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Carter Validus Mission Critical Reit, Inc. (CZMR) SEC Filing 10-Q Quarterly report for the period ending Sunday, June 30, 2019

Carter Validus Mission Critical Reit, In

CIK: 1482974 Ticker: CZMR


Exhibit 99.1
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Carter Validus Mission Critical REIT, Inc.
First Quarter 2019 Results
TAMPA, FL (May 17, 2019) - Carter Validus Mission Critical REIT, Inc., or the Company, a public, non-traded real estate investment trust focused on mission critical healthcare properties, today announced operating results for the first quarter ended March 31, 2019.
Quarter Ended March 31, 2019 and Subsequent Highlights
Net income attributable to common stockholders totaled $2.1 million.
Net operating income from continuing operations, or NOI, totaled $19.3 million.
Funds from operations, or FFO, attributable to common stockholders equaled $10.9 million.
Modified funds from operations, or MFFO, attributable to common stockholders equaled $6.6 million.
During the three months ended March 31, 2019, the Company repurchased approximately 3.7 million shares of common stock for approximately $19.6 million, or $5.33 per share.
On April 11, 2019, the Company announced it had entered into a definitive agreement to merge with Carter Validus Mission Critical REIT II, Inc, or REIT II. See further discussion in “Agreement and Plan of Merger” section below.
Michael Seton, Chief Executive Officer and President of the Company stated, “We are pleased that on April 11th the Company entered into a merger agreement to merge with Carter Validus Mission Critical REIT II, Inc. In addition to providing a combination of cash and stock consideration to stockholders of the Company in connection with the closing of the merger, we anticipate the combined company would provide an increased opportunity to maximize stockholder value through greater portfolio diversification, enhanced size and scale, and increased optionality for potential liquidity in the future."

An explanation of FFO, MFFO, NOI and Tenant Reimbursements, as well as reconciliations of such non-GAAP financial measures to the most directly comparable U.S. GAAP measures, are included at the end of this exhibit.
Financial Results
Quarter Ended March 31, 2019, Compared to Quarter Ended March 31, 2018
Net income attributable to common stockholders was $2.1 million for the quarter ended March 31, 2019, compared to net loss attributable to common stockholders of $17.2 million for the quarter ended March 31, 2018.
FFO attributable to common stockholders was $10.9 million for the quarter ended March 31, 2019, compared to negative FFO attributable to common stockholders of $7.0 million for the quarter ended March 31, 2018.



The following information was filed by Carter Validus Mission Critical Reit, Inc. (CZMR) on Friday, May 17, 2019 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
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: 000-54675
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CARTER VALIDUS MISSION CRITICAL REIT, INC. 
(Exact name of registrant as specified in its charter) 
Maryland
 
27-1550167
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
4890 West Kennedy Blvd., Suite 650
Tampa, FL 33609
 
(813) 287-0101
(Address of Principal Executive Offices; Zip Code)
 
(Registrant’s Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
  
Accelerated filer
 
Non-accelerated filer
 
  
Smaller reporting company
 
 
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class
 
Trading Symbol
 
Name of each exchange on which registered
N/A
 
N/A
 
N/A
As of August 9, 2019, there were approximately 178,996,000 shares of common stock of Carter Validus Mission Critical REIT, Inc. outstanding.
 



CARTER VALIDUS MISSION CRITICAL REIT, INC.
(A Maryland Corporation)
TABLE OF CONTENTS
 
 
Page
PART I.
Item 1.
 
 
 
 
 
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 
 



PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
CARTER VALIDUS MISSION CRITICAL REIT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 
(Unaudited)
June 30, 2019
 
December 31, 2018
ASSETS
Real estate:
 
 
 
Land
$
72,451

 
$
72,700

Buildings and improvements, less accumulated depreciation of $112,894 and $100,897, respectively
796,134

 
806,637

Total real estate, net
868,585

 
879,337

Cash and cash equivalents
28,202

 
43,133

Acquired intangible assets, less accumulated amortization of $25,288 and $23,822, respectively
54,675

 
59,681

Right-of-use assets - operating leases
16,103

 

Other assets, net
45,905

 
40,964

Assets of discontinued operations, net

 
401

Total assets
$
1,013,470

 
$
1,023,516

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
 
 
 
Notes payable, net of deferred financing costs of $65 and $75, respectively
$
17,654

 
$
36,214

Credit facility
231,000

 
190,000

Accounts payable due to affiliates
1,289

 
1,329

Accounts payable and other liabilities
17,982

 
16,703

Acquired intangible liabilities, less accumulated amortization of $5,330 and $5,712, respectively
10,920

 
16,537

Operating lease liabilities
19,808

 

Liabilities of discontinued operations, net

 
13

Total liabilities
298,653

 
260,796

Stockholders’ equity:
 
 
 
Preferred stock, $0.01 par value per share, 50,000,000 shares authorized; none issued and outstanding

 

Common stock, $0.01 par value per share, 300,000,000 shares authorized; 204,769,944 and 203,114,678 shares issued, respectively; 179,208,640 and 183,081,839 shares outstanding, respectively
1,792

 
1,831

Additional paid-in capital
1,592,381

 
1,612,969

Accumulated distributions in excess of earnings
(879,133
)
 
(852,505
)
Accumulated other comprehensive (loss) income
(223
)
 
425

Total stockholders’ equity
714,817

 
762,720

Total liabilities and stockholders’ equity
$
1,013,470

 
$
1,023,516

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

3


CARTER VALIDUS MISSION CRITICAL REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands, except share data and per share amounts)
(Unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Revenue:
 
 
 
 
 
 
 
Rental revenue
$
20,373

 
$
17,182

 
$
41,289

 
$
18,717

Expenses:
 
 
 
 
 
 
 
Rental expenses
1,949

 
2,960

 
3,558

 
5,960

General and administrative expenses
6,112

 
1,268

 
9,003

 
2,877

Asset management fees
2,400

 
2,479

 
4,804

 
4,944

Depreciation and amortization
7,304

 
7,245

 
16,097

 
36,066

Impairment loss on real estate

 
5,831

 

 
5,831

Loss (gain) on real estate dispositions
3

 
(218
)
 
3

 
(218
)
Total expenses
17,768

 
19,565

 
33,465

 
55,460

Income (loss) from operations
2,605

 
(2,383
)
 
7,824

 
(36,743
)
Other expense:
 
 
 
 
 
 
 
Interest and other expense, net
(2,806
)
 
(2,984
)
 
(5,877
)
 
(5,198
)
Provision for loan losses

 
(989
)
 

 
(2,179
)
Total other expense
(2,806
)
 
(3,973
)
 
(5,877
)
 
(7,377
)
(Loss) income from continuing operations
(201
)
 
(6,356
)
 
1,947

 
(44,120
)
Income from discontinued operations

 
11,950

 

 
32,483

Net (loss) income
(201
)
 
5,594

 
1,947

 
(11,637
)
Net loss attributable to noncontrolling interests in consolidated partnerships

 
48

 

 
48

Net (loss) income attributable to common stockholders
$
(201
)
 
$
5,642

 
$
1,947

 
$
(11,589
)
Other comprehensive (loss) income:
 
 
 
 
 
 
 
Unrealized (loss) income on interest rate swaps, net
$
(362
)
 
$
(212
)
 
$
(648
)
 
$
424

Other comprehensive (loss) income
(362
)
 
(212
)
 
(648
)
 
424

Comprehensive (loss) income
(563
)
 
5,382

 
1,299

 
(11,213
)
Comprehensive loss attributable to noncontrolling interests in consolidated partnerships

 
48

 

 
48

Comprehensive (loss) income attributable to common stockholders
$
(563
)
 
$
5,430

 
$
1,299

 
$
(11,165
)
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
179,408,235

 
181,128,292

 
180,010,221

 
183,388,291

Diluted
179,408,235

 
181,128,292

 
180,032,622

 
183,388,291

Net (loss) income per common share attributable to common stockholders:
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
Continuing operations
$

 
$
(0.04
)
 
$
0.01

 
$
(0.24
)
Discontinued operations

 
0.07

 

 
0.18

Net (loss) income attributable to common stockholders
$

 
$
0.03

 
$
0.01

 
$
(0.06
)
Diluted:
 
 
 
 
 
 
 
Continuing operations
$

 
$
(0.04
)
 
$
0.01

 
$
(0.24
)
Discontinued operations

 
0.07

 

 
0.18

Net (loss) income attributable to common stockholders
$

 
$
0.03

 
$
0.01

 
$
(0.06
)
Distributions declared per common share
$
0.08

 
$
0.10

 
$
0.16

 
$
3.29

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

4


CARTER VALIDUS MISSION CRITICAL REIT, INC. 
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data) 
(Unaudited)
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Distributions
in Excess
of Earnings
 
Accumulated
Other
Comprehensive
Income
 
Total
Stockholders’
Equity
 
Noncontrolling
Interests
 
Total
Equity
 
No. of
Shares
 
Par
Value
 
 
 
