Real Estate (Tables)

9 Months Ended

Sep. 30, 2015

Aggregate purchase price of the acquisitions

All 14 properties (18 buildings) in the Company's real estate portfolio were acquired during the nine months ended September 30, 2015, as shown below:



Property	Location	Tenant/Major Lessee	Acquisition Date	Purchase Price		Square Feet	Acquisition Fees and Reimbursable Expenses Paid to the Advisor ⁽²⁾		Revolving Credit Facility ⁽³⁾		Preferred Equity		Year of Expiration (for Major Lessee)	2015 Annualized Net Rent ⁽⁴⁾
Owens Corning	Concord, NC	Owens Corning Sales, LLC	3/9/2015	$	5,500,000	61,200	$	142,726	$	—	$	—	2024	$	357,179
Westgate II	Houston, TX	Wood Group Mustang, Inc.	4/1/2015	57,000,000		186,300	1,332,951		30,000,000		—		2024	3,854,299
Administrative Office of Pennsylvania Courts	Mechanicsburg, PA	Administrative Office of Pennsylvania Courts	4/22/2015	10,115,000		56,600	283,791		6,100,000		—		2024	756,154
American Express Center ⁽¹⁾⁽⁵⁾	Phoenix, AZ	American Express Travel Related Services Company, Inc.	5/11/2015	91,500,000		513,400	1,896,635		45,700,000		—		2023	5,862,676
MGM Corporate Center ⁽¹⁾⁽⁶⁾	Las Vegas, NV	MGM Resorts International	5/27/2015	30,300,000		168,300	652,233		25,000,000		—		2024	1,901,785
American Showa	Columbus, OH	American Showa, Inc.	5/28/2015	17,200,000		304,600	387,650		10,300,000		—		2025	1,030,479
Huntington Ingalls ⁽¹⁾⁽⁷⁾	Hampton, VA	Huntington Ingalls Incorporated	6/26/2015	34,300,000		515,500	746,030		20,500,000		—		2027	2,232,054
Wyndham	Parsippany, NJ	Wyndham Worldwide Operations	6/26/2015	81,400,000		203,500	1,661,942		48,800,000		32,560,000		2029	5,101,217
Exel	Groveport, OH	Exel, Inc.	6/30/2015	15,946,200		312,000	435,736		9,500,000		—		2022	1,128,721
Morpho Detection	Andover, MA	Morpho Detection LLC	7/1/2015	11,500,000		64,200	294,403		6,900,000		2,600,000		2027	745,068
FedEx Freight	West Jefferson, OH	FedEx Freight, Inc.	7/22/2015	28,000,000		160,400	627,959		16,800,000		10,800,000		2024	1,860,914
Aetna	Tuscon, AZ	Aetna Life Insurance Co.	7/29/2015	21,700,000		100,300	488,659		21,600,000		—		2025	1,511,615
Bank of America I	Simi Valley, CA	Bank of America	8/14/2015	28,400,000		206,900	591,758		17,040,000		11,161,000		2020	2,357,819
Bank of America II	Simi Valley, CA	Bank of America	8/14/2015	28,600,000		273,200	595,926		17,160,000		11,239,000		2020	2,770,664
				$	461,461,200	3,126,400	$	10,138,399	$	275,400,000	$	68,360,000		$	31,470,644


(1)	Multi-building property acquisitions are considered one property for portfolio purposes.

(2)

The Advisor is entitled to receive acquisition fees equal to 2.0% and acquisition expense reimbursement for actual acquisition expenses incurred. Expenses are included in acquisition fees and expenses to affiliates on the consolidated statements of operations or are capitalized as part of the acquisition if the property does not meet the definition of a "business." See Note 2, Basis of Presentation and Summary Accounting Policies. As of September 30, 2015, the Company capitalized $0.5 million of affiliate acquisition expenses related to the acquisition of the Aetna property.


(3)	Represents draws from the Revolving Credit Facility discussed in Note 4, Debt. The remaining purchase price was funded with net proceeds raised in the Offering with the exception of the Wyndham, Morpho Detection, FedEx Freight, and Bank of America I & II properties, for which the remaining proceeds were funded from the preferred equity investment discussed in Note 5, Equity.

