Annual report pursuant to Section 13 and 15(d)

Prepaid Expenses and Other Assets

Prepaid Expenses and Other Assets
12 Months Ended
Dec. 31, 2011
Prepaid Expenses and Other Assets  
Prepaid Expenses and Other Assets

9. Prepaid Expenses and Other Assets

        Prepaid expenses and other assets consisted of the following (in thousands):

  December 31,  
  2011   2010  

Mortgage and other investing receivables

  $ 27,998   $ 18,870  

Prepaid expenses

    20,035     19,995  

Deferred tax asset

    10,892     276  

Furniture, fixtures and equipment, net

    10,177     11,504  

Lease incentives

    5,233     3,899  

Construction contract costs incurred in excess of billings

    2,094     9,372  

Investment in KEYW

    125     22,779  

Other assets

    11,065     7,201  

Prepaid expenses and other assets

  $ 87,619   $ 93,896  

Mortgage and Other Investing Receivables

        Mortgage and other investing receivables consisted of the following (in thousands):

  December 31,  
  2011   2010  

Notes receivable from City of Huntsville

  $ 17,741   $ 4,643  

Mortgage loans receivable

    10,257     14,227  


  $ 27,998   $ 18,870  

Our mortgage loans receivable reflected above at December 31, 2011 consisted of two loans secured by properties in Greater Baltimore and the Baltimore/Washington Corridor. Our note receivable from the City of Huntsville funded infrastructure costs in connection with our LW Redstone Company, LLC joint venture (see Note 6). We did not have an allowance for credit losses in connection with these receivables at December 31, 2011 or December 31, 2010. The fair value of our mortgage and other investing receivables totaled $28.0 million at December 31, 2011 and $18.8 million at December 31, 2010.

Investment in The KEYW Holding Corporation

        Our investment in KEYW consists of common stock and warrants to purchase additional shares of common stock of KEYW, an entity supporting the intelligence community's operations and transformation to Cyber Age mission by providing engineering services and integrated platforms that support the intelligence process. We owned 1.9 million shares, or approximately 7%, of KEYW's common stock at December 31, 2011 and 3.1 million shares, or approximately 12%, at December 31, 2010. The carrying value of our equity method investment in these common shares was $22.3 million at December 31, 2010, which was included in prepaid expenses and other assets on our consolidated balance sheet as of such date. In March 2011, we entered into a sales plan that complies with the requirements of Rule 10b5-1(c) under the Securities Exchange Act of 1934, as amended, to sell up to 1.6 million shares of our KEYW common stock in 2011; we completed the sale of 1.2 million shares under this plan in 2011, resulting in $2.1 million in gain recognized. We used the equity method of accounting for our investment in the common stock until the resignation of our Chief Executive Officer from the Board of Directors of KEYW effective July 1, 2011, at which time we began accounting for our investment in KEYW's common stock as a trading marketable equity security to be reported at fair value, with unrealized gains and losses recognized through earnings. Our investment in these common shares had a fair value of $13.8 million at December 31, 2011 based on the closing price of KEYW's common stock on the NASDAQ Stock Market on that date and is included in the line entitled "restricted cash and marketable securities" on our consolidated balance sheet.

        We acquired warrants to purchase 50,000 additional shares of KEYW common stock at an exercise price of $9.25 per share in March 2010 for $210,000 and began accounting for such warrants as derivatives in November 2010 when KEYW became a publicly-traded company. We report these warrants at fair value. The estimated fair value of these warrants was $125,000, or $2.51 per warrant, at December 31, 2011 and $466,000, or $9.32 per warrant, at December 31, 2010.

        We recognized revenue from a lease with KEYW in one of our properties of $780,000 in 2011, $668,000 in 2010 and $315,000 in 2009.

Operating Notes Receivable

        We had operating notes receivable due from tenants with terms exceeding one year totaling $530,000 at December 31, 2011 and $655,000 at December 31, 2010. We carried allowances for estimated losses for most of these balances.