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EX-32.1 - EX-32.1 - Easterly Government Properties, Inc.dea-ex321_7.htm
EX-31.2 - EX-31.2 - Easterly Government Properties, Inc.dea-ex312_6.htm
EX-31.1 - EX-31.1 - Easterly Government Properties, Inc.dea-ex311_8.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

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 001-36834

 

EASTERLY GOVERNMENT PROPERTIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Maryland

 

47-2047728

(State of Incorporation)

 

(IRS Employer Identification No.)

 

 

 

2101 L Street NW, Suite 650, Washington, D.C.

 

20037

(Address of Principal Executive Offices)

 

(Zip Code)

(202) 595-9500

(Registrant’s telephone number, including area code)

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

 

¨

 

Accelerated Filer

¨

 

 

 

 

 

 

Non-Accelerated Filer

 

x  (Do not check if smaller reporting company)

 

Smaller Reporting Company

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

As of August 8, 2016, the registrant had 35,062,243 shares of common stock, par value $0.01 per share, outstanding.

 

 

 

 


INDEX TO FINANCIAL STATEMENTS

 

 

Page

Part I: Financial Information

 

 

 

   Item 1: Financial Statements:

 

Consolidated Financial Statements

 

 

 

Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015

1

 

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015 (unaudited)

2

 

 

Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2016 and 2015 (unaudited)

3

 

 

Notes to the Consolidated Financial Statements

5

 

 

   Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

 

 

   Item 3: Quantitative and Qualitative Disclosures About Market Risk

26

 

 

   Item 4: Controls and Procedures

26

 

 

Part II: Other Information

 

 

 

   Item 1: Legal Proceedings

27

 

 

   Item 1A: Risk Factors

27

 

 

   Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

27

 

 

   Item 3: Defaults Upon Senior Securities

27

 

 

   Item 4: Mine Safety Disclosures

27

 

 

   Item 5: Other Information

27

 

 

   Item 6: Exhibits

28

 

 

Signatures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Easterly Government Properties, Inc.

Consolidated Balance Sheets

(Amounts in thousands, except share amounts)

 

 

 

June 30, 2016

 

 

December 31, 2015

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Real estate properties, net

 

$

808,177

 

 

$

772,007

 

Cash and cash equivalents

 

 

3,704

 

 

 

8,176

 

Restricted cash

 

 

1,557

 

 

 

1,736

 

Deposits on acquisitions

 

 

77,796

 

 

 

 

Rents receivable

 

 

6,920

 

 

 

6,347

 

Accounts receivable

 

 

3,709

 

 

 

2,920

 

Deferred financing, net

 

 

2,296

 

 

 

2,726

 

Intangible assets, net

 

 

111,728

 

 

 

116,585

 

Prepaid expenses and other assets

 

 

1,958

 

 

 

1,509

 

Total assets

 

$

1,017,845

 

 

$

912,006

 

Liabilities

 

 

 

 

 

 

 

 

Revolving credit facility

 

 

198,167

 

 

 

154,417

 

Mortgage notes payable, net

 

 

82,289

 

 

 

83,744

 

Intangible liabilities, net

 

 

42,119

 

 

 

44,605

 

Accounts payable and accrued liabilities

 

 

9,949

 

 

 

9,346

 

Total liabilities

 

 

332,524

 

 

 

292,112

 

Equity

 

 

 

 

 

 

 

 

Common stock, par value $0.01, 200,000,000 shares authorized,

   34,648,580 and 24,168,379 shares issued and outstanding at June 30, 2016 and

   December 31, 2015, respectively.

 

 

346

 

 

 

241

 

Additional paid-in capital

 

 

560,072

 

 

 

391,767

 

Retained (deficit)

 

 

(320

)

 

 

(1,694

)

Cumulative dividends

 

 

(25,857

)

 

 

(13,051

)

Total stockholders' equity

 

 

534,241

 

 

 

377,263

 

Non-controlling interest in Operating Partnership

 

 

151,080

 

 

 

242,631

 

Total equity

 

 

685,321

 

 

 

619,894

 

Total liabilities and equity

 

$

1,017,845

 

 

$

912,006

 

 

The accompanying notes are an integral part of these consolidated financial statements.

1

 


Easterly Government Properties, Inc.