(4)

Net rent is based on (a) the contractual base rental payments assuming the lease requires the tenant to reimburse us for certain operating expenses or the property is self managed by the tenant and the tenant is responsible for all, or substantially all, of the operating expenses; or (b) contractual rent payments less certain operating expenses that are our responsibility for the 12-month period subsequent to September 30, 2015 and includes assumptions that may not be indicative of the actual future performance of a property, including the assumption that the tenant will perform its obligations under its lease agreement during the next 12 months. Actual base rent for properties acquired in the nine months ended September 30, 2015 was $9.8 million.


(5)	The American Express Center property consists of two buildings.


(6)	The MGM Corporate Center property consists of three buildings.


(7)	The Huntington Ingalls property consists of two buildings.

Summary of purchase price allocation

The following summarizes the purchase price allocation of the 2015 acquisitions through September 30, 2015:



	Land		Building and Improvements		Tenant Origination and Absorption Cost		In-Place Lease Valuation Above/(Below) Market			Total
Owens Corning	$	575,000	$	4,605,876	$	560,750	$	(241,626	)	$	5,500,000
Westgate II	3,732,053		43,596,739		11,504,737		(1,833,529		)	57,000,000
Administrative Office of Pennsylvania Courts	1,207,000		7,201,000		1,735,000		(28,000		)	10,115,000
American Express Center	5,750,000		73,750,000		39,920,000		(27,920,000		)	91,500,000
MGM Corporate Center	4,260,342		21,660,600		7,044,058		(2,665,000		)	30,300,000
American Showa	1,452,649		13,473,559		2,273,792		—			17,200,000
Huntington Ingalls	5,415,000		23,341,000		6,495,000		(951,000		)	34,300,000
Wyndham	5,695,816		60,978,739		15,552,851		(827,406		)	81,400,000
Exel	1,988,200		11,947,000		2,011,000		—			15,946,200
Morpho Detection	2,350,000		5,833,000		3,649,000		(332,000		)	11,500,000
FedEx Freight	2,774,000		22,640,000		3,273,000		(687,000		)	28,000,000
Aetna ⁽¹⁾⁽²⁾	1,846,433		20,413,340		—		—			22,259,773
Bank of America I ⁽¹⁾	5,491,000		17,463,000		6,051,000		(605,000		)	28,400,000
Bank of America II⁽¹⁾	9,206,000		13,752,000		6,452,000		(810,000		)	28,600,000
Total	$	51,743,493	$	340,655,853	$	106,522,188	$	(36,900,561	)	$	462,020,973


(1)	As of September 30, 2015, the purchase price allocation for the acquisition has been allocated on a preliminary basis to the respective assets acquired and the liabilities assumed. The purchase price allocation will be finalized prior to the issuance of the Company's 2015 Form 10-K.


(2)	The property was acquired in a sale-leaseback transaction and accounted for as an asset acquisition. Total acquisition costs in the amount of $0.6 million have been allocated on a pro rata basis between building and land values.

Schedule of pro forma financial information

The pro forma operating information excludes certain nonrecurring adjustments, such as acquisition fees and expenses incurred, to reflect the pro forma impact these acquisitions would have on earnings on a continuous basis:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2015			2014		2015		2014
Revenue	$	10,973,577		$	11,195,667	$	33,528,857	$	33,617,524
Net income	$	(296,952	)	$	878,321	$	738,204	$	3,246,010
Net income attributable to noncontrolling interests	$	(1,053	)	$	431,972	$	175	$	2,297,628
Net income attributable to common stockholders ⁽¹⁾	$	(920,648	)	$	446,348	$	92,088	$	948,383
Net income to common stockholders per Class A share, basic and diluted	$	(0.05	)	$	21.60	$	0.01	$	114.89


(1)	Amount is net of net income (loss) attributable to noncontrolling interests and distributions to redeemable noncontrolling interests attributable to common stockholders.