 
 
 
Balance, December 31, 2017
186,181,545

 
$
1,862

 
$
1,635,329

 
$
(211,750
)
 
$
407

 
$
1,425,848

 
$
4,969

 
$
1,430,817

Vesting of restricted stock

 

 
23

 

 

 
23

 

 
23

Issuance of common stock under the distribution reinvestment plan
1,971,383

 
20

 
16,039

 

 

 
16,059

 

 
16,059

Distributions to noncontrolling interests

 

 

 

 

 

 
(4,233
)
 
(4,233
)
Distributions to common stockholders

 

 

 
(583,896
)
 

 
(583,896
)
 

 
(583,896
)
Repurchase of common stock
(4,447,367
)
 
(45
)
 
(33,816
)
 

 

 
(33,861
)
 

 
(33,861
)
Other comprehensive income

 

 

 

 
636

 
636

 

 
636

Net loss

 

 

 
(17,231
)
 

 
(17,231
)
 

 
(17,231
)
Balance, March 31, 2018
183,705,561

 
$
1,837

 
$
1,617,575

 
$
(812,877
)
 
$
1,043

 
$
807,578

 
$
736

 
$
808,314

Vesting of restricted stock
4,500

 

 
22

 

 

 
22

 

 
22

Issuance of common stock under the distribution reinvestment plan
1,474,646

 
14

 
9,217

 

 

 
9,231

 

 
9,231

Distributions to common stockholders

 

 

 
(18,973
)
 

 
(18,973
)
 

 
(18,973
)
Other offering costs

 

 
(4
)
 

 

 
(4
)
 

 
(4
)
Repurchase of common stock
(4,861,710
)
 
(48
)
 
(30,303
)
 

 

 
(30,351
)
 

 
(30,351
)
Other comprehensive loss

 

 

 

 
(212
)
 
(212
)
 

 
(212
)
Net income

 

 

 
5,642

 

 
5,642

 
(48
)
 
5,594

Balance, June 30, 2018
180,322,997

 
$
1,803

 
$
1,596,507

 
$
(826,208
)
 
$
831

 
$
772,933

 
$
688

 
$
773,621

 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Distributions
in Excess
of Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Stockholders’
Equity
 
No. of
Shares
 
Par
Value
 
 
 
 
Balance, December 31, 2018
183,081,839

 
$
1,831

 
$
1,612,969

 
$
(852,505
)
 
$
425

 
$
762,720

Vesting of restricted stock

 

 
20

 

 

 
20

Issuance of common stock under the distribution reinvestment plan
1,233,487

 
12

 
6,553

 

 

 
6,565

Distributions to common stockholders

 

 

 
(14,258
)
 

 
(14,258
)
Repurchase of common stock
(3,670,640
)
 
(37
)
 
(19,527
)
 

 

 
(19,564
)
Other comprehensive loss

 

 

 

 
(286
)
 
(286
)
Net income

 

 

 
2,148

 

 
2,148

Balance, March 31, 2019
180,644,686

 
$
1,806

 
$
1,600,015

 
$
(864,615
)
 
$
139

 
$
737,345

Vesting of restricted stock
2,250

 

 
21

 

 

 
21

Issuance of common stock under the distribution reinvestment plan
419,529

 
4

 
2,230

 

 

 
2,234

Distributions to common stockholders

 

 

 
(14,317
)
 

 
(14,317
)
Repurchase of common stock
(1,857,825
)
 
(18
)
 
(9,885
)
 

 

 
(9,903
)
Other comprehensive loss

 

 

 

 
(362
)
 
(362
)
Net loss

 

 

 
(201
)
 

 
(201
)
Balance, June 30, 2019
179,208,640

 
$
1,792

 
$
1,592,381

 
$
(879,133
)
 
$
(223
)
 
$
714,817

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

5


CARTER VALIDUS MISSION CRITICAL REIT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) 
(Unaudited)
 
Six Months Ended
June 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income (loss)
$
1,947

 
$
(11,637
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
16,097

 
36,066

Amortization of deferred financing costs
833

 
1,224

Amortization of above-market leases
127

 
154

Amortization of acquired intangible liabilities
(841
)
 
(604
)
Amortization of operating leases
57

 

Loss (gain) on real estate dispositions from continuing operations
3

 
(218
)
Gain on real estate dispositions from discontinued operations

 
(29,244
)
Impairment loss on real estate

 
5,831

Provision for credit losses
451

 
18,395

Provision for loan losses

 
2,179

Loss on debt extinguishment

 
207

Straight-line rent
(8,265
)
 
13,941

Stock-based compensation
41

 
45

Changes in operating assets and liabilities:
 
 
 
Accounts payable and other liabilities
1,555

 
(9,822
)
Accounts payable due to affiliates
(56
)
 
(717
)
Other assets
1,604

 
(12,899
)
Net cash provided by operating activities
13,553

 
12,901

Cash flows from investing activities:
 
 
 
Proceeds from real estate disposals of continuing and discontinued operations
958

 
226,410

Capital expenditures
(1,543
)
 
(3,683
)
Capital distributions from unconsolidated partnership

 
962

Notes receivable, net

 
(7,200
)
Net cash (used in) provided by investing activities
(585
)
 
216,489

Cash flows from financing activities:
 
 
 
Payments on notes payable
(18,570
)
 
(99,132
)
Proceeds from credit facility
41,000

 
285,000

Payments on credit facility

 
(75,000
)
Proceeds from debt extinguishment

 
338

Payments of deferred financing costs
(826
)
 
(1,942
)
Repurchase of common stock
(29,467
)
 
(64,212
)
Other offering costs

 
(4
)
Distributions to stockholders
(20,036
)
 
(582,432
)
Distributions to noncontrolling interests

 
(4,233
)
Net cash used in financing activities
(27,899
)
 
(541,617
)
Net change in cash, cash equivalents and restricted cash
(14,931
)
 
(312,227
)
Cash, cash equivalents and restricted cash - Beginning of period
43,301

 
351,914

Cash, cash equivalents and restricted cash - End of period
$
28,370

 
$
39,687

Supplemental cash flow disclosure:
 
 
 
Interest paid, net of interest capitalized of $6 and $217, respectively
$
5,166

 
$
6,487

Supplemental disclosure of non-cash transactions:
 
 
 
Common stock issued through distribution reinvestment plan
$
8,799

 
$
25,290

Accrued capital expenditures
$
708

 
$

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

6


CARTER VALIDUS MISSION CRITICAL REIT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2019
Note 1Organization and Business Operations
Carter Validus Mission Critical REIT, Inc., or the Company, a Maryland corporation, was incorporated on December 16, 2009, and has elected to be taxed, and currently qualifies, as a real estate investment trust, or a REIT, under the Internal Revenue Code of 1986, as amended, or the Code, for federal income tax purposes. The Company was organized to acquire and operate a diversified portfolio of income-producing commercial real estate, with a focus on the data center and healthcare property sectors, net leased to creditworthy tenants, as well as to make other real estate-related investments that relate to such property types. During the year ended December 31, 2017, the Company's board of directors made a determination to sell the Company's data center assets. This decision represented a strategic shift that had a major effect on the Company's results and operations and assets and liabilities for the years presented. As a result, the Company classified the assets in its data centers segment as discontinued operations. During the year ended December 31, 2018, the Company completed the disposition of all its data center properties. As a result, the Company no longer has a data centers segment, and, therefore, operates in one reportable healthcare segment.
As of June 30, 2019, the Company owned 30 real estate investments, consisting of 60 properties. Substantially all of the Company’s business is conducted through Carter/Validus Operating Partnership, LP, a Delaware limited partnership, or the Operating Partnership. The Company is the sole general partner of the Operating Partnership, and Carter/Validus Advisors, LLC, or the Advisor, the Company’s affiliated advisor, is the special limited partner of the Operating Partnership.
On April 11, 2019, the Company, along with Carter Validus Mission Critical REIT II Inc., or REIT II, the Operating Partnership, Carter Validus Operating Partnership II, LP, the operating partnership of REIT II, or the REIT II Operating Partnership, and Lightning Merger Sub, LLC, a wholly-owned subsidiary of REIT II, or Merger Sub, entered into an Agreement and Plan of Merger, or the Merger Agreement.
Subject to the terms and conditions of the Merger Agreement, including obtaining the requisite Company stockholder vote on the REIT Merger, the Company will merge with and into Merger Sub, or the REIT Merger, with Merger Sub surviving the REIT Merger, or the Surviving Entity, such that following the REIT Merger, the Surviving Entity will continue as a wholly-owned subsidiary of REIT II. In accordance with the applicable provisions of the Maryland General Corporation Law, the separate existence of the Company shall cease.
At the effective time of the REIT Merger and subject to the terms and conditions of the Merger Agreement, each issued and outstanding share of the Company’s common stock (or a fraction thereof), $0.01 par value per share, or the REIT I Common Stock, will be converted into the right to receive:
(i)
$1.00 in cash; and
(ii)
0.4681 shares of REIT II Class A Common Stock, par value $0.01 per share, or the REIT II Class A Common Stock.
In addition, each share of REIT I Common Stock, if any, then held by any wholly-owned subsidiary of the Company or by REIT II or any of its wholly-owned subsidiaries will no longer be outstanding and will automatically be retired and cease to exist, and no consideration shall be paid, nor any other payment or right inure or be made with respect to such shares of REIT I Common Stock in connection with or as a consequence of the REIT Merger.
The combined company after the REIT Merger, or the Combined Company, will retain the name “Carter Validus Mission Critical REIT II, Inc.” See Note 14—"Commitments and Contingencies" and Note 15—"Subsequent Events" for additional information.
Except as the context otherwise requires, the “Company” refers to Carter Validus Mission Critical REIT, Inc., the Operating Partnership and all wholly-owned subsidiaries.
Note 2Summary of Significant Accounting Policies
The summary of significant accounting policies presented below is designed to assist in understanding the Company’s condensed consolidated financial statements. Such condensed consolidated financial statements and the accompanying notes thereto are the representation of management. These accounting policies conform to United States generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of a normal and recurring nature considered for a fair