Consolidated Statements of Operations (unaudited)

(Amounts in thousands, except per share amounts)

 

 

 

For the three months ended June 30,

 

 

For the six months ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

22,291

 

 

$

17,626

 

 

$

44,027

 

 

$

26,930

 

Tenant reimbursements

 

 

2,476

 

 

 

1,572

 

 

 

4,631

 

 

 

2,348

 

Other income

 

 

154

 

 

 

58

 

 

 

234

 

 

 

69

 

Total revenues

 

 

24,921

 

 

 

19,256

 

 

 

48,892

 

 

 

29,347

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating

 

 

5,085

 

 

 

3,558

 

 

 

9,418

 

 

 

5,288

 

Real estate taxes

 

 

2,332

 

 

 

1,755

 

 

 

4,700

 

 

 

2,714

 

Depreciation and amortization

 

 

11,074

 

 

 

9,151

 

 

 

21,937

 

 

 

14,051

 

Acquisition costs

 

 

346

 

 

 

195

 

 

 

679

 

 

 

1,635

 

Formation expenses

 

 

 

 

 

72

 

 

 

 

 

 

1,666

 

Corporate general and administrative

 

 

3,052

 

 

 

2,239

 

 

 

6,088

 

 

 

3,811

 

Fund general and administrative

 

 

 

 

 

 

 

 

 

 

 

75

 

Total expenses

 

 

21,889

 

 

 

16,970

 

 

 

42,822

 

 

 

29,240

 

Operating income

 

 

3,032

 

 

 

2,286

 

 

 

6,070

 

 

 

107

 

Other (expenses) / income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(1,995

)

 

 

(1,321

)

 

 

(3,924

)

 

 

(2,021

)

Net unrealized (loss) on investments

 

 

 

 

 

 

 

 

 

 

 

(5,122

)

Net income (loss)

 

 

1,037

 

 

 

965

 

 

 

2,146

 

 

 

(7,036

)

Non-controlling interest in Operating Partnership

 

 

(338

)

 

 

(377

)

 

 

(772

)

 

 

4,739

 

Net income (loss) available to Easterly Government

   Properties, Inc.

 

$

699

 

 

$

588

 

 

$

1,374

 

 

$

(2,297

)

Net income (loss)  available to Easterly Government

   Properties, Inc. per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.02

 

 

$

0.02

 

 

$

0.05

 

 

$

(0.12

)

Diluted

 

$

0.02

 

 

$

0.02

 

 

$

0.05

 

 

$

(0.12

)

Weighted- average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

27,484,075

 

 

 

24,141,712

 

 

 

25,812,893

 

 

 

18,673,374

 

Diluted

 

 

29,267,258

 

 

 

25,435,010

 

 

 

27,538,423

 

 

 

18,673,374

 

 

The accompanying notes are an integral part of these consolidated financial statements.

2

 


Easterly Government Properties, Inc.

Consolidated Statements of Cash Flows (unaudited)

(Amounts in thousands)

 

 

 

For the six months ended June 30,

 

 

 

2016

 

 

2015

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

2,146

 

 

$

(7,036

)

Adjustments to reconcile net income (loss) to net cash provided by (used in)

   operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

21,937

 

 

 

14,051

 

Straight line rent

 

 

33

 

 

 

(99

)

Amortization of above- / below-market leases

 

 

(3,409

)

 

 

(1,976

)

Amortization of unearned revenue

 

 

(50

)

 

 

 

Amortization of loan premium / discount

 

 

(43

)

 

 

(38

)

Amortization of deferred financing costs

 

 

432

 

 

 

329

 

Contributions to investments

 

 

 

 

 

(257

)

Net unrealized loss on investments

 

 

 

 

 

5,122

 

Non-cash compensation

 

 

1,422

 

 

 

512

 

Net change in:

 

 

 

 

 

 

 

 

Rents receivable

 

 

(517

)

 

 

(4,660

)

Accounts receivable

 

 

(789

)

 

 

(176

)

Prepaid expenses and other assets

 

 

(449

)

 

 

(377

)

Accounts payable and accrued liabilities

 

 

329

 

 

 

1,618

 

Net cash provided by operating activities

 

 

21,042

 

 

 

7,013

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Real estate acquisitions and deposits

 

 

(129,796

)

 

 

(34,325

)

