-02-2019 | | Jul-15-2020 | | | $ | 50,000 | | | $ | (2,032) | | | 2.2459 | % | | One-month L | | Jan-15-2025 | Regions Bank | | May-02-2019 | | Jul-15-2020 | | $ | 50,000 | | | $ | (4,632) | | | 2.2459 | % | | One-month L | | Jan-15-2025 |
Bank of Montreal | Bank of Montreal | | Jul-16-2019 | | Jul-15-2020 | | | $ | 50,000 | | | $ | (886) | | | 1.7165 | % | | One-month L | | Jan-15-2025 | Bank of Montreal | | Jul-16-2019 | | Jul-15-2020 | | $ | 50,000 | | | $ | (3,436) | | | 1.7165 | % | | One-month L | | Jan-15-2025 |
The following table summarizes the fair value of the interest rate swaps outstanding as of SeptemberJune 30, 20192020 and December 31, 2018.2019.
| Balance Sheet Line Item (in thousands) | Balance Sheet Line Item (in thousands) | | Notional Amount September 30, 2019 | | Fair Value September 30, 2019 | | Notional Amount December 31, 2018 | | Fair Value December 31, 2018 | Balance Sheet Line Item (in thousands) | | Notional Amount June 30, 2020 | | Fair Value June 30, 2020 | | Notional Amount December 31, 2019 | | Fair Value December 31, 2019 |
Interest rate swaps-Asset | Interest rate swaps-Asset | | $ | 250,000 | | | $ | 488 | | | $ | 600,000 | | | $ | 9,151 | | Interest rate swaps-Asset | | $ | — | | | $ | — | | | $ | 250,000 | | | $ | 303 | |
Interest rate swaps-Liability | Interest rate swaps-Liability | | $ | 850,000 | | | $ | (24,812) | | | $ | 300,000 | | | $ | (4,011) | | Interest rate swaps-Liability | | $ | 1,275,000 | | | $ | (50,731) | | | $ | 850,000 | | | $ | (18,819) | |
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate swaps are to add stability to interest expense and to manage its exposure to interest rate movements.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into interest expense in the same periods during which the hedged transaction affects earnings.
Amounts reported in accumulated other comprehensive income (loss) related to derivatives designated as qualifying cash flow hedges will be reclassified to interest expense as interest payments are made on the Company’s variable rate debt. The Company estimates that approximately $3.8$17.5 million will be reclassified from accumulated other comprehensive income (loss)loss as an increase to interest expense over the next 12 months.
The following table summarizes the effect of cash flow hedge accounting and the location in the consolidated financial statements for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019.
| | | | Three months ended September 30, | | | Nine months ended September 30, | | | | Three months ended June 30, | | | Six months ended June 30, | |
Effect of Cash Flow Hedge Accounting (in thousands) | Effect of Cash Flow Hedge Accounting (in thousands) | | 2019 | | 2018 | | 2019 | | 2018 | Effect of Cash Flow Hedge Accounting (in thousands) | | 2020 | | 2019 | | 2020 | | 2019 |
Income (loss) recognized in accumulated other comprehensive income (loss) on interest rate swaps | | | $ | (5,913) | | | $ | 2,572 | | | $ | (26,715) | | | $ | 13,349 | | |
Income reclassified from accumulated other comprehensive income (loss) into income as interest expense | | $ | 522 | | | $ | 512 | | | $ | 2,726 | | | $ | 538 | | |
Loss recognized in accumulated other comprehensive loss on interest rate swaps | | Loss recognized in accumulated other comprehensive loss on interest rate swaps | | $ | 5,249 | | | $ | 14,946 | | | $ | 36,336 | | | $ | 20,802 | |
Income (loss) reclassified from accumulated other comprehensive loss into income as interest expense | | Income (loss) reclassified from accumulated other comprehensive loss into income as interest expense | | $ | (3,240) | | | $ | 1,082 | | | $ | (4,136) | | | $ | 2,204 | |
Total interest expense presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded
| Total interest expense presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded
| | $ | 14,053 | | | $ | 12,698 | | | $ | 39,080 | | | $ | 35,602 | | Total interest expense presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded | | $ | 15,333 | | | $ | 12,193 | | | $ | 30,197 | | | $ | 25,027 | |
Credit-risk-related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness.
As of SeptemberJune 30, 2019,2020, the Company had not breached the provisions of these agreements and had not posted any collateral related to these agreements. If the Company had breached any of these provisions at SeptemberJune 30, 2019,2020, it could have been required to settle its obligations under the agreement of the interest rate swaps in a net liability position by counterparty plus accrued interest for approximately $24.6$51.6 million.
Fair Value of Interest Rate Swaps
The Company’s valuation of the interest rate swaps is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs including interest rate curves.
The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
The following table summarizes the Company’s financial instruments that are accounted for at fair value on a recurring basis as of SeptemberJune 30, 20192020 and December 31, 2018. 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurements as of June 30, 2020 Using | | | | |
Balance Sheet Line Item (in thousands) | | Fair Value June 30, 2020 | | Level 1 | | Level 2 | | Level 3 |
Interest rate swaps-Asset | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Interest rate swaps-Liability | | $ | (50,731) | | | $ | — | | | $ | (50,731) | | | $ | — | |
| | | | | | Fair Value Measurements as of September 30, 2019 Using | | | | | | Fair Value Measurements as of December 31, 2019 Using | |
Balance Sheet Line Item (in thousands) | Balance Sheet Line Item (in thousands) | | Fair Value September 30, 2019 | | Level 1 | | Level 2 | | Level 3 | Balance Sheet Line Item (in thousands) | | Fair Value December 31, 2019 | | Level 1 | | Level 2 | | Level 3 |
Interest rate swaps-Asset | Interest rate swaps-Asset | | $ | 488 | | | $ | — | | | $ | 488 | | | $ | — | | Interest rate swaps-Asset | | $ | 303 | | | $ | — | | | $ | 303 | | | $ | — | |
Interest rate swaps-Liability | Interest rate swaps-Liability | | $ | (24,812) | | | $ | — | | | $ | (24,812) | | | $ | — | | Interest rate swaps-Liability | | $ | (18,819) | | | $ | — | | | $ | (18,819) | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurements as ofDecember 31, 2018 Using | | | | |
Balance Sheet Line Item (in thousands) | | Fair Value December 31, 2018 | | Level 1 | | Level 2 | | Level 3 |
Interest rate swaps-Asset | | $ | 9,151 | | | $ | — | | | $ | 9,151 | | | $ | — | |
Interest rate swaps-Liability | | $ | (4,011) | | | $ | — | | | $ | (4,011) | | | $ | — | |
6. Equity
Preferred Stock
On April 30, 2019, the Company filed Articles of Amendment to its Articles of Amendment and Restatement to increase the number of authorized shares of preferred stock from 15,000,000 to 20,000,000.
The following table summarizes the Company’s outstanding preferred stock issuances as of SeptemberJune 30, 2019.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Preferred Stock Issuances | | Issuance Date | | Number of Shares | | Liquidation Value Per Share | | Interest Rate |
| | | | | | | | |
6.875% Series C Cumulative Redeemable Preferred Stock ("Series C Preferred Stock") | | March 17, 2016 | | 3,000,000 | | | $ | 25.00 | | | 6.875 | % |
The following tables summarize the dividends attributable to the Company’s outstanding preferred stock issuances during the ninesix months ended SeptemberJune 30, 20192020 and the year ended December 31, 2018.2019.
| | | | | | | | | | | | | | | | | | | | |
Quarter Ended 2020 | | Declaration Date | | Series C Preferred Stock Per Share | | Payment Date |
| | | | | | |
| | | | | | |
| | | | | | |
June 30 | | April 9, 2020 | | $ | 0.4296875 | | | June 30, 2020 |
March 31 | | January 8, 2020 | | 0.4296875 | | | March 31, 2020 |
Total | | | | $ | 0.8593750 | | | |
| | | | | | | | | | | | | | | | | | | | |
Quarter Ended 2019 | | Declaration Date | | Series C Preferred Stock Per Share | | Payment Date |
| | | | | | |
December 31 | | October 15, 2019 | | $ | 0.4296875 | | | December 31, 2019 |
September 30 | | July 15, 2019 | | $ | 0.4296875 | | | September 30, 2019 |
June 30 | | April 9, 2019 | | 0.4296875 | | | July 1, 2019 |
March 31 | | January 10, 2019 | | 0.4296875 | | | April 1, 2019 |
Total | | | | $ | 1.28906251.7187500 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Quarter Ended 2018 | | Declaration Date | | Series B Preferred Stock Per Share | | Series C Preferred Stock Per Share | | Payment Date |
| | | | | | | | |
December 31 | | October 10, 2018 | | $ | — | | | $ | 0.4296875 | | | December 31, 2018 |
September 30 | | July 11, 2018 | | 0.0460069 | | (1) | 0.4296875 | | | October 1, 2018 |
June 30 | | April 10, 2018 | | 0.4140625 | | | 0.4296875 | | | July 2, 2018 |
March 31 | | February 14, 2018 | | 0.4140625 | | | 0.4296875 | | | April 2, 2018 |
Total | | | | $ | 0.8741319 | | | $ | 1.7187500 | | | |
(1)On June 11, 2018, the Company gave notice to redeem all 2,800,000 issued and outstanding shares of the 6.625% Series B Cumulative Redeemable Preferred Stock (“Series B Preferred Stock”). On July 11, 2018, the Company redeemed all of the Series B Preferred Stock at a cash redemption price of $25.00 per share, plus accrued and unpaid dividends to but excluding the redemption date, without interest.
On October 15, 2019,9, 2020, the Company’s board of directors declared the Series C Preferred Stock dividends for the quarter ending December 31, 2019September 30, 2020 at a quarterly rate of $0.4296875 per share.
Common Stock
On April 30, 2019, the Company filed Articles of Amendment to its Articles of Amendment and Restatement to increase the number of authorized shares of the Company’s common stock from 150,000,000 to 300,000,000.
The following table summarizes the terms of the Company’s at-the market (“ATM”) common stock offering program as of SeptemberJune 30, 2019.2020.
| | | | | | | | | | | | | | | | | | | | |
ATM Common Stock Offering Program | | Date | | Maximum Aggregate Offering Price (in thousands) | | Aggregate Common Stock Available as of June 30, 2020 (in thousands) |
2019 $600 million ATM | | February 14, 2019 | | $ | 600,000 | | | $ | 318,248 | |
| | | | | | | | | | | | | | | | | | | | |
ATM Common Stock Offering Program | | Date | | Maximum Aggregate Offering Price (in thousands) | | Aggregate Common Stock Available as of September 30, 2019 (in thousands) |
2019 $600 million ATM | | February 14, 2019 | | $ | 600,000 | | | $ | 401,137 | |
The following tables summarizetable below summarizes the activity under the ATM common stock offering programsprogram during the nine months ended September 30, 2019 and year ended December 31, 20182019 (in thousands, except share data). There was no activity under the ATM common stock offering program during the six months ended June 30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, 2019 | | | | | | | | |
ATM Common Stock Offering Program | | Shares Sold | | Weighted Average Price Per Share | | | | | | Net Proceeds |
2019 $600 million ATM | | 7,022,332 | | | $ | 28.32 | | | | | | | $ | 197,074 | |
Total/weighted average | | 7,022,332 | | | $ | 28.32 | | | | | | | $ | 197,074 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2018 | | | | | | | | |
ATM Common Stock Offering Program | | Shares Sold | | Weighted Average Price Per Share | | | | | | Net Proceeds |
2017 $500 million ATM (1) | | 14,724,614 | | | $ | 26.52 | | | | | | | $ | 386,407 | |
Total/weighted average | | 14,724,614 | | | $ | 26.52 | | | | | | | $ | 386,407 | |
(1) This program ended in February 2019. | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year ended December 31, 2019 | | | | | | | | |
ATM Common Stock Offering Program | | Shares Sold | | Weighted Average Price Per Share | | | | | | Net Proceeds |
2019 $600 million ATM | | 9,711,706 | | | $ | 29.01 | | | | | | | $ | 279,156 | |
Total/weighted average | | 9,711,706 | | | $ | 29.01 | | | | | | | $ | 279,156 | |
On September 24, 2019,January 13, 2020, the Company completed an underwritten public offering of an aggregate 12,650,00010,062,500 shares of common stock at a price to the underwriters of $28.60$30.9022 per share, consisting of (i) 5,500,0005,600,000 shares offered directly by the Company and (ii) 7,150,0004,462,500 shares offered by the forward dealer in connection with certain forward sale agreements (including 1,650,0001,312,500 shares offered pursuant to the underwriters’ option to purchase additional shares, which option was exercised in full). The offering closed on September 27, 2019January 16, 2020 and the Company received net proceeds from the sale of shares offered directly by the Company of $157.3approximately $173.1 million. Subject to the Company'sCompany’s right to elect cash or net share settlement, the Company has the ability to settle the forward sales agreements at any time through scheduled maturity date of the forward sale agreements of September 24, 2020.January 13, 2021.
On April 1, 2019, the Company completed an underwritten public offering
The following tables summarize the dividends attributable to the Company’s outstanding shares of common stock that were declared during the ninesix months ended SeptemberJune 30, 20192020 and the year ended December 31, 2018.2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Month Ended 2020 | | Declaration Date | | Record Date | | Per Share | | Payment Date |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
June 30 | | April 9, 2020 | | June 30, 2020 | | $ | 0.12 | | | July 15, 2020 |
May 31 | | April 9, 2020 | | May 29, 2020 | | 0.12 | | | June 15, 2020 |
April 30 | | April 9, 2020 | | April 30, 2020 | | 0.12 | | | May 15, 2020 |
March 31 | | January 8, 2020 | | March 31, 2020 | | 0.12 | | | April 15, 2020 |
February 29 | | January 8, 2020 | | February 28, 2020 | | 0.12 | | | March 16, 2020 |
January 31 | | January 8, 2020 | | January 31, 2020 | | 0.12 | | | February 18, 2020 |
Total | | | | | | $ | 0.72 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Month Ended 2019 | | Declaration Date | | Record Date | | Per Share | | Payment Date |
December 31 | | October 15, 2019 | | December 31, 2019 | | $ | 0.119167 | | | January 15, 2020 |
November 30 | | October 15, 2019 | | November 29, 2019 | | 0.119167 | | | December 16, 2019 |
October 31 | | October 15, 2019 | | October 31, 2019 | | 0.119167 | | | November 15, 2019 |
September 30 | | July 15, 2019 | | September 30, 2019 | | $ | 0.119167 | | | October 15, 2019 |
August 31 | | July 15, 2019 | | August 30, 2019 | | 0.119167 | | | September 16, 2019 |
July 31 | | July 15, 2019 | | July 31, 2019 | | 0.119167 | | | August 15, 2019 |
June 30 | | April 9, 2019 | | June 28, 2019 | | 0.119167 | | | July 15, 2019 |
May 31 | | April 9, 2019 | | May 31, 2019 | | 0.119167 | | | June 17, 2019 |
April 30 | | April 9, 2019 | | April 30, 2019 | | 0.119167 | | | May 15, 2019 |
March 31 | | January 10, 2019 | | March 29, 2019 | | 0.119167 | | | April 15, 2019 |
February 28 | | January 10, 2019 | | February 28, 2019 | | 0.119167 | | | March 15, 2019 |
January 31 | | January 10, 2019 | | January 31, 2019 | | 0.119167 | | | February 15, 2019 |
Total | | | | | | $ | 1.0725031.430004 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Month Ended 2018 | | Declaration Date | | Record Date | | Per Share | | Payment Date |
December 31 | | October 10, 2018 | | December 31, 2018 | | $ | 0.118333 | | | January 15, 2019 |
November 30 | | October 10, 2018 | | November 30, 2018 | | 0.118333 | | | December 17, 2018 |
October 31 | | October 10, 2018 | | October 31, 2018 | | 0.118333 | | | November 15, 2018 |
September 30 | | July 11, 2018 | | September 28, 2018 | | 0.118333 | | | October 15, 2018 |
August 31 | | July 11, 2018 | | August 31, 2018 | | 0.118333 | | | September 17, 2018 |
July 31 | | July 11, 2018 | | July 31, 2018 | | 0.118333 | | | August 15, 2018 |
June 30 | | April 10, 2018 | | June 29, 2018 | | 0.118333 | | | July 16, 2018 |
May 31 | | April 10, 2018 | | May 31, 2018 | | 0.118333 | | | June 15, 2018 |
April 30 | | April 10, 2018 | | April 30, 2018 | | 0.118333 | | | May 15, 2018 |
March 31 | | November 2, 2017 | | March 29, 2018 | | 0.118333 | | | April 16, 2018 |
February 28 | | November 2, 2017 | | February 28, 2018 | | 0.118333 | | | March 15, 2018 |
January 31 | | November 2, 2017 | | January 31, 2018 | | 0.118333 | | | February 15, 2018 |
Total | | | | | | $ | 1.419996 | | | |
On October 15, 2019,July 9, 2020, the Company’s board of directors declared the common stock dividends for the months ending OctoberJuly 31, 2019, November2020, August 31, 2020, and September 30, 2019, and December 31, 20192020 at a monthly rate of $0.119167$0.12 per share of common stock.
Restricted Shares of Common Stock
Restricted shares of common stock granted on February 13, 2020 and January 7, 20198, 2020 to certain employees of the Company, subject to the recipient’s continued employment, will vest in four equal installments on January 1 of each year beginning in 2020.2021. Refer to Note 8 for a discussion of the restricted shares of common stock granted on January 7, 20198, 2020 pursuant to the March 8, 2016January 6, 2017 performance units. The following table summarizes activity related to the Company’s unvested restricted shares of common stock for the ninesix months ended SeptemberJune 30, 20192020 and the year ended December 31, 2018.2019.
| Unvested Restricted Shares of Common Stock | Unvested Restricted Shares of Common Stock | | Shares | | Unvested Restricted Shares of Common Stock | | Shares | |
Balance at December 31, 2017 | | 237,207 | | | |
Granted | | 76,659 | | (1) | | |
Vested | | (112,405) | | (2) | | |
Forfeited | | (10,999) | | | |
Balance at December 31, 2018 | Balance at December 31, 2018 | | 190,462 | | | Balance at December 31, 2018 | | 190,462 | | |
Granted | Granted | | 110,830 | | (1) | | Granted | | 110,830 | | (1) |
Vested | Vested | | (78,431) | | (2) | | Vested | | (101,109) | | (2) |
Forfeited | Forfeited | | (2,589) | | | Forfeited | | (7,138) | | |
Balance at September 30, 2019 | | 220,272 | | | |
Balance at December 31, 2019 | | Balance at December 31, 2019 | | 193,045 | | |
Granted | | Granted | | 75,419 | | (1) |
Vested | | Vested | | (78,010) | | (2) |
Forfeited | | Forfeited | | (858) | | |
Balance at June 30, 2020 | | Balance at June 30, 2020 | | 189,596 | | |
(1)The fair value per share on the grant date of February 13, 2020, January 8, 2020, and January 7, 2019 was $32.64, $31.49, and January 5, 2018 was $24.85, and $26.40, respectively.
(2)The Company repurchased and retired 58,69733,119 and 41,97528,504 restricted shares of common stock that vested during the ninesix months ended SeptemberJune 30, 20192020 and the year ended December 31, 2018,2019, respectively.
The weighted average grant date fair value of unvested restricted shares of common stock was $24.38 per share at January 1, 2020, $31.60 per share granted during the six months ended June 30, 2020, $23.11 per share vested during the six months ended June 30, 2020, $24.85 per share forfeited during the six months ended June 30, 2020, and $27.77 per share at June 30, 2020.
The unrecognized compensation expense associated with the Company’s restricted shares of common stock at SeptemberJune 30, 20192020 was approximately $3.4$4.2 million and is expected to be recognized over a weighted average period of approximately 2.52.7 years.
The following table summarizes the fair value at vesting for the restricted shares of common stock that vested during the three and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019.
| | | | Three months ended September 30, | | | Nine months ended September 30, | | | | Three months ended June 30, | | | Six months ended June 30, | |
Vested Restricted Shares of Common Stock | Vested Restricted Shares of Common Stock | | 2019 | | 2018 | | 2019 | | 2018 | | Vested Restricted Shares of Common Stock | | 2020 | | 2019 | | 2020 | | 2019 | |
Vested restricted shares of common stock | Vested restricted shares of common stock | | — | | | — | | | 78,431 | | | 112,405 | | | Vested restricted shares of common stock | | — | | | — | | | 78,010 | | | 78,431 | | |
Fair value of vested restricted shares of common stock (in thousands) | Fair value of vested restricted shares of common stock (in thousands) | | $ | — | | | $ | — | | | $ | 1,951 | | | $ | 3,002 | | | Fair value of vested restricted shares of common stock (in thousands) | | $ | — | | | $ | — | | | $ | 2,463 | | | $ | 1,951 | | |
7. Noncontrolling Interest
The following table summarizes the activity for noncontrolling interest in the Company for the ninesix months ended SeptemberJune 30, 20192020 and the year ended December 31, 2018.2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Noncontrolling Interest | | LTIP Units | | Other Common Units | | Total Noncontrolling Common Units | | Noncontrolling Interest |
Balance at December 31, 2018 | | 1,616,200 | | | 2,453,234 | | | 4,069,434 | | | 3.5 | % |
Granted/Issued | | 364,173 | | | — | | | 364,173 | | | N/A |
Forfeited | | (16,618) | | | — | | | (16,618) | | | N/A |
Conversions from LTIP units to Other Common Units | | (266,397) | | | 266,397 | | | — | | | N/A |
Redemptions from Other Common Units to common stock | | — | | | (680,137) | | | (680,137) | | | N/A |
| | | | | | | | |
Balance at December 31, 2019 | | 1,697,358 | | | 2,039,494 | | | 3,736,852 | | | 2.5 | % |
Granted/Issued | | 278,806 | | | — | | | 278,806 | | | N/A |
Forfeited | | — | | | — | | | — | | | N/A |
Conversions from LTIP units to Other Common Units | | (197,775) | | | 197,775 | | | — | | | N/A |
Redemptions from Other Common Units to common stock | | — | | | (447,730) | | | (447,730) | | | N/A |
| | | | | | | | |
Balance at June 30, 2020 | | 1,778,389 | | | 1,789,539 | | | 3,567,928 | | | 2.3 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Noncontrolling Interest | | LTIP Units | | Other Common Units | | Total Noncontrolling Common Units | | Noncontrolling Interest |
Balance at December 31, 2017 | | 1,457,070 | | | 2,639,617 | | | 4,096,687 | | | 4.1 | % |
Granted/Issued | | 324,802 | | | — | | | 324,802 | | | N/A |
Forfeited | | — | | | — | | | — | | | N/A |
Conversions from LTIP units to Other Common Units | | (165,672) | | | 165,672 | | | — | | | N/A |
Redemptions from Other Common Units to common stock | | — | | | (352,055) | | | (352,055) | | | N/A |
| | | | | | | | |
Balance at December 31, 2018 | | 1,616,200 | | | 2,453,234 | | | 4,069,434 | | | 3.5 | % |
Granted/Issued | | 364,173 | | | — | | | 364,173 | | | N/A |
Forfeited | | (10,208) | | | — | | | (10,208) | | | N/A |
Conversions from LTIP units to Other Common Units | | (262,847) | | | 262,847 | | | — | | | N/A |
Redemptions from Other Common Units to common stock | | — | | | (661,082) | | | (661,082) | | | N/A |
| | | | | | | | |
Balance at September 30, 2019 | | 1,707,318 | | | 2,054,999 | | | 3,762,317 | | | 2.8 | % |
The weighted average grant date fair value of outstanding LTIP units was $21.64 per unit at January 1, 2020, $29.47 per unit granted during the six months ended June 30, 2020, $18.72 per unit converted during the six months ended June 30, 2020, and $23.19 per unit at June 30, 2020.