Schedule of future minimum net rent payments

The future minimum contractual rent payments pursuant to the lease terms, with lease expirations ranging from 2020 to 2029, are shown in the table below:



2015	$	7,950,016
2016	32,148,657
2017	32,678,538
2018	33,177,128
2019	33,889,005
Thereafter	177,162,233
Total	$	317,005,577

Schedule of rental income for next twelve months

The percentage of annualized net rent for the 12-month period subsequent to September 30, 2015, by state, based on the respective in-place leases, is as follows:



State	Annualized Net Rent		Number of Properties	Percentage of Annualized Net Rent
Arizona	$	7,374,292	2	23.4	%
California	5,128,483		2	16.3	%
New Jersey	5,101,217		1	16.2	%
Ohio	4,020,114		3	12.8	%
Texas	3,854,299		1	12.3	%
Virginia	2,232,054		1	7.1	%
Nevada	1,901,785		1	6.0	%
All Others ⁽¹⁾	1,858,400		3	5.9	%
Total	$	31,470,644	14	100.0	%


(1)	All Others account for less than 3% of total annualized net rent on an individual basis.

Schedule of percentage aggregate gross rental income received by company, by industry

The percentage of annualized net rent for the 12-month period subsequent to September 30, 2015, by industry, based on the respective in-place leases, is as follows:



Industry⁽¹⁾	Annualized Net Rent		Number of Lessees	Percentage of Annualized Net Rent
Finance and Insurance	$	12,502,775	3	39.7	%
Accommodation and Food Services	6,955,952		2	22.1	%
Professional, Scientific, and Technical Services	4,983,019		2	15.8	%
Manufacturing	4,364,780		4	13.9	%
Transportation and Warehousing	1,860,914		1	5.9	%
All Others ⁽²⁾	803,204		2	2.6	%
Total	$	31,470,644	14	100.0	%


(1)	Industry classification based on the 2012 North American Industry Classification System.


(2)	All others account for less than 3% of total annualized net rent on an individual basis.

Schedule of tenant lease expirations by year on rental income

The tenant lease expirations by year based on annualized net rent for the 12-month period subsequent to September 30, 2015 are as follows:



Year of Lease Expiration	Annualized Net Rent		Number of Lessees	Square Feet	Percentage of Annualized Net Rent
2016	47,050		1	2,400	0.1	%
2020	5,128,483		1	480,100	16.3	%
2022	1,128,721		1	312,000	3.6	%
2023	5,862,676		1	513,400	18.6	%
2024	8,683,281		5	630,400	27.6	%
2025	2,542,094		2	404,900	8.1	%
2027	2,977,122		2	579,700	9.5	%
2029	5,101,217		1	203,500	16.2	%
Total	$	31,470,644	14	3,126,400	100.0	%

Schedule of in-place lease valuation

The in-place lease was measured against comparable leasing information and the present value of the difference between the contractual, in-place rent and the fair market rent was calculated using, as the discount rate, the capitalization rate utilized to compute the value of the real estate at acquisition.



	As of September 30, 2015
In-place lease valuation (below market)	$	(36,900,561	)
In-place lease valuation (below market) - accumulated amortization	1,091,830
In-place lease valuation (below market), net	$	(35,808,731	)
Tenant origination and absorption cost	$	106,522,188
Tenant origination and absorption cost - accumulated amortization	(3,952,616		)
Tenant origination and absorption cost, net	$	102,569,572

Schedule of amortization expense

The amortization of the intangible assets and other leasing costs for the nine months ended September 30, 2015 is as follows:



	Amortization (income) expense for the nine months ended September 30, 2015
In-place lease valuation	$	(1,091,830	)
Tenant origination and absorption cost	$	3,952,616

Schedule of amortization (income) expense, future amortization

The following table sets forth the estimated annual amortization (income) expense for in-place lease valuation, and tenant origination and absorption costs as of September 30, 2015 for the next five years:



Year	In-Place Lease Valuation			Tenant Origination and Absorption Costs
Remaining 2015	$	(754,924	)	$	3,065,071
2016	$	(3,019,695	)	$	12,260,283
2017	$	(3,019,695	)	$	12,260,283
2018	$	(3,019,695	)	$	12,260,283
2019	$	(3,019,695	)	$	12,260,283