Cash assumed in formation

 

 

 

 

 

6,187

 

Additions to real estate property

 

 

(266

)

 

 

(132

)

Restricted cash

 

 

179

 

 

 

109

 

Net cash (used in) investing activities

 

 

(129,883

)

 

 

(28,161

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Payment of deferred financing costs

 

 

 

 

 

(3,397

)

Issuance of common shares

 

 

84,943

 

 

 

193,545

 

Repurchase of initial shares

 

 

 

 

 

(1

)

Proceeds from private placement

 

 

 

 

 

75,638

 

Credit facility draws, net

 

 

43,750

 

 

 

33,417

 

Repayments of mortgage payable

 

 

(1,414

)

 

 

(921

)

Debt payoff

 

 

 

 

 

(293,381

)

Dividends and distributions paid

 

 

(19,001

)

 

 

(4,377

)

Distributions

 

 

 

 

 

(5,441

)

Payment of offering costs

 

 

(3,909

)

 

 

(1,962

)

Net cash provided by (used in) financing activities

 

 

104,369

 

 

 

(6,880

)

Net (decrease) in cash and cash equivalents

 

 

(4,472

)

 

 

(28,028

)

Cash and cash equivalents, beginning of period

 

 

8,176

 

 

 

31,437

 

Cash and cash equivalents, end of period

 

$

3,704

 

 

$

3,409

 

 

 The accompanying notes are an integral part of these consolidated financial statements.

 

3

 


Easterly Government Properties, Inc.

Consolidated Statements of Cash Flows (unaudited)

(Amounts in thousands)

 

Supplemental disclosure of cash flow information is as follows:

 

 

 

For the six months ended June 30,

 

 

 

2016

 

 

2015

 

Cash paid for interest

 

$

3,615

 

 

$

1,596

 

Supplemental disclosure of non - cash information

 

 

 

 

 

 

 

 

Additions to real estate property

 

$

87

 

 

$

 

Offering costs accrued, not paid

 

 

174

 

 

 

 

Easterly properties, debt and net assets contributed for shares and common units

 

 

 

 

 

260,687

 

Western Devcon properties and debt contributed for common units

 

 

 

 

 

86,397

 

Exchange of Common Units for Shares of Common Stock

 

 

 

 

 

 

 

 

Non-controlling interest in Operating Partnership

 

$

(88,674

)

 

$

 

Common stock

 

 

58

 

 

 

 

Additional paid-in capital

 

 

88,616

 

 

 

 

Total

 

$

 

 

$

 

 

The accompanying notes are an integral part of these consolidated financial statements.

4

 


Easterly Government Properties, Inc.

Notes to the Consolidated Financial Statements

1. Organization and Basis of Presentation

The information contained in the following notes to the consolidated financial statements is condensed from that which would appear in the annual consolidated financial statements; accordingly, the consolidated financial statements included herein should be reviewed in conjunction with the consolidated financial statements for the fiscal year ended December 31, 2015, and related notes thereto, included in the Annual Report on Form 10-K of Easterly Government Properties, Inc. (which may be referred to in these financial statements as the “Company,” “we,” “us,” or “our”) for the year ended December 31, 2015 filed with the U.S. Securities and Exchange Commission (the “ SEC”) on March 2, 2016.

The Company is a Maryland corporation that has elected to be taxed as a real estate investment trust (a “REIT”) under the Internal Revenue Code (the “Code”) commencing with its taxable period ended December 31, 2015. The operations of the Company are carried on primarily through Easterly Government Properties LP (the “Operating Partnership”) and the wholly owned subsidiaries of the Operating Partnership.

We are an internally managed REIT, focused primarily on the acquisition, development, and management of Class A commercial properties that are leased to U.S. Government agencies that serve essential functions. We generate substantially all of our revenue by leasing our properties to such agencies through the U.S. General Services Administration (the “GSA”). Our objective is to generate attractive risk-adjusted returns for our stockholders over the long term through dividends and capital appreciation.

As of June 30, 2016, we wholly owned 38 properties in the United States, including 35 properties that were leased primarily to U.S. Government tenant agencies and three properties that were entirely leased to private tenants, encompassing approximately 2.8 million square feet in the aggregate. We focus on acquiring, developing, and managing GSA-leased properties that are essential to supporting the mission of the tenant agency and strive to be a partner of choice for the U.S. Government, working closely with the GSA to meet the needs and objectives of the tenant agency.

