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Note 4 – Credit Facility, Notes Payable and Derivative Instruments

Credit Facility

For the three months ended March 31, 2021 and 2020, the Company, the Operating Partnership, as borrower, and certain of its subsidiaries (such subsidiaries, the “Subsidiary Guarantors”) were parties to a $600 million syndicated credit facility with BMO Harris Bank N.A. (“BMO”), as administrative agent (the “Credit Facility”). The Credit Facility consisted of a $350 million term loan component (the “Term Loan”) and a $250 million revolver component (the “Revolver”). 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.

On May 3, 2021, the Company amended and restated the Credit Facility to among other things, (i) increase the overall capacity of the facility from $600 million to $750 million, consisting of a $400 million revolver component and a $350 million term loan component, (ii) extend the term of the revolver component to April 2025, with two six-month extension options, and extend the maturity of the term loan component to April 2026, and (iii) implement a new pricing matrix. See Note 10 – “Subsequent Events” for a description of the material terms of the amended and restated Credit Facility (the “Amended and Restated 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. The Company also entered into additional interest rate swaps in connection with the Amended and Restated Credit Facility.  See Note 10 – “Subsequent Events” for a description of these additional interest rate swaps.  

During the three months ended March 31, 2021, the Company borrowed $50,100 under the Credit Facility and repaid $151,800, for a net amount repaid of $101,700. During the three months ended March 31, 2020, the Company borrowed $81,700 under the Credit Facility and repaid $3,600 for a net amount borrowed of $78,100. Interest expense incurred on the Credit Facility was $3,852 and $3,585, for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021 and December 31, 2020, 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 Condensed Consolidated Balance Sheets. The Company paid $74 and $44 related to modifications to the Credit Facility as well as fees related to adding properties to the borrowing base during the three months ended March 31, 2021 and 2020, respectively. Amortization expense incurred was $349 and $269 for the three months ended March 31, 2021 and 2020, respectively, and is included in the “Interest Expense” line item in the accompanying Condensed Consolidated Statements of Operations.

Reference Rate Reform

On March 5, 2021, the Financial Conduct Authority (“FCA”) announced that USD LIBOR will no longer be published after June 30, 2023. This announcement has several implications, including setting the spread that may be used to automatically convert contracts from LIBOR to the Secured Overnight Financing Rate ("SOFR").  Additionally, banking regulators are encouraging banks to discontinue new LIBOR debt issuances by December 31, 2021.

The Company anticipates that LIBOR will continue to be available at least until June 30, 2023.  Any changes adopted by the FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form.

The Company has interest rate swaps that are indexed to LIBOR and is monitoring and evaluating the related risks.  These risks arise in connection with transitioning contracts to an alternative rate, including any resulting value transfer that may occur, and are likely

to vary by contract. The value of loans, securities, or derivative instruments tied to LIBOR, as well as interest rates on our current or future indebtedness, may also be impacted if LIBOR is limited or discontinued.  For some instruments the method of transitioning to an alternative reference rate may be challenging, especially if the Company cannot agree with the respective counterparty about how to make the transition.

While the Company expects LIBOR to be available in substantially its current form until at least the end of June 30, 2023, 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 magnified.

Alternative rates and other market changes related to the replacement of LIBOR, including the introduction of financial products and changes in market practices, may lead to risk modeling and valuation challenges, such as adjusting interest rate accrual calculations and building a term structure for an alternative rate.

The introduction of an alternative rate also may create additional basis risk and increased volatility as alternative rates are phased in and utilized in parallel with LIBOR.

Adjustments to systems and mathematical models to properly process and account for alternative rates will be required, which may strain the model risk management and information technology functions and result in substantial incremental costs for the Company.

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 aggregate balances of these loans as of March 31, 2021 and December 31, 2020.

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Amortization expense incurred related to the debt issuance costs was $63 and $33 for the three months ended March 31, 2021 and 2020, respectively, and is included in the “Interest Expense” line item in the accompanying Condensed 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 loan with FVCbank 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 $91 during the three months ended March 31, 2021. The loan balance as of March 31, 2021 was $14,600.  Interest expense incurred on this loan was $141 for the three months ended March 31, 2021.

As of March 31, 2021, scheduled principal payments due for each year ended December 31 were as follows:

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Dumfries Loan

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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 $69 during the three months ended March 31, 2021. The loan balance as of March 31, 2021 was $11,830.  Interest expense incurred on this loan was $138 for the three months ended March 31, 2021.

As of March 31, 2021, scheduled principal payments due for each year ended December 31 were as follows:

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Cantor Loan

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 required interest-only payments through March 31, 2021 and following that date, requires 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 loan balance as of March 31, 2021 and December 31, 2020 was $32,097. Interest expense incurred on this loan was $419   and $423 for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, scheduled principal payments due for each year ended December 31 were 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 $30 and $35 during the three months ended March 31, 2021 and 2020, respectively. The loan balance as of March 31, 2021 and December 31, 2020 was $7,055 and $7,085, respectively. Interest expense incurred on this loan was $75 and $68 for the three months ended March 31, 2021 and 2020, respectively.

Derivative Instruments - Interest Rate Swaps

As of March 31, 2021, 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% through August 2023:

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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 Condensed 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 $14,467 and $18,086 as of March 31, 2021 and December 31, 2020, respectively. The gross balances are included in the “Derivative Asset” and “Derivative Liability” line items on the Company’s Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020, respectively.

The table below details the components of the loss presented on the accompanying Condensed Consolidated Statements of Comprehensive Income (Loss) recognized on the Company’s interest rate swaps designated as cash flow hedges for the three months ended March 31, 2021 and 2020:

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During the next twelve months, the Company estimates that an additional $6,173 will be reclassified as an increase to interest expense. Additionally, during the three months ended March 31, 2021, the Company recorded total interest expense in its Condensed Consolidated Statements of Operations of $5,037.

In connection with the Amended and Restated Credit Facility, the Company entered into additional interest rate swaps. See Note – 10 “Subsequent Events” for a description of those additional interest rate swaps.  

Weighted-Average Interest Rate and Term

The weighted average interest rate and term of the Company’s debt was 3.66% and 2.58 years at March 31, 2021, compared to 3.17% and 2.79 years as of December 31, 2020.