Edgar Filing: STAG Industrial, Inc.

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, 2013

o	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 incorporation or organization)		(IRS Employer Identification No.)

99 High Street, 28th Floor Boston, Massachusetts		02110
(Address of principal executive offices)		(Zip Code)

(617) 574-4777

(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 o

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 o

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. Check one:

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common and preferred shares as of the latest practicable date.

Class		Outstanding at August 5, 2013
Common Stock ($0.01 par value)		42,338,377
9.0 % Series A Cumulative Redeemable Preferred Stock ($0.01 par value)		2,760,000
6.625 % Series B Cumulative Redeemable Preferred Stock ($0.01 par value)		2,800,000

STAG INDUSTRIAL, INC.

Table of Contents

PART I.	Financial Information

Item 1.	Financial Statements (unaudited)	3

	Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012	3

	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2013 and 2012	4

	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2013 and 2012	5

	Consolidated Statements of Equity for the Six Months Ended June 30, 2013 and 2012	6

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	38

Item 4.	Controls and Procedures	39

PART II.	Other Information	39

Item 1.	Legal Proceedings	39

Item 1A.	Risk Factors	39

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 3.	Defaults Upon Senior Securities	39

Item 4.	Mine Safety Disclosures	39

Item 5.	Other Information	40

Item 6.	Exhibits	40

	SIGNATURE	41

Part I. Financial Information

Item 1. Financial Statements

STAG Industrial, Inc.

Consolidated Balance Sheets

(unaudited, in thousands, except share data)

	June 30, 2013			December 31, 2012

Assets
Rental Property:
Land	$	121,797		$	104,656
Buildings	758,337			654,518
Tenant improvements	35,996			34,900
Building and land improvements	27,721			22,153
Less: accumulated depreciation	(58,507		)	(46,175		)
Total rental property, net	885,344			770,052
Cash and cash equivalents	19,763			19,006
Restricted cash	9,274			5,497
Tenant accounts receivable, net	10,949			9,351
Prepaid expenses and other assets	3,268			1,556
Interest rate swaps	3,186			—
Deferred financing fees, net	5,624			4,704
Leasing commissions, net	2,832			1,674
Goodwill	4,923			4,923
Due from related parties	256			806
Deferred leasing intangibles, net	203,627			187,555
Total assets	$	1,149,046		$	1,005,124
Liabilities and Equity
Liabilities:
Mortgage notes payable	$	227,898		$	229,915
Unsecured credit facility	—			99,300
Unsecured term loans	225,000			150,000
Accounts payable, accrued expenses and other liabilities	12,873			12,111
Interest rate swaps	—			480
Tenant prepaid rent and security deposits	7,115			5,686
Dividends and distributions payable	17,259			11,301
Deferred leasing intangibles, net	7,094			6,871
Total liabilities	$	497,239		$	515,664
Commitments and contingencies
Equity:
Preferred stock, par value $0.01 per share, 10,000,000 shares authorized,
Series A, 2,760,000 shares (liquidation preference of $25.00 per share) issued and outstanding at June 30, 2013 and December 31, 2012	69,000			69,000
Series B, 2,800,000 shares (liquidation preference of $25.00 per share) issued and outstanding at June 30, 2013 and no shares issued and outstanding at December 31, 2012	70,000			—
Common stock, par value $0.01 per share, 100,000,000 shares authorized, 42,235,676 and 35,698,582 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively	422			357
Additional paid-in capital	527,977			419,643
Common stock dividends in excess of earnings	(90,398		)	(61,024		)
Accumulated other comprehensive income (loss)	2,806			(371		)
Total stockholders’ equity	579,807			427,605
Noncontrolling interest	72,000			61,855
Total equity	651,807			489,460
Total liabilities and equity	$	1,149,046		$	1,005,124

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 June 30,						Six months ended June 30,
	2013			2012			2013			2012
Revenue
Rental income	$	28,325		$	16,991		$	54,479		$	32,089
Tenant recoveries	3,480			2,019			7,142			4,005
Other income	262			330			658			651
Total revenue	32,067			19,340			62,279			36,745
Expenses
Property	2,316			1,275			5,013			2,768
General and administrative	4,477			3,308			8,983			6,306
Real estate taxes and insurance	3,263			1,615			5,896			2,972
Property acquisition costs	1,269			1,149			1,845			1,441
Depreciation and amortization	16,397			9,153			31,947			17,874
Loss on impairment	—			622			—			622
Other expenses	161			9			245			60
Total expenses	27,883			17,131			53,929			32,043
Other income (expense)
Interest income	3			4			6			8
Interest expense	(4,846		)	(4,126		)	(9,497		)	(8,218		)
Gain on interest rate swaps	—			—			—			215
Offering costs	(27		)	(68		)	(27		)	(68		)
Gain on extinguishment of debt	—			18			—			18
Total other income (expense)	(4,870		)	(4,172		)	(9,518		)	(8,045		)
Net loss from continuing operations	$	(686	)	$	(1,963	)	$	(1,168	)	$	(3,343	)
Discontinued operations
Income attributable to discontinued operations	38			216			102			235
Gain on sales of real estate	464			219			464			219
Total income attributable to discontinued operations	502			435			566			454
Net loss	$	(184	)	$	(1,528	)	$	(602	)	$	(2,889	)
Less: loss attributable to noncontrolling interest	(357		)	(887		)	(623		)	(1,853		)
Net income (loss) attributable to STAG Industrial, Inc.	$	173		$	(641	)	$	21		$	(1,036	)
Less: preferred stock dividends	2,519			1,553			4,071			3,106
Less: amount allocated to unvested restricted stockholders	64			41			133			41
Net loss attributable to common stockholders	$	(2,410	)	$	(2,235	)	$	(4,183	)	$	(4,183	)
Weighted average common shares outstanding — basic and diluted	42,006,954			19,484,785			41,265,070			17,654,706
Loss per share — basic and diluted
Loss from continuing operations attributable to common stockholders	$	(0.07	)	$	(0.13	)	$	(0.11	)	$	(0.26	)
Income from discontinued operations attributable to common stockholders	$	0.01		$	0.02		$	0.01		$	0.02
Loss per share — basic and diluted	$	(0.06	)	$	(0.11	)	$	(0.10	)	$	(0.24	)

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

STAG Industrial, Inc.