We were incorporated in Maryland as a corporation on October 9, 2014 and did not have any meaningful operations until the completion of the formation transactions (as defined below) and our initial public offering on February 11, 2015 (the “IPO”).

On February 11, 2015, we completed an initial public offering of 13.8 million shares of our common stock at a price to the public of $15.00 per share, including 1.8 million shares sold in connection with the full exercise of the option to purchase additional shares granted to the underwriters, resulting in gross proceeds of $207.0 million. The aggregate net proceeds to the Company after deducting underwriting discounts and commissions and offering expenses payable by the Company, was approximately $191.6 million. The Company contributed the net proceeds from the IPO to the Operating Partnership in exchange for common units representing limited partnership interests in the Operating Partnership (“common units”).

In connection with the IPO, we engaged in certain formation transactions (the “formation transactions”) pursuant to which the Operating Partnership acquired (i) 15 properties previously owned by the Easterly Funds (as defined below) in exchange for 3,308,000 shares of common stock and 8,635,714 common units, (ii) 14 properties previously owned by Western Devcon, Inc., a private real estate company and a series of related entities beneficially owned by Michael P. Ibe (collectively, “Western Devcon”), in exchange for 5,759,819 common units and (iii) all of the ownership interests in the management entities (as defined below) in exchange for 1,135,406 common units.

Concurrent with the IPO, the Company sold an aggregate of 7,033,712 shares of its common stock to the Easterly Funds in a private placement at a price per share of $15.00 without payment of any underwriting fees, discounts or commissions.

Our Operating Partnership used the net proceeds received from the offering, private placement and a portion of the borrowings under a $400.0 million senior unsecured revolving credit facility, which we refer to as our senior unsecured revolving credit facility, to repay approximately $293.4 million in outstanding indebtedness including applicable repayment costs, defeasance costs, settlement of interest rate swap liabilities and other costs and fees associated with such repayments.

Our predecessor (the “Predecessor”) means Easterly Partners, LLC and its consolidated subsidiaries prior to the IPO and the formation transactions, including (i) all entities or interests in U.S. Government Properties Income and Growth Fund L.P., U.S. Government Properties Income and Growth Fund REIT, Inc. and the related feeder and subsidiary entities (collectively, “Easterly Fund I,”) (ii) all entities or interests in U.S. Government Properties Income and Growth Fund II, LP, USGP II REIT LP, USGP II (Parallel) Fund, LP and their related feeders and subsidiary entities (collectively, “Easterly Fund II” and, together with Easterly Fund I, the “Easterly Funds”) and (iii) the entities that managed the Easterly Funds (the “management entities”).

5

 


All of the Company’s assets and its operations are primarily conducted through the Operating Partnership. The Company is the sole general partner of the Operating Partnership. The Company owned 78.0% of the Operating Partnership’s common units at June 30, 2016. We believe that we have operated and have been organized in conformity with the requirements for qualification and taxation as a REIT for U.S federal income tax purposes commencing with our taxable year ended December 31, 2015.

Principle of Combination and Consolidation

The accompanying consolidated financial statements are presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company, including Easterly Government Properties TRS, LLC and Easterly Government Services, LLC, and the Operating Partnership. All significant intercompany balances and transactions have been eliminated in consolidation.

Upon completion of the IPO and the formation transactions, the Company succeeded to the operations of the Predecessor. Prior to the IPO, the Predecessor was under the control of Darrell W. Crate, the Chairman of our board of directors.

These financial statements reflect the consolidated equity ownership structure of the Company as if the IPO and the formation transactions related to the Easterly Funds and management entities had been completed as of January 1, 2014. The formation transactions related to the Easterly Funds and the management entities were accounted for at carryover basis due to the existence of common control.

Prior to the IPO, the Easterly Funds, as controlled by the Predecessor, qualified as investment companies pursuant to ASC 946 Financial Services – Investment Companies and, as a result, the Predecessor’s consolidated financial statements accounted for the Easterly Funds using specialized investment company accounting based on fair value. Subsequent to the IPO, as the properties contributed to us from the Easterly Funds are no longer held by funds that qualify for investment company accounting, we made a shift, in accordance with GAAP, to account for the properties contributed by the Easterly Funds using historical cost accounting instead of investment company accounting, resulting in a significant change in the presentation of our consolidated financial statements following the formation transactions. The contribution of the Western Devcon properties in the formation transactions has been accounted for as a business combination using the acquisition method of accounting and recognized at the estimated fair value of acquired assets and assumed liabilities on the date of such contribution.

