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Note 4 – Credit Facility, Notes Payable and Derivative Instruments

Credit Facility

On May 3, 2021, the Company, the Operating Partnership, as borrower, and certain of its subsidiaries (such subsidiaries, the “Subsidiary Guarantors”) entered into an amended and restated $750 million unsecured syndicated credit facility with JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent (the “Credit Facility”). The Credit Facility consists of a $350 million term loan component (the “Term Loan”) and a $400 million revolver component (the “Revolver”). The Credit Facility also includes a $500 million accordion feature. The Term Loan matures in May 2026 and the Revolver matures in May 2025, with two six-month extension options. 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 Operating Partnership is subject to a number of financial covenants under the Credit Facility, including, among other things, the following as of the end of each fiscal quarter, (i) a maximum consolidated unsecured leverage ratio of less than 60%, (ii) a maximum consolidated secured leverage ratio of less than 30%, (iii) a maximum consolidated secured recourse leverage ratio of less than 10%, (iv) a minimum fixed charge coverage ratio of 1.50:1.00, (v) a minimum unsecured interest coverage ratio of 1.50:1.00, (vi) a maximum consolidated leverage ratio of less than 60%, and (vii) a minimum net worth of $345 million plus 75% of all net proceeds raised through equity offerings subsequent to December 31, 2020. As of November 1, 2021, management believed it was in compliance 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 nine months ended September 30, 2021, the Company borrowed $187,700 under the Credit Facility and repaid $207,200, for a net amount repaid of $19,500. During the nine months ended September 30, 2020, the Company borrowed $158,400 under the Credit Facility and repaid $51,550 for a net amount borrowed of $106,850. Interest expense incurred on the Credit Facility was $3,500 and $11,101 for the three and nine months ended September 30, 2021, respectively, and $3,743 and $10,805, for the three and nine months ended September 30, 2020, respectively.

As of September 30, 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 $6,177 and $925 related to amendments and modifications to the Credit Facility as well as fees related to adding properties to the borrowing base during the nine months ended September 30, 2021 and 2020, respectively. The amount paid during the nine months ended September 30, 2021 primarily related to costs incurred in connection with the amendment and restatement of the Credit Facility on May 3, 2021. Amortization expense incurred was $463 and $1,239 for the three and nine months ended September 30, 2021, respectively, and $341 and $882, for the three and nine months ended September 30, 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 herein. The following table sets forth the aggregate balances of these loans as of September 30, 2021 and December 31, 2020.

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In connection with the aforementioned loans, the Company paid no debt issuance and related costs during the nine months ended September 30, 2021 and $341 in debt issuance and related costs during the nine months ended September 30, 2020.  Amortization expense incurred related to the debt issuance costs was $62 and $191 for the three and nine months ended September 30, 2021, respectively, and $42 and $110 for the three and nine months ended September 30, 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 $270 and $20 during the nine months ended September 30, 2021 and 2020, respectively. The loan balance as of September 30, 2021 and December 31, 2020 was $14,421 and $14,691, respectively. Interest expense incurred on this loan was $143 and $425 for the three and nine months ended September 30, 2021, respectively, and $104 for the three and nine months ended September 30, 2020.

As of September 30, 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 $204 and $108 during the nine months ended September 30, 2021 and 2020, respectively. The loan balance as of September 30, 2021 and December 31, 2020 was $11,695 and $11,899, respectively. Interest expense incurred on this loan was $138 and $413 for the three and nine months ended September 30, 2021, respectively, and $140 and $186 for the three and nine months ended September 30, 2020.  

As of September 30, 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 Company made principal payments of $172 during the nine months ended September 30, 2021. The loan balance as of September 30, 2021 and December 31, 2020 was $31,925 and $32,097. Interest expense incurred on this loan was $427 and $1,269 for the three and nine months ended September 30, 2021, respectively, and $425 and $1,326 for the three and nine months ended September 30, 2020, respectively.

As of September 30, 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 $7,085 and $105 during the nine months ended September 30, 2021 and 2020, respectively. The loan was paid in full as of September 30, 2021. The loan balance as of December 31, 2020 was $7,085. Interest expense incurred on this loan was $97 and $249 for the three and nine months ended September 30, 2021, respectively, and $68 and $203 for the three and nine months ended September 30, 2020, respectively.

Derivative Instruments - Interest Rate Swaps

The Company has six interest rate swaps with a total notional amount of $350 million that are used to manage its interest rate risk and fix the LIBOR component on the Term Loan. An aggregate of $150 million of the swaps mature in August 2023 and the remaining $200 million mature in August 2024. In addition, the Company has five forward starting interest rate swaps that will be effective on the maturity dates of the existing interest rate swaps. The forward starting swaps each have a maturity date of April 2026 and will fix the LIBOR component on the Term Loan through its maturity. Currently, the interest rate swaps fix the LIBOR component of the Term Loan at a rate of 1.91% through August 2023. Subsequently, from August 2023 to August 2024 the LIBOR component of the Term Loan rate will be fixed at 1.61%.  Finally, from August 2024 to April 2026 the LIBOR component of the Term Loan rate will be fixed at 1.45%.

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.

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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 $11,851 and $18,086 as of September 30, 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 September 30, 2021 and December 31, 2020, respectively.

The table below details the components of the amounts 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 and nine months ended September 30, 2021 and 2020:

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During the next twelve months, the Company estimates that an additional $6,224 will be reclassified as an increase to interest expense. Additionally, during the three and nine months ended September 30, 2021, the Company recorded total interest expense in its Condensed Consolidated Statements of Operations of $4,830 and $14,887, respectively.

Weighted-Average Interest Rate and Term

The weighted average interest rate and term of the Company’s debt was 2.91% and 4.53 years at September 30, 2021, compared to 3.17% and 2.79 years as of December 31, 2020.