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Note 4 – Credit Facility, Notes Payable and Derivative Instruments

Credit Facility

The Company, the Operating Partnership, as borrower, and certain of its subsidiaries (such subsidiaries, the “Subsidiary Guarantors”) are parties to a $600 million syndicated credit facility with BMO Harris Bank N.A. (“BMO”), as administrative agent (the “Credit Facility”). The Credit Facility consists of a $350 million term-loan component (the “Term Loan”) and a $250 million revolver component (the “Revolver”). The Credit Facility also contains a $50 million accordion. The term of the Revolver expires in August 2022, subject to a one-year extension option.  The term of the Term Loan expires in August 2023. Amounts outstanding under the Credit Facility bear interest at a floating rate that is based on LIBOR plus a specified margin based on the Company’s leverage.

The Subsidiary Guarantors and the Company are guarantors of the obligations under the Credit Facility. The amount available to borrow from time to time under the Credit Facility is limited according to a quarterly borrowing base valuation of certain properties owned by the Subsidiary Guarantors.

The Operating Partnership is subject to a number of financial covenants under its Credit Facility, including, among other things, (i) a maximum consolidated leverage ratio as of the end of each fiscal quarter of less than 0.60:1.00, (ii) a minimum fixed charge coverage ratio of 1.50:1.00, (iii) a minimum net worth of $203.8 million plus 75% of all net proceeds raised through equity offerings subsequent to March 31, 2018, (iv) a ratio of total secured recourse debt to total asset value of not greater than 0.10:1.00, and, (v) beginning at the end of the fourth quarter of 2020, a quarterly requirement that the Company’s distributions to common stockholders and OP Unit and LTIP Unit holders be limited to an amount equal to 95% of its AFFO. As of December 31, 2020, the Company complied with all of the financial and non-financial covenants contained in the Credit Facility.

The Company has entered into interest rate swaps to hedge its interest rate risk on the Term Loan. For additional information related to the interest rate swaps, see the “Derivative Instruments - Interest Rate Swaps” section herein.

During the year ended December 31, 2020, the Company borrowed $238,400 under the Credit Facility and repaid $64,550, for a net amount borrowed of $173,850. During the year ended December 31, 2019, the Company borrowed $244,250 under the Credit Facility and repaid $173,175, for a net amount borrowed of $71,075. Interest expense incurred on the Credit Facility was $14,669, $14,237, and $11,371 for the years ended December 31, 2020, 2019, and 2018, respectively.

As of December 2020 and 2019, the Company had the following outstanding borrowings under the Credit Facility:

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Costs incurred related to the Credit Facility, net of accumulated amortization, are netted against the Company’s “Credit Facility, net of unamortized debt issuance costs” balance in the accompanying Consolidated Balance Sheets. The Company paid $952 and $1,039 during the years ended December 31, 2020 and 2019, respectively, related to modifications to the Credit Facility and borrowing base additions. Amortization expense incurred was $1,225, $1,129, and $1,639 for the years ended December 31, 2020, 2019, and 2018, respectively, and is included in the “Interest Expense” line item in the accompanying Consolidated Statements of Operations.

In July 2017, the Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced its intention to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee (the “ARRC”), which identified the Secured Overnight Financing Rate (the “SOFR”) as its preferred alternative to USD-LIBOR in derivatives and other financial contracts. The Credit Facility provides that, on or about the LIBOR cessation date (subject to an early opt-in election), LIBOR shall be replaced as a benchmark rate in the Credit Facility with a new benchmark rate to be agreed upon by the Company and BMO, with such adjustments to cause the new benchmark rate to be economically equivalent to LIBOR.  The Company is not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets.

The Company has interest rate swap agreements that are indexed to LIBOR and is monitoring and evaluating the related risks. These risks arise in connection with transitioning contracts to a new alternative rate, including any resulting value transfer that may occur. The value of loans, securities, or derivative instruments tied to LIBOR could also be impacted if LIBOR is limited or discontinued. For some instruments, the method of transitioning to an alternative rate may be challenging, as they may require negotiation with the respective counterparty.

If a contract is not transitioned to an alternative rate and LIBOR is discontinued, the impact on our interest rate swap agreements is likely to vary by agreement. If LIBOR is discontinued or if the methods of calculating LIBOR change from their current form, interest rates on our current or future indebtedness may be adversely affected.

While the Company expects LIBOR to be available in substantially its current form until the end of 2021, it is possible that LIBOR will become unavailable prior to that point. This could result, for example, if sufficient banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate will be accelerated and potentially magnified.

Notes Payable, Net of Debt Issuance Costs

The Company’s notes payable, net, includes four loans: (1) the Rosedale Loan, (2) the Dumfries Loan, (3) the Cantor Loan, and (4) the West Mifflin Loan, described in detail below. The following table sets forth the balances of these loans as of December 31, 2020 and 2019.

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The Company paid $342 in debt issuance and related costs during the year ended December 31, 2020. No debt issuance and related costs were paid during the year ended December 31, 2019. Amortization expense incurred related to the debt issuance costs was $174, $132, and $131, for the years ended December 31, 2020, 2019, and 2018, respectively, and is included in the “Interest Expense” line item in the accompanying Consolidated Statements of Operations.