Due to the timing of the IPO and the formation transactions, the Company’s financial condition as of December 31, 2015 and results of operations for the six months ended June 30, 2015 reflect the financial condition and results of operations of the Predecessor combined with the Company for the period prior to February 11, 2015, and the Company’s consolidated results for the period from February 11, 2015 through December 31, 2015.

Basis of Presentation

The condensed consolidated financial statements included herein are unaudited; however, they include all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to state fairly the consolidated financial position of the Company at June 30, 2016, and the consolidated results of operations and the consolidated cash flows for the three and six months ended June 30, 2016 and 2015. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year.

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

 

2. Summary of Significant Accounting Policies

The significant accounting policies used in the preparation of the Company's condensed consolidated financial statements, both pre-IPO and post-IPO, are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

Recently Adopted Accounting Pronouncements

On January 1, 2016, the Company adopted accounting guidance under Accounting Standards Codification (ASC) Topic 810, "Consolidation,” modifying the analysis it must perform to determine whether it should consolidate certain types of legal entities. The guidance does not amend the existing disclosure requirements for variable interest entities (“VIEs”) or voting interest model entities.  The guidance, however, modified the requirements to qualify under the voting interest model. Under the revised guidance, the

6

 


Operating Partnership will be a variable interest entity of the Company. As the Operating Partnership is already consolidated in the balance sheets of the Company, the identification of this entity as a variable interest entity has no impact on the consolidated financial statements of the Company.  There were no other legal entities qualifying under the scope of the revised guidance that were consolidated as a result of the adoption.  In addition, there were no other voting interest entities under prior existing guidance determined to be variable interest entities under the revised guidance.

On January 1, 2016, the Company adopted and retrospectively applied ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” As a result all debt issuance costs paid to third parties, other than the lender, incurred to issue mortgage debt are presented on the balance sheet as a direct deduction from the carrying value.  Debt issuance costs related to a credit facility will continue to be presented as an asset on the balance sheet.

On January 1, 2016, the Company adopted ASU 2015 – 16, Simplifying the Accounting for Measurement Period Adjustments (Topic 805), which addresses provisional amounts for items in a business combination for which the accounting is incomplete by the end of the reporting period. The implementation of this update did not have an impact in our condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In February 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-02, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). 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 of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. 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 will be accounted for in the same manner as operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU No. 2016-02 is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is in the process of evaluating the impact of this new guidance.

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation, which identifies areas for simplification involving several aspects of accounting for share-based payment transactions. The new guidance allows for entities to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. In addition, the guidance allows employers to withhold shares to satisfy minimum statutory tax withholding requirements up to the employees’ maximum individual tax rate without causing the award to be classified as a liability. The guidance also stipulates that cash paid by an employer to a taxing authority when directly withholding shares for tax-withholding purposes should be classified as a financing activity on the statement of cash flows. ASU No. 2016-09 is effective for reporting periods beginning after December 15, 2016.  The Company is in the process of evaluating the impact of this new guidance.

 

 

3. Real Estate and Intangibles

During the six months ended June 30, 2016, we acquired two properties, ICE – Albuquerque and NPS – Omaha for an aggregate purchase price of $52.0 million. We allocated the purchase price of these acquisitions based on the estimated fair values of the acquired assets and assumed liabilities as follows (dollars in thousands):

 

 

 

Total

 

Real estate

 

 

 

 

Land

 

$

4,579

 

Building

 

 

38,615

 

Acquired tenant improvements

 

 

3,742

 

Total real estate

 

 

46,936

 

Intangible assets

 

 

 

 

In-place leases

 

 

5,352

 

Acquired leasing commissions

 

 

1,339

 

Total intangible assets

 

 

6,691

 

Intangible liabilities

 

 

 

 

Below-market leases

 

 

(1,627

)

Total intangible liabilities

 

 

(1,627

)

Purchase price

 

$

52,000

 

 

7

 


We did not assume any debt upon acquisition of the two properties.  The fair value of the assets acquired and liabilities assumed in 2016 are preliminary as we continue to finalize their acquisition date fair value determination.