7


presentation, have been included. Operating results for the three and six months ended June 30, 2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
The condensed consolidated balance sheet at December 31, 2018, has been derived from the audited consolidated financial statements at that date but does not include all of the information and notes required by GAAP for complete financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, 2018, and related notes thereto set forth in the Company’s Annual Report on Form 10-K, filed with the SEC on March 22, 2019.
Principles of Consolidation and Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of the Company, the Operating Partnership, and all wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the condensed consolidated financial statements and accompanying notes in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. These estimates are made and evaluated on an ongoing basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates.
Restricted Cash
Restricted cash consists of restricted cash held in escrow and restricted bank deposits. Restricted cash held in escrow includes cash held by lenders in escrow accounts for tenant and capital improvements, repairs and maintenance and other lender reserves for certain properties, in accordance with the respective lender’s loan agreement. Restricted cash held in escrow is reported in other assets, net, in the accompanying condensed consolidated balance sheets. Restricted bank deposits consist of tenant receipts for certain properties which are required to be deposited into lender-controlled accounts in accordance with the respective lender's loan agreement. Restricted bank deposits are reported in other assets, net, in the accompanying condensed consolidated balance sheets. See Note 7—"Other Assets, Net."
The following table presents a reconciliation of the beginning of period and end of period cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the totals shown in the condensed consolidated statements of cash flows (amounts in thousands):
 
 
Six Months Ended
June 30,
 
Beginning of period:
 
2019
 
2018
 
Cash and cash equivalents
 
$
43,133

 
$
336,500

 
Restricted cash
 
168

 
15,414

(1) 
Cash, cash equivalents and restricted cash
 
$
43,301

 
$
351,914

 
 
 
 
 
 
 
End of period:
 
 
 
 
 
Cash and cash equivalents
 
$
28,202

 
$
37,787

 
Restricted cash
 
168

 
1,900

(1) 
Cash, cash equivalents and restricted cash
 
$
28,370

 
$
39,687

 
 
(1)
Amount is attributable to continuing and discontinued operations.
Impairment of Long Lived Assets
The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related intangible assets may not be recoverable. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets may not be recoverable, the Company assesses the recoverability of the assets by estimating whether the Company will recover the carrying value of the assets through its undiscounted future cash flows and their eventual disposition. If, based on this analysis, the Company does not believe that it will be able to recover the carrying value of the assets, the Company will record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the assets.

8


When developing estimates of expected future cash flows, the Company makes certain assumptions regarding future market rental income amounts subsequent to the expiration of current lease arrangements, property operating expenses, terminal capitalization and discount rates, the expected number of months it takes to re-lease the property, required tenant improvements and the number of years the property will be held for investment. The use of alternative assumptions in the future cash flow analysis could result in a different determination of the property’s future cash flows and a different conclusion regarding the existence of an impairment, the extent of such loss, as well as the carrying value of the real estate and related assets.
In addition, the Company applies a market approach using comparable sales for certain properties. The use of alternative assumptions in the market approach analysis could result in a different determination of the property’s estimated fair value and a different conclusion regarding the existence of an impairment, the extent of such loss, if any, as well as the carrying value of the real estate and related assets.
Impairment of Real Estate
During the three and six months ended June 30, 2019, no impairment losses were recorded on real estate. During the three and six months ended June 30, 2018, real estate assets related to one healthcare property with an aggregate carrying amount of $47,375,000 were determined to be impaired, using Level 2 inputs of the fair value hierarchy. The carrying value of the property was reduced to its estimated fair value of $41,544,000, resulting in an impairment charge of $5,831,000, which is included in impairment loss on real estate in the condensed consolidated statements of comprehensive (loss) income.
Impairment of Acquired Intangible Assets and Acquired Intangible Liabilities
During the three months ended June 30, 2019,no impairment losses were recorded on acquired intangible assets or acquired intangible liabilities. During the six months ended June 30, 2019, the Company recognized an impairment of one in-place lease intangible asset in the amount of approximately $1,469,000 and an impairment of one below-market lease intangible liability in the amount of approximately $407,000, related to a tenant of the Company experiencing financial difficulties, by accelerating the amortization of the intangible asset and intangible liability.
During the three months ended June 30, 2018, no impairment losses were recorded on acquired intangible assets or intangible liabilities. During the six months ended June 30, 2018, the Company recognized an impairment of one in-place lease intangible asset in the amount of approximately $21,296,000 related to a former tenant of the Company, by accelerating the amortization of the intangible asset.
Revenue Recognition, Tenant Receivables and Allowance for Uncollectible Accounts
Effective January 1, 2018, the Company recognizes non-rental related revenue in accordance with Accounting Standards Codification, or ASC, 606, Revenue from Contracts with Customers, or ASC 606. The Company has identified its revenue streams as rental income from leasing arrangements and tenant reimbursements, which are outside the scope of ASC 606. The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Non-rental revenue, subject to ASC 606, is immaterial to the Company's condensed consolidated financial statements.
The majority of the Company's revenue is derived from rental revenue, which is accounted for in accordance with ASC 842, Leases, or ASC 842. In accordance with ASC 842, minimum rental revenue is recognized on a straight-line basis over the term of the related lease (including rent holidays). For lease arrangements when it is not probable that the Company will collect all or substantially all of the remaining lease payments under the term of the lease, rental revenue is limited to the lesser of the rental revenue that would be recognized on a straight-line basis or the lease payments that have been collected from the lessee. Differences between rental revenue recognized and amounts contractually due under the lease agreements are credited or charged to straight-line rent receivable or straight-line rent liability, as applicable. Tenant reimbursements, which are comprised of additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, are recognized when the services are provided and the performance obligations are satisfied.
Prior to the adoption of ASC 842, tenant receivables and straight-line rent receivables were carried net of the provision for credit losses. The provision for credit losses was established for estimated losses resulting from the inability of certain tenants to meet the contractual obligations under their lease agreements. The Company’s determination of the adequacy of these provisions was based primarily upon evaluations of historical loss experience, the tenant’s financial condition, security deposits, letters of credit, lease guarantees, current economic conditions and other relevant factors. Effective January 1, 2019, upon adoption of ASC 842, the Company is no longer recording a provision for credit losses but is, instead, assessing whether or not it is probable that the Company will collect all or substantially all of the remaining lease payments under the term of the lease. Where it is not probable that the Company will collect all or substantially all of the remaining lease payments under the term of the lease, rental revenue is limited to the lesser of the rental revenue that would be recognized on a straight-line basis or the lease payments that have been collected from the lessee. For the three months ended June 30, 2019 and 2018, the Company recorded $451,000 and $7,097,000, respectively, and for the six months ended June 30, 2019 and 2018, the Company recorded