Consolidated Statements of Comprehensive Income (loss)

(unaudited, in thousands, except per share data)

	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012

Net loss	$	(184	)	$	(1,528	)	$	(602	)	$	(2,889	)
Other comprehensive income:
Unrealized gain on interest rate swaps	3,655			—			3,666			—
Other comprehensive income	3,655			—			3,666			—
Comprehensive income (loss)	3,471			(1,528		)	3,064			(2,889		)
Net loss attributable to noncontrolling interest	357			887			623			1,853
Other comprehensive income attributable to noncontrolling interest	(482		)	—			(489		)	—
Comprehensive income (loss) attributable to STAG Industrial, Inc.	$	3,346		$	(641	)	$	3,198		$	(1,036	)

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)

																			Noncontrolling
										Common Stock									Interest — Unit
							Additional			Dividends			Accumulated Other			Total			holders in
				Common Shares			Paid in			in excess of			Comprehensive			Stockholder’s			Operating
	Preferred Stock			Shares	Amount		Capital			Earnings			Income (Loss)			Equity			Partnership			Total Equity
Six months ended June 30, 2013
Balance, December 31, 2012	$	69,000		35,698,582	$	357	$	419,643		$	(61,024	)	$	(371	)	$	427,605		$	61,855		$	489,460
Proceeds from sales of common stock	—			6,433,352	64		117,675			—			—			117,739			—			117,739
Issuance of series B preferred stock	70,000			—	—		—			—			—			70,000			—			70,000
Offering costs	—			—	—		(7,847		)	—			—			(7,847		)	—			(7,847		)
Issuance of restricted stock, net	—			96,287	1		(1		)	—			—			—			—			—
Issuance of common stock	—			5,269	—		—			—			—			—			—			—
Dividends and distributions, net	(4,071		)	—	—		—			(25,324		)	—			(29,395		)	(4,198		)	(33,593		)
Non-cash compensation	—			—	—		680			—			—			680			805			1,485
Issuance of units	—			—	—		—			—			—			—			11,499			11,499
Conversion of operating partnership units to common stock	—			2,186	—		23			—			—			23			(23		)	—
Rebalancing of noncontrolling interest	—			—	—		(2,196		)	—			—			(2,196		)	2,196			—
Comprehensive loss	—			—	—		—			—			3,177			3,177			489			3,666
Net income (loss)	4,071			—	—		—			(4,050		)	—			21			(623		)	(602		)
Balance, June 30, 2013	$	139,000		42,235,676	$	422	$	527,977		$	(90,398	)	$	2,806		$	579,807		$	72,000		$	651,807

Six months ended June 30, 2012
Balance, December 31, 2011	$	69,000		15,901,560	$	159	$	179,919		$	(18,385	)	$	—		$	230,693		$	79,216		$	309,909
Proceeds from sale of common stock	—			8,337,500	83		107,304			—			—			107,387			—			107,387
Offering costs	—			—	—		(5,104		)	—			—			(5,104		)	—			(5,104		)
Issuance of restricted stock	—			87,025	1		(1		)	—			—			—			—			—
Issuance of common stock	—			8,241	—		—			—			—			—			—			—
Dividends and distributions, net	(3,106		)	—	—		—			(10,897		)	—			(14,003		)	(4,133		)	(18,136		)
Non-cash compensation	—			—	—		502			—			—			502			474			976
Issuance of units for acquisition fee	—			—	—		—			—			—			—			225			225
Conversion of operating partnership units to common stock	—			623,932	6		6,038			—			—			6,044			(6,044		)	—
Rebalancing of noncontrolling interest	—			—	—		(5,989		)	—			—			(5,989		)	5,989			—
Net income (loss)	3,106			—	—		—			(4,142		)	—			(1,036		)	(1,853		)	(2,889		)
Balance, June 30, 2012	$	69,000		24,958,258	$	249	$	282,669		$	(33,424	)	$	—		$	318,494		$	73,874		$	392,368

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

STAG Industrial, Inc.

Consolidated Statements of Cash Flows

(unaudited, in thousands)

	Six months ended June 30,
	2013			2012

Cash flows from operating activities:
Net loss	$	(602	)	$	(2,889	)
Adjustment to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	32,045			18,132
Loss on impairment	—			622
Non-cash portion of interest expense	515			498
Intangible amortization in rental income, net	2,875			2,258
Straight-line rent adjustments, net	(1,507		)	(1,269		)
Gain on interest rate swaps	—			(215		)
Gain on extinguishment of debt	—			(18		)
Gain on sales of real estate	(464		)	(219		)
Non-cash compensation expense	1,485			976
Issuance of units for acquisition fee	—			225
Change in assets and liabilities:
Tenant accounts receivable, net	(77		)	101
Leasing commissions, net	(1,420		)	(359		)
Restricted cash	(421		)	(689		)
Prepaid expenses and other assets	(1,633		)	(653		)
Accounts payable, accrued expenses and other liabilities	969			(35		)
Tenant prepaid rent and security deposits	1,429			1,152
Due from related parties	550			(43		)
Total adjustments	34,346			20,464
Net cash provided by operating activities	33,744			17,575
Cash flows from investing activities:
Additions of land and building improvements	(120,458		)	(86,992		)
Proceeds from sale of rental property, net	4,843			3,216
Restricted cash	(837		)	(1,173		)
Cash received (paid) for deal deposits, net	(100		)	35
Additions to lease intangibles	(38,422		)	(25,950		)
Net cash used in investing activities	(154,974		)	(110,864		)
Cash flows from financing activities:
Proceeds from sale of series B preferred stock	70,000			—
Proceeds from credit facility	—			87,300
Repayment of credit facility	—			(82,300		)
Proceeds from unsecured credit facility	65,000			—
Repayment of unsecured credit facility	(164,300		)	—
Proceeds from unsecured term loans	75,000			—
Proceeds from mortgage notes payable	—			9,252
Repayment of mortgage notes payable	(1,965		)	(18,592		)
Payment of loan fees and costs	(1,487		)	(477		)
Dividends and distributions	(27,634		)	(14,009		)
Proceeds from sales of common stock	117,739			107,387
Offering costs	(7,847		)	(5,104		)
Restricted cash - escrow for dividends	(2,519		)	(1,553		)
Net cash provided by financing activities	121,987			81,904
Increase (decrease) in cash and cash equivalents	757			(11,385		)
Cash and cash equivalents—beginning of period	19,006			16,498
Cash and cash equivalents—end of period	$	19,763		$	5,113

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 a fully-integrated, self-administered and self-managed real estate company focused on the acquisition, ownership and management of single-tenant industrial buildings throughout the United States. The Company was formed as a Maryland corporation on July 21, 2010 and has elected to be treated as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”). 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 June 30, 2013 and December 31, 2012, the Company owned an 85.96% and 85.29% limited partnership interest in the Operating Partnership, respectively. As used herein, the “Company” refers to STAG Industrial, Inc. and its consolidated subsidiaries and partnerships except where context otherwise requires.