LTIP Units
LTIP units granted on January 7, 20198, 2020 to non-employee, independent directors, subject to the recipient’s continued service, will vest on January 1, 2020.2021. LTIP units granted on January 7, 20198, 2020 to certain senior executive officers and senior employees, subject to the recipient’s continued employment, will vest quarterly over four years, with the first vesting date having been March 31, 2019.2020. Refer to Note 8 for a discussion of the LTIP units granted on January 7, 20198, 2020 pursuant to the March 8, 2016January 6, 2017 performance units.
The fair value of the LTIP units at the date of grant was determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation. The fair value of the LTIP units are based on Level 3 inputs and are non-recurring fair value measurements. The following table summarizes the assumptions used in valuing such LTIP units granted during the ninesix months ended SeptemberJune 30, 20192020 (excluding those LTIP units granted pursuant to the March 8, 2016January 6, 2017 performance units; refer to Note 8 for details).
| | | | | | | | |
LTIP Units | | Assumptions |
Grant date | | January 7, 20198, 2020 |
Expected term (years) | | 10 |
Expected volatility | | 19.018.0 | % |
Expected dividend yield | | 6.05.75 | % |
Risk-free interest rate | | 2.571.61 | % |
Fair value of LTIP units at issuance (in thousands) | | $ | 3,6364,030 | |
LTIP units at issuance | | 154,649136,741 | |
Fair value unit price per LTIP unit at issuance | | $ | 23.5129.47 | |
The following table summarizes activity related to the Company’s unvested LTIP units for the ninesix months ended SeptemberJune 30, 20192020 and the year ended December 31, 2018.2019.
| | | | | | | | |
Unvested LTIP Units | | LTIP Units |
Balance at December 31, 2017 | | 300,307 | |
Granted | | 324,802 | |
Vested | | (373,893) | |
Forfeited | | — | |
Balance at December 31, 2018 | | 251,216 | |
Granted | | 364,173 | |
Vested | | (234,330)(371,423) | |
Forfeited | | (10,208)(16,618) | |
Balance at September 30,December 31, 2019 | | 370,851227,348 | |
Granted | | 278,806 | |
Vested | | (174,145) | |
Forfeited | | — | |
Balance at June 30, 2020 | | 332,009 | |
The weighted average grant date fair value of unvested LTIP units was $23.37 per unit at January 1, 2020, $29.47 per unit granted during the six months ended June 30, 2020, $26.38 per unit vested during the six months ended June 30, 2020, and $26.92 per unit at June 30, 2020.
The unrecognized compensation expense associated with the Company’s LTIP units at SeptemberJune 30, 20192020 was approximately $5.5$6.5 million and is expected to be recognized over a weighted average period of approximately 2.32.5 years.
The following table summarizes the fair value at vesting for the LTIP units that vested during the three and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019.
| | | | Three months ended September 30, | | | Nine months ended September 30, | | | | Three months ended June 30, | | | Six months ended June 30, | |
Vested LTIP units | Vested LTIP units | | 2019 | | 2018 | | 2019 | | 2018 | Vested LTIP units | | 2020 | | 2019 | | 2020 | | 2019 |
Vested LTIP units | Vested LTIP units | | 29,989 | | | 30,949 | | | 234,330 | | | 342,940 | | Vested LTIP units | | 43,958 | | | 46,652 | | | 174,145 | | | 204,341 | |
Fair value of vested LTIP units (in thousands) | Fair value of vested LTIP units (in thousands) | | $ | 884 | | | $ | 851 | | | $ | 6,348 | | | $ | 9,002 | | Fair value of vested LTIP units (in thousands) | | $ | 1,213 | | | $ | 1,401 | | | $ | 5,074 | | | $ | 5,464 | |
8. Equity Incentive Plan
On January 7, 2019,8, 2020, the Company granted performance units approved by the compensation committee of the board of directors under the 2011 Plan to certain key employees of the Company. The terms of the performance units granted on January 7, 20198, 2020 are substantially the same as the terms of the performance units granted on January 5, 2018 and January 6, 2017,7, 2019, except that the measuring period commencescommenced on January 1, 20192020 and ends on December 31, 2021, and the award shares are immediately vested at the end of the measuring period.2022.
The fair value of the performance units at the date of grant was determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation. The fair value of the performance units are based on Level 3 inputs and are non-recurring fair value measurements. The performance unit equity compensation expense is recognized ratably from the grant date into earnings over the vesting period. The following table summarizes the assumptions used in valuing the performance units granted during the ninesix months ended SeptemberJune 30, 2019.2020.
| | | | | | | | |
Performance Units | | Assumptions |
Grant date | | January 7, 20198, 2020 |
Expected volatility | | 20.717.4 | % |
Expected dividend yield | | 6.05.75 | % |
Risk-free interest rate | | 2.561.59 | % |
Fair value of performance units grant (in thousands) | | $ | 5,6205,389 | |
On December 31, 2018,2019 the Company’s three year measurementmeasuring period pursuant to the March 8, 2016January 6, 2017 performance units concluded. Itconcluded and it was determined that the Company’s total stockholder return exceeded the threshold percentage and return hurdle. The compensation committee of the board of directors approved the issuance of 102,21676,096 vested LTIP units and 74,03246,376 vested shares of common stock to the participants (of which 30,19318,241 shares of common stock were repurchased and retired) to the participants,, which were issued on January 7, 2019.8, 2020. The compensation committee of the board of directors also approved the issuance of 107,30865,969 LTIP units and 22,6783,398 restricted shares of common stock that will vest on December 31, 2019,2020, which were issued on January 7, 2019.8, 2020.
The unrecognized compensation expense associated with the Company’s performance units at SeptemberJune 30, 20192020 was approximately $7.0$8.6 million and is expected to be recognized over a weighted average period of approximately 2.0 years.
Non-cash Compensation Expense
The following table summarizes the amount recorded in general and administrative expenses in the accompanying Consolidated Statements of Operations for the amortization of restricted shares of common stock, LTIP units, performance units, and the Company’s director compensation for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019.
| | | | Three months ended September 30, | | | Nine months ended September 30, | | | | Three months ended June 30, | | | Six months ended June 30, | |
Non-Cash Compensation Expense (in thousands) | Non-Cash Compensation Expense (in thousands) | | 2019 | | 2018 | | 2019 | | 2018 | Non-Cash Compensation Expense (in thousands) | | 2020 | | 2019 | | 2020 | | 2019 |
Restricted shares of common stock | Restricted shares of common stock | | $ | 447 | | | $ | 406 | | | $ | 1,318 | | | $ | 1,269 | | Restricted shares of common stock | | $ | 481 | | | $ | 444 | | | $ | 948 | | | $ | 871 | |
LTIP units | LTIP units | | 901 | |
| 893 | | | 2,687 | |
| 2,654 | | LTIP units | | 978 | |
| 899 | | | 1,942 | |
| 1,786 | |
Performance units | Performance units | | 1,107 | | | 838 | | | 3,062 | | | 2,463 | | Performance units | | 1,341 | | | 1,096 | | | 2,648 | | | 1,955 | |
Director compensation (1) | Director compensation (1) | | 101 | |
| 99 | | | 304 | | | 285 | | Director compensation (1) | | 138 | |
| 98 | | | 252 | | | 203 | |
Total non-cash compensation expense | Total non-cash compensation expense | | $ | 2,556 | | | $ | 2,236 | | | $ | 7,371 | | | $ | 6,671 | | Total non-cash compensation expense | | $ | 2,938 | | | $ | 2,537 | | | $ | 5,790 | | | $ | 4,815 | |
(1)All of the Company’s independent directors elected to receive shares of common stock in lieu of cash for their service during the three and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019. The number of shares of common stock granted is calculated based on the trailing 10ten days average common stock price ending on the third business day preceding the grant date.
9. Leases
Lessor Leases
The Company has operating leases in which it is the lessor for its rental property. Certain leases contain variable lease payments based upon changes in the Consumer Price Index (“CPI”). Certain leases contain options to renew or terminate the lease, and options for the lessee to purchase the rental property, all of which are predominately at the sole discretion of the lessee.
The following table summarizes the components of rental income recognized during the three and ninesix months ended SeptemberJune 30, 2020 and 2019 included in the accompanying Consolidated Statements of Operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | | | Six months ended June 30, | | |
Rental Income (in thousands) | | 2020 | | 2019 | | 2020 | | 2019 |
Fixed lease payments | | $ | 91,234 | | | $ | 74,958 | | | $ | 181,630 | | | $ | 147,075 | |
Variable lease payments | | 25,588 | | | 19,258 | | | 50,594 | | | 41,439 | |
Straight-line rental income | | 1,823 | | | 3,292 | | | 5,750 | | | 5,576 | |
Net decrease to rental income related to above and below market lease amortization | | (1,174) | | | (1,146) | | | (2,164) | | | (2,113) | |
Total rental income | | $ | 117,471 | | | $ | 96,362 | | | $ | 235,810 | | | $ | 191,977 | |
| | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
Rental Income (in thousands) | | 2019 | | 2019 |
Fixed lease payments | | $ | 80,262 | | | $ | 227,337 | |
Variable lease payments | | 20,189 | | | 61,628 | |
Straight-line rental income | | 3,091 | | | 8,667 | |
Net decrease to rental income related to above and below market lease amortization | | (1,248) | | | (3,361) | |
Total rental income | | $ | 102,294 | | | $ | 294,271 | |
During the three and six months ended June 30, 2020 and 2019 the Company evaluated its operating leases and determined that the future collectability of 6 leases was not reasonably assured. As a result the Company converted to the cash basis of accounting for these leases which resulted in a reduction of rental income of approximately $1.2 million, $0.9 million, $0, and $0 for three and six months ended June 30, 2020 and 2019, respectively, due to the reversal of accrued rent. Additionally, there was $0.6 million, $0.6 million, $0, and $0 of contractual rental income that was not recognized for payments that were not received from the tenants for the three and six months ended June 30, 2020 and 2019, respectively.
As of SeptemberJune 30, 2020 and December 31, 2019, the Company had accrued rental income of approximately $40.2$51.3 million included in tenant accounts receivable on the accompanying Consolidated Balance Sheets. As of December 31, 2018, the Company had accrued rental income of approximately $32.4and $44.3 million, net of allowance for doubtful accounts of approximately $0.8 million,respectively, included in tenant accounts receivable on the accompanying Consolidated Balance Sheets.
As of SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company had approximately $20.5$28.2 million and $18.3$22.6 million, respectively, of total lease security deposits available in the form of existing letters of credit, which are not reflected on the accompanying Consolidated Balance Sheets. As of SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company had approximately $0.7 million and $0.7 million, respectively, of lease security deposits available in cash, which are included in restricted cash on the accompanying Consolidated Balance Sheets. The Company’s remaining lease security deposits are commingled in cash and cash equivalents. These funds may be used to settle tenant accounts receivables in the event of a default under the related lease. As of SeptemberJune 30, 20192020 and December 31, 2018,2019, the Company’s total liability associated with these lease security deposits was approximately $9.2$10.0 million and $8.4$9.8 million, respectively, and is included in tenant prepaid rent and security deposits on the accompanying Consolidated Balance Sheets.
The Company estimates that billings for real estate taxes, which are the responsibility of certain tenants under the terms of their leases and are not reflected on the Company’s consolidated financial statements, was approximately $5.1$4.9 million, $13.1$9.7 million, $3.8$4.1 million and $10.9$8.0 million for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively. These amounts would have been the maximum real estate tax expense of the Company, excluding any penalties or interest, had the tenants not met their contractual obligations for these periods.
The following table summarizes the maturity of fixed lease payments under the Company’s leases as of SeptemberJune 30, 2019.2020.
| Year (as of September 30, 2019) | | Maturity of Fixed Lease Payments (in thousands) | | |
Remainder of 2019 | | $ | 82,584 | | |
2020 | | $ | 325,907 | | |
Year | | Year | | Maturity of Fixed Lease Payments (in thousands) |
Remainder of 2020 | | Remainder of 2020 | | $ | 183,554 | |
2021 | 2021 | | $ | 285,414 | | 2021 | | $ | 344,763 | |
2022 | 2022 | | $ | 249,287 | | 2022 | | $ | 307,910 | |
2023 | 2023 | | $ | 208,011 | | 2023 | | $ | 265,262 | |
2024 | | 2024 | | $ | 221,533 | |
Thereafter | Thereafter | | $ | 761,469 | | Thereafter | | $ | 846,338 | |
The following table summarizes the minimum contractual lease payments under the superseded leases standard, Topic 840, as of December 31, 2018.
| | | | | | | | |
Year (as of December 31, 2018) | | Future Minimum Rents (in thousands) | |
2019 | | $ | 299,978 | |
2020 | | $ | 271,936 | |
2021 | | $ | 226,970 | |
2022 | | $ | 188,707 | |
2023 | | $ | 152,814 | |
Thereafter | | $ | 535,192 | |
Lessee Leases
The Company has operating leases in which it is the lessee for ground leases and its corporate office lease. These leases have remaining lease terms of approximately 1.56.0 years to 47.346.5 years. Certain ground leases contain options to extend the leases for ten years to 20 years, all of which are reasonably certain to be exercised, and are included in the computation of the Company’s right-of-use assets and operating lease liabilities.
The following table summarizes supplemental information related to operating lease right-of-use assets and operating lease liabilities recognized in the Company’s Consolidated Balance Sheets as of SeptemberJune 30, 2020 and December 31, 2019.
| | | | | | | | |
Operating Lease Term and Discount Rate | | September 30, 2019 |
Weighted average remaining lease term (years) | | 35.7 |
Weighted average discount rate | | 7.1 | % |
| | | | | | | | | | | | | | |
Operating Lease Term and Discount Rate | | June 30, 2020 | | December 31, 2019 |
Weighted average remaining lease term (years) | | 27.0 | | 36.0 |
Weighted average discount rate | | 6.8 | % | | 7.1 | % |
The following table summarizes the operating lease cost recognized during the three and ninesix months ended SeptemberJune 30, 2020 and 2019 included in the Company’s Consolidated Statements of Operations.
| | | | Three months ended September 30, | | Nine months ended September 30, | | | Three months ended June 30, | | | Six months ended June 30, | |
Operating Lease Cost (in thousands) | Operating Lease Cost (in thousands) | | 2019 | | 2019 | Operating Lease Cost (in thousands) | | 2020 | | 2019 | | 2020 | | 2019 |
Operating lease cost included in property expense attributable to ground leases | Operating lease cost included in property expense attributable to ground leases | | $ | 331 | | | $ | 993 | | Operating lease cost included in property expense attributable to ground leases | | $ | 331 | | | $ | 331 | | | $ | 662 | | | $ | 662 | |
Operating lease cost included in general and administrative expense attributable to corporate office lease | Operating lease cost included in general and administrative expense attributable to corporate office lease | | 266 | | | 799 | | Operating lease cost included in general and administrative expense attributable to corporate office lease | | 423 | | | 267 | | | 741 | | | 533 | |
Total operating lease cost | Total operating lease cost | | $ | 597 | | | $ | 1,792 | | Total operating lease cost | | $ | 754 | | | $ | 598 | | | $ | 1,403 | | | $ | 1,195 | |
The following table summarizes supplemental cash flow information related to operating leases recognized during the ninesix months ended SeptemberJune 30, 2020 and 2019 in the Company’s Consolidated Statements of Cash Flows.
| | | | | | | | |
| | Nine months ended September 30, |
Operating Leases (in thousands) | | 2019 |
Cash paid for amounts included in the measurement of lease liabilities (operating cash flows) | | $ | 1,711 | |
| | |
| | | | | | | | | | | | | | |
| | Six months ended June 30, | | |
Operating Leases (in thousands) | | 2020 | | 2019 |
Cash paid for amounts included in the measurement of lease liabilities (operating cash flows) | | $ | 1,143 | | | $ | 1,141 | |
Right-of-use assets obtained in exchange for new lease liabilities | | $ | 7,718 | | | $ | — | |
The following table summarizes the maturity of operating lease liabilities under the Company’s ground leases and corporate office lease as of SeptemberJune 30, 2019.2020.
| Year (as of September 30, 2019) | | Maturity of Operating Lease Liabilities(1) (in thousands) | |
Remainder of 2019 | | $ | 571 | | |
2020 | | 2,294 | | |
Year | | Year | | Maturity of Operating Lease Liabilities(1) (in thousands) |
Remainder of 2020 | | Remainder of 2020 | | $ | 1,150 | |
2021 | 2021 | | 1,400 | | 2021 | | 2,102 | |
2022 | 2022 | | 1,107 | | 2022 | | 2,975 | |
2023 | 2023 | | 1,116 | | 2023 | | 3,021 | |
2024 | | 2024 | | 3,064 | |
Thereafter | Thereafter | | 48,155 | | Thereafter | | 50,017 | |
Total lease payments | Total lease payments | | 54,643 | | Total lease payments | | 62,329 | |
Less: Imputed interest | Less: Imputed interest | | (37,384) | | Less: Imputed interest | | (38,050) | |
Present value of operating lease liabilities | Present value of operating lease liabilities | | $ | 17,259 | | Present value of operating lease liabilities | | $ | 24,279 | |
(1)Operating lease liabilities do not include estimates of CPI rent changes required by certain ground lease agreements. Therefore, actual payments may differ than those presented.
The following table summarizes the minimum contractual lease payments under the superseded leases standard, Topic 840, as of December 31, 2018.
| | | | | | | | |
Year (as of December 31, 2018) | | Future Minimum Rental Payments (1) (in thousands) |
2019 | | $ | 2,110 | |
2020 | | $ | 2,122 | |
2021 | | $ | 1,227 | |
2022 | | $ | 935 | |
2023 | | $ | 944 | |
Thereafter | | $ | 45,580 | |
(1)Future minimum rental payments do not include estimates of CPI rent changes required by certain lease agreements. Therefore, actual minimum rental payments may differ than those presented.
10. Earnings Per Share
During the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, there were 220,284, 218,231, 193,117189,895, 185,821, 220,482 and 196,871,217,187, respectively, of unvested restricted shares of common stock on a weighted average basis that were considered participating securities.
The following table reconciles the numerators and denominators in the computation of basic and diluted earnings per common share for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019.
| | | Three months ended September 30, | | | Nine months ended September 30, | | | Three months ended June 30, | | | Six months ended June 30, | |
Earnings Per Share (in thousands, except per share data) | Earnings Per Share (in thousands, except per share data) | | 2019 | | 2018 | | 2019 | | 2018 | Earnings Per Share (in thousands, except per share data) | | 2020 | | 2019 | | 2020 | | 2019 |
Numerator | Numerator | | | | | | | | | Numerator | | | | | | | | |
Net income attributable to common stockholders | Net income attributable to common stockholders | | | $ | 9,533 | | | $ | 7,237 | | | $ | 27,734 | | | $ | 38,215 | | Net income attributable to common stockholders | | $ | 17,552 | | | $ | 12,394 | | | $ | 79,635 | | | $ | 18,201 | |
Denominator | Denominator | | | | | | | | | Denominator | | | | | | | | |
Weighted average common shares outstanding — basic | Weighted average common shares outstanding — basic | | 127,272 | | | 105,783 | | | 122,460 | | | 101,095 | | Weighted average common shares outstanding — basic | | 148,663 | | | 125,251 | | | 148,116 | | | 120,015 | |
Effect of dilutive securities(1) | Effect of dilutive securities(1) | | Effect of dilutive securities(1) | |
Share-based compensation | Share-based compensation | | | 178 | | | 550 | | | 254 | | | 400 | | Share-based compensation | | 364 | | | 309 | | | 225 | | | 291 | |
Shares issuable under forward sales agreements | Shares issuable under forward sales agreements | | | 19 | | | — | | | 6 | | | — | | Shares issuable under forward sales agreements | | — | | | — | | | — | | | — | |
Weighted average common shares outstanding — diluted | Weighted average common shares outstanding — diluted | | | 127,469 | | | 106,333 | | | 122,720 | | | 101,495 | | Weighted average common shares outstanding — diluted | | 149,027 | | | 125,560 | | | 148,341 | | | 120,306 | |
Net income per share — basic and diluted | Net income per share — basic and diluted | | | | | | | | | | Net income per share — basic and diluted | | | | | | | | |
Net income per share attributable to common stockholders — basic | Net income per share attributable to common stockholders — basic | | | $ | 0.07 | | | $ | 0.07 | | | $ | 0.23 | | | $ | 0.38 | | Net income per share attributable to common stockholders — basic | | $ | 0.12 | | | $ | 0.10 | | | $ | 0.54 | | | $ | 0.15 | |
Net income per share attributable to common stockholders — diluted | Net income per share attributable to common stockholders — diluted | | | $ | 0.07 | | | $ | 0.07 | | | $ | 0.23 | | | $ | 0.38 | | Net income per share attributable to common stockholders — diluted | | $ | 0.12 | | | $ | 0.10 | | | $ | 0.54 | | | $ | 0.15 | |
(1)During the three and ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, there were 190, 186, 220 218, 193 and 197,217, unvested shares of restricted common stock, respectively, on a weighted average basis that were not included in the computation of diluted earnings per share because the allocation of income under the two-class method was more dilutive.