9


$1,226,000 and $36,023,000, respectively, in bad debt expenses as a reduction in rental revenue in the accompanying condensed consolidated statements of comprehensive (loss) income.
Notes Receivable
Notes receivable are reported at their outstanding principal balance, net of any unearned income, unamortized deferred fees and costs and allowances for loan losses. The unamortized deferred fees and costs are amortized over the life of the notes receivable, as applicable and recorded in interest and other expense, net in the accompanying condensed consolidated statements of comprehensive (loss) income.
The Company evaluates the collectability of both interest and principal on each note receivable to determine whether it is collectible, primarily through the evaluation of credit quality indicators, such as the tenant's financial condition, collateral, evaluations of historical loss experience, current economic conditions and other relevant factors, including contractual terms of repayments. Evaluating a note receivable for potential impairment requires management to exercise judgment. The use of alternative assumptions in evaluating a note receivable could result in a different determination of the note's estimated fair value and a different conclusion regarding the existence of an impairment, the extent of such loss, if any, as well as the carrying value of the note receivable.
As of June 30, 2019 and December 31, 2018, the aggregate balance of the Company's note receivable was $2,700,000. The principal balance of the Company's note receivable is secured by its collateral.
For the three months ended June 30, 2019 and 2018, the Company recorded $0 and $989,000, respectively, and for the six months ended June 30, 2019 and 2018, the Company recorded $0 and $2,179,000, respectively, in provision for loan losses in the accompanying condensed consolidated financial statements.
Concentration of Credit Risk and Significant Leases
As of June 30, 2019, the Company had cash on deposit, including restricted cash, in certain financial institutions that had deposits in excess of current federally insured levels. The Company limits its cash investments to financial institutions with high credit standings; therefore, the Company believes it is not exposed to any significant credit risk on its cash deposits. To date, the Company has experienced no loss of or lack of access to cash in its accounts.
As of June 30, 2019, the Company owned real estate investments in 32 metropolitan statistical areas, or MSAs, two of which accounted for 10.0% or more of total rental revenue. Real estate investments located in the Houston-The Woodlands-Sugar Land, Texas MSA and the San Antonio-New Braunfels, Texas MSA accounted for an aggregate of 18.0% and 12.7%, respectively, of total rental revenue for the six months ended June 30, 2019.
As of June 30, 2019, the Company had three exposures to tenant concentration that accounted for 10.0% or more of total rental revenue. The leases with Post Acute Medical, LLC, Board of Regents of the University of Texas System and 21st Century Oncology, Inc. accounted for 17.8%, 17.3% and 10.8%, respectively, of total rental revenue for the six months ended June 30, 2019.
Share Repurchase Program
The Company’s share repurchase program allows for repurchases of shares of the Company’s common stock when certain criteria are met. The share repurchase program provides that all repurchases are limited to those that can be funded with equivalent reinvestments pursuant to the distribution reinvestment plan, or the DRIP, during the prior calendar year and other operating funds, as the Company's board of directors may authorize for this purpose.
Repurchases of shares of the Company’s common stock are at the sole discretion of the Company’s board of directors, provided, however, that the Company will limit the number of shares repurchased during any calendar year to 5.0% of the number of shares of common stock outstanding as of December 31 of the previous calendar year. In addition, the Company will further limit the amount of shares repurchased each quarter, subject to adjustments in accordance with the 5.0% annual share limitation. The Company’s board of directors, in its sole discretion, may suspend (in whole or in part) the share repurchase program at any time, and may amend, reduce, terminate or otherwise change the share repurchase program upon 30 days' prior notice to the Company’s stockholders for any reason it deems appropriate.
In connection with entering into the Merger Agreement, on April 10, 2019, the Company's board of directors approved the Third Amended and Restated Share Repurchase Program, or the Third Amended & Restated SRP, which became effective on May 11, 2019, and was applied beginning with repurchases made on the 2019 third quarter Repurchase Date (as defined in the Third Amended & Restated SRP). Under the Third Amended & Restated SRP, the Company only repurchases shares of common stock in connection with the death, qualifying disability or involuntary exigent circumstance (as determined by the Company's board of directors, in its sole discretion) of a stockholder, subject to certain terms and conditions specified in the Third Amended & Restated SRP. Further, under the Third Amended & Restated SRP, if the Company does not repurchase all of

10


the shares for which repurchase requests were submitted in any quarter, outstanding repurchase requests will not automatically roll over to the subsequent quarter.
During the six months ended June 30, 2019, the Company repurchased approximately 5,528,000 shares of common stock for an aggregate purchase price of approximately $29,467,000 (an average of $5.33 per share). During the six months ended June 30, 2018, the Company repurchased approximately 9,309,000 shares of common stock for an aggregate purchase price of approximately $64,212,000 (an average of $6.90 per share).
Distribution Policy and Distributions Payable
In order to maintain its status as a REIT, the Company is required to make distributions each taxable year equal to at least 90% of its REIT taxable income, computed without regard to the dividends paid deduction and excluding capital gains. To the extent funds are available, the Company intends to continue to pay regular distributions to stockholders. Distributions are paid to stockholders of record as of the applicable record dates. Distributions are payable to stockholders from legally available funds therefor.
In connection with the REIT Merger, on April 10, 2019, the Company's board of directors approved the suspension of the Company’s distribution reinvestment plan, or DRIP, with respect to certain distributions that accrued starting in April 2019. Therefore, starting with the April 2019 distributions, which were paid on the first business day of May 2019, all distributions are paid in cash to all stockholders.
Earnings Per Share
The Company calculates basic earnings per share by dividing net (loss) income attributable to common stockholders for the period by the weighted average shares of its common stock outstanding for that period. Diluted earnings per share are computed based on the weighted average number of shares outstanding and all potentially dilutive securities. Shares of non-vested restricted common stock give rise to potentially dilutive shares of common stock. For the three months ended June 30, 2019, diluted earnings per share was computed the same as basic earnings per share because the Company recorded a loss from continuing operations, which would make potentially dilutive shares related to non-vested shares of restricted common stock, antidilutive. For the six months ended June 30, 2019, diluted earnings per share reflected the effect of approximately 22,000 of non-vested shares of restricted common stock that were outstanding as of such period. For the three and six months ended June 30, 2018, diluted earnings per share was computed the same as basic earnings per share because the Company recorded a loss from continuing operations, which would make potentially dilutive shares related to non-vested shares of restricted common stock, antidilutive.
Derivative Instruments and Hedging Activities
As required by ASC 815, Derivatives and Hedging, or ASC 815, the Company records all derivative instruments as assets and liabilities in the statement of financial position at fair value. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For derivative instruments not designated as hedging instruments, the income or loss is recognized in the condensed consolidated statements of comprehensive (loss) income during the current period.
The Company is exposed to variability in expected future cash flows that are attributable to interest rate changes in the normal course of business. The Company’s primary strategy in entering into derivative contracts is to add stability to future cash flows by managing its exposure to interest rate movements. The Company utilizes derivative instruments, including interest rate swaps, to effectively convert some of its variable rate debt to fixed rate debt. The Company does not enter into derivative instruments for speculative purposes.
In accordance with ASC 815, the Company designates interest rate swap contracts as cash flow hedges of floating-rate borrowings. For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) in the condensed consolidated statements of comprehensive (loss) income and reclassified into earnings in the same line item associated with the forecasted transaction and the same period during which the hedged transaction affects earnings. See additional discussion in Note 12—"Derivative Instruments and Hedging Activities."
The Company reflects all derivative instruments at fair value as either assets or liabilities on the condensed consolidated balance sheets. In accordance with the fair value measurement guidance Accounting Standards Update, or ASU, 2011-04, Fair Value Measurement, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

11


Recently Adopted Accounting Pronouncements
Leases
In February 2016, the Financial Accounting Standards Board, or FASB established ASC 842, by issuing ASU 2016-02, Leases, which replaces the guidance previously outlined in ASC 840, Leases. The new standard increases transparency by requiring the recognition by lessees of right-of-use, or ROU, assets and lease liabilities on the balance sheet for all leases with a term of greater than 12 months, regardless of lease classification. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
The Company adopted ASC 842 effective January 1, 2019, using the modified retrospective approach. Consequently, financial information is not be updated, and the disclosures required under the new standard are not be provided for dates and periods before January 1, 2019. Further, the Company is amortizing the ROU assets and operating lease liabilities over the remaining lease term and is presenting the amortization of ROU assets - operating leases and accretion of operating lease liabilities as a single line item within operating activities in the condensed consolidated statement of cash flow for the six months ended June 30, 2019.
The Company elected the package of practical expedients, which permits it to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) any initial direct costs for any existing leases as of the effective date. The Company did not elect the hindsight practical expedient, which permits entities to use hindsight in determining the lease term and assessing impairment.
Lessor
As a lessor, the Company's recognition of rental revenue remained largely unchanged, apart from the narrower definition of initial direct costs that can be capitalized. Effective January 1, 2019, indirect leasing costs, such as legal costs related to lease negotiations no longer meet the definition of capitalized initial direct costs under ASU 2016-02 and are recorded in general and administrative expenses in the condensed consolidated statements of comprehensive (loss) income, and are no longer capitalized.
In July 2018, the FASB issued ASU 2018-11, Targeted Improvements, to simplify the guidance, that allows lessors to combine non-lease components with the related lease components if both the timing and pattern of transfer are the same for the non-lease component and related lease component, and the lease component would be classified as an operating lease. The single combined component is accounted for under ASC 842 if the lease component is the predominant component, and is accounted for under ASC 606, if the non-lease components are the predominant components. Lessors are permitted to apply the practical expedient to all existing leases on a retrospective or prospective basis. The Company elected the practical expedient to combine its lease and non-lease components that meet the defined criteria and is accounting for the combined lease components under ASC 842. As a result, the Company is no longer presenting rental revenue and tenant reimbursements related to common area maintenance and other expense recoveries separately in the condensed consolidated statements of comprehensive (loss) income.
In December 2018, the FASB issued ASU 2018-20, Narrow-Scope Improvements for Lessors, that allows lessors to make an accounting policy election not to evaluate whether real estate taxes and other similar taxes imposed by a governmental authority on a specific lease revenue-producing transaction are the primary obligation of the lessor as owner of the underlying leased asset. A lessor that makes this election excludes these taxes from the measurement of lease revenue and the associated expense. ASU 2018-20 also requires lessors to (1) exclude lessor costs paid directly by lessees to third parties on the lessor’s behalf from variable payments and, therefore, variable lease revenue and (2) include lessor costs that are paid by the lessor and reimbursed by the lessee in the measurement of variable lease revenue and the associated expense. The Company adopted ASU 2018-20 effective January 1, 2019. The adoption of this standard resulted in a decrease of approximately $142,000 and $284,000 during the three and six months ended June 30, 2019, respectively, in rental revenue and rental expense, as the aforementioned real estate tax payments are paid by a lessee directly to a third party, and, therefore, are no longer presented on a gross basis in the Company's condensed consolidated statements of comprehensive (loss) income. The adoption of this standard had no impact on the Company's net (loss) income attributable to common stockholders.
Lessee
The Company is a lessee on six ground leases, for which one does not have a corresponding operating lease liability because the Company did not have future payment obligations at the acquisition of the lease. The Company recognized a ROU asset and operating lease liability on the Company's condensed consolidated balance sheet due to the adoption of ASU 2016-02. See Note 6 —"Leases" for further discussion.