Rosedale Loan

On July 31, 2020, in connection with its acquisition of the Rosedale Facilities, the Company, through certain of its wholly owned subsidiaries, as borrowers, entered into a commercial term loan with a principal balance of $14,800 (“the Rosedale Loan”). The Rosedale Loan has an annual interest rate of 3.85% and matures on July 31, 2025 with principal and interest payable monthly based on a 25-year amortization schedule. The Company, at its option, may prepay the loan, subject to a prepayment fee.

The Company made principal payments of $109 during the year ended December 31, 2020. The loan balance as of December 31, 2020 was $14,691. Interest expense incurred on this loan was $249 for the year ended December 31, 2020.

As of December 31, 2020, scheduled principal payments due for each year ended December 31 were as follows:

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Dumfries Loan

On April 27, 2020, in connection with its acquisition of the Dumfries Facility, the Company, through a wholly owned subsidiary, assumed a CMBS loan with a principal amount of $12,074 (“the Dumfries Loan”). The Dumfries Loan has an annual interest rate of 4.68% and matures on June 1, 2024 with principal and interest payable monthly based on a ten-year amortization schedule. The Company, at its option, may prepay the loan, subject to a prepayment premium.

The Company made principal payments of $175 during the year ended December 31, 2020. The note balance as of  December 31, 2020 was $11,899. Interest expense incurred on this note was $383 for year ended December 31, 2020.

As of December 31, 2020, scheduled principal payments due for each year ended December 31 were as follows:

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Cantor Loan

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On March 31, 2016, through certain of its wholly owned subsidiaries (the “GMR Loan Subsidiaries”), the Company entered into a $32,097 CMBS loan (the “Cantor Loan”). The Cantor Loan has a maturity date of April 6, 2026 and an annual interest rate of 5.22%. The Cantor Loan requires interest-only payments through March 31, 2021 and thereafter principal and interest based on a 30-year amortization schedule. Prepayment can only occur within four months prior to the maturity date, subject to earlier defeasance. The Cantor Loan is secured by the assets of the GMR Loan Subsidiaries.

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The note balance as of December 31, 2020  and 2019 was $32,097. Interest expense incurred on this note was $1,703, $1,699, and $1,699 for the years ended December 31, 2020, 2019, and 2018, respectively.

As of December 31, 2020, scheduled principal payments due for each fiscal year ended December 31 are as follows:

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West Mifflin Loan

On September 25, 2015, the Company, through a wholly owned subsidiary, as borrower, entered into a $7,378 term loan with Capital One. On September 25, 2020, the Company and Capital One amended the terms of the loan to extend the maturity date to September 25, 2021 and increase the interest rate to 4.25% per annum. The West Mifflin facility serves as collateral for the loan.

The Company made principal payments of $293, and $136 during the years ended December 31, 2020 and 2019. The note balance as of December 31, 2020 and 2019 was $7,085 and $7,220, respectively.  Interest expense incurred on this note was $277, $274, and $280 for the years ended December 31, 2020, 2019, and 2018, respectively.

Derivative Instruments - Interest Rate Swaps

As of December 31, 2020, the Company had the following six interest rate swaps that are used to manage its interest rate risk and fix the LIBOR component of certain of its floating rate debt on a weighted average basis at 1.91%:

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In accordance with the provisions of ASC Topic 815, the Company records the swaps either as an asset or a liability measured at its fair value at each reporting period. When hedge accounting is applied, the change in the fair value of derivatives designated and that qualify as cash flow hedges is (i) recorded in accumulated other comprehensive loss in the equity section of the Company’s Consolidated Balance Sheets and (ii) subsequently reclassified into earnings as interest expense for the period that the hedged forecasted transactions affect earnings. If specific hedge accounting criteria are not met, changes in the Company’s derivative instruments’ fair value are recognized currently as an adjustment to net income.

The Company’s interest rate swaps are not traded on an exchange. The Company’s interest rate swaps are recorded at fair value based on a variety of observable inputs including contractual terms, interest rate curves, yield curves, measure of volatility, and correlations of such inputs. The Company measures its derivatives at fair value on a recurring basis based on the expected size of future cash flows on a discounted basis and incorporating a measure of non-performance risk. The fair values are based on Level 2 inputs within the framework of ASC Topic 820, “Fair Value Measurement.” The Company considers its own credit risk, as well as the credit risk of its counterparties, when evaluating the fair value of its derivative instruments.

The fair value of the Company’s interest rate swaps was a net liability of $18,086 and $6,491 as of December 31, 2020 and 2019, respectively. The gross balances are included in the “Derivative Asset’ and “Derivative Liability” line items on the Company’s  Consolidated Balance Sheets as of December 31, 2020 and 2019, respectively.

The table below details the components of the loss presented on the accompanying Consolidated Statements of Comprehensive (Loss) Income recognized on the Company’s interest rate swap agreements designated as cash flow hedges for the years ended December 31, 2020, 2019, and 2018.

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During 2021, the Company estimates that an additional $6,211 will be reclassified as an increase to interest expense. Additionally, during the years ended December 31, 2020, 2019, and 2018, the Company recorded total interest expense in its Consolidated Statements of Operations of $18,680, $17,472, and $14,975, respectively.

Weighted-Average Interest Rate and Term

The weighted average interest rate and term of the Company’s debt was 3.17% and 2.79 years, respectively, at December 31, 2020, compared to 3.90% and 3.76 years, respectively, as of December 31, 2019.