11. Commitments and Contingencies
The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance subject to deductible requirements. Management believes that the ultimate settlement of these actions will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.
The Company has letters of credit of approximately $6.0$3.0 million as of SeptemberJune 30, 20192020 related to construction projects and certain other agreements. As of September 30, 2019, the Company has a development commitment related to a building expansion under a tenant lease of approximately $3.1 million.
12. Subsequent Events
There were no recognized or non-recognized subsequent events.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion with the financial statements and related notes included elsewhere in Item 1 of this report and the audited financial statements and related notes thereto included in our most recent Annual Report on Form 10-K.
As used herein, except where the context otherwise requires, “Company,” “we,” “our” and “us,” refer to STAG Industrial, Inc. and our consolidated subsidiaries and partnerships, including our operating partnership, STAG Industrial Operating Partnership, L.P. (the “Operating Partnership”).
Forward-Looking Statements
This report contains “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). You can identify forward-looking statements by the use of words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “seeks,” “should,” “will,” and variations of such words or similar expressions. Forward-looking statements in this report include, among others, statements about our future financial condition, results of operations, capitalization rates on future acquisitions, our business strategy and objectives, including our acquisition strategy, occupancy and leasing rates and trends, and expected liquidity needs and sources (including capital expenditures and the ability to obtain financing or raise capital). Our forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by our forward-looking statements are reasonable, we can give no assurance that our plans, intentions, expectations, strategies or prospects will be attained or achieved and you should not place undue reliance on these forward-looking statements. Furthermore, actual results may differ materially from those described in the forward-looking statements and may be affected by a variety of risks and factors including, without limitation:
•the factors included in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, as updated elsewhere in this report, including those set forth under the headings “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations;”
•the potential adverse effect of the ongoing public health crisis of the novel coronavirus disease (“COVID-19”) pandemic, or any future pandemic, epidemic or outbreak of infectious disease, on the financial condition, results of operations, cash flows and performance of the Company and its tenants, the real estate market and the global economy and financial markets;
•our ability to raise equity capital on attractive terms;
•the competitive environment in which we operate;
•real estate risks, including fluctuations in real estate values, and the general economic climate in local markets and competition for tenants in such markets;markets, and the repurposing or redevelopment of retail properties into industrial properties (in part or whole);
•decreased rental rates or increased vacancy rates;
•potential defaults (including bankruptcies or insolvency) on or non-renewal of leases by tenants;
•acquisition risks, including our ability to identify and complete accretive acquisitions and/or failure of such acquisitions to perform in accordance with projections;
•the timing of acquisitions and dispositions;
•technological developments, particularly those affecting supply chains and logistics;
•potential natural disasters, epidemics, pandemics, and other potentially catastrophic events such as acts of war and/or terrorism;
•international, national, regional and local economic conditions;
•the general level of interest rates and currencies;
•potential changes in the law or governmental regulations and interpretations of those laws and regulations, including changes in real estate and zoning laws or real estate investment trust (“REIT”) or corporate income tax laws, and potential increases in real property tax rates;
•financing risks, including the risks that our cash flows from operations may be insufficient to meet required payments of principal and interest and we may be unable to refinance our existing debt upon maturity or obtain new financing on attractive terms or at all;
•credit risk in the event of non-performance by the counterparties to the interest rate swaps and revolving and unfunded debt;
•how and when pending forward equity sales may settle;
•lack of or insufficient amounts of insurance;
•our ability to maintain our qualification as a REIT;
•our ability to retain key personnel;
•litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and
•possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us.
Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Moreover, you should interpret many of the risks identified in this report, as well as the risks set forth above, as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Certain Definitions
In this report:
We define “GAAP” as generally accepted accounting principles in the United States.
We define “total annualized base rental revenue” as the contractual monthly base rent as of SeptemberJune 30, 20192020 (which differs from rent calculated in accordance with GAAP) multiplied by 12. If a tenant is in a free rent period as of SeptemberJune 30, 2019,2020, the total annualized base rental revenue is calculated based on the first contractual monthly base rent amount multiplied by 12.
We define “occupancy rate” as the percentage of total leasable square footage for which either revenue recognition has commenced in accordance with GAAP or the lease term has commenced as of the close of the reporting period, whichever occurs earlier.
We define the “Value Add Portfolio” as properties that meet any of the following criteria: (i) less than 75% occupied as of the acquisition date; (ii) will be less than 75% occupied due to known move-outs within two years of the acquisition date; (iii) out of service with significant physical renovation of the asset; or (iv) development.
We define “Stabilization” for properties under development or being redeveloped as the earlier of achieving 90% occupancy or 12 months after completion. With respect to properties acquired and immediately added to the Value Add Portfolio, (i) if acquired with less than 75% occupancy as of the acquisition date, Stabilization will occur upon the earlier of achieving 90% occupancy or 12 months from the acquisition date; or (ii) if acquired and will be less than 75% occupied due to known move-outs within two years of the acquisition date, Stabilization will occur upon the earlier of achieving 90% occupancy after the known move-outs have occurred or 12 months after the known move-outs have occurred.
We define the “Operating Portfolio” as all warehouse and light manufacturing assets that were acquired stabilized or have achieved Stabilization. The Operating Portfolio excludes non-core flex/office assets, and assets contained in the Value Add Portfolio.Portfolio, and assets classified as held for sale.
We define a “Comparable Lease” as a lease in the same space with a similar lease structure as compared to the previous in-place lease, excluding new leases for space that was not occupied under our ownership.
We define “SL Rent Change” as the percentage change in the average monthly base rent over the term of the lease that commenced during the period compared to the Comparable Lease for assets included in the Operating Portfolio. Rent under gross or similar type leases are converted to a net rent based on an estimate of the applicable recoverable expenses, and this calculation excludes the impact of any holdover rent.
We define “Cash Rent Change” as the percentage change in the base rent of the lease commenced during the period compared to the base rent of the Comparable Lease for assets included in the Operating Portfolio. The calculation compares the first base rent payment due after the lease commencement date compared to the base rent of the last monthly payment due prior to the termination of the lease, excluding holdover rent. Rent under gross or similar type leases are converted to a net rent based on an estimate of the applicable recoverable expenses.
We define a “New Lease” as any lease that is signed for an initial term equal to or greater than 12 months for any vacant space, including a lease signed by a new tenant or an existing tenant that is expanding into new (additional) space.
We define “Renewal” Lease“Renewal Lease” as a lease signed by an existing tenant to extend the term for 12 months or more, including (i) a renewal of the same space as the current lease at lease expiration, (ii) a renewal of only a portion of the current space at lease expiration, andor (iii) an early renewal or workout, which ultimately does extend the original term for 12 months or more.
Overview
We are a REIT focused on the acquisition, ownership, and operation of single-tenant, industrial properties throughout the United States. We are a Maryland corporation and our common stock is publicly traded on the New York Stock Exchange under the symbol “STAG.”
We are organized and conduct our operations to qualify as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, and generally are not subject to federal income tax to the extent we currently distribute our income to our stockholders and maintain our qualification as a REIT. We remain subject to state and local taxes on our income and property and to U.S. federal income and excise taxes on our undistributed income.
Factors That May Influence Future Results of Operations
Our ability to increase revenues or cash flow will depend in part on our (i) external growth, specifically acquisition activity, and (ii) internal growth, specifically occupancy and rental rates on our portfolio. A variety of other factors, including those noted below, also affect our future results of operations.
OutlookCOVID-19 Pandemic
Since initially being reported in December 2019, COVID-19 has spread around the world, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. The COVID-19 pandemic has severely harmed global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the pandemic is rapidly evolving and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. As a result, the COVID-19 pandemic is negatively impacting almost every industry, including the real estate industry and the industries of our tenants, directly or indirectly. The rapid development and fluidity of the COVID-19 pandemic precludes any prediction as to the ultimate adverse impact the pandemic may have on our business, financial condition, results of operations and cash flows.
While we did not incur significant disruptions from the COVID-19 pandemic during the six months ended June 30, 2020, a number of our tenants requested rent deferral or rent abatement as a result of the pandemic. We entered into a limited number of rent deferral agreements during the three months ended June 30, 2020, which resulted in approximately $1.5 million of rent deferrals during the three and six months ended June 30, 2020. We evaluate tenant rent relief requests on an individual basis,
considering a number of factors. Not all tenant requests will ultimately result in modified agreements, nor are we foregoing our contractual rights under our lease agreements.
The outlook forCOVID-19 pandemic or a future pandemic, epidemic or outbreak of infectious disease affecting states or regions in which we or our tenants operate could have material and adverse effects on our business, remains positive, albeitfinancial condition, results of operations and cash flows due to, among other factors: health or other government authorities requiring the closure of offices or other businesses or instituting quarantines of personnel as the result of, or in order to avoid, exposure to a contagious disease; disruption in supply and delivery chains; a general decline in business activity and demand for real estate; reduced economic activity, general economic decline or recession, which may impact our tenants’ businesses, financial condition and liquidity and may cause one or more of our tenants to be unable to make rent payments to us timely, or at all, or to otherwise seek modifications of lease obligations; difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions, which may affect our access to capital necessary to fund business operations or address maturing liabilities on a moderated basistimely basis; and the potential negative impact on the health of our personnel, particularly if a significant number of our employees are impacted, which would result in lighta deterioration in our ability to ensure business continuity during a disruption.
The extent to which the COVID-19 pandemic or any other pandemic, epidemic or disease impacts our operations and those of over ten yearsour tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic growth,effects of the pandemic and containment measures, among others. Nevertheless, the COVID-19 pandemic (or a future pandemic, epidemic or disease) presents material uncertainty and risk with respect to our business, financial condition, results of operations and cash flows.
Outlook
Our business is affected by the uncertainty regarding the current COVID-19 pandemic, the effectiveness of policies introduced to neutralize the disease, and the impact of those policies on economic activity. In June, the National Bureau of Economic Research announced the United States entered into a recession in February 2020. While there has been a negative impact to our tenants, we believe we will benefit from having a well-diversified portfolio across industry, market, and lease term. Additionally, we strongly believe the current economic environment is likely to curb new industrial supply in the near term and to accelerate a number of trends that positively impact industrial demand.
The U.S. presidential administrationfederal and itsstate governments, as well as the Federal Reserve, responded to the uncertain economic outlook with a series of policies to ease the economic burden of COVID-19 closures on businesses and individuals. The major U.S. congressional policy initiatives,action known as the Coronavirus, Aid, Relief and continued asset appreciation. InEconomic Security Act, or the third quarter of 2019, theCARES Act, allocated $2 trillion in federal funds target rate was lowered twice, each by 25 basis points,aid to a target range of 1.75% to 2.0%.specific industries, small businesses and individuals. The Federal Reserve has signaled that it will support economic growth as needed. also took major actions in response to the COVID-19 pandemic, including the completion of two emergency federal funds rate cuts in March 2020 to a range between 0% to 0.25%, adding liquidity to the bond market, establishing new lending facilities, and expanding its bond buying program to include mortgage backed securities, investment grade corporate debt, and high yield corporate ETFs.
The current economic growth combined withcircumstances, while challenging, will provide an opportunity to demonstrate the favorable industrial supply demand balance should translate to a net positive result fordiversification of our business.portfolio. Specifically, our existing portfolio should benefit from risingcompetitive rental rates and strong occupancy. Furthermore, we believe certain characteristics of our business should position us well in an uncertain interest rate environment, including the fact that we have a highly diversified portfolio, minimal floating rate debt exposure (taking into account our hedging activities), strong liquidity, strong access to capital, and that many of our competitors for the assets we purchase tend to be smaller local and regional investors who are likely to be more heavily impacted by interest rates.rates and availability of capital.
Several
Due to the COVID-19 pandemic, we expect acceleration in a number of industrial specific trends contribute to the expected strongsupport stronger long-term demand, including:
•the rise of e-commerce (as compared to the traditional retail store distribution model) and the concomitant demand by e-commerce industry participants for well-located, functional distribution space;
•the increasing attractiveness of the U.S.United States as a manufacturing and distribution location because of the size of the U.S. consumer market, an increase in overseas labor costs, a desire for greater supply chain resilience and redundancy and the overall cost of supplying and shipping goods (i.e. the shortening and fattening of the supply chain); and
•the overall quality of the transportation infrastructure in the U.S.United States.
Our portfolio continues to benefit from historically low availability throughout the national industrial market. AsWe expect a near-term reduction in demand, in the aggregate, brought on by the pandemic. Certain industries and geographies are expected to be more heavily impacted. We believe the diversification of the most recent data, demand for space continues to support new supplyour portfolio by market, tenant industry, and an accommodative environment for owners. Developmenttenant credit will prove
activity has steadily increased over the past several years and is now reaching material levelsto be a strength in a growing number of primary industrial markets. Though availability remains historically low, this is a trend we will monitor closely. In addition, currently, the supply remains fairlyenvironment. Industrial development continues to be concentrated in the larger primary industrial markets, and webut it is likely to decelerate in the near-term. We have limited exposure to many of thesethe most active development markets. On the demand side, we note that the quality and availability of labor remains a key focus of tenants making occupancy decisions. We will continue to monitor the supply and demand fundamentals for industrial real estate and assess its impact on our business.
Conditions in Our Markets
The buildings in our portfolio are located in markets throughout the United States. Positive or negative changes in economic or other conditions, new supply, adverse weather conditions, and natural disasters, epidemics, and other factors in these markets may affect our overall performance.
Rental Income
We receive income primarily in the form of rental income from the tenants who occupy our buildings. The amount of rental income generated by the buildings in our portfolio depends principally on occupancy and rental rates. As of SeptemberJune 30, 2019,2020, our Operating Portfolio was approximately 95.6%97.6% leased and our SL Rent Change on newNew Leases and renewal leasesRenewal Leases in our Operating Portfolio together grew approximately 16.5%9.6% and 20.1%10.2% during the three and ninesix months ended SeptemberJune 30, 2019,2020, respectively. Our Cash Rent Change on New Leases and Renewal Leases in our Operating Portfolio together grew approximately 1.6% and 2.2% during the three and six months ended June 30, 2020.
Future economic downturns or regional downturns affecting our submarkets that impair our ability to renew or re-lease space and the ability of our tenants to fulfill their lease commitments, as in the case of tenant bankruptcies, including those brought on by the COVID-19 pandemic, could adversely affect our ability to maintain or increase rental rates at our buildings. Our ability to lease our properties and the attendant rental rate is dependent upon, among other things, (i) the overall economy, (ii) the supply/demand dynamic in our markets, (iii) the quality of our properties, including age, clear height, and configuration, and (iv) our tenants’ ability to meet their contractual obligations to us.
The following table summarizes our Operating Portfolio leases that commenced during the three and ninesix months ended SeptemberJune 30, 2019.2020. Certain leases contain rental concessions; any such rental concessions are accounted for on a straight-line basis over the term of the lease.
| Operating Portfolio | Operating Portfolio | | Square Feet | | Cash Basis Rent Per Square Foot | | SL Rent Per Square Foot | | Total Costs Per Square Foot(1) | | Cash Rent Change | | SL Rent Change | | Weighted Average Lease Term(2) (years) | | Rental Concessions per Square Foot(3) | Operating Portfolio | | Square Feet | | Cash Basis Rent Per Square Foot | | SL Rent Per Square Foot | | Total Costs Per Square Foot(1) | | Cash Rent Change | | SL Rent Change | | Weighted Average Lease Term(2) (years) | | Rental Concessions per Square Foot(3) |
| | | | | | | | | | | | | | | | | Operating Portfolio | Square Feet | Cash Basis Rent Per Square Foot | SL Rent Per Square Foot | Total Costs Per Square Foot(1) | | Cash Rent Change | | SL Rent Change | | Weighted Average Lease Term(2) (years) | | Rental Concessions per Square Foot(3) | | | | | | | | | |
Three months ended September 30, 2019 | | | | | | | | | | | | | | | | | |
Three months ended June 30, 2020 | | Three months ended June 30, 2020 | | | | | | | | | | | | | | | | |
New Leases | New Leases | | 490,935 | | | $ | 4.43 | | | $ | 4.58 | | | $ | 1.39 | | | 19.7 | % | | 24.7 | % | | 5.2 | | | $ | 0.69 | | New Leases | | 444,952 | | | $ | 3.77 | | | $ | 4.20 | | | $ | 4.78 | | | (8.3) | % | | 4.0 | % | | 11.5 | | | $ | 0.50 | |
Renewal Leases | Renewal Leases | | 1,583,107 | | | $ | 3.87 | | | $ | 4.03 | | | $ | 0.51 | | | 8.6 | % | | 14.8 | % | | 3.8 | | | $ | 0.05 | | Renewal Leases | | 2,276,692 | | | $ | 4.36 | | | $ | 4.61 | | | $ | 1.08 | | | 3.4 | % | | 10.6 | % | | 5.8 | | | $ | 0.54 | |
| Total/weighted average | Total/weighted average | | 2,074,042 | | | $ | 4.01 | | | $ | 4.16 | | | $ | 0.72 | | | 10.5 | % | | 16.5 | % | | 4.2 | | | $ | 0.20 | | Total/weighted average | | 2,721,644 | | | $ | 4.27 | | | $ | 4.54 | | | $ | 1.68 | | | 1.6 | % | | 9.6 | % | | 6.7 | | | $ | 0.53 | |
Nine months ended September 30, 2019 | | | | | | | | | | | | | | | | | |
Six months ended June 30, 2020 | | Six months ended June 30, 2020 | | | | | | | | | | | | | | | | |
New Leases | New Leases | | 1,168,842 | | | $ | 3.99 | | | $ | 4.14 | | | $ | 1.55 | | | 18.8 | % | | 28.2 | % | | 5.7 | | | $ | 0.77 | | New Leases | | 872,423 | | | $ | 3.97 | | | $ | 4.29 | | | $ | 3.20 | | | (5.2) | % | | 4.2 | % | | 8.3 | | | $ | 0.52 | |
Renewal Leases | Renewal Leases | | 6,005,521 | | | $ | 4.00 | | | $ | 4.16 | | | $ | 0.67 | | | 10.3 | % | | 18.9 | % | | 4.0 | | | $ | 0.01 | | Renewal Leases | | 3,622,946 | | | $ | 4.44 | | | $ | 4.65 | | | $ | 0.92 | | | 4.0 | % | | 11.6 | % | | 5.1 | | | $ | 0.36 | |
| Total/weighted average | Total/weighted average | | 7,174,363 | | | $ | 3.99 | | | $ | 4.16 | | | $ | 0.82 | | | 11.4 | % | | 20.1 | % | | 4.3 | | | $ | 0.14 | | Total/weighted average | | 4,495,369 | | | $ | 4.35 | | | $ | 4.58 | | | $ | 1.36 | | | 2.2 | % | | 10.2 | % | | 5.7 | | | $ | 0.39 | |
(1)We define Total Costs as the costs for improvements of vacant and renewal spaces, as well as the contingent-based legal fees and commissions for leasing transactions. Total Costs per square foot represent the total costs expected to be incurred on the leases that commenced during the period and do not reflect actual expenditures for the period.
(2)We define weighted average lease term as the contractual lease term in years, assuming that tenants exercise no renewal options, purchase options, or early termination rights, weighted by square footage.
(3)Represents the total rental concessions for the entire lease term.
Additionally, for the three and six months ended June 30, 2020, leases commenced totaling 481,938 square feet related to Value Add assets and are excluded from the Operating Portfolio statistics above.
Property Operating Expenses
Our property operating expenses generally consist of utilities, real estate taxes, management fees, insurance, and site repair and maintenance costs. For the majority of our tenants, our property operating expenses are controlled, in part, by the triple net provisions in tenant leases. In our triple net leases, the tenant is responsible for all aspects of and costs related to the building and its operation during the lease term, including utilities, taxes, insurance and maintenance costs, but typically excluding roof and building structure. However, we also have modified gross leases and gross leases in our building portfolio. The terms of those leases vary and on some occasions we may absorb certain building related expenses of our tenants. In our modified gross leases, we are responsible for some building related expenses during the lease term, but the cost of most of the expenses is passed through to the tenant for reimbursement to us. In our gross leases, we are responsible for all costs related to the building and its operation during the lease term. Our overall performance will be affected by the extent to which we are able to pass-through property operating expenses to our tenants.
Scheduled Lease Expirations
Our ability to re-lease space subject to expiring leases will impact our results of operations and is affected by economic and competitive conditions in our markets and by the desirability of our individual buildings. Leases that comprise approximately 6.6%9.4% of our annualized base rental revenue will expire during the period from OctoberJuly 1, 20192020 to SeptemberJune 30, 2020,2021, excluding month-to-month leases. We assume, based upon internal renewal probability estimates that some of our tenants will renew and others will vacate and the associated space will be re-let subject to downtime assumptions. Using the aforementioned assumptions, we expect that the rental rates on the respective new leases will generally be the same as the rates under existing leases expiring during the period OctoberJuly 1, 20192020 to SeptemberJune 30, 2020,2021, thereby resulting in approximately the same revenue from the same space.