The intangible assets and liabilities have an aggregate weighted average amortization period of 9.78 years as of June 30, 2016.

During the six months ended June 30, 2016, we included $1.3 million of revenues and $0.5 million of net income in our consolidated statement of operations related to the properties acquired. During the six months ended June 30, 2016, we incurred $0.7 million of acquisition-related costs associated with the property acquisitions.

Pro Forma Financial Information

The unaudited pro forma financial information set forth below presents results for the six months ended June 30, 2016 and 2015 as if the formation transactions and the acquisitions of DOE – Lakewood, AOC – Aberdeen, ICE – Otay, DEA – Pleasanton, USCIS – Lincoln, DEA – Dallas Lab and FBI – Richmond had occurred on January 1, 2014 and the ICE – Albuquerque and NPS – Omaha acquisition had occurred on January 1, 2015. The pro forma information is not necessarily indicative of the results that actually would have occurred nor does it intend to indicate future operating results (dollars in thousands):

 

 

 

For the six months ended June 30,

 

Proforma (unaudited)

 

2016

 

 

2015

 

Total rental revenue

 

$

49,940

 

 

$

48,585

 

Net income (loss) (1)

 

 

2,996

 

 

 

3,546

 

 

 

(1)

The net income for the six months ended June 30, 2016 excludes $0.7 million of property acquisition costs. Additionally, the net income for the six months ended June 30, 2015 was adjusted to include these acquisition costs and exclude the $3.3 million of property acquisition and formation costs incurred during the six months ended June 30, 2015.

 

 

Real estate and intangibles consisted of the following as of June 30, 2016 (dollars in thousands):

 

 

 

Total

 

Real estate

 

 

 

 

Land

 

$

102,478

 

Building

 

 

694,774

 

Acquired tenant improvements

 

 

38,608

 

Accumulated amortization

 

 

(27,683

)

Total Real Estate

 

$

808,177

 

Intangible assets

 

 

 

 

In-place leases

 

$

109,271

 

Acquired leasing commissions

 

 

21,574

 

Above market leases

 

 

10,631

 

Accumulated amortization

 

 

(29,748

)

Total Intangible assets

 

$

111,728

 

Intangible liabilities

 

 

 

 

Below market leases

 

$

(52,328

)

Accumulated amortization

 

 

10,209

 

Total Intangible liabilities

 

$

(42,119

)

 

 

4. Debt

At June 30, 2016, our borrowings consisted of the following (dollars in thousands):

 

 

 

Total

 

Revolving credit facility

 

$

198,167

 

Mortgage notes payable, net

 

 

82,289

 

Total

 

$

280,456

 

8

 


 

a. Revolving Credit Facility

We have a $400.0 million senior unsecured revolving credit facility with an accordion feature that provides us with additional capacity, subject to the satisfaction of customary terms and conditions, of up to $250.0 million, for a total facility size of not more than $650.0 million.

As of June 30, 2016, the interest rate payable on borrowings under our senior unsecured revolving credit facility was 1.85%. For the six months ended June 30, 2016 the weighted average annual interest rate for borrowings under our senior unsecured revolving credit facility was 1.84%. As of June 30, 2016, we had $198.2 million outstanding and $201.8 million available under our senior unsecured revolving credit facility and recognized $0.4 million in accumulated amortization of deferred financing costs. As of June 30, 2016, the fair value of our revolving credit facility approximated carrying value.

b. Mortgage Notes Payable, Net

The table below provides a summary of our mortgage debt which is collateralized by the underlying real estate at June 30, 2016 (dollars in thousands):

 

Property

 

Fixed/

Floating

 

Contractual

Interest

Rate

 

 

Effective

Interest

Rate

 

 

Maturity

Date

 

Principal

Balance

 

 

Premium/

Discount

 

 

Deferred

Financing

 

 

Carrying

Value

 

CBP - Savannah

 

Fixed

 

 

3.40

%

 

 

4.12

%

 

July 2033

 

$

15,246

 

 

$

(814

)

 

$

 

 

$

14,432

 

ICE - Charleston

 

Fixed

 

 

4.21

%

 

 