As of June 30, 2013, the Company owned 194 buildings in 33 states with approximately 33.3 million square feet, consisting of 132 warehouse/distribution buildings, 42 light manufacturing buildings and 20 flex/office buildings. The Company also owned one vacant land parcel adjacent to one of the Company’s buildings. The Company’s buildings were 93.9% leased to 174 tenants as of June 30, 2013.

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 of 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 presentation 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, 2012.

Basis of Presentation

The Company’s consolidated financial statements include the accounts of the Company, the Operating Partnership and their subsidiaries. The equity interests of other limited partners in the Operating Partnership held in the form of common units (“Noncontrolling Common Units” or “Common Units”) are reflected as noncontrolling interest. All significant intercompany balances and transactions have been eliminated in the consolidation and combination of entities. The financial statements of the Company are presented on a consolidated basis, for all periods presented.

Adoption of New Accounting Pronouncements

In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which requires an entity to present information about reclassification adjustments from accumulated other comprehensive income in their interim and annual financial statements in a single note or on the face of the financial statements. ASU 2013-02 was effective for the Company on January 1, 2013. The Company’s adoption of this authoritative guidance did not have a material impact on its operating results or financial position.

Consolidated Statements of Cash Flows—Supplemental Disclosures

The following table provides supplemental disclosures related to the Consolidated Statements of Cash Flows (in thousands):

	Six months ended June 30, 2013			Six months ended June 30, 2012
Supplemental cash flow information
Cash paid for interest	$	8,720		$	7,895
Supplemental schedule of non-cash investing and financing activities
Non-cash investing activities included in additions of land and building improvements	$	(11,277	)	$	(303	)
Issuance of Common Units for acquisitions	$	11,499		$	—
Dividends and distributions declared but not paid	$	17,259		$	10,287

Restricted Cash

Restricted cash may include security deposits and cash held in escrow for real estate taxes and capital improvements as required in various mortgage loan agreements. Restricted cash also may include amounts held by the Company’s transfer agent for preferred stock dividends that are distributed subsequent to June 30, 2013. As of June 30, 2013, restricted cash included $2.5 million, which amount was held by the Company’s transfer agent for preferred stock dividends and distributed subsequent to June 30, 2013.

Tenant Accounts Receivable, net

Tenant accounts receivable, net on the Consolidated Balance Sheets, includes both tenant accounts receivable, net and accrued rental income, net. The Company provides an allowance for doubtful accounts against the portion of tenant accounts receivable that is estimated to be uncollectible. As of June 30, 2013 and December 31, 2012, the Company had an allowance for doubtful accounts of $19 thousand and $0, respectively.

The Company accrues rental revenue earned, but not yet receivable, in accordance with GAAP. As of June 30, 2013 and December 31, 2012, the Company had accrued rental revenue of $7.9 million and $6.4 million, respectively. The Company maintains an allowance for estimated losses that may result from those revenues. If a tenant fails to make contractual payments beyond any allowance, the Company may recognize additional bad debt expense in future periods equal to the amount of unpaid rent and accrued rental revenue. As of June 30, 2013 and December 31, 2012, the Company had an allowance on accrued rental revenue of $0 and $0, respectively.

As of June 30, 2013 and December 31, 2012, the Company had a total of approximately $4.9 million and $4.8 million, respectively, of total lease security deposits available in existing letters of credit, which are not reflected on the Company’s Consolidated Balance Sheets; and $2.7 million and $2.0 million, respectively, of lease security deposits available in cash.

Deferred Costs

Deferred financing fees include costs incurred in obtaining debt that are capitalized. The deferred financing fees are amortized to interest expense over the life of the respective loans, which approximates the effective interest method. Any unamortized amounts upon early repayment of debt are written off in the period of repayment. During the three and six months ended June 30, 2013 and June 30, 2012, amortization of deferred financing fees included in interest expense was $0.3 million, $0.6 million, $0.3 million and $0.6 million, respectively. Fully amortized deferred charges are removed upon maturity of the underlying debt.

Revenue Recognition

By the terms of their leases, certain tenants are obligated to pay directly the costs of their buildings’ insurance, real estate taxes, ground lease payments, and certain other expenses and these costs are not reflected on the Company’s Consolidated Financial Statements. To the extent any tenant responsible for these costs under its lease defaults on its lease or it is deemed probable that the tenant will fail to pay for such costs, the Company will record a liability for such obligations. The Company estimates that real estate taxes, which are the responsibility of these certain tenants, were approximately $2.3 million, $4.6 million, $1.6 million and $3.0 million for the three and six months ended June 30, 2013 and June 30, 2012, respectively. This would have been the maximum liability of the Company had the tenants not met their contractual obligations. The Company does not recognize recovery revenue related to leases where the tenant has assumed the cost for real estate taxes, insurance, ground lease payments and certain other expenses.

Income Taxes

The Company elected to be taxed as a REIT under the Code commencing with its taxable year ended December 31, 2011 and intends to continue to qualify as a REIT. As a REIT, the Company is required to distribute at least 90% of its REIT taxable income to its stockholders and meet the various other requirements imposed by the Code relating to such matters as operating results, asset holdings, distribution levels and diversity of stock ownership. The Company is generally not subject to corporate level income tax on the earnings distributed currently to its stockholders that it derives from its REIT qualifying activities. If the Company fails to qualify as a REIT in any taxable year, and is unable to avail itself of certain savings provisions set forth in the Code, all of the Company’s taxable income would be subject to federal income tax at regular corporate rates, including any applicable alternative minimum tax.

The Company will not be required to make distributions with respect to income derived from the activities conducted through subsidiaries that the Company elects to treat as taxable REIT subsidiaries (“TRS”) for federal income tax purposes. Certain activities that the Company undertakes must be conducted by a TRS, such as performing non-customary services for its tenants and holding assets that it cannot hold directly. A TRS is subject to federal and state income taxes. The Company’s TRS did not have any activity during the three and six months ended June 30, 2013 and June 30, 2012.

The Company and certain of its subsidiaries are subject to certain state and local income, excise and franchise taxes. Taxes in the amount of $0.1 million, $0.2 million, $9 thousand, and $0.1 million have been recorded in other expenses in the accompanying Consolidated Statements of Operations for the three and six months ended June 30, 2013 and June 30, 2012, respectively.

The Company currently has no liabilities for uncertain tax positions.