The following table summarizes lease expirations for leases in place as of SeptemberJune 30, 2019,2020, plus available space, for each of the ten calendar years beginning with 20192020 and thereafter in our portfolio. The information in the table assumes that tenants exercise no renewal options and no early termination rights.
| Lease Expiration Year | Lease Expiration Year | | Number of Leases Expiring | | Total Rentable Square Feet | | % of Total Occupied Square Feet | | Total Annualized Base Rental Revenue (in thousands) | | % of Total Annualized Base Rental Revenue | | Lease Expiration Year | | Number of Leases Expiring | | Total Rentable Square Feet | | % of Total Occupied Square Feet | | Total Annualized Base Rental Revenue (in thousands) | | % of Total Annualized Base Rental Revenue | |
Available | Available | | — | | | 4,461,560 | | | — | | | — | | | — | | | Available | | — | | | 2,795,864 | | | — | | | — | | | — | | |
Month-to-month leases | Month-to-month leases | | 3 | | | 149,663 | | | 0.2 | % | | $ | 735 | | | 0.2 | % | | Month-to-month leases | | 6 | | | 793,541 | | | 0.9 | % | | $ | 2,946 | | | 0.7 | % | |
Remainder of 2019 | | 5 | | | 663,727 | | | 0.8 | % | | 2,651 | | | 0.7 | % | | |
2020 | | 44 | | | 7,300,692 | | | 8.9 | % | | 33,663 | | | 9.6 | % | | |
Remainder of 2020 | | Remainder of 2020 | | 13 | | | 3,814,198 | | | 4.3 | % | | 17,759 | | | 4.5 | % | |
2021 | 2021 | | 74 | | | 11,654,228 | | | 14.3 | % | | 50,740 | | | 14.3 | % | | 2021 | | 67 | | | 10,585,161 | | | 11.9 | % | | 47,783 | | | 12.0 | % | |
2022 | 2022 | | 71 | | | 8,954,925 | | | 11.0 | % | | 38,675 | | | 10.9 | % | | 2022 | | 77 | | | 9,295,289 | | | 10.4 | % | | 40,975 | | | 10.3 | % | |
2023 | 2023 | | 73 | | | 11,265,564 | | | 13.8 | % | | 43,763 | | | 12.4 | % | | 2023 | | 80 | | | 11,878,562 | | | 13.3 | % | | 47,540 | | | 11.9 | % | |
2024 | 2024 | | 55 | | | 10,507,744 | | | 12.9 | % | | 44,142 | | | 12.5 | % | | 2024 | | 65 | | | 11,247,169 | | | 12.6 | % | | 48,827 | | | 12.3 | % | |
2025 | 2025 | | 33 | | | 6,486,218 | | | 8.0 | % | | 27,023 | | | 7.6 | % | | 2025 | | 53 | | | 8,967,432 | | | 10.1 | % | | 39,013 | | | 9.8 | % | |
2026 | 2026 | | 34 | | | 5,988,185 | | | 7.3 | % | | 27,283 | | | 7.7 | % | | 2026 | | 44 | | | 7,047,276 | | | 7.9 | % | | 32,518 | | | 8.2 | % | |
2027 | 2027 | | 18 | | | 2,619,630 | | | 3.2 | % | | 12,847 | | | 3.6 | % | | 2027 | | 24 | | | 3,361,401 | | | 3.8 | % | | 16,970 | | | 4.3 | % | |
2028 | 2028 | | 24 | | | 4,619,199 | | | 5.7 | % | | 19,552 | | | 5.5 | % | | 2028 | | 24 | | | 4,505,880 | | | 5.1 | % | | 19,526 | | | 4.9 | % | |
2029 | | 2029 | | 22 | | | 4,055,023 | | | 4.5 | % | | 19,959 | | | 5.0 | % | |
Thereafter | Thereafter | | 47 | | | 11,322,032 | | | 13.9 | % | | 53,187 | | | 15.0 | % | | Thereafter | | 52 | | | 13,496,702 | | | 15.2 | % | | 64,176 | | | 16.1 | % | |
Total | Total | | 481 | | | 85,993,367 | | | 100.0 | % | | $ | 354,261 | | | 100.0 | % | | Total | | 527 | | | 91,843,498 | | | 100.0 | % | | $ | 397,992 | | | 100.0 | % | |
Portfolio Summary
The following table summarizes information relating to diversification by building type in our portfolio as of SeptemberJune 30, 2019.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Square Footage | | | | | | Annualized Base Rental Revenue | | |
Building Type | | Number of Buildings | | Amount | | % | | Occupancy Rate | | Amount (in thousands) | | % |
Warehouse/Distribution | | 352 | | | 77,360,328 | | | 90.0 | % | | 95.4 | % | | $ | 314,988 | | | 89.0 | % |
Light Manufacturing | | 66 | | | 7,117,929 | | | 8.3 | % | | 97.9 | % | | 33,429 | | | 9.4 | % |
Total Operating Portfolio/weighted average | | 418 | | | 84,478,257 | | | 98.3 | % | | 95.6 | % | | $ | 348,417 | | | 98.4 | % |
| | | | | | | | | | | | |
Value Add | | 4 | | | 1,082,795 | | | 1.2 | % | | 44.5 | % | | 2,637 | | | 0.7 | % |
Flex/Office | | 8 | | | 432,315 | | | 0.5 | % | | 58.1 | % | | 3,207 | | | 0.9 | % |
Total portfolio/weighted average | | 430 | | | 85,993,367 | | | 100.0 | % | | 94.8 | % | | $ | 354,261 | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Square Footage | | | | | | Annualized Base Rental Revenue | | |
Building Type | | Number of Buildings | | Amount | | % | | Occupancy Rate | | Amount (in thousands) | | % |
Warehouse/Distribution | | 376 | | | 82,914,376 | | | 90.3 | % | | 97.5 | % | | $ | 355,661 | | | 89.4 | % |
Light Manufacturing | | 70 | | | 7,902,777 | | | 8.6 | % | | 98.1 | % | | 38,299 | | | 9.6 | % |
Total Operating Portfolio/weighted average | | 446 | | | 90,817,153 | | | 98.9 | % | | 97.6 | % | | $ | 393,960 | | | 99.0 | % |
| | | | | | | | | | | | |
Value Add/Other | | 3 | | | 594,030 | | | 0.6 | % | | 39.7 | % | | 1,158 | | | 0.3 | % |
Flex/Office | | 8 | | | 432,315 | | | 0.5 | % | | 48.9 | % | | 2,874 | | | 0.7 | % |
Total portfolio/weighted average | | 457 | | | 91,843,498 | | | 100.0 | % | | 97.0 | % | | $ | 397,992 | | | 100.0 | % |
Portfolio Acquisitions
The following table summarizes our acquisitions during the three and ninesix months ended SeptemberJune 30, 2019.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
Market (1) | | Date Acquired | | Square Feet | | Buildings | | Purchase Price (in thousands) |
Cincinnati/Dayton, OH | | January 24, 2019 | | 176,000 | | | 1 | | | $ | 9,965 | |
Pittsburgh, PA | | February 21, 2019 | | 455,000 | | | 1 | | | 28,676 | |
Boston, MA | | February 21, 2019 | | 349,870 | | | 1 | | | 26,483 | |
Minneapolis/St Paul, MN | | February 28, 2019 | | 248,816 | | | 1 | | | 21,955 | |
Greenville/Spartanburg, SC | | March 7, 2019 | | 331,845 | | | 1 | | | 24,536 | |
Philadelphia, PA | | March 7, 2019 | | 148,300 | | | 1 | | | 10,546 | |
Omaha/Council Bluffs, NE-IA | | March 11, 2019 | | 237,632 | | | 1 | | | 20,005 | |
Houston, TX | | March 28, 2019 | | 132,000 | | | 1 | | | 17,307 | |
Baltimore, MD | | March 28, 2019 | | 167,410 | | | 1 | | | 13,648 | |
Houston, TX | | March 28, 2019 | | 116,750 | | | 1 | | | 12,242 | |
Three months ended March 31, 2019 | | | | 2,363,623 | | | 10 | | | 185,363 | |
Minneapolis/St Paul, MN | | April 2, 2019 | | 100,600 | | | 1 | | | 9,045 | |
West Michigan, MI | | April 8, 2019 | | 230,200 | | | 1 | | | 15,786 | |
Greensboro/Winston-Salem, NC | | April 12, 2019 | | 129,600 | | | 1 | | | 7,771 | |
Greenville/Spartanburg, SC | | April 25, 2019 | | 319,660 | | | 2 | | | 15,432 | |
Charleston/N Charleston, SC | | April 29, 2019 | | 500,355 | | | 1 | | | 40,522 | |
Houston, TX | | April 29, 2019 | | 128,136 | | | 1 | | | 13,649 | |
Richmond, VA | | May 16, 2019 | | 109,520 | | | 1 | | | 9,467 | |
Laredo, TX | | June 6, 2019 | | 213,982 | | | 1 | | | 18,972 | |
Baton Rouge, LA | | June 18, 2019 | | 252,800 | | | 2 | | | 20,041 | |
Philadelphia, PA | | June 19, 2019 | | 187,569 | | | 2 | | | 13,645 | |
Columbus, OH | | June 28, 2019 | | 857,390 | | | 1 | | | 95,828 | |
Three months ended June 30, 2019 | | | | 3,029,812 | | | 14 | | | 260,158 | |
Kansas City, MO | | July 10, 2019 | | 304,840 | | | 1 | | | 13,450 | |
Houston, TX | | July 22, 2019 | | 199,903 | | | 1 | | | 11,287 | |
Charleston/N Charleston, SC | | July 22, 2019 | | 88,583 | | | 1 | | | 7,166 | |
Tampa, FL | | August 5, 2019 | | 78,560 | | | 1 | | | 8,168 | |
Philadelphia, PA | | August 6, 2019 | | 120,000 | | | 1 | | | 10,880 | |
Milwaukee/Madison, WI | | August 16, 2019 | | 224,940 | | | 3 | | | 13,981 | |
Houston, TX | | August 19, 2019 | | 45,000 | | | 1 | | | 6,190 | |
West Michigan, MI | | August 19, 2019 | | 210,120 | | | 1 | | | 10,407 | |
Pittsburgh, PA | | August 21, 2019 | | 410,389 | | | 1 | | | 31,219 | |
Boston, MA | | August 22, 2019 | | 80,100 | | | 1 | | | 14,253 | |
Las Vegas, NV | | August 27, 2019 | | 80,422 | | | 2 | | | 12,602 | |
Nashville, TN | | August 29, 2019 | | 348,880 | | | 1 | | | 20,267 | |
Columbia, SC | | August 30, 2019 | | 200,000 | | | 1 | | | 13,670 | |
Pittsburgh, PA | | September 6, 2019 | | 138,270 | | | 1 | | | 9,323 | |
Omaha/Council Bluffs, NE-IA | | September 11, 2019 | | 128,200 | | | 2 | | | 8,509 | |
Pittsburgh, PA | | September 16, 2019 | | 315,634 | | | 1 | | | 28,712 | |
Memphis, TN | | September 19, 2019 | | 1,135,453 | | | 1 | | | 50,941 | |
Memphis, TN | | September 26, 2019 | | 629,086 | | | 1 | | | 31,542 | |
Three months ended September 30, 2019 | | | | 4,738,380 | | | 22 | | | 302,567 | |
Nine months ended September 30, 2019 | | | | 10,131,815 | | | 46 | | | $ | 748,088 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
Market (1) | | Date Acquired | | Square Feet | | Buildings | | Purchase Price (in thousands) |
Detroit, MI | | January 10, 2020 | | 491,049 | | | 1 | | | $ | 29,543 | |
Rochester, NY | | January 10, 2020 | | 124,850 | | | 1 | | | 8,565 | |
Minneapolis/St Paul, MN | | February 6, 2020 | | 139,875 | | | 1 | | | 10,460 | |
Sacramento, CA | | February 6, 2020 | | 160,534 | | | 1 | | | 18,468 | |
Richmond, VA | | February 6, 2020 | | 78,128 | | | 1 | | | 5,481 | |
Milwaukee/Madison, WI | | February 7, 2020 | | 81,230 | | | 1 | | | 7,219 | |
Detroit, MI | | February 11, 2020 | | 311,123 | | | 1 | | | 23,141 | |
Philadelphia, PA | | March 9, 2020 | | 78,000 | | | 1 | | | 6,571 | |
Tulsa, OK | | March 9, 2020 | | 134,600 | | | 1 | | | 9,895 | |
Three months ended March 31, 2020 | | | | 1,599,389 | | | 9 | | | 119,343 | |
Sacramento, CA | | June 11, 2020 | | 54,463 | | | 1 | | | 5,730 | |
Chicago, IL | | June 29, 2020 | | 67,817 | | | 1 | | | 6,184 | |
Three months ended June 30, 2020 | | | | 122,280 | | | 2 | | | $ | 11,914 | |
Six months ended June 30, 2020 | | | | 1,721,669 | | | 11 | | | $ | 131,257 | |
(1) As defined by CoStar Realty Information Inc (“CoStar”). If the building is located outside of a CoStar defined market, the city and state is reflected.
Portfolio Dispositions
During the ninesix months ended SeptemberJune 30, 2019,2020, we sold sixfour buildings and two land parcels comprised of approximately 1.11.2 million rentable square feet with a net book value of approximately $20.4$54.1 million to third parties. Net proceeds from the sales of rental property were approximately $23.7$101.9 million and we recognized the full gain on the sales of rental property, net, of approximately $3.3$47.8 million for the ninesix months ended SeptemberJune 30, 2019.2020.
Geographic Diversification
The following table summarizes information about the 20 largest markets in our portfolio based on total annualized base rental revenue as of SeptemberJune 30, 2019.
2020.
| | | | | | | | | | | | |
Top 20 Markets (1) | | | | | | % of Total Annualized Base Rental Revenue |
Philadelphia, PA | | | | | | 9.08.7 | % |
Chicago, IL | | | | | | 7.37.0 | % |
Greenville/Spartanburg, SC | | | | | | 5.75.8 | % |
Detroit, MI | | | | | | 4.6 | % |
Milwaukee/Madison, WI | | | | | | 4.3 | % |
Pittsburgh, PA | | | | | | 4.8 | % |
Milwaukee/Madison, WI | | | | | | 4.1 | % |
Detroit, MI | | | | | | 3.94.3 | % |
Minneapolis/St Paul, MN | | | | | | 3.34.2 | % |
Houston, TX | | | | | | 3.23.6 | % |
Charlotte, NC | | | | | | 2.92.7 | % |
Indianapolis, IN | | | | | | 2.5 | % |
Boston, MA | | | | | | 2.5 | % |
Cincinnati/Dayton, OH | | | | | | 2.7 | % |
Boston, MA | | | | | | 2.72.5 | % |
West Michigan, MI | | | | | | 2.62.4 | % |
Columbus, OH | | | | | | 2.52.3 | % |
El Paso, TX | | | | | | 2.42.2 | % |
Columbia, SC | | | | | | 1.8 | % |
Westchester/So Connecticut, CT/NY | | | | | | 1.91.7 | % |
Raleigh/Durham, NC | | | | | | 1.71.5 | % |
Cleveland, OH | | | | | | 1.7 | % |
Memphis, TN | | | | | | 1.6 | % |
Baltimore, MDKansas City, MO | | | | | | 1.5 | % |
Dallas/Ft Worth, TXMemphis, TN | | | | | | 1.4 | % |
Total | | | | | | 66.967.5 | % |
(1) As defined by CoStar.
Industry Diversification
The following table summarizes information about the 20 largest tenant industries in our portfolio based on total annualized base rental revenue as of SeptemberJune 30, 2019.
2020.
| | | | | | | | | | | | |
Top 20 Tenant Industries (1) | | | | | | % of Total Annualized Base Rental Revenue |
Auto Components | | | | | | 11.912.1 | % |
Air Freight & Logistics | | | | | | 8.68.0 | % |
Containers & Packaging | | | | | | 7.3 | % |
Commercial Services & Supplies | | | | | | 7.5 | % |
Containers & Packaging | | | | | | 6.27.3 | % |
Machinery | | | | | | 5.14.6 | % |
Household Durables | | | | | | 5.0 | % |
Building Products | | | | | | 4.84.6 | % |
Food Products | | | | | | 4.5 | % |
Food & Staples Retailing | | | | | | 3.6 | % |
Electrical Equipment | | | | | | 3.5 | % |
HouseholdBuilding Products | | | | | | 3.4 | % |
Beverages | | | | | | 3.14.5 | % |
Internet & Direct Mkt Retail | | | | | | 3.03.9 | % |
Textiles, Apparel, Luxury GoodFood & Staples Retailing | | | | | | 3.7 | % |
Electrical Equipment | | | | | | 3.6 | % |
Media | | | | | | 3.1 | % |
Beverages | | | | | | 2.8 | % |
Household Products | | | | | | 2.7 | % |
Electronic Equip, Instruments | | | | | | 2.3 | % |
Specialty Retail | | | | | | 2.2 | % |
Chemicals | | | | | | 2.0 | % |
MediaTextiles, Apparel, Luxury Good | | | | | | 1.9 | % |
Metals & Mining | | | | | | 1.9 | % |
Electronic Equip, Instruments | | | | | | 1.8 | % |
Specialty Retail | | | | | | 1.8 | % |
Chemicals | | | | | | 1.7 | % |
Pharmaceuticals | | | | | | 1.71.5 | % |
Total | | | | | | 83.084.3 | % |
(1) Industry classification based on Global Industry Classification Standard methodology.
Tenant Diversification
The following table summarizes information about the 20 largest tenants in our portfolio based on total annualized base rental revenue as of SeptemberJune 30, 2019.2020.
| Top 20 Tenants (1) | Top 20 Tenants (1) | | Number of Leases | | | % of Total Annualized Base Rental Revenue | Top 20 Tenants (1) | | Number of Leases | | | % of Total Annualized Base Rental Revenue |
Amazon | | Amazon | | 4 | | | 2.5 | % |
General Service Administration | General Service Administration | | 1 | | | 2.0 | % | General Service Administration | | 1 | | | 1.8 | % |
Amazon | | 2 | | | 1.6 | % | |
XPO Logistics, Inc. | XPO Logistics, Inc. | | 4 | | | 1.3 | % | XPO Logistics, Inc. | | 5 | | | 1.3 | % |
DHL Supply Chain | | 5 | | | 1.1 | % | |
TriMas Corporation | | TriMas Corporation | | 4 | | | 1.0 | % |
Solo Cup | | Solo Cup | | 1 | | | 1.0 | % |
DS Smith North America | | DS Smith North America | | 2 | | | 0.9 | % |
American Tire Distributors Inc | | American Tire Distributors Inc | | 5 | | | 0.9 | % |
Ford Motor Company | | Ford Motor Company | | 1 | | | 0.8 | % |
Hachette Book Group, Inc. | | Hachette Book Group, Inc. | | 1 | | | 0.8 | % |
Packaging Corp of America | | Packaging Corp of America | | 5 | | | 0.8 | % |
Yanfeng US Automotive Interior | Yanfeng US Automotive Interior | | 3 | | | 1.1 | % | Yanfeng US Automotive Interior | | 2 | | | 0.8 | % |
Solo Cup | | 1 | | | 1.1 | % | |
TriMas Corporation | | 4 | | | 1.1 | % | |
Ford Motor Company
| | 1 | | | 0.9 | % | |
Schneider Electric USA, Inc. | | Schneider Electric USA, Inc. | | 3 | | | 0.8 | % |
FedEx Corporation | FedEx Corporation | | 3 | | | 0.9 | % | FedEx Corporation | | 3 | | | 0.8 | % |
WestRock Company | WestRock Company | | 6 | | | 0.8 | % | WestRock Company | | 6 | | | 0.8 | % |
Kenco Logistic Services, LLC | Kenco Logistic Services, LLC | | 2 | | | 0.8 | % | Kenco Logistic Services, LLC | | 2 | | | 0.7 | % |
Perrigo Company | | Perrigo Company | | 2 | | | 0.7 | % |
Carolina Beverage Group | | Carolina Beverage Group | | 2 | | | 0.7 | % |
Generation Brands | Generation Brands | | 1 | | | 0.8 | % | Generation Brands | | 1 | | | 0.7 | % |
Carolina Beverage Group | | 2 | | | 0.8 | % | |
Perrigo Company | | 2 | | | 0.8 | % | |
DHL Supply Chain | | DHL Supply Chain | | 4 | | | 0.7 | % |
Emerson Electric | Emerson Electric | | 2 | | | 0.7 | % | Emerson Electric | | 2 | | | 0.6 | % |
Quoizel, Inc. | | 1 | | | 0.7 | % | |
Schneider Electric USA, Inc. | | 3 | | | 0.7 | % | |
American Tire Distributors Inc | | 4 | | | 0.7 | % | |
Coca-Cola Refreshments USA Inc | | 2 | | | 0.6 | % | |
Medline Industries, Inc. | | 1 | | | 0.6 | % | |
Total | Total | | 50 | | | 19.1 | % | Total | | 56 | | | 19.1 | % |
(1) Includes tenants, guarantors, and/or non-guarantor parents.
Critical Accounting Policies
See “Critical Accounting Policies” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, for a discussion of our critical accounting policies and estimates.
On January 1, 2019, we adopted Accounting Standards Update 2016-02, Leases (Topic 842); see Note 2 in the accompanying Notes to Consolidated Financial Statements under “New Accounting Standards and Reclassifications.”
Results of Operations
The following discussion of our results of our same store (as defined below) net operating income (“NOI”) should be read in conjunction with our Consolidated Financial Statements. For a detailed discussion of NOI, including the reasons management believes NOI is useful to investors, see “Non-GAAP Financial Measures” below. Same store results are considered to be useful to investors in evaluating our performance because they provide information relating to changes in building-level operating performance without taking into account the effects of acquisitions or dispositions. We encourage the reader to not only look at our same store results, but also our total portfolio results, due to historic and future growth.
We define same store properties as properties that were in the Operating Portfolio for the entirety of the comparative periods presented. Same Store excludes termination fees, solar income, and revenue associated with one-time tenant reimbursements of capital expenditures. Same store properties exclude Operating Portfolio properties with expansions placed into service after December 31, 2017.2018. On SeptemberJune 30, 2019,2020, we owned 317368 industrial buildings consisting of approximately 63.273.4 million square feet, which represents approximately 73.5%79.9% of our total portfolio, that are considered our same store portfolio in the analysis below. Same store occupancy decreasedincreased approximately 1.9%1.0% to 94.6%97.2% as of SeptemberJune 30, 20192020 compared to 96.5%96.2% as of SeptemberJune 30, 2018.2019.