3.93

%

 

January 2027

 

 

21,463

 

 

 

380

 

 

 

 

 

 

21,843

 

MEPCOM - Jacksonville

 

Fixed

 

 

4.41

%

 

 

3.89

%

 

October 2025

 

 

12,080

 

 

 

298

 

 

 

 

 

 

12,378

 

USFS II - Albuquerque

 

Fixed

 

 

4.46

%

 

 

3.92

%

 

July 2026

 

 

17,336

 

 

 

639

 

 

 

 

 

 

17,975

 

DEA - Pleasanton

 

Floating

 

LIBOR + 150bps

 

 

 

1.80

%

 

October 2023

 

 

15,700

 

 

 

 

 

 

(39

)

 

 

15,661

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

$

81,825

 

 

$

503

 

 

$

(39

)

 

$

82,289

 

 

At June 30, 2016, the fair value of our mortgage debt was determined by discounting future contractual principal and interest payments using prevailing market rates. We deem the fair value measurement of our debt instruments as a Level 3 measurement. At June 30, 2016 the fair value of our mortgage debt was $84.6 million.

 

9

 


 

5. Equity

The following table summarizes the changes in our stockholders’ equity for the six months ended June 30, 2016 and 2015 (dollars in thousands):

 

 

 

Shares

 

 

Common

Stock

Par

Value

 

 

Additional

Paid-in

Capital

 

 

Retained

(Deficit)

 

 

Distributions in Excess of Earnings

 

 

Non-

controlling

Interest in

Operating

Partnership

 

 

Member

Capital/

(Deficit)

 

 

Non-

controlling

Interests

 

 

Total

Equity

 

Six months ended June 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2015

 

 

24,168,379

 

 

$

241

 

 

$

391,767

 

 

$

(1,694

)

 

$

(13,051

)

 

$

242,631

 

 

$

 

 

$

 

 

$

619,894

 

Stock based compensation

 

 

 

 

 

 

 

 

 

145

 

 

 

 

 

 

 

 

 

1,277

 

 

 

 

 

 

 

 

 

1,422

 

Dividends and distributions paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,806

)

 

 

(6,195

)

 

 

 

 

 

 

 

 

(19,001

)

Grant of unvested restricted stock

 

 

16,128

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redemption of common units for

   common shares

 

 

5,745,028

 

 

 

58

 

 

 

88,616

 

 

 

 

 

 

 

 

 

(88,674

)

 

 

 

 

 

 

 

 

 

Public offering

 

 

4,719,045

 

 

 

47

 

 

 

80,813

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

80,860

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

1,374

 

 

 

 

 

 

772

 

 

 

 

 

 

 

 

 

2,146

 

Allocation of non-controlling

   interest in Operating

   Partnership

 

 

 

 

 

 

 

 

 

(1,269

)

 

 

 

 

 

 

 

 

1,269

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2016

 

 

34,648,580

 

 

$

346

 

 

$

560,072

 

 

$

(320

)

 

$

(25,857

)

 

$

151,080

 

 

$

 

 

$

 

 

$

685,321

 

Six months ended June 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

 

 

1,000

 

 

$

 

 

$

1

 

 

$

 

 

$

 

 

$

 

 

$

13,336

 

 

$

283,847

 

 

$

297,184

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9

)

 

 

(5,432

)

 

 

(5,441

)

Exchange of members’ capital

   and non-controlling interests for

   common units and shares

 

 

3,308,000

 

 

 

33

 

 

 

67,312

 

 

 

 

 

 

 

 

 

194,530

 

 

 

(12,738

)

 

 

(249,137

)

 

 

 

Public offering

 

 

13,800,000

 

 

 

138

 

 

 

191,445

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

191,583

 

Proceeds of private placement

 

 

7,033,712

 

 

 

70

 

 

 

105,435

 

 

 

 

 

 

 

 

 

 

 

 

(589

)

 

 

(29,278

)

 

 

75,638

 

Contribution of Western Devcon

   properties for common units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

86,397

 

 

 

 

 

 

 

 

 

86,397

 

Stock based compensation

 

 

 

 

 

 

 

 

 

155

 

 

 

 

 

 

 

 

 

357

 

 

 

 

 

 

 

 

 

512

 

Grant of unvested restricted stock

 

 

26,667