3. Real Estate

The following table summarizes the acquisitions of the Company during the six months ended June 30, 2013 and the year ended December 31, 2012:

Six Months Ended June 30, 2013

Building Location	Date Acquired	Square Feet	Buildings
Orangeburg, SC	2/7/2013	319,000	1
Golden, CO	2/27/2013	227,500	1
Columbia, SC	2/28/2013	273,280	1
DeKalb, IL	3/15/2013	146,740	1
Ocala, FL	3/26/2013	619,466	1
Londonderry, NH	3/28/2013	125,060	1
Marion, IA	3/28/2013	95,500	1
Mishawaka, IN	4/5/2013	308,884	1
Southfield, MI (1)	4/9/2013	113,000	1
Houston, TX	4/9/2013	201,574	1
Idaho Falls, ID	4/11/2013	90,300	1
Mt. Prospect, IL	5/14/2013	87,380	1
Williamsport, PA	5/31/2013	250,000	1
Belvidere, IL	6/19/2013	1,006,960	8
Kentwood, MI	6/26/2013	85,157	1
Marshall, MI	6/26/2013	57,025	1
	Total	4,006,826	23

(1) The Company also owns a 5.4 acre vacant land parcel adjacent to this building.

Year Ended December 31, 2012

Building Location	Date Acquired	Square Feet	Buildings
East Windsor, CT	3/1/2012	145,000	1
South Bend, IN	3/8/2012	225,000	1
Lansing, MI	3/21/2012	129,325	1
Portland, ME	3/27/2012	100,600	1
Portland, TN	3/30/2012	414,043	1
Spartanburg, SC	4/5/2012	409,600	4
Franklin, IN	4/17/2012	703,496	1
Muhlenberg Township, PA	5/24/2012	394,289	1
Avon, CT	6/15/2012	78,400	1
Orlando, FL	6/15/2012	155,000	1
Pineville, NC	6/15/2012	75,400	1
Buffalo, NY	6/15/2012	117,000	1
Edgefield, SC	6/15/2012	126,190	1
Arlington, TX	6/15/2012	196,000	1
Bellevue, OH	7/18/2012	181,838	1
Atlanta, GA	8/1/2012	407,981	1
Huntersville, NC	8/6/2012	185,570	1
Simpsonville, SC	8/23/2012	204,952	1
Simpsonville, SC	8/23/2012	207,042	1
Dallas, GA	9/4/2012	92,807	1
Mebane, NC	9/4/2012	223,340	1
Mebane, NC	9/4/2012	202,691	1
De Pere, WI	9/13/2012	200,000	1
Duncan, SC	9/21/2012	474,000	1
Duncan, SC	9/21/2012	313,380	1
Buena Vista, VA	9/27/2012	172,759	1
Gurnee, IL	9/28/2012	223,760	1
Auburn Hills, MI	10/9/2012	87,932	1
El Paso, TX	10/9/2012	269,245	1
Gloversville, NY	10/9/2012	50,000	1
Gloversville, NY	10/9/2012	101,589	1
Gloversville, NY	10/9/2012	26,529	1
Gloversville, NY	10/9/2012	59,965	1
Greenwood, SC	10/9/2012	104,955	1
Greenwood, SC	10/9/2012	70,100	1
Holland, MI	10/9/2012	195,000	1
Independence, VA	10/9/2012	120,000	1
Jackson, TN	10/9/2012	250,000	1
Johnstown, NY	10/9/2012	52,500	1
Johnstown, NY	10/9/2012	60,000	1
Johnstown, NY	10/9/2012	42,325	1
Johnstown, NY	10/9/2012	57,102	1
Kansas City, KS	10/9/2012	56,580	1
Lafayette, IN	10/9/2012	71,400	1
Lafayette, IN	10/9/2012	120,000	1
Lafayette, IN	10/9/2012	275,000	1
Lansing, MI	10/9/2012	250,100	1
Marion, IN	10/9/2012	249,600	1
Novi, MI	10/9/2012	120,800	1
O’Hara, PA	10/9/2012	887,084	1
Parsons, KS	10/9/2012	120,000	1
Phenix City, AL	10/9/2012	117,568	1
Portage, IN	10/9/2012	212,000	1
Ware Shoals, SC	10/9/2012	20,514	1
Wichita, KS	10/9/2012	80,850	1
Wichita, KS	10/9/2012	120,000	1
Wichita, KS	10/9/2012	44,760	1
Wichita, KS	10/9/2012	47,700	1
Chicopee, MA	10/26/2012	217,000	1
Sterling Heights, MI	10/31/2012	108,000	1
Harrisonburg, VA	11/29/2012	357,673	1
Toledo, OH	12/13/2012	177,500	1
Woodstock, IL	12/14/2012	129,803	1
Kansas City, MO	12/19/2012	226,576	1
Smyrna, GA	12/20/2012	102,000	1
Montgomery, IL	12/20/2012	584,301	1
Statham, GA	12/21/2012	225,680	1
	Total	12,829,194	70

The following table (in thousands) summarizes the allocation of the consideration paid during the six months ended June 30, 2013 and the year ended December 31, 2012, respectively, for the acquired assets and liabilities in connection with the acquisitions of buildings at the date of acquisition identified in the table above:

	Six months Ended June 30, 2013			Weighted Average Amortization Period (years) Lease Intangibles	Year Ended December 31, 2012			Weighted Average Amortization Period (years) Lease Intangibles
Land	$	17,936		N/A	$	34,991		N/A
Buildings	106,688			N/A	269,616			N/A
Tenant improvements	1,300			N/A	10,624			N/A
Cash escrow for capital additions	—			N/A	785			N/A
Above market leases	5,125			5.8	16,728			10.0
Below market leases	(1,698		)	7.5	(5,962		)	6.5
In-place leases	24,754			5.7	63,397			6.6
Tenant relationships	10,239			8.3	26,241			8.2
Building and land improvements	3,897			N/A	7,488			N/A
Net assets acquired	$	168,241			$	423,908

As partial consideration for eight buildings acquired on June 19, 2013, the Company granted 555,758 Common Units in the Operating Partnership with a fair value of approximately $11.5 million. The issuance of the Common Units was effected in reliance upon an exemption from registration provided by Section 4(2) under the Securities Act of 1933, as amended. The Company relied on the exemption based on representations given by the holders of the Common Units. The remaining purchase price of approximately $40.1 million was paid in cash.

The Company has included the results of operations for each of the 23 buildings acquired in its Consolidated Statements of Operations from the date of acquisition. For the three and six months ended June 30, 2013, the entities acquired during the six months ended June 30, 2013 contributed $3.0 million and $3.4 million, respectively, to total revenue and $0.6 million and $1.2 million to net loss including building acquisition costs of $1.2 million and $1.7 million related to the acquisition of the buildings.