Comparison of the three months ended SeptemberJune 30, 20192020 to the three months ended SeptemberJune 30, 20182019
The following table summarizes selected operating information for our same store portfolio and our total portfolio for the three months ended SeptemberJune 30, 20192020 and 20182019 (dollars in thousands). This table includes a reconciliation from our same store portfolio to our total portfolio by also providing information for the three months ended SeptemberJune 30, 2020 and 2019 and 2018 with
respect to the buildings acquired and disposed of and Operating Portfolio buildings with expansions placed into service or transferred from the Value Add Portfolio to the Operating Portfolio after December 31, 20172018 and our flex/office buildings and Value Add Portfolio.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Same Store Portfolio | | | | | | | | Acquisitions/Dispositions | | | | Other | | | | Total Portfolio | | | | | | |
| Three months ended September 30, | | | | Change | | | | Three months ended September 30, | | | | Three months ended September 30, | | | | Three months ended September 30, | | | | Change | | |
| 2019 | | 2018 | | $ | | % | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | $ | | % |
Revenue | | | | | | | | | | | | | | | | | | | | | | | |
Operating revenue | | | | | | | | | | | | | | | | | | | | | | | |
Rental income | $ | 75,376 | | | $ | 75,002 | | | $ | 374 | | | 0.5 | % | | $ | 23,611 | | | $ | 10,922 | | | $ | 3,307 | | | $ | 2,753 | | | $ | 102,294 | | | $ | 88,677 | | | $ | 13,617 | | | 15.4 | % |
Other income | 55 | | | 255 | | | (200) | | | (78.4) | % | | 72 | | | 14 | | | — | | | — | | | 127 | | | 269 | | | (142) | | | (52.8) | % |
Total operating revenue | 75,431 | | | 75,257 | | | 174 | | | 0.2 | % | | 23,683 | | | 10,936 | | | 3,307 | | | 2,753 | | | 102,421 | | | 88,946 | | | 13,475 | | | 15.1 | % |
Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Property | 13,796 | | | 13,713 | | | 83 | | | 0.6 | % | | 3,078 | | | 2,235 | | | 1,283 | | | 1,164 | | | 18,157 | | | 17,112 | | | 1,045 | | | 6.1 | % |
Net operating income (1) | $ | 61,635 | | | $ | 61,544 | | | $ | 91 | | | 0.1 | % | | $ | 20,605 | | | $ | 8,701 | | | $ | 2,024 | | | $ | 1,589 | | | 84,264 | | | 71,834 | | | 12,430 | | | 17.3 | % |
Other expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | |
General and administrative | | | | | | | | | | | | | | | | | 8,924 | | | 8,911 | | | 13 | | | 0.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | | 46,908 | | | 44,355 | | | 2,553 | | | 5.8 | % |
Loss on impairments | | | | | | | | | | | | | | | | | 4,413 | | | — | | | 4,413 | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
Other expenses | | | | | | | | | | | | | | | | | 458 | | | 223 | | | 235 | | | 105.4 | % |
Total other expenses | | | | | | | | | | | | | | | | | 60,703 | | | 53,489 | | | 7,214 | | | 13.5 | % |
Total expenses | | | | | | | | | | | | | | | | | 78,860 | | | 70,601 | | | 8,259 | | | 11.7 | % |
Other income (expense) | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest and other income | | | | | | | | | | | | | | | | | 12 | | | 3 | | | 9 | | | 300.0 | % |
Interest expense | | | | | | | | | | | | | | | | | (14,053) | | | (12,698) | | | (1,355) | | | 10.7 | % |
Loss on extinguishment of debt | | | | | | | | | | | | | | | | | — | | | (13) | | | 13 | | | (100.0) | % |
Gain on the sales of rental property, net | | | | | | | | | | | | | | | | | 1,670 | | | 3,239 | | | (1,569) | | | (48.4) | % |
Total other income (expense) | | | | | | | | | | | | | | | | | (12,371) | | | (9,469) | | | (2,902) | | | 30.6 | % |
Net income | | | | | | | | | | | | | | | | | | $ | 11,190 | | | $ | 8,876 | | | $ | 2,314 | | | 26.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Same Store Portfolio | | | | | | | | Acquisitions/Dispositions | | | | Other | | | | Total Portfolio | | | | | | |
| Three months ended June 30, | | | | Change | | | | Three months ended June 30, | | | | Three months ended June 30, | | | | Three months ended June 30, | | | | Change | | |
| 2020 | | 2019 | | $ | | % | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | $ | | % |
Revenue | | | | | | | | | | | | | | | | | | | | | | | |
Operating revenue | | | | | | | | | | | | | | | | | | | | | | | |
Rental income | $ | 89,486 | | | $ | 88,884 | | | $ | 602 | | | 0.7 | % | | $ | 24,639 | | | $ | 5,684 | | | $ | 3,346 | | | $ | 1,794 | | | $ | 117,471 | | | $ | 96,362 | | | $ | 21,109 | | | 21.9 | % |
Other income | 103 | | | 283 | | | (180) | | | (63.6) | % | | 39 | | | 1 | | | 4 | | | — | | | 146 | | | 284 | | | (138) | | | (48.6) | % |
Total operating revenue | 89,589 | | | 89,167 | | | 422 | | | 0.5 | % | | 24,678 | | | 5,685 | | | 3,350 | | | 1,794 | | | 117,617 | | | 96,646 | | | 20,971 | | | 21.7 | % |
Expenses | | | | | | | | | | | | | | | | | | | | | | | |
Property | 15,522 | | | 14,967 | | | 555 | | | 3.7 | % | | 3,770 | | | 1,086 | | | 1,100 | | | 902 | | | 20,392 | | | 16,955 | | | 3,437 | | | 20.3 | % |
Net operating income (1) | $ | 74,067 | | | $ | 74,200 | | | $ | (133) | | | (0.2) | % | | $ | 20,908 | | | $ | 4,599 | | | $ | 2,250 | | | $ | 892 | | | 97,225 | | | 79,691 | | | 17,534 | | | 22.0 | % |
Other expenses | | | | | | | | | | | | | | | | | | | | | | | |
General and administrative | | | | | | | | | | | | | | | | | 9,406 | | | 8,587 | | | 819 | | | 9.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | | 53,606 | | | 44,633 | | | 8,973 | | | 20.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
Other expenses | | | | | | | | | | | | | | | | | 588 | | | 427 | | | 161 | | | 37.7 | % |
Total other expenses | | | | | | | | | | | | | | | | | 63,600 | | | 53,647 | | | 9,953 | | | 18.6 | % |
Total expenses | | | | | | | | | | | | | | | | | 83,992 | | | 70,602 | | | 13,390 | | | 19.0 | % |
Other income (expense) | | | | | | | | | | | | | | | | | | | | | | | |
Interest and other income | | | | | | | | | | | | | | | | | 156 | | | 2 | | | 154 | | | 7,700.0 | % |
Interest expense | | | | | | | | | | | | | | | | | (15,333) | | | (12,193) | | | (3,140) | | | 25.8 | % |
Loss on extinguishment of debt | | | | | | | | | | | | | | | | | (834) | | | — | | | (834) | | | 100.0 | % |
Gain on involuntary conversion | | | | | | | | | | | | | | | | | 657 | | | — | | | 657 | | | 100.0 | % |
Gain on the sales of rental property, net | | | | | | | | | | | | | | | | | 1,045 | | | 317 | | | 728 | | | 229.7 | % |
Total other income (expense) | | | | | | | | | | | | | | | | | (14,309) | | | (11,874) | | | (2,435) | | | (20.5) | % |
Net income | | | | | | | | | | | | | | | | | $ | 19,316 | | | $ | 14,170 | | | $ | 5,146 | | | 36.3 | % |
(1)For a detailed discussion of NOI, including the reasons management believes NOI is useful to investors, see “Non-GAAP Financial Measures” below.
Net Income
Net income for our total portfolio increased by $2.3$5.1 million or 26.1%36.3% to $11.2$19.3 million for the three months ended SeptemberJune 30, 2019,2020, compared to $8.9$14.2 million for the three months ended SeptemberJune 30, 2018.2019.
Same Store Total Operating Revenue
Same store total operating revenue consists primarily of rental income consisting of (i) fixed lease payments, variable lease payments, straight-line rental income, and above and below market lease amortization from our properties (“lease income”), and (ii) other tenant billings for insurance, real estate taxes and certain other expenses (“other billings”).
For a detailed reconciliation of our same store total operating revenue to net income, see the table above.
Same store rental income, which is comprised of lease income and other billings as discussed below, increased by $0.4$0.6 million or 0.5%0.7% to $75.4$89.5 million for the three months ended SeptemberJune 30, 20192020 compared to $75.0$88.9 million for the three months ended SeptemberJune 30, 2018.2019.
Same store lease income increaseddecreased by $0.2 million or 0.4%0.3% to $64.0$76.1 million for the three months ended SeptemberJune 30, 20192020 compared to $63.8$76.3 million for the three months ended SeptemberJune 30, 2018. Approximately $1.7 million of the increase was2019. The decrease is primarily attributable to the reduction of rental increases dueincome of approximately $1.9 million for certain leases in which we determined that the future collectability was not reasonably assured, and accordingly we converted to new leasesthe cash basis of accounting and renewals of existingreversed any accounts receivable and accrued rent balances into rental income and did not recognize revenue for payments that were not received from the tenants. This increasedecrease was partially offset byalso attributable to an approximately $1.5$0.6 million decrease due to a reduction of base rent due to tenants downsizing their spaces and vacancies.vacancies, as well as approximately $0.1 million decrease due to a net increase in the amortization of net above market leases. These decreases were partially offset by an increase in rental income of approximately $2.4 million due to new leases and renewals of existing tenants.
Same store other billings increased by $0.2$0.8 million or 1.1%6.4% to $11.4$13.4 million for the three months ended SeptemberJune 30, 20192020 compared to $11.2$12.6 million for the three months ended SeptemberJune 30, 2018.2019. The increase was primarily attributable to an increase in real estate taxes levied by the taxing authority and changes to lease terms where we began paying the real estate taxes and operating expenses on behalf of tenants that had previously been paid its taxes and operating expensesby the tenant directly to respective vendorsthe taxing authority of approximately $0.4 million. ThisThe increase was partially offset by a decreasealso attributable to an increase of approximately $0.2$0.4 million related to tenant specific billings that occurred during the three months ended September 30, 2019 that did not recur during the three months ended September 30, 2018.
Same store other income decreased by $0.2 million or 78.4%expense reimbursements due to $0.1 million for the three months ended September 30, 2019 compared to $0.3 million for the three months ended September 30, 2018. This decrease is primarily the result of income received in 2018 for settlements or other sums received from former tenants which did not recur in 2019.new leases.
Same Store Operating Expenses
Same store operating expenses consist primarily of property operating expenses and real estate taxes and insurance.
For a detailed reconciliation of our same store operating expenses to net income, see the table above.
Total same store property operating expenses increased by $0.1$0.6 million or 0.6%3.7% to $13.8$15.5 million for the three months ended SeptemberJune 30, 20192020 compared to $13.7$15.0 million for the three months ended SeptemberJune 30, 2018.2019. This increase was primarily related to increasesan increase in real estate taxes levied by the related taxing authority and changes to lease terms where we began paying the real estate taxes on behalf of tenants that had previously paid its taxes directly to the taxing authorityauthorities directly of approximately $0.2$0.6 million, andas well as an increase inof $0.1 million related to repairs and maintenance expense of approximately $0.3 million.and snow removal expense. These increases were partially offset by decreasesan decrease in insurance expense of approximately $0.3 million and utilityutilities expense of approximately $0.1 million.
Acquisitions and Dispositions Net Operating Income
For a detailed reconciliation of our acquisitions and dispositions NOI to net income, see the table above.
Subsequent to December 31, 2017,2018, we acquired 9575 buildings consisting of approximately 19.616.6 million square feet (excluding fourfive buildings that were included in the Value Add Portfolio at SeptemberJune 30, 20192020 or transferred from the Value Add Portfolio to the Operating Portfolio after December 31, 2017)2018), and sold 2513 buildings and two land parcels consisting of approximately 5.02.8 million square feet. For the three months ended SeptemberJune 30, 20192020 and 2018,2019, the buildings acquired after December 31, 20172018 contributed approximately $20.7$21.0 million and $5.9$4.1 million to NOI, respectively. For the three months ended SeptemberJune 30, 20192020 and 2018,2019, the buildings sold after December 31, 20172018 contributed approximately $(0.1) million and $2.8$0.5 million to NOI, respectively.
respectively. Refer to Note 3 in the accompanying Notes to Consolidated Financial Statements for additional discussion regarding buildings acquired or sold.
Other Net Operating Income
Our other assets include our flex/office buildings, Value Add Portfolio, and Operating Portfolio buildings with expansions placed in service or transferred from the Value Add Portfolio to the Operating Portfolio after December 31, 2017.2018. Other NOI also includes termination, solar, and other income adjustments from buildings in our same store portfolio.
For a detailed reconciliation of our other NOI to net income, see the table above.
At SeptemberJune 30, 2019,2020, we owned eight flex/office buildings consisting of approximately 0.4 million square feet, fourthree buildings in our Value Add Portfolio consisting of approximately 1.10.6 million square feet, and sixthree buildings consisting of approximately 1.70.8 million square feet that were Operating Portfolio buildings with expansions placed in service or transferred from the Value Add Portfolio to the Operating Portfolio after December 31, 2017.2018. These buildings contributed approximately $2.0$1.6 million and $1.9$0.9 million to NOI for the three months ended SeptemberJune 30, 20192020 and 2018,2019, respectively. Additionally, there was approximately $(16,000)$0.7 million and $(0.3) million$24,000 of termination, solar, and other income adjustments from certain buildings in our same store portfolio for the three months ended SeptemberJune 30, 20192020 and 2018,2019, respectively.
Total Other Expenses
Total other expenses consist of general and administrative expenses, depreciation and amortization, loss on impairments, and other expenses.
Total other expenses increased $7.2$10.0 million or 13.5%18.6% for the three months ended SeptemberJune 30, 20192020 to $60.7$63.6 million compared to $53.5$53.6 million for the three months ended SeptemberJune 30, 2018. This2019. The increase is primarily a result of an increase in loss on impairments of approximately $4.4 million related to the property in Belfast, ME that is in our flex/office building portfolio, as well as an increase in depreciation and amortization of approximately $2.6$9.0 million due to an increase in the depreciable asset base as a result of net acquisitions. Additionally, general and administrative expenses increased by approximately $0.8 million primarily due to increases in compensation and other payroll costs.
Total Other Income (Expense)
Total other income (expense) consists of interest and other income, interest expense, loss on extinguishment of debt, gain on involuntary conversion, and gain on the sales of rental property, net. Interest expense includes interest incurred during the period as well as adjustments related to amortization of financing fees and debt issuance costs, and amortization of fair market value adjustments associated with the assumption of debt.
Total net other expense increased $2.9$2.4 million or 30.6%20.5% for the three months ended SeptemberJune 30, 20192020 to $12.4$14.3 million compared $9.5$11.9 million for the three months ended SeptemberJune 30, 2018.2019. This increase is primarily thea result of an increase in interest expense of approximately $3.1 million which was primarily attributable to the funding of unsecured term loans on March 25, 2020, December 18, 2019, and July 25, 2019. Additionally we recognized a decreaseloss on extinguishment of debt of approximately $0.8 million during the three months ended June 30, 2020 that was primarily related to the refinance of the Unsecured Term Loan B and Unsecured Term Loan C on April 17, 2020, as discussed in Note 4 of the accompanying Notes to Consolidated Financial Statements. These increases were partially offset by an increase in the gain on the sales of rental property, net of approximately $1.6 million. This increase is also attributable$0.7 million and a gain on involuntary conversion of approximately $0.7 million related to an eminent domain taking of a portion of a parcel of land that occurred during the three months ended June 30, 2020. Additionally, there was an increase of approximately $0.2 million in interest expense of approximately $1.4 million which was primarily attributableand other income due to the funding of an unsecured term loans on July 27, 2018increased cash and July 25, 2019 and a higher average unsecured credit facilitycash equivalents balance during the three months ended SeptemberJune 30, 2019 as2020 compared to the three months ended SeptemberJune 30, 2018.2019.
Comparison of the ninesix months ended SeptemberJune 30, 20192020 to the ninesix months ended SeptemberJune 30, 20182019
The following table summarizes selected operating information for our same store portfolio and our total portfolio for the ninesix months ended SeptemberJune 30, 20192020 and 20182019 (dollars in thousands). This table includes a reconciliation from our same store portfolio to our total portfolio by also providing information for the ninesix months ended SeptemberJune 30, 20192020 and 20182019 with respect to the buildings acquired and disposed of and Operating Portfolio buildings with expansions placed into service or transferred from the Value Add Portfolio to the Operating Portfolio after December 31, 20172018 and our flex/office buildings and Value Add Portfolio.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Same Store Portfolio | | | | | | | | Acquisitions/Dispositions | | | | Other | | | | Total Portfolio | | | | | | |
| Nine months ended September 30, | | | | Change | | | | Nine months ended September 30, | | | | Nine months ended September 30, | | | | Nine months ended September 30, | | | | Change | | |
| 2019 | | 2018 | | $ | | % | | 2019 | | 2018 | | 2019 | | 2018 | | 2019 | | 2018 | | $ | | % |
Revenue | | | | | | | | | | | | | | | | | | | | | | | |
Operating revenue | | | | | | | | | | | | | | | | | | | | | | | |
Rental income | $ | 226,878 | | | $ | 222,636 | | | $ | 4,242 | | | 1.9 | % | | $ | 57,960 | | | $ | 25,327 | | | $ | 9,433 | | | $ | 8,707 | | | $ | 294,271 | | | $ | 256,670 | | | $ | 37,601 | | | 14.6 | % |
Other income | 394 | | | 787 | | | (393) | | | (49.9) | % | | 104 | | | 243 | | | — | | | 3 | | | 498 | | | 1,033 | | | (535) | | | (51.8) | % |
Total operating revenue | 227,272 | | | 223,423 | | | 3,849 | | | 1.7 | % | | 58,064 | | | 25,570 | | | 9,433 | | | 8,710 | | | 294,769 | | | 257,703 | | | 37,066 | | | 14.4 | % |
Expenses | | | | | | | | | | | | | | | | | | | | | | | |
Property | 42,585 | | | 40,326 | | | 2,259 | | | 5.6 | % | | 8,080 | | | 6,752 | | | 3,958 | | | 3,657 | | | 54,623 | | | 50,735 | | | 3,888 | | | 7.7 | % |
Net operating income (1) | $ | 184,687 | | | $ | 183,097 | | | $ | 1,590 | | | 0.9 | % | | $ | 49,984 | | | $ | 18,818 | | | $ | 5,475 | | | $ | 5,053 | | | 240,146 | | | 206,968 | | | 33,178 | | | 16.0 | % |
Other expenses | | | | | | | | | | | | | | | | | | | | | | | |
General and administrative | | | | | | | | | | | | | | | | | 26,723 | | | 25,637 | | | 1,086 | | | 4.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | | 133,844 | | | 125,221 | | | 8,623 | | | 6.9 | % |
Loss on impairments | | | | | | | | | | | | | | | | | 9,757 | | | 2,934 | | | 6,823 | | | 232.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
Other expenses | | | | | | | | | | | | | | | | | 1,284 | | | 864 | | | 420 | | | 48.6 | % |
Total other expenses | | | | | | | | | | | | | | | | | 171,608 | | | 154,656 | | | 16,952 | | | 11.0 | % |
Total expenses | | | | | | | | | | | | | | | | | 226,231 | | | 205,391 | | | 20,840 | | | 10.1 | % |
Other income (expense) | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest and other income | | | | | | | | | | | | | | | | | 30 | | | 16 | | | 14 | | | 87.5 | % |
Interest expense | | | | | | | | | | | | | | | | | (39,080) | | | (35,602) | | | (3,478) | | | 9.8 | % |
Loss on extinguishment of debt | | | | | | | | | | | | | | | | | — | | | (13) | | | 13 | | | (100.0) | % |
Gain on the sales of rental property, net | | | | | | | | | | | | | | | | | 3,261 | | | 32,276 | | | (29,015) | | | (89.9) | % |
Total other income (expense) | | | | | | | | | | | | | | | | | (35,789) | | | (3,323) | | | (32,466) | | | 977.0 | % |
Net income | | | | | | | | | | | | | | | | | | $ | 32,749 | | | $ | 48,989 | | | $ | (16,240) | | | (33.2) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Same Store Portfolio | | | | | | | | Acquisitions/Dispositions | | | | Other | | | | Total Portfolio | | | | | | |
| Six months ended June 30, | | | | Change | | | | Six months ended June 30, | | | | Six months ended June 30, | | | | Six months ended June 30, | | | | Change | | |
| 2020 | | 2019 | | $ | | % | | 2020 | | 2019 | | 2020 | | 2019 | | 2020 | | 2019 | | $ | | % |
Revenue | | | | | | | | | | | | | | | | | | | | | | | |
Operating revenue | | | | | | | | | | | | | | | | | | | | | | | |
Rental income | $ | 181,045 | | | $ | 179,748 | | | $ | 1,297 | | | 0.7 | % | | $ | 48,767 | | | $ | 8,912 | | | $ | 5,998 | | | $ | 3,317 | | | $ | 235,810 | | | $ | 191,977 | | | $ | 43,833 | | | 22.8 | % |
Other income | 271 | | | 332 | | | (61) | | | (18.4) | % | | 45 | | | 39 | | | 39 | | | — | | | 355 | | | 371 | | | (16) | | | (4.3) | % |
Total operating revenue | 181,316 | | | 180,080 | | | 1,236 | | | 0.7 | % | | 48,812 | | | 8,951 | | | 6,037 | | | 3,317 | | | 236,165 | | | 192,348 | | | 43,817 | | | 22.8 | % |
Expenses | | | | | | | | | | | | | | | | | | | | | | | |
Property | 32,352 | | | 32,608 | | | (256) | | | (0.8) | % | | 7,560 | | | 2,080 | | | 2,427 | | | 1,778 | | | 42,339 | | | 36,466 | | | 5,873 | | | 16.1 | % |
Net operating income (1) | $ | 148,964 | | | $ | 147,472 | | | $ | 1,492 | | | 1.0 | % | | $ | 41,252 | | | $ | 6,871 | | | $ | 3,610 | | | $ | 1,539 | | | 193,826 | | | 155,882 | | | 37,944 | | | 24.3 | % |
Other expenses | | | | | | | | | | | | | | | | | | | | | | | |
General and administrative | | | | | | | | | | | | | | | | | 19,779 | | | 17,799 | | | 1,980 | | | 11.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | | | | | | 106,294 | | | 86,936 | | | 19,358 | | | 22.3 | % |
Loss on impairments | | | | | | | | | | | | | | | | | — | | | 5,344 | | | (5,344) | | | (100.0) | % |
Other expenses | | | | | | | | | | | | | | | | | 1,064 | | | 826 | | | 238 | | | 28.8 | % |
Total other expenses | | | | | | | | | | | | | | | | | 127,137 | | | 110,905 | | | 16,232 | | | 14.6 | % |
Total expenses | | | | | | | | | | | | | | | | | 169,476 | | | 147,371 | | | 22,105 | | | 15.0 | % |
Other income (expense) | | | | | | | | | | | | | | | | | | | | | | | |
Interest and other income | | | | | | | | | | | | | | | | | 235 | | | 18 | | | 217 | | | 1,205.6 | % |
Interest expense | | | | | | | | | | | | | | | | | (30,197) | | | (25,027) | | | (5,170) | | | 20.7 | % |
Loss on extinguishment of debt | | | | | | | | | | | | | | | | | (834) | | | — | | | (834) | | | 100.0 | % |
Gain on involuntary conversion | | | | | | | | | | | | | | | | | 657 | | | — | | | 657 | | | 100.0 | % |
Gain on the sales of rental property, net | | | | | | | | | | | | | | | | | 47,804 | | | 1,591 | | | 46,213 | | | 2,904.7 | % |
Total other income (expense) | | | | | | | | | | | | | | | | | 17,665 | | | (23,418) | | | 41,083 | | | (175.4) | % |
Net income | | | | | | | | | | | | | | | | | $ | 84,354 | | | $ | 21,559 | | | $ | 62,795 | | | 291.3 | % |
(1)For a detailed discussion of NOI, including the reasons management believes NOI is useful to investors, see “Non-GAAP Financial Measures” below.
