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Investments in Real Estate

6 Months Ended

Jun. 30, 2012

4. Investments in Real Estate

We acquire the land, buildings and improvements that are necessary for the successful operations of retail and other commercial enterprises.

A. During the first six months of 2012, we invested $221.5 million in 147 new properties and properties under development, with an initial weighted average contractual lease rate of 7.2%. These 147 new properties are located in 28 states, will contain over 1.4 million leasable square feet, and are 100% leased with an average lease term of 15.0 years. The tenants of the 147 properties acquired, operate in six industries: automotive collision services, crafts and novelties, drug store, general merchandise, restaurants – quick service, and transportation services. The investments to any one tenant were less than 10% of our total assets at December 31, 2011. The initial weighted average contractual lease rate is computed by dividing the estimated aggregate base rent for the first year of each lease by the estimated total cost of the properties. Acquisition transaction costs of $634,000 were recorded to general and administrative expense, on our consolidated statement of income, for the six months ended June 30, 2012.

In April 2012 we announced the signing of purchase agreements to acquire properties with an aggregate value of approximately $514 million, which were anticipated to close during the second quarter. Included in the $221.5 million invested during the first six months of 2012, is $198 million invested in 139 properties of the previously announced acquisitions. Agreements to acquire properties for approximately $316 million have been terminated and will not be acquired. However, transaction flow remains strong, and we continue to believe we will meet or exceed our previously stated 2012 target of $650 million in new property acquisitions. While the total amount of acquisitions for 2012 will likely be higher than previously anticipated, the timing of the remaining acquisitions will be weighted more heavily towards the end of the year.

In comparison, during the first six months of 2011, we invested $364.2 million in 36 properties and properties under development, with an initial weighted average contractual lease rate of 7.6%. These 36 properties and properties under development, are located in 19 states, contain over 3.4 million leasable square feet, and are 100% leased with an average lease term of 15.5 years. Acquisition transaction costs of $913,000 were recorded to general and administrative expense, on our consolidated statement of income, for the six months ended June 30, 2011.

During the first six months of 2012, we capitalized costs of $2.4 million on existing properties in our portfolio, consisting of $698,000 for re-leasing costs and $1.7 million for building and tenant improvements. In comparison, during the first six months of 2011, we capitalized costs of $1.9 million on existing properties in our portfolio, consisting of $649,000 for re-leasing costs and $1.2 million for building and tenant improvements.

B. Of the $221.5 million invested by us in the first six months of 2012, approximately $20.9 million was used to acquire three properties with existing leases. Associated with these three properties, we recorded $1.6 million as the intangible value of the in-place leases, $991,000 as the intangible value of above-market leases and $244,000 as the intangible value of below-market leases. Of the $364.2 million invested by us in the first six months of 2011, approximately $336.2 million was used to acquire 22 properties with existing leases. Associated with these 22 properties, we recorded $64.5 million as the intangible value of the in-place leases, $18.6 million as the intangible value of above-market leases and $1.9 million as the intangible value of below-market leases.

The value of the in-place and above-market leases is recorded to other assets on our consolidated balance sheet, and the value of the below-market leases is recorded to other liabilities on our consolidated balance sheet. The value of the in-place leases is amortized as depreciation and amortization expense, while the value of the above-market and below-market leases is amortized as rental revenue on our consolidated statements of income. All of these amounts are amortized over the life of the respective leases.

C. The amounts amortized as a net decrease to rental income, for capitalized above-market and below-market leases, was $964,000 for the first six months of 2012 and was $316,000 for the first six months of 2011. The value of in-place leases amortized to expense was $6.7 million for the first six months of 2012 and was $2.2 million for the first six months of 2011.