The following tables set forth pro forma information for the six months ended June 30, 2013 and 2012. The below pro forma information does not purport to represent what the actual results of operations of the Company would have been had the acquisitions outlined above occurred on the first day of the applicable reporting period, nor do they purport to predict the results of operations of future periods. The pro forma information has not been adjusted for property sales.

Pro Forma	Six months Ended June 30, 2013 (in thousands, except share data) (1)
Total revenue	$	68,493
Net income (2)	$	3,360
Net loss attributable to common stockholders	$	(750	)
Weighted average shares outstanding	41,265,070
Net loss per share attributable to common stockholders	$	(0.02	)

Pro Forma	Six months Ended June 30, 2012 (in thousands, except share data) (3)
Total revenue	$	49,745
Net income (2)	$	1,128
Net loss attributable to common stockholders	$	(1,407	)
Weighted average shares outstanding	17,654,706
Net income per share attributable to common stockholders	$	(0.08	)

(1) The pro forma information for the six months ended June 30, 2013 is presented as if the acquisition of the buildings acquired during the six months ended June 30, 2013 had occurred at January 1, 2012, the beginning of the reporting period prior to acquisition.

(2) The net income (loss) for the six months ended June 30, 2013 excludes $1.7 million of property acquisition costs related to the acquisition of buildings that closed during the six months ended June 30, 2013. Net income (loss) for the six months ended June 30, 2012 excludes $1.3 million of property acquisition costs related to the acquisition of buildings that closed during the six months ended June 30, 2012.

(3) The pro forma information for the six months ended June 30, 2012 is presented as if the acquisition of the buildings acquired during the six months ended June 30, 2013 and the buildings acquired during the six months ended June 30, 2012 had occurred at January 1, 2012 and January 1, 2011, respectively, the beginning of the reporting period prior to acquisition.

On June 12, 2013, the Company sold a 53,183 square feet flex/office building located in Pittsburgh, PA. The building represented a non-core asset of the Company. The carrying value of the building prior to sale was $4.4 million. The sales price was $5.1 million and the Company received net proceeds of $4.8 million. A gain on sale of real estate of $0.5 million was recognized at closing under the full accrual method of gain recognition. The building contributed $0.1 million, $0.2 million, $0.1 million, and $0.3 million to total revenue during the three and six months ended June 30, 2013 and June 30, 2012, respectively. The results of operations and the gain on sale are included in income attributable to discontinued operations on the accompanying Consolidated Statements of Operations. On April 20, 2012, the Company sold a vacant warehouse and distribution facility located in Youngstown, OH containing 153,708 net rentable square feet. The carrying value of the property prior to sale was $3.0 million. The sales price was $3.4 million and the Company received net proceeds of $3.2 million. The property contributed $0 to total revenue during the three and six months ended June 30, 2013 and June 30, 2012. At closing, the Company recognized a gain on sale of real estate in the amount of $0.2 million under the full accrual method of gain recognition. The results of operations and the gain for this sale are included in income attributable to discontinued operations on the accompanying Consolidated Statements of Operations.

4. Deferred Leasing Intangibles

Deferred leasing intangibles included in total assets consisted of the following (in thousands):

	June 30, 2013			December 31, 2012
In-place leases	$	126,877		$	108,363
Less: Accumulated amortization	(40,009		)	(28,289		)
In-place leases, net	86,868			80,074
Above market leases	55,793			50,699
Less: Accumulated amortization	(14,148		)	(10,362		)
Above market leases, net	41,645			40,337
Tenant relationships	70,806			61,050
Less: Accumulated amortization	(16,284		)	(11,298		)
Tenant relationships, net	54,522			49,752
Leasing commissions	28,420			23,376
Less: Accumulated amortization	(7,828		)	(5,984		)
Leasing commissions, net	20,592			17,392
Total deferred leasing intangibles, net	$	203,627		$	187,555

Deferred leasing intangibles included in total liabilities consisted of the following (in thousands):

	June 30, 2013			December 31, 2012
Below market leases	$	10,888		$	9,878
Less: Accumulated amortization	(3,794		)	(3,007		)
Total deferred leasing intangibles, net	$	7,094		$	6,871

Amortization expense, inclusive of results from discontinued operations, related to in-place leases, leasing commissions and tenant relationships of deferred leasing intangibles was $9.7 million, $19.1 million, $5.1 million and $10.1 million for the three and six months ended June 30, 2013 and June 30, 2012, respectively. Rental income, inclusive of results from discontinued operations, related to net amortization of above (below) market leases decreased by $1.5 million, $2.9 million, $1.1 million and $2.3 million for the three and six months ended June 30, 2013 and June 30, 2012, respectively.

Amortization related to deferred leasing intangibles over the next five years is as follows (in thousands):

	Estimated Net Amortization of In-Place Leases, Leasing Commissions and Tenant Relationships		Net Decrease to Rental Income Related to Above and Below Market Leases
Remainder of 2013	$	19,278	$	2,987
2014	34,387		5,626
2015	27,144		5,820
2016	22,451		5,473
2017	17,363		4,046

The Company assesses deferred leasing intangibles for impairments on a quarterly basis when certain triggering events are met. If events or changes in circumstances indicate that the carrying values of certain deferred lease intangibles may be impaired, a recovery analysis is performed based on undiscounted future cash flows expected to be generated from the tenant over the remaining lease term. If the recovery analysis indicates the carrying value of the tested lease intangibles are not recoverable from estimated future cash flows, it is written down to its estimated fair value and an impairment loss is recognized. The fair value is determined based on the contractual lease rental payments over the remaining term discounted back to the current reporting period. On June 11, 2012, the Company received notice from a tenant that the tenant was exercising an option in their lease to downsize their space from approximately 190,000 to 60,000 rentable square feet effective March 31, 2013. After determining the undiscounted future cash flows were not recoverable, the Company calculated the fair value of the lease intangibles. Using the remaining contractual lease payments for the reduced space and discounting the cash flows at a risk adjusted return for a market participant of 11.4%, it was determined that the fair value of the lease intangibles was $0.4 million resulting in a noncash impairment loss of $0.6 million during the three and six months ended June 30, 2012, which is reflected in the accompanying Consolidated Statements of Operations. The fair value calculation of the lease intangibles of $0.4 million was performed using Level 3 inputs, and this is a nonrecurring fair value measurement.

5. Debt

Payments on mortgage notes are generally due in monthly installments of principal amortization and interest. Payments on the Unsecured Term Loans and the Unsecured Credit Facility (each defined below) are generally due in monthly installments of interest.