Net Income
Net income for our total portfolio decreasedincreased by $16.2$62.8 million or 33.2%291.3% to $32.7$84.4 million for the ninesix months ended SeptemberJune 30, 20192020 compared to $49.0$21.6 million for the ninesix months ended SeptemberJune 30, 2018.2019.
Same Store Total Operating Revenue
Same store total operating revenue consists primarily of rental income consisting of (i) fixed lease payments, variable lease payments, straight-line rental income, and above and below market lease amortization from our properties (“lease income”), and (ii) other tenant billings for insurance, real estate taxes and certain other expenses (“other billings”).
For a detailed reconciliation of our same store total operating revenue to net income, see the table above.
Same store rental income, which is comprised of lease income and other billings as discussed below, increased by $4.2$1.3 million or 1.9%0.7% to $226.9$181.0 million for the ninesix months ended SeptemberJune 30, 20192020 compared to $222.6$179.7 million for the ninesix months ended SeptemberJune 30, 2018.2019.
Same store lease income increased by $2.0$1.5 million or 1.1%0.9% to $191.3$153.5 million for the ninesix months ended SeptemberJune 30, 20192020 compared to $189.3$152.0 million for the ninesix months ended SeptemberJune 30, 2018.2019. Approximately $5.8$4.7 million of the increase was attributable to rental increases due to new leases and renewals of existing tenants and approximately $0.3 million due to a net decrease in the amortization of net above market leases.tenants. This increase was partially offset by ana reduction of rental income of approximately $4.1$1.7 million for certain leases in which we determined that the future collectability was not reasonably assured, and accordingly we converted to the cash basis of accounting and reversed any accounts receivable and accrued rent balances into rental income and did not recognize revenue for payments that were not received from the tenants. Rental income also decreased by approximately $1.5 million decrease due to a reduction of base rent due to tenants downsizing their spaces and vacancies.
Same store other billings increaseddecreased by $2.2$0.2 million or 6.6%0.5% to $35.5$27.5 million for the ninesix months ended SeptemberJune 30, 20192020 compared to $33.3$27.7 million for the ninesix months ended SeptemberJune 30, 2018.2019. The increasedecrease was primarily attributable to an increasea decrease in the reimbursement of real estate taxes of approximately $0.3 million due to a decrease in real estate taxes levied by the taxing authority and changes to lease terms where we began paying the real estate taxes and operating expenses on behalf of tenants that had previously paid its taxes and operating expenses directly to respective vendors of approximately $2.4 million.vacancy. This increasedecrease was partially offset by a decreasean increase of approximately $0.2 million$0.1 related to tenant specific billings that occurred during the nine months ended September 30, 2019 that did not recur during the nine months ended September 30, 2018.
Same store other income decreased by $0.4 million or 49.9%expense reimbursements due to $0.4 million for the nine months ended September 30, 2019 compared to $0.8 million for the nine months ended September 30, 2018. This decrease is primarily the result of income received in 2018 for settlements or other sums received from former tenants which did not recur in 2019.new leases.
Same Store Operating Expenses
Same store operating expenses consist primarily of property operating expenses and real estate taxes and insurance.
For a detailed reconciliation of our same store operating expenses to net income, see the table above.
Total same store operating expenses increaseddecreased by $2.3$0.3 million or 5.6%0.8% to $42.6$32.4 million for the ninesix months ended SeptemberJune 30, 20192020 compared to $40.3$32.6 million for the ninesix months ended SeptemberJune 30, 2018.2019. This increasedecrease was primarily related to increases in real estate taxes levied by the related taxing authority and changes to lease terms where we began paying the real estate taxes on behalf of tenants that had previously paid its taxes directly to the taxing authority of approximately $2.8 million, an increasea decrease in snow removal and other expensesexpense of approximately $0.51.0 million, andas well as a decrease in utility expense of approximately $0.1 million. These decreases were partially offset by an increase in repairs and maintenance expense of approximately $0.4 million. These increases were partially offset by a decrease in insurance$0.7 million and utility expensesreal estate taxes of approximately $1.4$0.1 million.
Acquisitions and Dispositions Net Operating Income
For a detailed reconciliation of our acquisitions and dispositions NOI to net income, see the table above.
Subsequent to December 31, 2017,2018, we acquired 9575 buildings consisting of approximately 19.616.6 million square feet (excluding fourfive buildings that were included in the Value Add Portfolio at SeptemberJune 30, 20192020 or transferred from the Value Add Portfolio to the Operating Portfolio after December 31, 2017)2018), and sold 2513 buildings and two land parcels consisting of approximately 5.02.8 million square feet. For the ninesix months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 2018,2019, the buildings acquired after December 31, 20172018 contributed approximately $49.9$41.5 million and $9.0$4.9 million to NOI, respectively. For the ninesix months ended
September June 30, 20192020 and SeptemberJune 30, 2018,2019, the buildings sold after December 31, 20172018 contributed approximately $0.1$(0.2) million and $9.8$2.0 million to NOI, respectively. Refer to Note 3 in the accompanying Notes to Consolidated Financial Statements for additional discussion regarding buildings acquired or sold.
Other Net Operating Income
Our other assets include our flex/office buildings, Value Add Portfolio, and Operating Portfolio buildings with expansions placed in service or transferred from the Value Add Portfolio to the Operating Portfolio after December 31, 2017.2018. Other NOI also includes termination, solar, and other income adjustments from buildings in our same store portfolio.
For a detailed reconciliation of our other NOI to net income, see the table above.
At SeptemberJune 30, 2019,2020, we owned eight flex/office buildings consisting of approximately 0.4 million square feet, fourthree buildings in our Value Add Portfolio consisting of approximately 1.10.6 million square feet, and sixthree buildings consisting of approximately 1.70.8 million square feet that were Operating Portfolio buildings with expansions placed in service or transferred from the Value Add Portfolio to the Operating Portfolio after December 31, 2017.2018. These buildings contributed approximately $5.7$2.8 million and $5.4$1.4 million to NOI for the ninesix months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 2018,2019, respectively. Additionally, there was $(0.2)$0.8 million and $(0.3)$0.1 million of termination, solar, and other income adjustments from certain buildings in our same store portfolio for the ninesix months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 2018,2019, respectively.
Total Other Expenses
Total other expenses consist of general and administrative expenses, depreciation and amortization, loss on impairments, and other expenses.
Total other expenses increased $17.0$16.2 million or 11.0%14.6% to $171.6$127.1 million for the ninesix months ended SeptemberJune 30, 20192020 compared to $154.7$110.9 million for the ninesix months ended SeptemberJune 30, 2018.2019. This is primarily a result of an increase in depreciation and amortization of approximately $8.6$19.4 million as a result of net acquisitions that increased the depreciable asset base, as well as an increase of approximately $6.8$2.0 million in loss on impairments. Generalgeneral and administrative expenses increased by approximately $1.1 millionexpense primarily due to increases in compensation and other payroll costs. These increases were partially offset by a reduction in loss on impairments of approximately $5.3 million as there were no loss on impairments recognized during the six months June 30, 2020.
Total Other Income (Expense)
Total other income (expense) consists of interest and other income, interest expense, loss on extinguishment of debt, gain on involuntary conversion, and gain on the sales of rental property, net. Interest expense includes interest incurred during the period as well as adjustments related to amortization of financing fees and debt issuance costs, and amortization of fair market value adjustments associated with the assumption of debt.
Total net other expense increased $32.5$41.1 million or 977.0%175.4% to $35.8a total net other income of $17.7 million for the ninesix months ended SeptemberJune 30, 20192020 compared to $3.3$23.4 million total net other expense for the ninesix months ended SeptemberJune 30, 2018.2019. This increase is primarily the result of a decreaseincrease in the gain on the sales of rental property, net of approximately $29.0 million. This$46.2 million and a gain on involuntary conversion of approximately $0.7 million related to an eminent domain taking of a portion of a parcel of land that occurred during the six months ended June 30, 2020. Additionally, there was an increase is also attributableof approximately $0.2 million in interest and other income due to an increased cash and cash equivalents balance during the six months ended June 30, 2020 compared to the six months ended June 30, 2019. These increases were partially offset by an increase in interest expense of approximately $3.5$5.2 million which was primarily attributable to the funding of unsecured term loans on March 28, 2018, July 27, 2018,25, 2020, December 18, 2019, and July 25, 2019,2019. Additionally we recognized a loss on extinguishment of debt of approximately $0.8 million during the six months ended June 30, 2020 that was primarily related to the refinance of the Unsecured Term Loan B and the fundingUnsecured Term Loan C on April 17, 2020, as discussed in Note 4 of unsecured notes on June 13, 2018 during the nine months ended September 30, 2019 as compared the nine months ended September 30, 2018.accompanying Notes to Consolidated Financial Statements.
Non-GAAP Financial Measures
In this report, we disclose funds from operations (“FFO”) and NOI, which meet the definition of “non-GAAP financial measures” as set forth in Item 10(e) of Regulation S-K promulgated by the Securities and Exchange Commission (“SEC”). As a result, we are required to include in this report a statement of why management believes that presentation of these measures provides useful information to investors.
Funds From Operations
FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, and we believe that to understand our performance further, FFO should be compared with our reported net income (loss) in accordance with GAAP, as presented in our consolidated financial statements included in this report.
We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”). FFO represents GAAP net income (loss), excluding gains (or losses) from sales of depreciable operating buildings, land sales, impairment write-downs of depreciable real estate, real estate related depreciation and amortization (excluding amortization of deferred financing costs and fair market value of debt adjustment) and after adjustments for unconsolidated partnerships and joint ventures.
Management uses FFO as a supplemental performance measure because it is a widely recognized measure of the performance of REITs. FFO may be used by investors as a basis to compare our operating performance with that of other REITs.
However, because FFO excludes depreciation and amortization and captures neither the changes in the value of our buildings that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our buildings, all of which have real economic effects and could materially impact our results from operations, the utility of FFO as a measure of our performance is limited. In addition, other REITs may not calculate FFO in accordance with the NAREIT definition, and, accordingly, our FFO may not be comparable to such other REITs’ FFO. FFO should not be used as a measure of our liquidity, and is not indicative of funds available for our cash needs, including our ability to pay dividends.
The following table sets forth a reconciliation of our FFO attributable to common stockholders and unit holders for the periods presented to net income, the nearest GAAP equivalent.
| | | Three months ended September 30, | | | Nine months ended September 30, | | | Three months ended June 30, | | | Six months ended June 30, | |
Reconciliation of Net Income to FFO (in thousands) | Reconciliation of Net Income to FFO (in thousands) | | | 2019 | | 2018 | | 2019 | | 2018 | Reconciliation of Net Income to FFO (in thousands) | | 2020 | | 2019 | | 2020 | | 2019 |
Net income | Net income | | | $ | 11,190 | | | $ | 8,876 | | | $ | 32,749 | | | $ | 48,989 | | Net income | | $ | 19,316 | | | $ | 14,170 | | | $ | 84,354 | | | $ | 21,559 | |
Rental property depreciation and amortization | Rental property depreciation and amortization | | 46,834 | | | 44,281 | | | 133,622 | | | 124,999 | | Rental property depreciation and amortization | | 53,537 | | | 44,559 | | | 106,154 | | | 86,788 | |
Loss on impairments | Loss on impairments | | 4,413 | | | — | | | 9,757 | | | 2,934 | | Loss on impairments | | — | | | — | | | — | | | 5,344 | |
Gain on the sales of rental property, net | Gain on the sales of rental property, net | | (1,670) | | | (3,239) | | | (3,261) | | | (32,276) | | Gain on the sales of rental property, net | | (1,045) | | | (317) | | | (47,804) | | | (1,591) | |
FFO | FFO | | 60,767 | | | 49,918 | | | 172,867 | | | 144,646 | | FFO | | 71,808 | | | 58,412 | | | 142,704 | | | 112,100 | |
Preferred stock dividends | Preferred stock dividends | | (1,289) | | | (1,289) | | | (3,867) | | | (6,315) | | Preferred stock dividends | | (1,289) | | | (1,289) | | | (2,578) | | | (2,578) | |
Redemption of preferred stock | | — | | | — | | | — | | | (2,661) | | |
| Amount allocated to restricted shares of common stock and unvested units | Amount allocated to restricted shares of common stock and unvested units | | (218) | | | (172) | | | (697) | | | (587) | | Amount allocated to restricted shares of common stock and unvested units | | (196) | | | (232) | | | (406) | | | (479) | |
FFO attributable to common stockholders and unit holders | FFO attributable to common stockholders and unit holders | | | $ | 59,260 | | | $ | 48,457 | | | $ | 168,303 | | | $ | 135,083 | | FFO attributable to common stockholders and unit holders | | $ | 70,323 | | | $ | 56,891 | | | $ | 139,720 | | | $ | 109,043 | |
Net Operating Income
We consider NOI to be an appropriate supplemental performance measure to net income (loss) because we believe it helps investors and management understand the core operations of our buildings. NOI is defined as rental income, which includes billings for common area maintenance, real estate taxes and insurance, less property expenses and real estate taxes and insurance. NOI should not be viewed as an alternative measure of our financial performance since it excludes expenses which could materially impact our results of operations. Further, our NOI may not be comparable to that of other real estate companies, as they may use different methodologies for calculating NOI.
The following table sets forth a reconciliation of our NOI for the periods presented to net income, the nearest GAAP equivalent.
| | | Three months ended September 30, | | | Nine months ended September 30, | | | Three months ended June 30, | | | Six months ended June 30, | |
Reconciliation of Net Income to NOI (in thousands) | Reconciliation of Net Income to NOI (in thousands) | | 2019 | | 2018 | | 2019 | | 2018 | Reconciliation of Net Income to NOI (in thousands) | | 2020 | | 2019 | | 2020 | | 2019 |
Net income | Net income | | | $ | 11,190 | | | $ | 8,876 | | | $ | 32,749 | | | $ | 48,989 | | Net income | | $ | 19,316 | | | $ | 14,170 | | | $ | 84,354 | | | $ | 21,559 | |
| General and administrative | General and administrative | | 8,924 | | | 8,911 | | | 26,723 | | | 25,637 | | General and administrative | | 9,406 | | | 8,587 | | | 19,779 | | | 17,799 | |
Transaction costs | Transaction costs | | 94 | | | 94 | | | 247 | | | 170 | | Transaction costs | | 8 | | | 79 | | | 59 | | | 153 | |
Depreciation and amortization | Depreciation and amortization | | 46,908 | | | 44,355 | | | 133,844 | | | 125,221 | | Depreciation and amortization | | 53,606 | | | 44,633 | | | 106,294 | | | 86,936 | |
Interest and other income | Interest and other income | | (12) | | | (3) | | | (30) | | | (16) | | Interest and other income | | (156) | | | (2) | | | (235) | | | (18) | |
Interest expense | Interest expense | | 14,053 | | | 12,698 | | | 39,080 | | | 35,602 | | Interest expense | | 15,333 | | | 12,193 | | | 30,197 | | | 25,027 | |
Loss on impairments | Loss on impairments | | 4,413 | | | — | | | 9,757 | | | 2,934 | | Loss on impairments | | — | | | — | | | — | | | 5,344 | |
| Gain on involuntary conversion | | Gain on involuntary conversion | | (657) | | | — | | | (657) | | | — | |
Loss on extinguishment of debt | Loss on extinguishment of debt | | — | | | 13 | | | — | | | 13 | | Loss on extinguishment of debt | | 834 | | | — | | | 834 | | | — | |
Other expenses | Other expenses | | 364 | | | 129 | | | 1,037 | | | 694 | | Other expenses | | 580 | | | 348 | | | 1,005 | | | 673 | |
| Gain on the sales of rental property, net | Gain on the sales of rental property, net | | (1,670) | | | (3,239) | | | (3,261) | | | (32,276) | | Gain on the sales of rental property, net | | (1,045) | | | (317) | | | (47,804) | | | (1,591) | |
Net operating income | Net operating income | | $ | 84,264 | | | $ | 71,834 | | | $ | 240,146 | | | $ | 206,968 | | Net operating income | | $ | 97,225 | | | $ | 79,691 | | | $ | 193,826 | | | $ | 155,882 | |
Cash Flows
Comparison of the ninesix months ended SeptemberJune 30, 20192020 to the ninesix months ended SeptemberJune 30, 20182019
The following table summarizes our cash flows for the ninesix months ended SeptemberJune 30, 20192020 compared to the ninesix months ended SeptemberJune 30, 2018.2019.
| | | | Nine months ended September 30, | | | Change | | | | Six months ended June 30, | | | Change | |
Cash Flows (dollars in thousands) | Cash Flows (dollars in thousands) | | 2019 | | 2018 | | $ | | % | Cash Flows (dollars in thousands) | | 2020 | | 2019 | | $ | | % |
Net cash provided by operating activities | Net cash provided by operating activities | | | $ | 174,930 | | | $ | 148,610 | | | $ | 26,320 | | | 17.7 | % | Net cash provided by operating activities | | $ | 148,088 | | | $ | 110,571 | | | $ | 37,517 | | | 33.9 | % |
Net cash used in investing activities | Net cash used in investing activities | | | $ | 765,675 | | | $ | 393,250 | | | $ | 372,425 | | | 94.7 | % | Net cash used in investing activities | | $ | 55,089 | | | $ | 444,544 | | | $ | (389,455) | | | (87.6) | % |
Net cash provided by financing activities | Net cash provided by financing activities | | | $ | 577,476 | | | $ | 227,766 | | | $ | 349,710 | | | 153.5 | % | Net cash provided by financing activities | | $ | 9,739 | | | $ | 321,026 | | | $ | (311,287) | | | (97.0) | % |
Net cash provided by operating activities increased $26.3$37.5 million to $174.9$148.1 million for the ninesix months ended SeptemberJune 30, 20192020 compared to $148.6$110.6 million for the ninesix months ended SeptemberJune 30, 2018.2019. The increase was primarily attributable to incremental operating cash flows from property acquisitions completed after SeptemberJune 30, 2018,2019, and operating performance at existing properties. These increases were partially offset by the loss of cash flows from property dispositions completed after SeptemberJune 30, 20182019 and fluctuations in working capital due to timing of payments and rental receipts.
Net cash used in investing activities increased $372.4decreased $389.5 million to $765.7$55.1 million for the ninesix months ended SeptemberJune 30, 20192020 compared to $393.3$444.5 million for the ninesix months ended SeptemberJune 30, 2018.2019. The increased cash outflowdecrease was primarily due to the acquisition of 46 buildings for a total cash consideration of approximately $748.0 million for the nine months ended September 30, 2019 compared to the acquisition of 36 buildings for a total cash consideration of approximately $458.4 million for the nine months ended September 30, 2018. The increase is also attributable to a decreasean increase in net proceeds from the sales of rental property, net related to the disposition of four buildings during the six months ended June 30, 2020 for net proceeds of approximately $101.9 million, compared to the six months ended June 30, 2019 where we sold five buildings and two land parcels during the nine months ended September 30, 2019 for net proceeds of approximately $23.7$17.7 million. The decrease was also attributable to the acquisition of 11 buildings for a total cash consideration of approximately $131.1 million for the six months ended June 30, 2020 compared to the nineacquisition of 24 buildings for a total cash consideration of approximately $445.4 million for the six months ended SeptemberJune 30, 2018 where we sold 11 buildings for net proceeds of approximately $89.4 million.2019.
Net cash provided by financing activities increased $349.7decreased $311.3 million to $577.5$9.7 million for the ninesix months ended SeptemberJune 30, 20192020 compared to $227.8$321.0 million for the ninesix months ended SeptemberJune 30, 2018.2019. The increasedecrease is primarily attributable to an increasea decrease of net proceeds from the sales of common stock of approximately $295.1$212.3 million, and a decreasean increase of net cash outflow on our unsecured credit facility of approximately $153.5$174.5 million, and an increase of approximately $21.9 million in dividends paid during the ninesix months ended SeptemberJune 30, 20192020 compared to the ninesix months ended SeptemberJune 30, 2018. Additionally, the increase is also attributable to a decrease in cash used for the redemption of preferred stock of $70.0 million during the nine months ended September 30, 2018 which did not recur during the nine months ended September 30, 2019, and2019. These increases were partially offset by an increase ofin proceeds from unsecured term loans of approximately $25.0$100.0 million during the ninesix months ended SeptemberJune 30, 20192020 compared to the ninesix months ended SeptemberJune 30, 2018. These increases were partially offset by a decrease in proceeds from unsecured term notes2019.
Liquidity and Capital Resources
We believe that our liquidity needs will be satisfied through cash flows generated by operations, disposition proceeds, and financing activities. Operating cash flow is primarily rental income, expense recoveries from tenants, and other income from operations and is our principal source of funds that we use to pay operating expenses, debt service, recurring capital expenditures and the distributions required to maintain our REIT qualification. We look to the capital markets (common equity, preferred equity, and debt) to primarily fund our acquisition activity. We seek to increase cash flows from our properties by maintaining quality standards for our buildings that promote high occupancy rates and permit increases in rental rates while reducing tenant turnover and controlling operating expenses. We believe that our revenue, together with proceeds from building sales and debt and equity financings, will continue to provide funds for our short-term and medium-term liquidity needs.
Our short-term liquidity requirements consist primarily of funds to pay for operating expenses and other expenditures directly associated with our buildings, including interest expense, interest rate swap payments, scheduled principal payments on outstanding indebtedness, funding of property acquisitions under contract, general and administrative expenses, and capital expenditures for tenant improvements and leasing commissions.
Our long-term liquidity needs, in addition to recurring short-term liquidity needs as discussed above, consist primarily of funds necessary to pay for acquisitions, non-recurring capital expenditures, and scheduled debt maturities. We intend to satisfy our
long-term liquidity needs through cash flow from operations, the issuance of equity or debt securities, other borrowings, property dispositions, or, in connection with acquisitions of certain additional buildings, the issuance of common units in the Operating Partnership.