12


Derivatives and Hedging
In August 2017, the FASB issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, or ASU 2017-12. The objectives of ASU 2017-12 are to (i) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and (ii) reduce the complexity of and simplify the application of hedge accounting by preparers. The Company adopted this standard on January 1, 2019. The adoption of ASU 2017-12 did not have an impact on the Company's condensed consolidated financial statements.
In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, or ASU 2018-16. ASU 2018-16 permits the use of the OIS rate based on SOFR as a United States benchmark interest rate for hedge accounting purposes under Topic 815. ASU 2018-16 was effective upon the adoption of ASU 2017-12. The Company adopted ASU 2018-16 on January 1, 2019, and its provisions did not have an impact on its condensed consolidated financial statements; however, the provisions may impact existing agreements, new contracts and transactions not yet contemplated in the future.
Disclosure Update and Simplification
In August 2018, the SEC issued a final rule, SEC Final Rule Release No. 33-10532, Disclosure Update and Simplification, that amends the interim financial statement requirements to require a reconciliation of changes in stockholders' equity in the notes or as a separate statement. This analysis should reconcile the beginning balance to the ending balance of each caption in stockholders' equity for each period for which an income statement is required to be filed and comply with the remaining content requirements of Rule 3-04 of Regulation S-X. Registrants will have to provide the reconciliation for both the year-to-date and quarterly periods and comparable periods in Form 10-Q but only for the year-to-date periods in registration statements. The final rule became effective on November 5, 2018. As a result, the Company applied these changes in the presentation of the Company's condensed consolidated statements of stockholders' equity for the three and six months ended June 30, 2019 and 2018.
Recently Issued Accounting Pronouncements Not Yet Adopted
Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13. ASU 2018-13 removes certain disclosure requirements, including the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between the levels and the valuation processes for Level 3 fair value measurements. ASU 2018-13 also adds certain disclosure requirements, including the requirement to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, and interim periods therein. Early adoption is permitted. The Company does not anticipate ASU 2018-13 to have a material impact to the Company's condensed consolidated financial statements.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current financial statement presentation, primarily related to the recently adopted accounting pronouncements discussed within this note. Amounts previously disclosed as rental revenue, provision for doubtful accounts related to rental revenue, tenant reimbursements revenue and provision for doubtful accounts related to tenant reimbursements during the three and six months ended June 30, 2018, are now included in rental revenue and will no longer be presented separately on the condensed consolidated statements of comprehensive (loss) income.

13


Note 3Dispositions
The Company sold one healthcare property, or the 2019 Disposition, during the six months ended June 30, 2019, for an aggregate sale price of $1,050,000 and generated net proceeds of $958,000. The Company recognized an aggregate loss on sale of $3,000, in loss (gain) on real estate dispositions on the condensed consolidated statements of comprehensive (loss) income for the three and six months ended June 30, 2019.
The Company sold six properties (four data center properties and two healthcare properties), or the 2018 Dispositions, during the six months ended June 30, 2018, for an aggregate sale price of $230,665,000 and generated net proceeds of $226,410,000. The Company recognized an aggregate gain on sale of $10,666,000 and $29,244,000, respectively, related to the data center properties sold, in income from discontinued operations on the condensed consolidated statements of comprehensive (loss) income for the three and six months ended June 30, 2018. The Company recognized an aggregate gain on sale of $218,000, related to the two healthcare properties sold, in loss (gain) on real estate dispositions on the condensed consolidated statements of comprehensive (loss) income for the three and six months ended June 30, 2018.
2019 Disposition
Disposition - Continuing Operations
The following table summarizes the 2019 Disposition that qualifies as continuing operations. The operations related to this asset have been included in continuing operations on the condensed consolidated statements of comprehensive (loss) income.
Property Description
 
Disposition Date
 
Ownership Percentage
 
Sale Price
(amounts in thousands)
 
Net Proceeds
(amounts in thousands)
21st Century Oncology-Bradenton
 
05/16/2019
 
100
%
 
$
1,050

 
$
958

2018 Dispositions
Dispositions - Discontinued Operations
Dispositions that represent a strategic shift that have a major effect on results and operations qualify as discontinued operations. The following table summarizes the 2018 Dispositions that qualify as discontinued operations. The operations related to these assets have been included in discontinued operations on the condensed consolidated statements of comprehensive (loss) income.
Property Description
 
Disposition Date
 
Ownership Percentage
 
Sale Price
(amounts in thousands)
 
Net Proceeds
(amounts in thousands)
Arizona Data Center Portfolio (1)
 
01/10/2018
 
100%
 
$
142,500

 
$
140,176

Milwaukee Data Center
 
06/11/2018
 
100%
 
21,000

 
20,397

Alpharetta Data Center II
 
06/15/2018
 
100%
 
64,000

 
62,858

Total
 
 
 
 
 
$
227,500

 
$
223,431

 
(1)
The Arizona Data Center Portfolio was sold as a two-property portfolio consisting of the Phoenix Data Center and the Scottsdale Data Center.
Dispositions - Continuing Operations
The following table summarizes the 2018 Dispositions that qualify as continuing operations. The operations related to these assets have been included in continuing operations on the condensed consolidated statements of comprehensive (loss) income.
Property Description
 
Disposition Date
 
Ownership Percentage
 
Sale Price
(amounts in thousands)
 
Net Proceeds
(amounts in thousands)
21st Century Oncology-Tamarac
 
05/25/2018
 
100
%
 
$
1,575

 
$
1,431

21st Century Oncology-East Naples
 
05/30/2018
 
100
%
 
1,590

 
1,548

Total
 
 
 
 
 
$
3,165

 
$
2,979


14


Note 4Acquired Intangible Assets, Net
Acquired intangible assets, net, consisted of the following as of June 30, 2019 and December 31, 2018 (amounts in thousands, except weighted average life amounts):
 
June 30, 2019
 
December 31, 2018
In-place leases, net of accumulated amortization of $24,082 and $22,679, respectively (with a weighted average remaining life of 13.2 years and 13.6 years, respectively)
$
52,663

 
$
56,501

Above-market leases, net of accumulated amortization of $1,206 and $1,079, respectively (with a weighted average remaining life of 7.9 years and 8.5 years, respectively)
2,012

 
2,139

Ground leasehold assets, net of accumulated amortization of $0 and $64, respectively (with a weighted average remaining life of 0.0 years and 86.6 years, respectively)

(1)
$
1,041

 
$
54,675

 
$
59,681

 
(1)
On January 1, 2019, as part of the adoption of ASC 842, as discussed in Note 2—"Summary of Significant Accounting Policies - Recently Adopted Accounting Pronouncements", the Company reclassified the ground leasehold assets balance from acquired intangible assets, net, to right-of-use assets - operating leases within the condensed consolidated balance sheet.
The aggregate weighted average remaining life of the acquired intangible assets was 13.0 years and 14.6 years as of June 30, 2019 and December 31, 2018, respectively.
Amortization of the acquired intangible assets was $1,232,000 and $1,293,000 for the three months ended June 30, 2019 and 2018, respectively. Amortization of the acquired intangible assets was $3,965,000 and $24,153,000 for the six months ended June 30, 2019 and 2018, respectively. Of the $3,965,000 recorded for the six months ended June 30, 2019, $1,469,000 was attributable to accelerated amortization due to the impairment of an in-place lease intangible asset related to a tenant experiencing financial difficulties. Of the $24,153,000 recorded for the six months ended June 30, 2018, $21,296,000 related to accelerated amortization due to the impairment of an in-place lease intangible asset related to a former tenant experiencing financial difficulties. Amortization of the in-place leases is included in depreciation and amortization of the above-market leases is recorded as an adjustment to rental revenue in the accompanying condensed consolidated statements of comprehensive (loss) income.
Note 5Acquired Intangible Liabilities, Net
Acquired intangible liabilities, net, consisted of the following as of June 30, 2019 and December 31, 2018 (amounts in thousands, except weighted average life amounts):
 