The following table sets forth a summary of the Company’s outstanding indebtedness, including mortgage notes payable and borrowings under the Company’s Unsecured Term Loans and Unsecured Credit Facility as of June 30, 2013 and December 31, 2012 (dollars in thousands):

Loan	Interest Rate (1)	Principal outstanding as of June 30, 2013		Principal outstanding as of December 31, 2012		Current Maturity
Sun Life(2)	6.05%	3,949		4,079		Jun-1-2016
Webster Bank (3)	4.22%	5,909		5,984		Aug-4-2016
Bank of America Unsecured Credit Facility	LIBOR + 1.65%(4)	—		99,300		Sept-10-2016
Union Fidelity (5)	5.81%	6,727		6,898		Apr-30-2017
Webster Bank (6)	3.66%	3,162		3,203		May-29-2017
Webster Bank (7)	3.64%	3,405		3,450		May-31-2017
Bank of America Unsecured Term Loan	LIBOR + 1.65%(8)	150,000		150,000		Sept-10-2017
CIGNA-1 Facility(9)	6.50%	59,266		59,645		Feb-1-2018
CIGNA-2 Facility(10)	5.75%	60,433		60,863		Feb-1-2018
CIGNA-3 Facility(11)	5.88%	16,990		17,097		Oct-1-2019
Wells Fargo Bank, Unsecured Term Loan	LIBOR + 2.15%(12)	75,000		—		Feb-14-2020
Wells Fargo Bank, CMBS Loan (13)	4.31%	68,057		68,696		Dec-1-2022
		$	452,898	$	479,215

(1) Current interest rate as of June 30, 2013. At June 30, 2013 and December 31, 2012, the one-month LIBOR rate was 0.1947% and 0.2087%, respectively.

(2) This $4.1 million loan with Sun Life Assurance Company of Canada (U.S.) (“Sun Life”) was assumed on October 14, 2011 in connection with the acquisition of the building located in Gahanna, OH and the property is collateral for this loan. The principal outstanding includes an unamortized fair market value premium of $0.2 million and $0.2 million as of June 30, 2013 and December 31, 2012, respectively.

(3) This $6.2 million loan with Webster Bank, National Association (“Webster Bank”) was entered into on August 4, 2011 in connection with the acquisition of the building located in Norton, MA. The property is collateral for this loan.

(4) The spread over LIBOR for this unsecured revolving credit facility (“Unsecured Credit Facility”) is based on the Company’s consolidated leverage ratio and will range between 1.65% and 2.25%. The spread was 1.65% as of June 30, 2013 and December 31, 2012. The Company paid unused fees of $0.2 million and $0.3 million for the three and six months ended June 30, 2013, respectively, and did not have unused fees for the six months ended June 30, 2012 as the Company did not enter into the Unsecured Credit Facility until September 10, 2012. The borrowing capacity as of June 30, 2013 was $200 million, assuming current leverage levels.

(5) This $7.2 million loan with Union Fidelity Life Insurance Co. (“Union Fidelity”) was assumed on July 28, 2011 in connection with the acquisition of the St. Louis, MO building. The property is collateral for this loan. The principal outstanding includes an unamortized fair market value premium of $0.1 million and $0.2 million as of June 30, 2013 and December 31, 2012, respectively.

(6) This $3.25 million loan with Webster Bank loan was entered into on May 29, 2012 in connection with the acquisition of the building located in Portland, ME. The property is collateral for this loan.

(7) This $3.5 million loan with Webster Bank loan was entered into on May 31, 2012 in connection with the acquisition of the building located in East Windsor, CT. The property is collateral for this loan.

(8) This Bank of America, N.A. (“Bank of America”) unsecured term loan (“Bank of America Unsecured Term Loan”) was entered into on September 10, 2012. The spread over LIBOR is based on the Company’s consolidated leverage ratio and will range between 1.65% and 2.25%. The spread was 1.65% as of June 30, 2013 and December 31, 2012. The Company swapped the one-month LIBOR for a fixed rate for $100.0 million of the $150.0 million outstanding on the Bank of America Unsecured Term Loan. The net settlements of the swaps commenced on the effective date of the swaps, October 10, 2012. For further details refer to Note 6.

(9) This Connecticut General Life Insurance Company (“CIGNA”) credit facility originally was entered into in July 2010 (the “CIGNA-1 Facility”), which loan has various buildings serving as collateral, had no remaining borrowing capacity as of June 30, 2013.

(10) This CIGNA credit facility originally was entered into in October 2010 (the “CIGNA-2 Facility”), which loan has various buildings serving as collateral, had a remaining borrowing capacity of approximately $2.9 million as of June 30, 2013, subject to customary terms and conditions, including underwriting.

(11) This CIGNA credit facility originally was entered into on July 8, 2011 (“CIGNA-3 Facility”), which loan has various buildings serving as collateral. The CIGNA-3 Facility had a remaining borrowing capacity of approximately $47.9 million as of June 30, 2013, subject to customary terms and conditions, including underwriting.

(12) This Wells Fargo unsecured term loan (“Wells Fargo Unsecured Term Loan”) was entered into on February 14, 2013. The spread over LIBOR is based on the Company’s consolidated leverage ratio and will range between 2.15% and 2.70%. The spread was 2.15% as of June 30, 2013. The Wells Fargo Unsecured Term Loan has an accordion feature that allows the Company to increase its borrowing capacity to $250.0 million, subject to the satisfaction of certain conditions. The Company borrowed $25 million under this loan at closing and an additional $50 million was drawn on June 17, 2013. On March 1, 2013, the Company swapped the one-month LIBOR for a fixed rate of 1.33% on $25.0 million of the $150.0 million capacity on the unsecured term loan. The Company entered into two additional interest rate swaps on June 13, 2013 with effective dates of July 1, 2013 and August 1, 2013 in the amounts of $50 million and $25 million, which converted the one-month LIBOR to 1.681% and 1.703%, respectively (see Note 6 for further details). The borrowing capacity as of June 30, 2013 was $75 million, assuming current leverage levels, and can be drawn down by the Company through February 14, 2014. The Company incurred $1.4 million in deferred financing fees associated with the closing of the Wells Fargo Unsecured Term Loan, which will be amortized over its seven year term. The Company also incurred an annual fee of $50 thousand to be amortized over one year. The Wells Fargo Unsecured Term Loan has an unused commitment fee equal to 0.35% of its unused portion, which is paid monthly in arrears. During the period February 14, 2013 to June 30, 2013, the Company incurred an unused fee of $0.2 million.

(13) This $68.8 million Wells Fargo loan (“CMBS Loan”) was entered into on November 8, 2012 and is a non-recourse loan with 28 buildings serving as collateral.