In response to the COVID-19 pandemic, we have worked to ensure that we maintain adequate liquidity. On April 17, 2020 we refinanced the Unsecured Term Loan B and the Unsecured Term Loan C, as discussed in “Indebtedness Outstanding” below. When incorporating the remaining undrawn balance available on our unsecured credit facility, the approximately $134.4 million of forward equity proceeds available to us at our option through January 13, 2021, and unused 1031 like-kind exchange proceeds, our total liquidity as of June 30, 2020 was approximately $741.4 million, with a material amount of that liquidity comprised of cash and cash equivalents.
As of SeptemberJune 30, 2019,2020, we had total immediate liquidity of approximately $622.5$599.1 million, comprised of $6.5$102.1 million of cash and cash equivalents and $616.0$497.0 million of immediate availability on our unsecured credit facility and unsecured term loans.facility.
In addition, we require funds for future dividends to be paid to our common and preferred stockholders and unit holders in the Operating Partnership. These distributions on our common stock are voluntary (at the discretion of our board of directors), to the extent we have satisfied distribution requirements in order to maintain our REIT status for federal income tax purposes, and may be reduced or stopped if needed to fund other liquidity requirements or for other reasons. The following table summarizes the dividends attributable to our outstanding common stock that had a record date during the ninesix months ended SeptemberJune 30, 2019.2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Month Ended 20192020 | | Declaration Date | | Record Date | | Per Share | | Payment Date |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
September 30 | | July 15, 2019 | | September 30, 2019 | | $ | 0.119167 | | | October 15, 2019 |
August 31 | | July 15, 2019 | | August 30, 2019 | | 0.119167 | | | September 16, 2019 |
July 31 | | July 15, 2019 | | July 31, 2019 | | 0.119167 | | | August 15, 2019 |
June 30 | | April 9, 20192020 | | June 28, 201930, 2020 | | 0.119167$ | 0.12 | | | July 15, 20192020 |
May 31 | | April 9, 20192020 | | May 31, 201929, 2020 | | 0.1191670.12 | | | June 17, 201915, 2020 |
April 30 | | April 9, 20192020 | | April 30, 20192020 | | 0.1191670.12 | | | May 15, 20192020 |
March 31 | | January 10, 20198, 2020 | | March 29, 201931, 2020 | | 0.1191670.12 | | | April 15, 20192020 |
February 2829 | | January 10, 20198, 2020 | | February 28, 20192020 | | 0.1191670.12 | | | March 15, 201916, 2020 |
January 31 | | January 10, 20198, 2020 | | January 31, 20192020 | | 0.1191670.12 | | | February 15, 201918, 2020 |
Total | | | | | | $ | 1.0725030.72 | | | |
On October 15, 2019,July 9, 2020, our board of directors declared the common stock dividends for the months ending OctoberJuly 31, 2019, November2020, August 31, 2020, and September 30, 2019, and December 31, 20192020 at a monthly rate of $0.119167$0.12 per share of common stock.
During the ninesix months ended SeptemberJune 30, 2019,2020, we declared quarterly cumulative dividends on the 6.875% Series C Cumulative Redeemable Preferred Stock (“Series C Preferred Stock”) at a rate equivalent to the fixed annual rate of $1.71875 per share. The following table summarizes the dividends on the Series C Preferred Stock during the ninesix months ended SeptemberJune 30, 2019.
2020.
| | | | | | | | | | | | | | | | | | | | |
Quarter Ended 20192020 | | Declaration Date | | Series C Preferred Stock Per Share | | Payment Date |
| | | | | | |
| | | | | | |
| | | | | | |
SeptemberJune 30 | | July 15, 2019April 9, 2020 | | $ | 0.4296875 | | | SeptemberJune 30, 20192020 |
June 30March 31 | | April 9, 2019January 8, 2020 | | 0.4296875 | | | July 1, 2019 |
March 31, | | January 10, 2019 | | 0.4296875 | | | April 1, 2019 2020 |
Total | | | | $ | 1.28906250.8593750 | | | |
On October 15, 2019,July 9, 2020, our board of directors declared the Series C Preferred Stock dividends for the quarter ending December 31, 2019September 30, 2020 at a quarterly rate of $0.4296875 per share.
Indebtedness Outstanding
The following table summarizes certain information with respect to our indebtedness outstanding as of SeptemberJune 30, 20192020
| Loan | Loan | | Principal Outstanding as of September 30, 2019 (in thousands) | | Interest Rate (1)(2) | | Maturity Date | | | Prepayment Terms (3) | Loan | | Principal Outstanding as of June 30, 2020 (in thousands) | | Interest Rate(1)(2) | | Maturity Date | | Prepayment Terms(3) |
Unsecured credit facility: | Unsecured credit facility: | | | | | | | | | Unsecured credit facility: | | | | | | | | |
Unsecured Credit Facility (4) | Unsecured Credit Facility (4) | | $ | 78,000 | | | L + 0.90% | | | January 15, 2023 | | i | Unsecured Credit Facility(4) | | $ | — | | | L + 0.90% | | January 12, 2024 | | i |
Total unsecured credit facility | Total unsecured credit facility | | 78,000 | | | | | | | | | Total unsecured credit facility | | — | | |
| | | | | | | | | | | | | |
Unsecured term loans: | Unsecured term loans: | | | | | | | | | | Unsecured term loans: | |
Unsecured Term Loan C | | | 150,000 | | | 2.39 | % | | September 29, 2020 | | i | |
Unsecured Term Loan B | | | 150,000 | | | 3.05 | % | | March 21, 2021 | | i | |
Unsecured Term Loan A | Unsecured Term Loan A | | | 150,000 | | | 2.70 | % | | March 31, 2022 | | i | Unsecured Term Loan A | | 150,000 | | | 3.38 | % | | March 31, 2022 | | i |
Unsecured Term Loan D | Unsecured Term Loan D | | 150,000 | | | 2.85 | % | | January 4, 2023 | | i | Unsecured Term Loan D | | 150,000 | | | 2.85 | % | | January 4, 2023 | | i |
Unsecured Term Loan G(5) | | Unsecured Term Loan G(5) | | 300,000 | | | 3.31 | % | | April 18, 2023 | | i |
Unsecured Term Loan E | Unsecured Term Loan E | | 175,000 | | | 3.92 | % | | January 15, 2024 | | i | Unsecured Term Loan E | | 175,000 | | | 3.92 | % | | January 15, 2024 | | i |
Unsecured Term Loan F (5) | | — | | | 3.11 | % | | January 12, 2025 | | i | |
Unsecured Term Loan F | | Unsecured Term Loan F | | 200,000 | | | L + 1.00% | | January 12, 2025 | | i |
Total unsecured term loans | Total unsecured term loans | | 775,000 | | | | | | | | | Total unsecured term loans | | 975,000 | | |
Less: Total unamortized deferred financing fees and debt issuance costs | Less: Total unamortized deferred financing fees and debt issuance costs | | (3,963) | | | | | | | | | Less: Total unamortized deferred financing fees and debt issuance costs | | (4,718) | | |
Total carrying value unsecured term loans, net | Total carrying value unsecured term loans, net | | 771,037 | | | | | | | | | Total carrying value unsecured term loans, net | | 970,282 | | |
| | | | | | | | | | | |
Unsecured notes: | Unsecured notes: | | | | | | | | | | Unsecured notes: | |
Series F Unsecured Notes | Series F Unsecured Notes | | | 100,000 | | | 3.98 | % |
| January 5, 2023 | | ii | Series F Unsecured Notes | | 100,000 | | | 3.98 | % |
| January 5, 2023 | | ii |
Series A Unsecured Notes | Series A Unsecured Notes | | | 50,000 | | | 4.98 | % | | October 1, 2024 | | ii | Series A Unsecured Notes | | 50,000 | | | 4.98 | % | | October 1, 2024 | | ii |
Series D Unsecured Notes | Series D Unsecured Notes | | | 100,000 | | | 4.32 | % | | February 20, 2025 | | ii | Series D Unsecured Notes | | 100,000 | | | 4.32 | % | | February 20, 2025 | | ii |
Series G Unsecured Notes | Series G Unsecured Notes | | 75,000 | | | 4.10 | % | | June 13, 2025 | | ii | Series G Unsecured Notes | | 75,000 | | | 4.10 | % | | June 13, 2025 | | ii |
Series B Unsecured Notes | Series B Unsecured Notes | | | 50,000 | | | 4.98 | % | | July 1, 2026 | | ii | Series B Unsecured Notes | | 50,000 | | | 4.98 | % | | July 1, 2026 | | ii |
Series C Unsecured Notes | Series C Unsecured Notes | | | 80,000 | | | 4.42 | % | | December 30, 2026 | | ii | Series C Unsecured Notes | | 80,000 | | | 4.42 | % | | December 30, 2026 | | ii |
Series E Unsecured Notes | Series E Unsecured Notes | | | 20,000 | | | 4.42 | % | | February 20, 2027 | | ii | Series E Unsecured Notes | | 20,000 | | | 4.42 | % | | February 20, 2027 | | ii |
Series H Unsecured Notes | Series H Unsecured Notes | | 100,000 | | | 4.27 | % | | June 13, 2028 | | ii | Series H Unsecured Notes | | 100,000 | | | 4.27 | % | | June 13, 2028 | | ii |
Total unsecured notes | Total unsecured notes | | 575,000 | | | | |
| | | | Total unsecured notes | | 575,000 | | |
| |
Less: Total unamortized deferred financing fees and debt issuance costs | Less: Total unamortized deferred financing fees and debt issuance costs | | (2,217) | | | | |
| | | | Less: Total unamortized deferred financing fees and debt issuance costs | | (1,918) | | |
| |
Total carrying value unsecured notes, net | Total carrying value unsecured notes, net | | 572,783 | | | | |
| | | | Total carrying value unsecured notes, net | | 573,082 | | |
| |
| | | | | | |
| | | | | | |
| |
Mortgage notes (secured debt): | Mortgage notes (secured debt): | | | | | | |
| | | | Mortgage notes (secured debt): | |
| |
Wells Fargo Bank, National Association CMBS Loan | Wells Fargo Bank, National Association CMBS Loan | | 51,861 | | | 4.31 | % | | December 1, 2022 | | iii | Wells Fargo Bank, National Association CMBS Loan | | 49,473 | | | 4.31 | % | | December 1, 2022 | | iii |
Thrivent Financial for Lutherans | Thrivent Financial for Lutherans | | 3,709 | | | 4.78 | % | | December 15, 2023 | | iv | Thrivent Financial for Lutherans | | 3,619 | | | 4.78 | % | | December 15, 2023 | | iv |
Total mortgage notes | Total mortgage notes | | 55,570 | | | | | | | | Total mortgage notes | | 53,092 | | |
Add: Total unamortized fair market value premiums | Add: Total unamortized fair market value premiums | | 42 | | | | | | | | Add: Total unamortized fair market value premiums | | 34 | | |
Less: Total unamortized deferred financing fees and debt issuance costs | Less: Total unamortized deferred financing fees and debt issuance costs | | (402) | | | | | | | | Less: Total unamortized deferred financing fees and debt issuance costs | | (299) | | |
Total carrying value mortgage notes, net | Total carrying value mortgage notes, net | | 55,210 | | | | | | | | Total carrying value mortgage notes, net | | 52,827 | | |
Total / weighted average interest rate (6) | Total / weighted average interest rate (6) | | $ | 1,477,030 | | | 3.58 | % | | | | Total / weighted average interest rate(6) | | $ | 1,596,191 | | | 3.48 | % | |
(1)Interest rate as of SeptemberJune 30, 2019.2020. At SeptemberJune 30, 2019,2020, the one-month LIBOR (“L”) was 2.01563%0.16225%. The current interest rate is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums. The spread over the applicable rate for our unsecured credit facility and unsecured term loans is based on the our debt rating, as defined in the respective loan agreements.
(2)The unsecured term loans have a stated interest rate of one-month LIBOR plus a spread of 1.0%, with the exception of the Unsecured Term Loan G which has a spread of 1.5% and is subject to a minimum rate for LIBOR of 0.25%. As of SeptemberJune 30, 2019,2020, one-month LIBOR for the Unsecured Term Loans A, B, C, D E, and G was swapped to a fixed rate of 2.38%, 1.85%, 2.92%, and 1.72%, respectively. One-month LIBOR for the Unsecured Term Loan F was swapped to a fixed rate of 1.70%, 2.05%, 1.39%, 1.85%, 2.92%,2.11% effective July 15, 2020. One-month LIBOR for the Unsecured Term Loan G will be swapped to a fixed rate of 1.17% effective September 29, 2020 and 2.11%, respectively.0.28% effective March 19, 2021.
(3)Prepayment terms consist of (i) pre-payable with no penalty; (ii) pre-payable with penalty; (iii) pre-payable without penalty three months prior to the maturity date, however can be defeased; and (iv) pre-payable without penalty three months prior to the maturity date.
(4)The capacity of the unsecured credit facility is $500.0 million. The initial maturity date is January 15, 2023, which may be extended pursuant to two six-month extension options exercisable at our discretion upon advance written notice. Exercise of each six-month option is subject to the following conditions: (i) absence of a default immediately before the extension and immediately after giving effect to the extension, (ii) accuracy of representations and warranties as of the extension date (both immediately before and after the extension), as if made on the extension date, and (iii) payment of a fee. Neither extension option is subject to lender consent, assuming proper notice and satisfaction of the conditions.
(5)CapacityThe initial maturity date is April 16, 2021, which may be extended pursuant to two one-year extension options exercisable at our discretion upon advance written notice. Exercise of $200.0 million, which we have until July 12, 2020each one-year option is subject to draw.the following conditions: (i) absence of a default immediately before the extension and immediately after giving effect to the extension, (ii) accuracy of representations and warranties as of the extension date (both immediately before and after the extension), as if made on the extension date, and (iii) payment of a fee. Neither extension option is subject to lender consent, assuming proper notice and satisfaction of the conditions.
(6)The weighted average interest rate was calculated using the fixed interest rate swapped on the notional amount of $775.0 million of debt, and is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums.
The aggregate undrawn nominal commitments on the unsecured credit facility and unsecured term loans as of SeptemberJune 30, 20192020 was approximately $616.0$497.0 million, including issued letters of credit. Our actual borrowing capacity at any given point in time may be less and is restricted to a maximum amount based on our debt covenant compliance.
On July 25, 2019, we drew $175.0 million of the $175.0 million Unsecured Term Loan E that was entered into on July 26, 2018.
On July 12, 2019, we entered into the $200.0 million Unsecured Term Loan F. As of September 30, 2019, the interest rate on the Unsecured Term Loan F was LIBOR plus a spread of 1.00% based on the Company's debt rating, as defined in the loan agreement. Unless otherwise terminated pursuant to the loan agreement, the Unsecured Term Loan F will mature on January 12, 2025. The Unsecured Term Loan F has a feature that allows us to request an increase in the aggregate size of the unsecured term loan of up to $400.0 million, subject to the satisfaction of certain conditions and lender consents. The agreement includes a delayed draw feature that allows us to draw up to six advances of at least $25.0 million each until July 12, 2020. To the extent that we do not request advances of the $200.0 million of aggregate commitments by July 12, 2020, the unadvanced commitments terminate. The Unsecured Term Loan F has an unused commitment fee equal to 0.15% of its unused commitments, which began to accrue on October 10, 2019 and is due and payable monthly until the earlier of (i) the date that commitments of $200.0 million have been fully advanced, (ii) July 12, 2020, and (iii) the date that commitments of $200.0 million have been reduced to zero pursuant to the terms of the agreement. We are required to pay an annual fee of $35,000. We and certain wholly owned subsidiaries of the Operating Partnership are guarantors of the Unsecured Term Loan F. The agreement also contains financial and other covenants substantially similar to the covenants in our unsecured credit facility. As of September 30, 2019, there were no amounts outstanding under the Unsecured Term Loan F.
Our unsecured credit facility, unsecured term loans, unsecured notes, and mortgage notes are subject to ongoing compliance with a number of financial and other covenants. As of SeptemberJune 30, 2019,2020, we were in compliance with the applicable financial covenants.
On April 17, 2020, we entered into the $300.0 million Unsecured Term Loan G with Wells Fargo, National Association, as administrative agent on behalf of the various lenders under the agreement. In connection with execution of the Unsecured Term Loan G, the Unsecured Term Loan B and Unsecured Term Loan C were paid in full. As of June 30, 2020, the Unsecured Term Loan G bore an interest rate of LIBOR plus a spread of 1.5% based on our debt rating, as defined in the loan agreement, and subject to a minimum rate for LIBOR of 0.25%. The Unsecured Term Loan G matures on April 16, 2021, subject to two one-year extension options at our discretion, and subject to certain conditions (other than lender discretion) such as the absence of default and the payment of an extension fee. We intend to exercise both extension options. To exercise the extension options we are required pay a fee equal to (i) 0.15% of the outstanding amount on the effective day of the first extension period and (ii) 0.20% of the outstanding amount on the effective day of the second extension period. The Unsecured Term Loan G has an accordion feature that allows us to increase its borrowing capacity to $600.0 million, subject to the satisfaction of certain conditions and lender consents. The Company and certain wholly owned subsidiaries of the Operating Partnership are guarantors of the Unsecured Term Loan G. The agreement also contains financial and other covenants substantially similar to the covenants in our unsecured credit facility.
The following table summarizes our debt capital structure as of SeptemberJune 30, 2019.2020.
| | | | | | | | |
Debt Capital Structure | | SeptemberJune 30, 20192020 |
Total principal outstanding (in thousands) | | $ | 1,483,5701,603,092 | |
Weighted average duration (years) | | 4.03.9 | |
| | |
% Secured debt | | 43.3 | % |
% Debt maturing next 12 months | | 10— | % |
Net Debt to Real Estate Cost Basis(1) | | 3531.8 | % |
(1)We define Net Debt as our amounts outstanding under our unsecured credit facility, unsecured term loans, unsecured notes, and mortgage notes, less cash and cash equivalents. We define Real Estate Cost Basis as the book value of rental property and deferred leasing intangibles, exclusive of the related accumulated depreciation and amortization.
We regularly pursue new financing opportunities to ensure an appropriate balance sheet position. As a result of these dedicated efforts, we are confident in our ability to meet future debt maturities and building acquisition funding needs. We believe that our current balance sheet is in an adequate position at the date of this filing, despite possible volatility in the credit markets.
Our interest rate exposure as it relates to interest expense payments on our floating rate debt is managed through our use of interest rate swaps, which fix the rate of our long term floating rate debt. For a detailed discussion on our use of interest rate swaps, see “Interest Rate Risk” below.
Equity
Preferred Stock
The following table summarizes our outstanding preferred stock issuances as of SeptemberJune 30, 2019.
2020.
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Preferred Stock Issuances | | Issuance Date | | Number of Shares | | Liquidation Value Per Share | | Interest Rate |
| | | | | | | | |
| | | | | | | | |
Series C Preferred Stock | | March 17, 2016 | | 3,000,000 | | | $ | 25.00 | | | 6.875 | % |
On April 30, 2019, we filed Articles of Amendment to our Articles of Amendment and Restatement to increase the number of authorized shares of our preferred stock from 15,000,000 to 20,000,000.
Common Stock
The following table summarizes our at-the-market (“ATM”) common stock offering programsprogram as of SeptemberJune 30, 2019.2020. We may from time to time sell common stock through sales agents under the program.
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ATM Common Stock Offering Program | | Date | | Maximum Aggregate Offering Price (in thousands) | | Aggregate Common Stock Available as of September 30, 2019 (in thousands) |
2019 $600 million ATM | | February 14, 2019 | | $ | 600,000 | | | $ | 401,137 | |
On April 30, 2019, we filed Articles of Amendment to our Articles of Amendment and Restatement to increase the number of authorized shares of our common stock from 150,000,000 to 300,000,000.
The following table summarizes the There was no activity forunder the ATM common stock offering programsprogram during the three and nine months ended SeptemberJune 30, 2019 (in thousands, except share data).2020.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2019 | | | | | | | | |
ATM Common Stock Offering Program | | Shares Sold | | Weighted Average Price Per Share | | | | | | Net Proceeds |
2019 $600 million ATM | | 875,129 | | | $ | 30.39 | | | | | | | $ | 26,326 | |
| | | | | | | | | | |
Total/weighted average | | 875,129 | | | $ | 30.39 | | | | | | | $ | 26,326 | |
| | | | Nine months ended September 30, 2019 | | | | | | | | | | | | | | | | | | | | | |
ATM Common Stock Offering Program | ATM Common Stock Offering Program | | Shares Sold | | Weighted Average Price Per Share | | | Net Proceeds | ATM Common Stock Offering Program | | Date | | Maximum Aggregate Offering Price (in thousands) | | Aggregate Common Stock Available as of June 30, 2020 (in thousands) |
2019 $600 million ATM | 2019 $600 million ATM | | 7,022,332 | | | $ | 28.32 | | | | $ | 197,074 | | 2019 $600 million ATM | | February 14, 2019 | | $ | 600,000 | | | $ | 318,248 | |
| Total/weighted average | | 7,022,332 | | | $ | 28.32 | | | | $ | 197,074 | | |
On September 24, 2019,January 13, 2020, we completed an underwritten public offering of an aggregate 12,650,00010,062,500 shares of common stock at a price to the underwriters of $28.60$30.9022 per share, consisting of (i) 5,500,0005,600,000 shares offered directly by us and (ii) 7,150,0004,462,500 shares offered by the forward dealer in connection with certain forward sale agreements (including 1,650,0001,312,500 shares offered pursuant to the underwriters’ option to purchase additional shares, which option was exercised in full). The offering closed on September 27, 2019January 16, 2020 and we received net proceeds from the sale of shares offered directly by us of $157.3approximately $173.1 million. Subject to our right to elect cash or net share settlement, we expecthave the ability to settle the forward sales agreements and receive proceeds, subject to certain adjustments, from the sale of the those shares of common stock upon one or more such physical settlements within approximately six months from the date of the prospectus supplement relating to the offering, earlier than theat any time through scheduled maturity date of the forward sale agreements of September 24, 2020.
On April 1, 2019, we completed an underwritten public offering of 7,475,000 shares of common stock (including 975,000 shares issued pursuant to the underwriters’ option to purchase additional shares, which option was exercised in full) at a price to the underwriters of $28.72 per share. The offering closed on April 4, 2019 and we received net proceeds of approximately $214.7 million.January 13, 2021.
Noncontrolling Interest
We own our interests in all of our properties and conduct substantially all of our business through the Operating Partnership. We are the sole member of the sole general partner of the Operating Partnership. As of SeptemberJune 30, 2019,2020, we owned approximately 97.2%97.7% of the Operating Partnership, and our current and former executive officers, directors, senior employees and their affiliates, and third parties who contributed properties to us in exchange for common units in our Operating Partnership, owned the remaining 2.8%2.3%.