June 30, 2019
 
December 31, 2018
Below-market leases, net of accumulated amortization of $5,330 and $5,163, respectively (with a weighted average remaining life of 15.9 years and 16.2 years, respectively)
$
10,920

 
$
11,761

Ground leasehold liabilities, net of accumulated amortization of $0 and $549, respectively (with a weighted average remaining life of 0 years and 40.2 years, respectively)

(1) 
4,776

 
$
10,920

 
$
16,537

 
(1)
On January 1, 2019, as part of the adoption of ASC 842, as discussed in Note 2—"Summary of Significant Accounting Policies - Recently Adopted Accounting Pronouncements," the Company reclassified ground lease liabilities from acquired intangible liabilities, net to right-of-use assets - operating leases within the condensed consolidated balance sheet.
The aggregate weighted average remaining life of the acquired intangible liabilities was 15.9 years and 22.9 years as of June 30, 2019 and December 31, 2018, respectively.
Amortization of the below-market leases was $212,000 and $254,000, for the three months ended June 30, 2019 and 2018, respectively. Amortization of the below-market leases was $841,000 and $509,000, for the six months ended June 30,

15


2019 and 2018, respectively. Of the $841,000 recorded for the six months ended June 30, 2019, $407,000 was related to accelerated amortization due to the impairment of a below-market lease intangible liability related to a tenant experiencing financial difficulties. Amortization of below-market leases is recorded as an adjustment to rental revenue in the accompanying condensed consolidated statements of comprehensive (loss) income.
Note 6Leases
Lessor
Rental Revenue
The Company’s real estate properties are leased to tenants under operating leases with varying terms. Typically, the leases have provisions to extend the terms of the lease agreements. The Company retains substantially all of the risks and benefits of ownership of the real estate properties leased to tenants.
Future minimum rent to be received from the Company's investments in real estate assets under the terms of non-cancelable operating leases in effect as of June 30, 2019, excluding optional renewal periods for the six months ending December 31, 2019 and for each of the next four years ending December 31 and thereafter, are as follows (amounts in thousands):
Year
 
Amount (1)
Six months ending December 31, 2019
 
$
35,268

2020
 
74,441

2021
 
77,579

2022
 
80,182

2023
 
81,623

Thereafter
 
705,434

 
 
$
1,054,527

(1)
The table above includes the total future minimum rent in the amount of $53,892,000 to be collected from a new tenant through December 31, 2039, with a lease effective date July 1, 2019.

16


Lessee
Rental Expense
The Company has six ground lease obligations, for which one does not have corresponding operating lease liability because the Company did not have future payment obligations at the acquisition of the lease. The ground lease obligations generally require fixed annual rental payments and may also include escalation clauses. The weighted average remaining lease term for the Company's operating leases was 40.5 years and 40.6 years as of June 30, 2019, and December 31, 2018, respectively.
The Company's ground leases do not provide an implicit interest rate. In order to calculate the present value of the remaining ground lease payments, the Company used incremental borrowing rates as of January 1, 2019, adjusted for a number of factors, including the long-term nature of the ground leases, the Company's estimated borrowing costs, and the estimated fair value of the underlying land. The weighted average adjusted incremental borrowing rates ranged between 5.0% and 5.5% as of January 1, 2019.
The future minimum rent payments, discounted by the Company's adjusted incremental borrowing rates, under non-cancelable ground leases for the six months ending December 31, 2019, and for each of the next four years ending December 31 and thereafter, are as follows (amounts in thousands):
Year
 
Amount
Six months ending December 31, 2019
 
$
548

2020
 
1,097

2021
 
1,097

2022
 
1,098

2023
 
1,101

Thereafter
 
47,731

Total undiscounted rental payments
 
52,672

Less imputed interest
 
(32,864
)
Total operating lease liabilities
 
$
19,808

Due to the adoption of ASC 842, the Company reclassified ground leasehold assets and ground leasehold liabilities as of January 1, 2019, from acquired intangible assets, net, and acquired intangible liabilities, net, respectively, to right-of-use assets - operating leases within the condensed consolidated balance sheet.
As discussed in Note 2—"Summary of Significant Accounting Policies", the Company adopted ASU 2016-02, effective January 1, 2019, and consequently, financial information was not updated, and the disclosures required under the new lease standard are not provided for dates and periods before January 1, 2019.
The following represents approximate future minimum rent payments under non-cancelable ground leases by year as of December 31, 2018, and for each of the next four years ending December 31 and thereafter, are as follows (amounts in thousands):
Year
 
Amount
2019
 
$
698

2020
 
698

2021
 
698

2022
 
698

2023
 
701

Thereafter
 
33,550

Total undiscounted rental payments
 
$
37,043


17


Note 7Other Assets, Net
Other assets, net, consisted of the following as of June 30, 2019 and December 31, 2018 (amounts in thousands):
 
June 30, 2019
 
December 31, 2018
Deferred financing costs, related to the revolver portion of the unsecured credit facility, net of accumulated amortization of $10,316 and $9,493, respectively
$
954

 
$
951

Lease commissions, net of accumulated amortization of $437 and $223, respectively
6,222

 
6,089

Tenant receivables
661

 
2,039

Notes receivable
2,700

 
2,700

Straight-line rent receivable
34,185

 
26,947

Restricted cash
168

 
168

Derivative assets

 
426

Prepaid and other assets
1,015

 
1,644

 
$
45,905

 
$
40,964

Note 8Accounts Payable and Other Liabilities
Accounts payable and other liabilities, as of June 30, 2019 and December 31, 2018, consisted of the following (amounts in thousands):
 
June 30, 2019
 
December 31, 2018
Accounts payable and accrued expenses
$
3,965

 
$
2,912

Accrued interest expense
943

 
890

Accrued property taxes
1,482

 
4,502

Accrued litigation settlement
3,800

 

Distributions payable to stockholders
4,714

 
4,974

Tenant deposits
624

 
624

Deferred rental income
2,231

 
2,801

Derivative liabilities
223

 

 
$
17,982

 
$
16,703


18


Note 9Notes Payable and Unsecured Credit Facility
The Company's debt outstanding as of June 30, 2019 and December 31, 2018, consisted of the following (amounts in thousands):
 
June 30, 2019
 
December 31, 2018
Notes payable:
 
 
 
Variable rate notes payable fixed through interest rate swaps
$
17,719

 
$
17,923

Variable rate notes payable

 
18,366

Total notes payable, principal amount outstanding
17,719

 
36,289

Unamortized deferred financing costs related to notes payable
(65
)
 
(75
)
Total notes payable, net of deferred financing costs
17,654

 
36,214

Unsecured credit facility:
 
 
 
Variable rate revolving line of credit fixed through interest rate swaps

 
38,000

Variable rate revolving line of credit
231,000

 
152,000

Total unsecured credit facility
231,000

 
190,000

Total debt outstanding
$
248,654

 
$
226,214

Significant debt activity during the six months ended June 30, 2019, excluding scheduled principal payments, includes:
On January 25, 2019, the Company repaid its debt in connection with one of the Company's notes payable with an outstanding principal balance of $18,350,000 at the time of maturity.
On April 9, 2019, the Operating Partnership exercised its right to a 12-month extension of the KeyBank Credit Facility’s May 28, 2019 maturity date. Therefore, the maturity date of the KeyBank Credit Facility is now May 28, 2020.
On April 11, 2019, the Operating Partnership, the Company, and certain of the Operating Partnership’s subsidiaries entered into the Consent and Second Amendment to the Third Amended and Restated Credit Agreement to modify limitations on the distributions for each calendar quarter in 2019 and the first calendar quarter of 2020 to be limited to a daily distribution rate of $0.000876713 per share of the Company.
The Company's interest rate swap related to the revolving line of credit in the amount of $38,000,000 matured on May 28, 2019.
During the six months ended June 30, 2019, the Company drew $41,000,000 on its unsecured credit facility to pay down one of the Company's notes payable, to fund share repurchases and to pay ordinary cash distributions as a result of suspending the DRIP concurrent with entering into the Merger Agreement.
The principal payments due on the note payable and unsecured credit facility for the six months ending December 31, 2019, and for each of the next three years ending December 31, are as follows (amounts in thousands):
Year
 
Amount
 
Six months ending December 31, 2019
 
$
212

 
2020
 
231,421

(1) 
2021
 
444

 
2022
 
16,642

 
 
 
$
248,719

 
 
(1)
Of this amount, $231,000,000 relates to the revolving line of credit under the unsecured credit facility. The maturity date on the revolving line of credit under the unsecured credit facility is May 28, 2020.
Note 10Related-Party Transactions and Arrangements
The Company has no direct employees. Substantially all of the Company's business is managed by the Advisor. The employees of the Advisor and other affiliates provide services to the Company related to property management, asset management, accounting, investor relations, and all other administrative services.