Financial Covenant Considerations

The Company’s ability to borrow under the Unsecured Credit Facility, and the Bank of America Unsecured Term Loan and the Wells Fargo Unsecured Term Loan (together, the Bank of America Unsecured Term Loan and the Wells Fargo Unsecured Term Loan are the “Unsecured Term Loans”) is subject to its ongoing compliance with a number of customary financial covenants, including:

· a maximum consolidated leverage ratio of not greater than 0.60:1.00;

· a maximum secured leverage ratio of not greater than 0.45:1.00;

· a maximum unencumbered leverage ratio of not greater than 0.60:100;

· a maximum secured recourse debt ratio of not greater than 7.5%;

· a minimum fixed charge ratio of not less than 1.50 to 1.00;

· a minimum tangible net worth covenant test; and

· various thresholds on Company level investments.

If a default or event of default occurs and is continuing, the Company may be precluded from paying certain distributions (other than those required to allow it to qualify and maintain its status as a REIT) under the terms of the Unsecured Credit Facility and Unsecured Term Loans.

The Sun Life loan, the Webster Bank loans, the Union Fidelity loan, the CIGNA-1 Facility, the CIGNA-2 Facility, the CIGNA-3 Facility and the CMBS Loan, and specific properties are collateral for these loans. The acquisition costs of these properties were financed by the loans and by collateral assignments of the specific leases and rents. These debt facilities contain certain financial and other covenants. The Company was in compliance with all financial covenants as of June 30, 2013 and December 31, 2012.

Fair Value of Debt

The fair value of the Company’s debt was determined by discounting the future cash flows using the current rates at which loans would be made to borrowers with similar credit ratings for loans with similar remaining maturities, similar terms, and similar loan-to-value ratios. The discount rates ranged from 1.85% to 5.24% and 1.86% to 4.64% at June 30, 2013 and December 31, 2012, respectively, and were applied to each individual debt instrument. The fair value of the Company’s debt is based on Level 3 inputs. The following table presents the aggregate carrying value of the Company’s debt and the corresponding estimate of fair value as of June 30, 2013 and December 31, 2012 (in thousands):

	June 30, 2013				December 31, 2012
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Mortgage notes payable	$	227,898	$	231,841	$	229,915	$	242,175
Unsecured Credit Facility	$	—	$	—	$	99,300	$	99,300
Bank of America Unsecured Term Loan	$	150,000	$	147,610	$	150,000	$	150,000
Wells Fargo Bank Unsecured Term Loan	$	75,000	$	74,126	$	—	$	—

6. Use of 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 exposures and not for speculative purposes. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s operating and financial structure, as well as to hedge specific transactions.

On March 1, 2013, the Company entered into an interest rate swap agreement for notional amount of $25.0 million with an effective date of March 1, 2013 that converts the one-month LIBOR rate on the $25.0 million then outstanding balance of the Wells Fargo Unsecured Term Loan from a variable rate of one-month LIBOR plus a spread of 2.15% to 2.70% based on the Company’s consolidated leverage ratio to a fixed rate of 1.33% plus a spread of 2.15% to 2.70% based on the Company’s consolidated leverage ratio. This swap was designated as a cash flow hedge of interest rate risk.

On June 13, 2013, the Company entered into two interest rate swap agreements for notional amounts of $50.0 million and $25.0 million with effective dates of July 1, 2013 and August 1, 2013 that will convert the one-month LIBOR rate on the Wells Fargo Unsecured Term Loan from a variable rate of one-month LIBOR plus a spread of 2.15% to 2.70% based on the Company’s consolidated leverage ratio to a fixed rate of 1.681% and 1.703%, respectively, plus a spread of 2.15% to 2.70% based on the Company’s consolidated leverage ratio. These swaps were designated as cash flow hedges of interest rate risk.

The following table details the Company’s outstanding interest rate swaps as of June 30, 2013 (collectively, the “Unsecured Term Loan Swaps”) (in thousands):

Interest Rate Derivative	Trade Date	Notional Amount		Fixed Interest Rate		Variable Interest Rate	Maturity Date
Interest rate swap	Sept-14-2012	$	10,000	0.7945	%	One-month LIBOR	September 10, 2017
Interest rate swap	Sept-14-2012	$	10,000	0.7945	%	One-month LIBOR	September 10, 2017
Interest rate swap	Sept-14-2012	$	10,000	0.7945	%	One-month LIBOR	September 10, 2017
Interest rate swap	Sept-14-2012	$	10,000	0.7945	%	One-month LIBOR	September 10, 2017
Interest rate swap	Sept-14-2012	$	10,000	0.7975	%	One-month LIBOR	September 10, 2017
Interest rate swap	Sept-20-2012	$	25,000	0.7525	%	One-month LIBOR	September 10, 2017
Interest rate swap	Sept-24-2012	$	25,000	0.727	%	One-month LIBOR	September 10, 2017
Interest rate swap	March-1-2013	$	25,000	1.33	%	One-month LIBOR	February 14, 2020
Interest rate swap	June-13-2013	$	25,000	1.703	%	One-month LIBOR	February 14, 2020
Interest rate swap	June-13-2013	$	50,000	1.681	%	One-month LIBOR	February 14, 2020

The fair value of the interest rate swaps outstanding as of June 30, 2013 and December 31, 2012 was as follows (in thousands):

	Balance Sheet Location	Notional Amount June 30, 2013		Fair Value June 30, 2013		Notional Amount December 31, 2012		Fair Value December 31, 2012
Unsecured Term Loan Swaps	Interest Rate Swaps	$	200,000	$	3,186	$	100,000	$	(480	)

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. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The effective portion of changes in the fair value of derivatives designated and qualifies as cash flow hedges is recorded in accumulated other comprehensive loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. On September 14, 2012, the Company commenced a program of utilizing such designated derivatives to hedge the variable cash flows associated with certain variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three and six months ended June 30, 2013, the Company did not record any hedge ineffectiveness related to the hedged derivatives.

Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The Company estimates that an additional $1.9 million will be reclassified from accumulated other comprehensive income as a decrease to interest expense over the next twelve months.

The table below details the location in the financial statements of the gain or loss recognized on interest rate swaps designated as cash flow hedges for the three and six months ended June 30, 2013 and June 30, 2012, respectively:

	Three months ended June 30,				Six months ended June 30,
	2013		2012		2013		2012
Amount of income recognized in accumulated other comprehensive income on interest rate swaps (effective portion)	$	3,440	$	—	$	3,286	$	—
Amount of loss reclassified from accumulated other comprehensive income into income (loss) as interest expense (effective portion)	$	215	$	—	$	380	$	—
Amount of loss recognized in income on swaps (ineffective portion and amount excluded from effectiveness testing)	$	—	$	—	$	—	$	—

The Company is exposed to credit risk in the event of non-performance by the counterparties to the interest rate swaps. The Company minimizes this risk exposure by limiting counterparties to major banks and investment brokers who meet established credit and capital guidelines.