Interest Rate Risk
We use interest rate swaps to fix the rate of our variable rate debt. As of SeptemberJune 30, 2019,2020, all of our outstanding variable rate debt, with the exception of our unsecured credit facility,Unsecured Term Loan F was fixed with interest rate swaps through maturity. The Unsecured Term Loan F was swapped to a fixed rate effective July 15, 2020 through maturity.
We recognize all derivatives on the balance sheet at fair value. If the derivative is designated as a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income (loss), which is a component of equity. Derivatives that are not designated as hedges must be adjusted to fair value and the changes in fair value must be reflected as income or expense.
We have established criteria for suitable counterparties in relation to various specific types of risk. We only use counterparties that have a credit rating of no lower than investment grade at swap inception from Moody’s Investor Services, Standard & Poor’s, or Fitch Ratings or other nationally recognized rating agencies.
The following table details our outstanding interest rate swaps as of SeptemberJune 30, 2019.2020.
| Interest Rate Derivative Counterparty | Interest Rate Derivative Counterparty | | Trade Date | | Effective Date | | Notional Amount (in thousands) | | | Fair Value (in thousands) | | Pay Fixed Interest Rate | | Receive Variable Interest Rate | | Maturity Date | Interest Rate Derivative Counterparty | | Trade Date | | Effective Date | | Notional Amount (in thousands) | | Fair Value (in thousands) | | Pay Fixed Interest Rate | | Receive Variable Interest Rate | | Maturity Date |
Regions Bank | | Mar-01-2013 | | Mar-01-2013 | | | $ | 25,000 | | | $ | 51 | | | 1.3300 | % | | One-month L | | Feb-14-2020 | |
Capital One, N.A. | | Jun-13-2013 | | Jul-01-2013 | | | $ | 50,000 | | | $ | 35 | | | 1.6810 | % | | One-month L | | Feb-14-2020 | |
Capital One, N.A. | | Jun-13-2013 | | Aug-01-2013 | | | $ | 25,000 | | | $ | 16 | | | 1.7030 | % | | One-month L | | Feb-14-2020 | |
Regions Bank | | Sep-30-2013 | | Feb-03-2014 | | | $ | 25,000 | | | $ | (12) | | | 1.9925 | % | | One-month L | | Feb-14-2020 | |
The Toronto-Dominion Bank | The Toronto-Dominion Bank | | Oct-14-2015 | | Sep-29-2016 | | | $ | 25,000 | | | $ | 66 | | | 1.3830 | % | | One-month L | | Sep-29-2020 | The Toronto-Dominion Bank | | Oct-14-2015 | | Sep-29-2016 | | $ | 25,000 | | | $ | (76) | | | 1.3830 | % | | One-month L | | Sep-29-2020 |
PNC Bank, N.A. | PNC Bank, N.A. | | Oct-14-2015 | | Sep-29-2016 | | | $ | 50,000 | | | $ | 128 | | | 1.3906 | % | | One-month L | | Sep-29-2020 | PNC Bank, N.A. | | Oct-14-2015 | | Sep-29-2016 | | $ | 50,000 | | | $ | (153) | | | 1.3906 | % | | One-month L | | Sep-29-2020 |
Regions Bank | Regions Bank | | Oct-14-2015 | | Sep-29-2016 | | | $ | 35,000 | | | $ | 91 | | | 1.3858 | % | | One-month L | | Sep-29-2020 | Regions Bank | | Oct-14-2015 | | Sep-29-2016 | | $ | 35,000 | | | $ | (106) | | | 1.3858 | % | | One-month L | | Sep-29-2020 |
U.S. Bank, N.A. | U.S. Bank, N.A. | | Oct-14-2015 | | Sep-29-2016 | | | $ | 25,000 | | | $ | 63 | | | 1.3950 | % | | One-month L | | Sep-29-2020 | U.S. Bank, N.A. | | Oct-14-2015 | | Sep-29-2016 | | $ | 25,000 | | | $ | (77) | | | 1.3950 | % | | One-month L | | Sep-29-2020 |
Capital One, N.A. | Capital One, N.A. | | Oct-14-2015 | | Sep-29-2016 | | | $ | 15,000 | | | $ | 38 | | | 1.3950 | % | | One-month L | | Sep-29-2020 | Capital One, N.A. | | Oct-14-2015 | | Sep-29-2016 | | $ | 15,000 | | | $ | (46) | | | 1.3950 | % | | One-month L | | Sep-29-2020 |
Royal Bank of Canada | Royal Bank of Canada | | Jan-08-2015 | | Mar-20-2015 | | | $ | 25,000 | | | $ | (56) | | | 1.7090 | % | | One-month L | | Mar-21-2021 | Royal Bank of Canada | | Jan-08-2015 | | Mar-20-2015 | | $ | 25,000 | | | $ | (280) | | | 1.7090 | % | | One-month L | | Mar-21-2021 |
The Toronto-Dominion Bank | The Toronto-Dominion Bank | | Jan-08-2015 | | Mar-20-2015 | | | $ | 25,000 | | | $ | (57) | | | 1.7105 | % | | One-month L | | Mar-21-2021 | The Toronto-Dominion Bank | | Jan-08-2015 | | Mar-20-2015 | | $ | 25,000 | | | $ | (280) | | | 1.7105 | % | | One-month L | | Mar-21-2021 |
The Toronto-Dominion Bank | The Toronto-Dominion Bank | | Jan-08-2015 | | Sep-10-2017 | | | $ | 100,000 | | | $ | (982) | | | 2.2255 | % | | One-month L | | Mar-21-2021 | The Toronto-Dominion Bank | | Jan-08-2015 | | Sep-10-2017 | | $ | 100,000 | | | $ | (1,493) | | | 2.2255 | % | | One-month L | | Mar-21-2021 |
Wells Fargo, N.A. | Wells Fargo, N.A. | | Jan-08-2015 | | Mar-20-2015 | | | $ | 25,000 | | | $ | (246) | | | 1.8280 | % | | One-month L | | Mar-31-2022 | Wells Fargo, N.A. | | Jan-08-2015 | | Mar-20-2015 | | $ | 25,000 | | | $ | (750) | | | 1.8280 | % | | One-month L | | Mar-31-2022 |
The Toronto-Dominion Bank | The Toronto-Dominion Bank | | Jan-08-2015 | | Feb-14-2020 | | | $ | 25,000 | | | $ | (579) | | | 2.4535 | % | | One-month L | | Mar-31-2022 | The Toronto-Dominion Bank | | Jan-08-2015 | | Feb-14-2020 | | $ | 25,000 | | | $ | (1,027) | | | 2.4535 | % | | One-month L | | Mar-31-2022 |
Regions Bank | Regions Bank | | Jan-08-2015 | | Feb-14-2020 | | | $ | 50,000 | | | $ | (1,181) | | | 2.4750 | % | | One-month L | | Mar-31-2022 | Regions Bank | | Jan-08-2015 | | Feb-14-2020 | | $ | 50,000 | | | $ | (2,072) | | | 2.4750 | % | | One-month L | | Mar-31-2022 |
Capital One, N.A. | Capital One, N.A. | | Jan-08-2015 | | Feb-14-2020 | | | $ | 50,000 | | | $ | (1,238) | | | 2.5300 | % | | One-month L | | Mar-31-2022 | Capital One, N.A. | | Jan-08-2015 | | Feb-14-2020 | | $ | 50,000 | | | $ | (2,121) | | | 2.5300 | % | | One-month L | | Mar-31-2022 |
The Toronto-Dominion Bank | The Toronto-Dominion Bank | | Jul-20-2017 | | Oct-30-2017 | | | $ | 25,000 | | | $ | (362) | | | 1.8485 | % | | One-month L | | Jan-04-2023 | The Toronto-Dominion Bank | | Jul-20-2017 | | Oct-30-2017 | | $ | 25,000 | | | $ | (1,093) | | | 1.8485 | % | | One-month L | | Jan-04-2023 |
Royal Bank of Canada | Royal Bank of Canada | | Jul-20-2017 | | Oct-30-2017 | | | $ | 25,000 | | | $ | (364) | | | 1.8505 | % | | One-month L | | Jan-04-2023 | Royal Bank of Canada | | Jul-20-2017 | | Oct-30-2017 | | $ | 25,000 | | | $ | (1,094) | | | 1.8505 | % | | One-month L | | Jan-04-2023 |
Wells Fargo, N.A. | Wells Fargo, N.A. | | Jul-20-2017 | | Oct-30-2017 | | | $ | 25,000 | | | $ | (364) | | | 1.8505 | % | | One-month L | | Jan-04-2023 | Wells Fargo, N.A. | | Jul-20-2017 | | Oct-30-2017 | | $ | 25,000 | | | $ | (1,094) | | | 1.8505 | % | | One-month L | | Jan-04-2023 |
PNC Bank, N.A. | PNC Bank, N.A. | | Jul-20-2017 | | Oct-30-2017 | | | $ | 25,000 | | | $ | (362) | | | 1.8485 | % | | One-month L | | Jan-04-2023 | PNC Bank, N.A. | | Jul-20-2017 | | Oct-30-2017 | | $ | 25,000 | | | $ | (1,093) | | | 1.8485 | % | | One-month L | | Jan-04-2023 |
PNC Bank, N.A. | PNC Bank, N.A. | | Jul-20-2017 | | Oct-30-2017 | | | $ | 50,000 | | | $ | (723) | | | 1.8475 | % | | One-month L | | Jan-04-2023 | PNC Bank, N.A. | | Jul-20-2017 | | Oct-30-2017 | | $ | 50,000 | | | $ | (2,184) | | | 1.8475 | % | | One-month L | | Jan-04-2023 |
The Toronto-Dominion Bank | The Toronto-Dominion Bank | | Jul-24-2018 | | Jul-26-2019 | | | $ | 50,000 | | | $ | (3,229) | | | 2.9180 | % | | One-month L | | Jan-12-2024 | The Toronto-Dominion Bank | | Apr-20-2020 | | Sep-29-2020 | | $ | 75,000 | | | $ | (290) | | | 0.2750 | % | | One-month L | | Apr-18-2023 |
Wells Fargo, N.A. | | Wells Fargo, N.A. | | Apr-20-2020 | | Sep-29-2020 | | $ | 75,000 | | | $ | (298) | | | 0.2790 | % | | One-month L | | Apr-18-2023 |
The Toronto-Dominion Bank | | The Toronto-Dominion Bank | | Apr-20-2020 | | Mar-19-2021 | | $ | 75,000 | | | $ | (251) | | | 0.2750 | % | | One-month L | | Apr-18-2023 |
Wells Fargo, N.A. | | Wells Fargo, N.A. | | Apr-20-2020 | | Mar-19-2021 | | $ | 75,000 | | | $ | (258) | | | 0.2800 | % | | One-month L | | Apr-18-2023 |
The Toronto-Dominion Bank | | The Toronto-Dominion Bank | | Jul-24-2018 | | Jul-26-2019 | | $ | 50,000 | | | $ | (4,932) | | | 2.9180 | % | | One-month L | | Jan-12-2024 |
PNC Bank, N.A. | PNC Bank, N.A. | | Jul-24-2018 | | Jul-26-2019 | | | $ | 50,000 | | | $ | (3,232) | | | 2.9190 | % | | One-month L | | Jan-12-2024 | PNC Bank, N.A. | | Jul-24-2018 | | Jul-26-2019 | | $ | 50,000 | | | $ | (4,932) | | | 2.9190 | % | | One-month L | | Jan-12-2024 |
Bank of Montreal | Bank of Montreal | | Jul-24-2018 | | Jul-26-2019 | | | $ | 50,000 | | | $ | (3,232) | | | 2.9190 | % | | One-month L | | Jan-12-2024 | Bank of Montreal | | Jul-24-2018 | | Jul-26-2019 | | $ | 50,000 | | | $ | (4,932) | | | 2.9190 | % | | One-month L | | Jan-12-2024 |
U.S. Bank, N.A. | U.S. Bank, N.A. | | Jul-24-2018 | | Jul-26-2019 | | | $ | 25,000 | | | $ | (1,616) | | | 2.9190 | % | | One-month L | | Jan-12-2024 | U.S. Bank, N.A. | | Jul-24-2018 | | Jul-26-2019 | | $ | 25,000 | | | $ | (2,466) | | | 2.9190 | % | | One-month L | | Jan-12-2024 |
Wells Fargo, N.A. | Wells Fargo, N.A. | | May-02-2019 | | Jul-15-2020 | | | $ | 50,000 | | | $ | (2,030) | | | 2.2460 | % | | One-month L | | Jan-15-2025 | Wells Fargo, N.A. | | May-02-2019 | | Jul-15-2020 | | $ | 50,000 | | | $ | (4,633) | | | 2.2460 | % | | One-month L | | Jan-15-2025 |
U.S. Bank, N.A. | U.S. Bank, N.A. | | May-02-2019 | | Jul-15-2020 | | | $ | 50,000 | | | $ | (2,029) | | | 2.2459 | % | | One-month L | | Jan-15-2025 | U.S. Bank, N.A. | | May-02-2019 | | Jul-15-2020 | | $ | 50,000 | | | $ | (4,632) | | | 2.2459 | % | | One-month L | | Jan-15-2025 |
Regions Bank | Regions Bank | | May-02-2019 | | Jul-15-2020 | | | $ | 50,000 | | | $ | (2,032) | | | 2.2459 | % | | One-month L | | Jan-15-2025 | Regions Bank | | May-02-2019 | | Jul-15-2020 | | $ | 50,000 | | | $ | (4,632) | | | 2.2459 | % | | One-month L | | Jan-15-2025 |
Bank of Montreal | Bank of Montreal | | Jul-16-2019 | | Jul-15-2020 | | | $ | 50,000 | | | $ | (886) | | | 1.7165 | % | | One-month L | | Jan-15-2025 | Bank of Montreal | | Jul-16-2019 | | Jul-15-2020 | | $ | 50,000 | | | $ | (3,436) | | | 1.7165 | % | | One-month L | | Jan-15-2025 |
The swaps outlined in the above table were all designated as cash flow hedges of interest rate risk, and all are valued as Level 2 financial instruments. Level 2 financial instruments are defined as significant other observable inputs. As of SeptemberJune 30, 2019,2020, the fair value of eightall of our interest rate swaps were in an asset position of approximately $0.5 million and the fair value of 21 of our29 interest rate swaps were in a liability position of approximately $24.8$50.7 million, including any adjustment for nonperformance risk related to these agreements.
As of SeptemberJune 30, 2019,2020, we had $853.0$975.0 million of variable rate debt. As of SeptemberJune 30, 2019,2020, all of our outstanding variable rate debt, with the exception of our unsecured credit facility,Unsecured Term Loan F, was fixed with interest rate swaps through maturity. The Unsecured Term Loan F was swapped to a fixed rate effective July 15, 2020 through maturity. To the extent interest rates increase, interest costs on our floating rate debt not fixed with interest rate swaps will increase, which could adversely affect our cash flow and our ability to pay principal and interest on our debt and our ability to make distributions to our security holders. From time to time, we may enter into interest rate swap agreements and other interest rate hedging contracts, including swaps, caps and floors. In addition, an increase in interest rates could decrease the amounts third parties are willing to pay for our assets, thereby limiting our ability to change our portfolio promptly in response to changes in economic or other conditions.
Off-balance Sheet Arrangements
As of SeptemberJune 30, 2019,2020, we had letters of credit related to development projects and certain other agreements of approximately $6.0 million and a development commitment related to a building expansion under a tenant lease of approximately $3.1$3.0 million. As of SeptemberJune 30, 2019,2020, we had no other material off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. The primary market risk we are exposed to is interest rate risk. We have used derivative financial instruments to manage, or hedge, interest rate risks related to our borrowings, primarily through interest rate swaps.
As of SeptemberJune 30, 2019,2020, we had $853.0$975.0 million of variable rate debt outstanding. As of SeptemberJune 30, 2019,2020, all of our outstanding variable rate debt, with the exception of $78.0$200.0 million outstanding under our unsecured credit facility,Unsecured Term Loan F, was fixed with interest rate swaps.swaps through maturity. The Unsecured Term Loan F was swapped to a fixed rate effective July 15, 2020 through maturity. To the extent we undertake additional variable rate indebtedness, if interest rates increase, then so will the interest costs on our unhedged variable rate debt, which could adversely affect our cash flow and our ability to pay principal and interest on our debt and our ability to make distributions to our security holders. Further, rising interest rates could limit our ability to refinance existing debt when it matures or significantly increase our future interest expense. From time to time, we enter into interest rate swap agreements and other interest rate hedging contracts, including swaps, caps and floors. While these agreements are intended to lessen the impact of rising interest rates on us, they also expose us to the risk that the other parties to the agreements will not perform, we could incur significant costs associated with the settlement of the agreements, the agreements will be unenforceable and the underlying transactions will fail to qualify as highly-effective cash flow hedges under GAAP. In addition, an increase in interest rates could decrease the amounts third parties are willing to pay for our assets, thereby limiting our ability to change our portfolio promptly in response to changes in economic or other conditions. If interest rates increased by 100 basis points and assuming we had an outstanding balance of $78.0$200.0 million on our unsecured credit facilityUnsecured Term Loan F (the portion outstanding at SeptemberJune 30, 20192020 not fixed by interest rate swaps) for the ninesix months ended SeptemberJune 30, 2019,2020, our interest expense would have increased by approximately $0.6$1.0 million for the ninesix months ended SeptemberJune 30, 2019.2020.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by SEC Rule 13a-15(b), we have evaluated, under the supervision of and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of SeptemberJune 30, 2019.2020. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures for the periods covered by this report were effective to provide reasonable assurance that information required to be disclosed by our Company in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls
There was no change to our internal control over financial reporting during the quarter ended SeptemberJune 30, 20192020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. Other Information
Item 1. Legal Proceedings
From time to time, we are a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. We are not currently a party, as plaintiff or defendant, to any legal proceedings which, individually or in the aggregate, would be expected to have a material effect on our business, financial condition or results of operations if determined adversely to our company.
Item 1A. Risk Factors
ThereOther than the following, there have been no material changes from the risk factors disclosed in theour Annual Report on Form 10-K for the year ended December 31, 20182019 filed with the SEC on February 13, 2019.12, 2020.
The COVID-19 pandemic or any future pandemic, epidemic or outbreak of infectious disease could have material and adverse effects on our business, financial condition, results of operations and cash flows and the markets and communities in which we and our tenants operate.
The COVID-19 pandemic has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak continues to rapidly evolve and many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly. Additionally, in June, the National Bureau of Economic Research announced that the United States entered into a recession in February 2020. The rapid development and fluidity of the COVID-19 pandemic precludes any prediction as to the ultimate adverse impact of COVID-19.
The COVID-19 pandemic or any future pandemic, epidemic or outbreak of infectious disease affecting states or regions in which we or our tenants operate could have material and adverse effects on our business, financial condition, results of operations and cash flows due to, among other factors:
•health or other government authorities requiring the closure of offices or other businesses or instituting quarantines of personnel as the result of, or in order to avoid, exposure to a contagious disease;
•disruption in supply and delivery chains;
•a general decline in business activity and demand for real estate;
•the repurposing or redevelopment of retail properties made defunct by the pandemic into industrial properties;
•reduced economic activity, general economic decline or recession, which may impact our tenants’ businesses, financial condition and liquidity and may cause one or more of our tenants to be unable to make rent payments to us timely, or at all, or to otherwise seek modifications of lease obligations;
•difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions, which may affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis; and
•the potential negative impact on the health of our personnel, particularly if a significant number of our employees are impacted, which would result in a deterioration in our ability to ensure business continuity during a disruption.
The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of potential impacts on our business and operations, our tenant’s business and operations or the global economy as a whole. While the spread of COVID-19 may eventually be contained or mitigated, there is no guarantee that a future outbreak or any other widespread epidemics will not occur, or that the global economy will recover, either of which could materially harm our business.
The rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic. The COVID-19 pandemic presents material uncertainty and risk with respect to our financial condition, results of operations, cash flows and performance. Moreover, many risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 12, 2020, should be interpreted as heightened risks as a result of the impact of the COVID-19 pandemic.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Equity Securities
During the quarter ended SeptemberJune 30, 2019, the Operating Partnership issued 45,815 common units in the Operating Partnership upon exchange of outstanding long term incentive plan units pursuant to the STAG Industrial, Inc. 2011 Equity Incentive Plan, as amended and restated. Subject to certain restrictions, common units in the Operating Partnership may be redeemed for cash in an amount equal to the value of a share of common stock or, at our election, for a share of common stock on a one-for-one basis.
During the quarter ended September 30, 2019,2020, we issued 207,152228,340 shares of common stock upon redemption of 207,152228,340 common units in the Operating Partnership held by various limited partners. The issuance of such shares of common stock was either registered under the Securities Act or effected in reliance upon an exemption from registration provided by Section 4(a)(2) under the Securities Act and the rules and regulations promulgated thereunder. We relied on the exemption based on representations given by the holders of the common units.
All other issuances of unregistered securities during the quarter ended SeptemberJune 30, 2019,2020, if any, have previously been disclosed in filings with the SEC.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
| | | | | | | | |
Exhibit Number | | Description of Document |
10.1 | * | | Term Loan Agreement, dated as of July 12, 2019,April 17, 2020, by and among STAG Industrial Operating Partnership, L.P., STAG Industrial, Inc., Wells Fargo Bank, National Association, and the other lenders party thereto (1) |
31.1 * | | | |
31.2 * | | | |
32.1 ** | | | |
101.INS * | | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH * | | | XBRL Taxonomy Extension Schema Document |
101.CAL * | | | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF * | | | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB * | | | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE * | | | XBRL Taxonomy Extension Presentation Linkbase Document |
104 * | | | Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith.
** Furnished herewith.
(1) Incorporated by reference to STAG Industrial, Inc.’s Current Report on Form 8-K filed with the SEC on July 30, 2019.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | STAG INDUSTRIAL, INC. |
| | |
Date: October 30, 2019July 28, 2020 | BY: | /s/ WILLIAM R. CROOKER |
| | William R. Crooker |
| | Chief Financial Officer, Executive Vice President and Treasurer (Principal Financial Officer) |
| | |
| BY: | /s/ JACLYN M. PAUL |
| | Jaclyn M. Paul |
| | Chief Accounting Officer, and PrincipalSenior Vice President (Principal Accounting Officer) |