19


Asset Management Fees
The Company pays the Advisor an annual asset management fee of 0.85% of the aggregate asset value, plus costs and expenses incurred by the Advisor in providing asset management services. The fee is payable monthly in an amount equal to 0.07083% of the aggregate asset value as of the last day of the immediately preceding month.
Operating Expense Reimbursement
The Company reimburses the Advisor for all expenses it paid or incurred in connection with the services provided to the Company, subject to certain limitations. Expenses in excess of the operating expenses in the four immediately preceding quarters that exceed the greater of (a) 2% of average invested assets or (b) 25% of net income, subject to certain adjustments, will not be reimbursed unless the independent directors determine such excess expenses are justified. The Company will not reimburse the Advisor for personnel costs in connection with services for which the Advisor receives an acquisition fee or a disposition fee. Operating expenses incurred on the Company's behalf are recorded in general and administrative expenses in the accompanying condensed consolidated statements of comprehensive (loss) income.
Disposition Fees
If the Advisor or its affiliates provides a substantial amount of services, as determined by a majority of the Company’s independent directors, in connection with the sale of one or more assets, a merger with a change of control of the Company or a sale of the Company, the Company will pay the Advisor a disposition fee equal to an amount of up to the lesser of 0.5% of the transaction price or one-half of the fees paid in the aggregate to third party investment bankers for such transaction. In no event will the combined real estate commission paid to the Advisor, its affiliates and unaffiliated third parties exceed 6.0% of the contract sales price. Disposition fees are recorded in gain on real estate dispositions for sales of operating properties and in income from discontinued operations for sales of properties classified as discontinued operations in the accompanying condensed consolidated statements of comprehensive (loss) income.
Concurrently, with the entry into the Merger Agreement, the Company, the Operating Partnership and the Advisor entered into a termination letter agreement, or the Termination Agreement, effective as of April 11, 2019. Pursuant to the Termination Agreement, the advisory agreement, as amended, will be terminated at the effective time of the REIT Merger, and the Advisor will waive any disposition fee it otherwise would be entitled to pursuant to the advisory agreement related to the REIT Merger. In addition, the Termination Agreement confirms the disposition fee payable to the Advisor in the event the Merger Agreement is terminated and the Company consummates a different transaction that would entitle the Advisor to the disposition fee.
Property Management Fees
In connection with the rental, leasing, operation and management of the Company's properties, the Company pays Carter Validus Real Estate Management Services, LLC, or the Property Manager, and its affiliates, aggregate fees equal to 3.0% of monthly gross revenues from single-tenant properties and 4.0% of monthly gross revenues from multi-tenant properties, or property management fees. The Company reimburses the Property Manager and its affiliates for property-level expenses that any of them pay or incur on the Company’s behalf, including certain salaries, bonuses and benefits of persons employed by the Property Manager and its affiliates, except for the salaries, bonuses and benefits of persons who also serve as one of its executive officers. The Property Manager and its affiliates may subcontract the performance of their duties to third parties and pay all or a portion of the property management fee to the third parties with whom they contract for these services. If the Company contracts directly with third parties for such services, it will pay them customary market fees and may pay the Property Manager an oversight fee equal to 1.0% of the gross revenues of the properties managed. In no event will the Company pay the Property Manager or any affiliate both a property management fee and an oversight fee with respect to any particular property. Property management fees are recorded in rental expenses in the accompanying condensed consolidated statements of comprehensive (loss) income.
Leasing Commission Fees
The Company pays the Property Manager a separate fee for the initial lease-up, leasing-up of newly constructed properties or re-leasing to existing tenants. Leasing commission fees are capitalized in other assets, net, in the accompanying condensed consolidated balance sheets and amortized over the terms of the related leases.
Construction Management Fees
For acting as general contractor and/or construction manager to supervise or coordinate projects or to provide major repairs or rehabilitation on the Company's properties, the Company may pay the Property Manager up to 5.0% of the cost of the projects, repairs and/or rehabilitation, as applicable, or construction management fees. Construction management fees are capitalized in buildings and improvements in the accompanying condensed consolidated balance sheets.

20


Subordinated Participation in Net Sale Proceeds
After investors have received a return of their net capital contributions and an 8.0% cumulative non-compounded annual return, then the Advisor is entitled to receive 15.0% of the remaining net sale proceeds, or a subordinated participation in net sale proceeds. As of June 30, 2019, the Company had not incurred a subordinated participation in net sale proceeds to the Advisor or its affiliates. Should the REIT Merger close, the applicable stockholder return threshold of the Combined Company will be an 8.0% cumulative, non-compounded annual return.
The following table details amounts incurred for the three and six months ended June 30, 2019 and 2018 in connection with the Company's related parties transactions described above (amounts in thousands):
 
 
 
 
Incurred
 
 
 
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
Fee
 
Entity
 
2019
 
2018
 
2019
 
2018
 
Asset management fees
 
Carter/Validus Advisors, LLC and its affiliates
 
$
2,400

 
$
2,613

(1) 
$
4,804

 
$
5,266

(1) 
Operating expense reimbursement
 
Carter/Validus Advisors, LLC and its affiliates
 
729

 
462

(2) 
1,206

 
892

(2) 
Disposition fees
 
Carter/Validus Advisors, LLC and its affiliates
 

 
441

(3) 

 
1,154

(3) 
Property management fees
 
Carter Validus Real Estate Management Services, LLC
 
470

 
724

(4) 
939

 
1,475

(4) 
Leasing commission fees
 
Carter Validus Real Estate Management Services, LLC
 

 

 
347

 

 
Construction management fees
 
Carter Validus Real Estate Management Services, LLC
 
4

 
44

(2) 
4

 
111

(2) 
Total
 
 
 
$
3,603

 
$
4,284

 
$
7,300

 
$
8,898

 
 
(1)
Of the amounts incurred, $2,479,000 and $4,944,000 is included in continuing operations for the three and six months ended June 30, 2018, respectively.
(2)
Entire amount is included in continuing operations for the three and six months ended June 30, 2018.
(3)
Of the amounts incurred, $16,000 is included in continuing operations for the three and six months ended June 30, 2018.
(4)
Of the amounts incurred, $676,000 and $1,364,000 is included in continuing operations for the three and six months ended June 30, 2018, respectively.
The following table details amounts payable to affiliates as of June 30, 2019 and December 31, 2018 in connection with the Company's related parties transactions described above (amounts in thousands):
 
 
 
 
Payable
Fee
 
Entity
 
June 30, 2019
 
December 31, 2018
Asset management fees
 
Carter/Validus Advisors, LLC and its affiliates
 
$
800

 
$
801

Operating expense reimbursement
 
Carter/Validus Advisors, LLC and its affiliates
 
119

 
281

Property management fees
 
Carter Validus Real Estate Management Services, LLC
 
126

 
181

Leasing commission fees
 
Carter Validus Real Estate Management Services, LLC
 
234

 
60

Construction management fees
 
Carter Validus Real Estate Management Services, LLC
 
10

 
6

Total
 
 
 
$
1,289

 
$
1,329

Note 11Fair Value
Notes payable – Fixed Rate—The estimated fair value of notes payable – variable rate fixed through interest rate swap agreements (Level 2) was approximately $17,899,000 and $17,465,000 as of June 30, 2019 and December 31, 2018, respectively, as compared to the outstanding principal of $17,719,000 and $17,923,000 as of June 30, 2019 and December 31, 2018, respectively.
Unsecured credit facility—The outstanding principal balance of the unsecured credit facility – variable was $231,000,000 and $152,000,000, which approximated its fair value, as of June 30, 2019 and December 31, 2018, respectively. The fair value

21


of the Company's variable rate unsecured credit facility is estimated based on the interest rates currently offered to the Company by financial institutions. The estimated fair value of the unsecured credit facility – variable rate fixed through interest rate swap agreements (Level 2) was approximately $37,794,000 as of December 31, 2018, as compared to the outstanding principal of $38,000,000 as of December 31, 2018.
Notes receivable—The outstanding principal balance of the notes receivable in the amount of $2,700,000 approximated the fair value as of June 30, 2019 and December 31, 2018. The fair value was measured using significant other observable inputs (Level 2), which requires certain judgments to be made by management.
Derivative instruments— Considerable judgment is necessary to develop estimated fair values of financial instruments. Accordingly, the estimates presented herein are not necessarily indicative of the amount the Company could realize, or be liable for, on disposition of the financial instruments. The Company determined that the majority of the inputs used to value its interest rate swaps fall within Level 2 of the fair value hierarchy. The credit valuation adjustments associated with these instruments utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and the respective counterparty. However, as of June 30, 2019, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions, and determined that the credit valuation adjustments are not significant to the overall valuation of its interest rate swaps. As a result, the Company determined that its interest rate swaps valuation in its entirety is classified in Level 2 of the fair value hierarchy. See Note 12—"Derivative Instruments and Hedging Activities" for a further discussion of the Company’s derivative instruments.
The following tables show the fair value of the Company’s financial liabilities and assets that are required to be measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018 (amounts in thousands):
 
