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 an amended and restated $900 million unsecured syndicated credit facility with JPMorgan Chase Bank, N.A. (“JPMorgan”), as administrative agent (the “Credit Facility”). The Credit Facility consists of (i) $500 million of term loans, which include (a) a $350 million term loan (“Term Loan A”) and (b) a $150 million term loan (“Term Loan B,” and, together with Term Loan A, the “Term Loans”), and (ii) a $400 million revolver component (the “Revolver”). The Credit Facility also includes a $500 million accordion feature. Term Loan A matures in May 2026, Term Loan B matures in February 2028, and the Revolver matures in August 2026, with two six-month extension options. Interest rates on amounts outstanding under the Credit Facility equal term Secured Overnight Financing Rate (“SOFR”) plus a related spread adjustment of 10 basis points and a borrowing spread based on the current pricing grid in the Credit Facility. The Company may be entitled to a temporary reduction in the interest rate of two basis points provided it meets certain to be agreed upon sustainability goals.

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 $573 million plus 75% of all net proceeds raised through equity offerings subsequent to March 31, 2022. As of June 30, 2023, management believed it 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 Loans through their respective maturities. For additional information related to the interest rate swaps, see the “Derivative Instruments - Interest Rate Swaps” section herein.

During the six months ended June 30, 2023, the Company borrowed $24,600 under the Credit Facility and repaid $94,157, for a net amount repaid of $69,557. During the six months ended June 30, 2022, the Company borrowed $92,500 under the Credit Facility and repaid $5,000, for a net amount borrowed of $87,500. Interest expense incurred on the Credit Facility was $7,181 and $14,169 for the three and six months ended June 30, 2023, respectively, and $4,208 and $7,822 for the three and six months ended June 30, 2022, respectively.

As of June 30, 2023 and December 31, 2022, 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. Amortization expense incurred related to debt issuance costs was $549 and $1,098 for the three and six months ended June 30, 2023, respectively, and $464 and $927 for the three and six months ended June 30, 2022, respectively, and is included in the “Interest Expense” line item in the accompanying Condensed Consolidated Statements of Operations.

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 Toledo Loan, each described in detail herein. The following table sets forth the aggregate balances of these loans as of June 30, 2023 and December 31, 2022:

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Amortization expense incurred related to the debt issuance costs was $38 and $77 for the three and six months ended June 30, 2023, respectively, and $38 and $77 for the three and six months ended June 30, 2022, respectively, and is included in the “Interest Expense” line item in the accompanying Condensed Consolidated Statements of Operations.

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Rosedale Loan

On July 31, 2020, in connection with its acquisition of the Rosedale Facilities, the Company, through certain of its 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 $194 and $188 during the six months ended June 30, 2023 and 2022, respectively. The loan balance as of June 30, 2023 and December 31, 2022 was $13,760 and $13,954, respectively. Interest expense incurred on this loan was $134 and $268 for the three and six months ended June 30, 2023, respectively, and $138 and $275 for the three and six months ended June 30, 2022, respectively.

As of June 30, 2023, 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 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 $150 and $142 during the six months ended June 30, 2023 and 2022, respectively. The loan balance as of June 30, 2023 and December 31, 2022 was $11,186 and $11,336, respectively. Interest expense incurred on this loan was $131 and $261 for the three and six months ended June 30, 2023, respectively, and $135 and $268 for the three and six months ended June 30, 2022, respectively.

As of June 30, 2023, 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 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 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 Company made principal payments of $235 and $222 during the six months ended June 30, 2023 and 2022, respectively. The loan balance as of June 30, 2023 and December 31, 2022 was $31,133 and $31,368, respectively. Interest expense incurred on this loan was $412 and $821 for the three and six months ended June 30, 2023, respectively, and $418 and $833 for the three and six months ended June 30, 2022, respectively.

As of June 30, 2023, scheduled principal payments due for each year ended December 31 were as follows:

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Toledo Loan

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On July 8, 2022, in connection with its acquisition of the Toledo Facility, the Company, through its subsidiary GMR Toledo LLC, assumed a loan with a principal amount of $1,513 (“the Toledo Loan”). The Toledo Loan has an annual interest rate of 5.0% with semi-annual principal and interest payments. The Company made principal payments of $49 during the six months ended June 30, 2023. The loan balance as of June 30, 2023 and December 31, 2022 was $1,417 and $1,466, respectively. Interest expense incurred on this loan was $23 and $45 for the three and six months ended June 30, 2023. The Toledo Loan matures on July 30, 2033.  ​

Derivative Instruments - Interest Rate Swaps

The Company has ten interest rate swaps and five forward starting interest rate swaps that are used to manage its interest rate risk by fixing the SOFR component of the Term Loans through their maturities. A description of these swaps is below:

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Term Loan A Swaps

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As of June 30, 2023, six of the Company’s interest rate swaps related to Term Loan A. The notional value of these swaps is $350 million, with $150 million of the swaps maturing in August 2023 and the remaining $200 million maturing in August 2024. In addition, the Company has five forward starting interest rate swaps at notional amounts equal to the existing Term Loan A interest rate swaps that will be effective on the maturity dates of Term Loan A’s existing interest rate swaps. These forward starting swaps each have a maturity date of April 2026. Currently, the Term Loan A swaps fix the SOFR component of Term Loan A at a rate of 1.80% through August 2023. Subsequently, from August 2023 to August 2024 the SOFR component of Term Loan A will be fixed at 1.50%. Finally, from August 2024 to April 2026 the SOFR component of Term Loan A will be fixed at 1.36%.

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Term Loan B Swaps

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As of June 30, 2023, four of the Company’s interest rate swaps related to Term Loan B with a notional value of $150 million that fix the SOFR component on Term Loan B through January 2028 at 2.54%.  

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 incorporates a measure of non-performance risk. The fair values are based on Level 2 inputs within the framework of ASC Topic 820. 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 an asset of $35,864 and $34,705 as of June 30, 2023 and December 31, 2022, respectively. The gross asset balances are included in the “Derivative Asset” line item on the Company’s Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022, respectively.

The table below details the components of the amounts presented on the accompanying Condensed Consolidated Statements of Comprehensive Income recognized on the Company’s interest rate swaps designated as cash flow hedges for the three and six months ended June 30, 2023 and 2022:

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During the next twelve months, the Company estimates that an additional $16,703 will be reclassified as a decrease to interest expense. Additionally, during the three and six months ended June 30, 2023, the Company recorded total interest expense in its Condensed Consolidated Statements of Operations of $8,468 and $16,739, respectively.

Weighted-Average Interest Rate and Term

The weighted average interest rate and term of the Company’s debt was 4.09% and 3.4 years at June 30, 2023, compared to 4.20% and 3.9 years as of December 31, 2022.