Credit-risk-related Contingent Features

As of June 30, 2013, the fair values of the interest rate swaps are in a net asset position of $3.6 million, which includes accrued interest, but excludes any adjustment for nonperformance risk related to these agreements. As of June 30, 2013, the Company has not posted any collateral related to these agreements. The adjustment for nonperformance risk included in the fair value of the Company’s net asset position was $0.4 million as of June 30, 2013.

Fair Value of Interest Rate Swaps

The 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 fair values of interest rate swaps are determined by using the market standard methodology of netting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. As of June 30, 2013 and December 31, 2012, the Company applied the provisions of this standard to the valuation of its interest rate swaps.

The following sets forth the Company’s financial instruments that are accounted for at fair value on a recurring basis as of June 30, 2013 and December 31, 2012 (in thousands):

					Fair Market Measurements as of June 30, 2013 Using:
	June 30, 2013				Quoted Prices In Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)				Unobservable Inputs (Level 3)
Assets:
Interest Rate Swaps	$	3,186			$	—		$	3,186			$	—

					Fair Market Measurements as of December 31, 2012 Using:
	December 31, 2012				Quoted Prices In Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)				Unobservable Inputs (Level 3)
Liabilities:
Interest Rate Swaps	$		(480	)	$		—	$		(480	)	$		—

7. Stockholders’ Equity

Preferred Stock

Pursuant to its charter, the Company is authorized to issue 10,000,000 shares of preferred stock, par value $0.01 per share. On November 2, 2011, the Company completed an underwritten public offering of 2,760,000 shares (including 360,000 shares issued pursuant to the full exercise of the underwriters’ overallotment option) of 9.0% Series A Cumulative Redeemable Preferred Stock, $0.01 par value per share (the “Series A Preferred Stock”), at a price to the public of $25.00 per share. Dividends on the Series A Preferred Stock are payable quarterly in arrears on or about the last day of March, June, September and December of each year. The Series A Preferred Stock ranks senior to the Company’s common stock with respect to dividend rights and rights upon the liquidation, dissolution or winding up of the Company. The Series A Preferred Stock has no stated maturity date and is not subject to mandatory redemption or any sinking fund. Generally, the Company is not permitted to redeem the Series A Preferred Stock prior to November 2, 2016, except in limited circumstances relating to the Company’s ability to qualify as a REIT and in certain other circumstances related to a change of control (as defined in the articles supplementary for the Series A Preferred Stock).

On April 16, 2013, the Company completed an underwritten public offering of 2,800,000 shares (including 300,000 shares issued pursuant to the full exercise of the underwriters’ overallotment option) of 6.625% Series B Cumulative Redeemable Preferred Stock, $0.01 par value per share (the “Series B Preferred Stock”), at a price to the public of $25.00 per share. The Company received net proceeds of $67.8 million, reflecting gross proceeds of $70.0 million net of the underwriters discount of $2.2 million. The Company also incurred direct offering costs of $0.2 million. The underwriters’ discount of $2.2 million and $0.2 million of direct offering costs incurred are reflected as a reduction to additional paid-in capital in the Consolidated Balance Sheet of the Company. Dividends on the Series B Preferred Stock are payable quarterly in arrears on or about the last day of March, June, September and December of each year. The Series B Preferred Stock ranks senior to the Company’s common stock and on parity with the Company’s Series A Preferred Stock with respect to dividend rights and rights upon the liquidation, dissolution or winding up of the Company. The Series B Preferred Stock has no stated maturity date and is not subject to mandatory redemption or any sinking fund. Generally, the Company is not permitted to redeem the Series B Preferred Stock prior to April 16, 2018, except in limited circumstances relating to the Company’s ability to qualify as a REIT and in certain other circumstances related to a change of control (as defined in the articles supplementary for the Series B Preferred Stock). The Company used the net proceeds to pay off the outstanding amount due under the Unsecured Credit Facility and to fund acquisitions.

The table below sets forth the dividends that have been declared by the Company’s board of directors on the Series A Preferred Stock during the six months ended June 30, 2013 and the year ended December 31, 2012:

Amount Declared During Quarter Ended 2013	Declaration Date	Per Share		Date Paid
June 30	May 6, 2013	$	0.5625	July 1, 2013
March 31	March 1, 2013	0.5625		April 1, 2013
Total 2013		$	1.125

Amount Declared During Quarter Ended 2012	Declaration Date	Per Share		Date Paid
December 31	November 2, 2012	$	0.5625	December 31, 2012
September 30	August 2, 2012	0.5625		October 1, 2012
June 30	May 15, 2012	0.5625		July 2, 2012
March 31	March 6, 2012	0.5625		April 2, 2012
Total 2012		$	2.25

The table below sets forth the dividends that have been declared by the Company’s board of directors on the Series B Preferred Stock during the prorated period ended June 30, 2013:

Amount Declared During Quarter Ended 2013	Declaration Date	Per Share		Date Paid
June 30 (prorated for April 16, 2013 to June 30, 2013)	May 6, 2013	$	0.34505	July 1, 2013
Total 2013		$	0.34505

Common Stock

On January 22, 2013, the Company completed an underwritten public offering of 6,284,152 shares of common stock (including 819,672 shares issued pursuant to the full exercise of the underwriters’ overallotment option) at a public offering price of $18.30 per share. The Company received net proceeds of $110.1 million, reflecting gross proceeds of $115.0 million net of the underwriters discount of $4.9 million. The Company also incurred direct offering costs of $0.2 million. The underwriters’ discount of

$4.9 million and $0.2 million of direct offering costs incurred are reflected as a reduction to additional paid-in capital in the Consolidated Balance Sheet of the Company. The Company used the proceeds to fully pay down the then outstanding balance on the Unsecured Credit Facility.

During the six months ended June 30, 2013, the Company sold 149,200 shares of common stock under its “at the market” (“ATM”) program that commenced on December 14, 2012. The Company received net proceeds of $2.7 million, reflecting gross proceeds of $2.7 million, net of the sales agents’ fees of approximately $41 thousand. The Company used the net proceeds for general corporate purposes. As of June 30, 2013, there was approximately $66.9 million of common stock available to be sold under the ATM.

The table below sets forth the dividends that have been declared by the Company’s board of directors on its common stock during the six months ended June 30, 2013 and the year ended December 31, 2012:

Amount Declared During Quarter Ended 2013