June 30, 2019
 
Fair Value Hierarchy
 
 
 
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs (Level 3)
 
Total Fair
Value
Liabilities:
 
 
 
 
 
 
 
Derivative liabilities
$

 
$
223

 
$

 
$
223

Total liabilities at fair value
$

 
$
223

 
$

 
$
223

 
 
 
 
 
 
 
 
 
December 31, 2018
 
Fair Value Hierarchy
 
 
 
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs (Level 3)
 
Total Fair
Value
Assets:
 
 
 
 
 
 
 
Derivative assets
$

 
$
426

 
$

 
$
426

Total assets at fair value
$

 
$
426

 
$

 
$
426


22


Real estate assetsno impairment losses of real estate were recorded during the three and six months ended June 30, 2019. As discussed in Note 2—"Summary of Significant Accounting Policies," during the three and six months ended June 30, 2018, real estate assets related to one healthcare property with an aggregate carrying amount of $47,375,000 were determined to be impaired, using Level 2 inputs of the fair value hierarchy. The carrying value of the property was reduced to its estimated fair value of $41,544,000, resulting in an impairment charge of $5,831,000.
The following tables show the fair value of the Company's real estate assets measured at fair value on a non-recurring basis as of December 31, 2018 (amounts in thousands):
 
December 31, 2018
 
 
 
Fair Value Hierarchy
 
 
 
 
 
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs (Level 3)
 
Re-Measured Balance
 
Total Losses (2)
Real estate assets (1)
$

 
$
42,515

 
$

 
$
42,515

 
$
(6,588
)
 
(1)
During the year ended December 31, 2018, real estate assets related to two healthcare properties with an aggregate carrying amount of $49,103,000 were determined to be impaired. The carrying value of the properties were reduced to their estimated fair value of $42,515,000, resulting in an impairment charge of $6,588,000.
(2)
Of this amount, $5,831,000 was recorded as an impairment loss on real estate for the three and six months ended June 30, 2018.
Note 12Derivative Instruments and Hedging Activities
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable rate 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.
Changes in the fair value of derivatives designated, and that qualify, as cash flow hedges are recorded in accumulated other comprehensive income (loss) in the accompanying condensed consolidated statements of stockholders' equity and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
On January 1, 2019, the Company adopted ASU 2017-12. The adoption of ASU 2017-12 did not have an impact on the Company's condensed consolidated financial statements. See Note 2—"Summary of Significant Accounting Policies" for additional information regarding ASU 2017-12.
Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest and other expense, net, as interest payments are made on the Company’s variable rate debt. During the next twelve months, the Company estimates that an additional $32,000 will be reclassified from accumulated other comprehensive income (loss) as an increase to interest and other expense, net.
See Note 11—"Fair Value" for further discussion of the fair value of the Company’s derivative instrument.
The following table summarizes the notional amount and fair value of the Company’s derivative instrument (amounts in thousands):
 
Derivative
Designated as
Hedging
Instrument
 
Balance
Sheet
Location
 
Effective
Date
 
Maturity
Date
 
June 30, 2019
 
December 31, 2018
 
Outstanding
Notional
Amount
 
Fair Value of
 
Outstanding
Notional
Amount
 
Fair Value of
 
(Liability)
 
Asset
 
 
Interest rate swap
 
Accounts payable and other liabilities/ Other assets, net
 
10/11/2017
 
10/11/2022
 
$
17,719

 
$
(223
)
 
$
55,923

 
$
426

The Company's interest rate swap related to the revolving line of credit in the amount of $38,000,000 matured on May 28, 2019.

23


The notional amount under the agreements is an indication of the extent of the Company’s involvement in each instrument at the time, but does not represent exposure to credit, interest rate or market risks.
Accounting for changes in the fair value of a derivative instrument depends on the intended use and designation of the derivative instrument. The Company designated the interest rate swaps as cash flow hedges to hedge the variability of the anticipated cash flows on its variable rate unsecured credit facility and notes payable. The change in fair value of the derivative instruments that are designated as hedges are recorded in other comprehensive income (loss), or OCI, in the accompanying condensed consolidated statements of comprehensive (loss) income.
The table below summarizes the amount of (loss) income recognized on the interest rate derivatives designated as cash flow hedges for the three and six months ended June 30, 2019 and 2018 (amounts in thousands):
Derivatives in Cash Flow Hedging Relationships
 
Amount of (Loss) Income Recognized
in OCI on Derivatives
 
Location of Income (Loss)
Reclassified from
Accumulated Other
Comprehensive Income to
Net (Loss) Income
 
Amount of Income
Reclassified from
Accumulated Other
Comprehensive Income to
Net (Loss) Income
Three Months Ended June 30, 2019
 
 
 
 
 
 
Interest rate swap
 
$
(273
)
 
Interest and other expense, net
 
$
89

Total
 
$
(273
)
 
 
 
$
89

Three Months Ended June 30, 2018
 
 
 
 
 
 
Interest rate swaps
 
$
225

 
Interest and other expense, net
 
$
437

Total
 
$
225

 
 
 
$
437

Six Months Ended June 30, 2019
 
 
 
 
 
 
Interest rate swaps
 
$
(426
)
 
Interest and other expense, net
 
$
222

Total
 
$
(426
)
 
 
 
$
222

Six Months Ended June 30, 2018
 
 
 
 
 
 
Interest rate swaps
 
$
836

 
Interest and other expense, net
 
$
412

Total
 
$
836

 
 
 
$
412

Credit Risk-Related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. The Company records credit risk valuation adjustments on its interest rate swaps based on the respective credit quality of the Company and the counterparty. The Company believes it mitigates its credit risk by entering into agreements with creditworthy counterparties. As of June 30, 2019, the fair value of derivatives in a net liability position was $233,000, inclusive of accrued interest but excluding any adjustment for nonperformance risk related to the agreement. 

24


Tabular Disclosure Offsetting Derivatives
The Company has elected not to offset derivative positions in its condensed consolidated financial statements. The following table presents the effect on the Company’s financial position had the Company made the election to offset its derivative positions as of June 30, 2019 and December 31, 2018 (amounts in thousands):
Offsetting of Derivative Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross Amounts Not Offset
 in the Balance Sheet
 
 
 
Gross
Amounts of
Recognized
Liabilities
 
Gross Amounts
Offset in the
Balance Sheet
 
Net Amounts of
Liabilities Presented in
the Balance Sheet
 
Financial 
Instruments
Collateral
 
Cash 
Collateral
 
Net
Amount
June 30, 2019
$
223

 
$

 
$
223

 
$

 
$

 
$
223

Offsetting of Derivative Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross Amounts Not Offset
 in the Balance Sheet
 
 
 
Gross
Amounts of
Recognized
Assets
 
Gross Amounts
Offset in the
Balance Sheet
 
Net Amounts of
Assets Presented in
the Balance Sheet
 
Financial 
Instruments
Collateral
 
Cash 
Collateral
 
Net
Amount
December 31, 2018
$
426

 
$

 
$
426

 
$

 
$

 
$
426

The Company reports derivative assets as other assets, net, and derivative liabilities as accounts payable and other liabilities on the condensed consolidated balance sheets.
Note 13Accumulated Other Comprehensive Income (Loss)
The following table presents a rollforward of amounts recognized in accumulated other comprehensive income (loss) by component for the six months ended June 30, 2019 and 2018 (amounts in thousands):
 
Unrealized Loss on Derivative Instruments
 
Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2018
$
905

 
$
425

Other comprehensive loss before reclassification
(426
)
 
(426
)
Amount of income reclassified from accumulated other comprehensive income to net income
(222
)
 
(222
)
Other comprehensive loss
(648
)
 
(648
)
Balance as of June 30, 2019
$
257

 
$
(223
)
 
Unrealized Income on Derivative Instruments
 
Accumulated Other Comprehensive Income
Balance as of December 31, 2017
$
887

 
$
407

Other comprehensive income before reclassification
836

 
836

Amount of income reclassified from accumulated other comprehensive income to net loss
(412
)
 
(412
)
Other comprehensive income
424

 
424

Balance as of June 30, 2018
$
1,311

 
$
831


25


The following table presents reclassifications out of accumulated other comprehensive income (loss) for the six months ended June 30, 2019 and 2018 (amounts in thousands):
Details about Accumulated Other Comprehensive Income (Loss) Components
 
Amounts Reclassified from Accumulated Other Comprehensive Income (Loss) to Net (Loss) Income
 
Affected Line Items in the Condensed Consolidated Statements of Comprehensive (Loss) Income