The Company’s notes payable, net, includes two loans: (1) the Cantor Loan and (2) the West Mifflin Note, described below. The following table sets forth the aggregate balances of these loans as of the dates presented:

 

 

Costs incurred related to securing these debt instruments were capitalized as a debt discount, net of accumulated amortization, and are netted against the Company’s “Notes Payable Net of Unamortized Discount” balance in the accompanying Consolidated Balance Sheets. Amortization expense incurred related to the debt discount was $33 and $98 for the three and nine months ended September 30, 2018, respectively, and $33 and $98 for the three and nine months ended September 30, 2017, respectively, and is included in the “Interest Expense” line item in the accompanying Consolidated Statements of Operations.

 

On March 31, 2016, through certain of its wholly owned subsidiaries, the Company entered into a $32,097 portfolio commercial mortgage-backed securities loan (the “Cantor Loan”) with Cantor Commercial Real Estate Lending, LP (“CCRE”). The subsidiaries are GMR Melbourne, LLC, GMR Westland, LLC, GMR Memphis, LLC, and GMR Plano, LLC (the “GMR Loan Subsidiaries”). The Cantor Loan has cross-default and cross-collateral terms. The Cantor Loan has a maturity date of April 6, 2026 and accrues annual interest at 5.22%. The first five years of the term require interest-only payments and thereafter payments will include interest and principal, amortized over a 30-year schedule. Prepayment can only occur within four months prior to the maturity date, except that after the earlier of (a) two years after the loan is placed in a securitized mortgage pool, or (b) May 6, 2020, the Cantor Loan can be fully and partially defeased upon payment of amounts due under the Cantor Loan and payment of a defeasance amount that is sufficient to purchase U.S. government securities equal to the scheduled payments of principal, interest, fees, and any other amounts due related to a full or partial defeasance under the Cantor Loan.

 

The Company secured the payment of the Cantor Loan with the assets, including property, facilities, and rents, held by the GMR Loan Subsidiaries and has agreed to guarantee certain customary recourse obligations, including findings of fraud, gross negligence, or breach of environmental covenants by the GMR Loan Subsidiaries. The GMR Loan Subsidiaries will be required to maintain a monthly debt service coverage ratio of 1.35:1.00 for all of the collateral properties in the aggregate.

 

The note balance as of September 30, 2018 and December 31, 2017 was $32,097. I

nterest expense incurred on this note was $428 and $1,271 for the three and nine months ended September 30, 2018, respectively, and $428 and $1,271 for the three and nine months ended September 30, 2017, respectively.

 

As of September 30, 2018, scheduled principal payments due for each fiscal year ended December 31 are listed below as follows:

 

On September 25, 2015 the Company (through its wholly-owned subsidiary GMR Pittsburgh LLC, as borrower) entered into a Term Loan and Security Agreement with Capital One to borrow $7,378. The note bears interest at 3.72% per annum and all unpaid interest and principal is due on September 25, 2020. Interest is paid in arrears and interest payments began on November 1, 2015, and on the first day of each calendar month thereafter. Principal payments begin on November 1, 2018 and on the first day of each calendar month thereafter based on an amortization schedule with the remaining principal balance due on the maturity date. The Company, at its option, may prepay the note at any time, in whole (but not in part) with advanced written notice. The note has an early termination fee of two percent if prepaid prior to September 25, 2018. The West Mifflin facility serves as collateral for the note. The note requires a quarterly fixed charge coverage ratio of at least 1:1, a quarterly minimum debt yield of 0.09:1.00, and annualized Operator EBITDAR (as defined in the note) measured on a quarterly basis of not less than $6,000. The Operator is Associates in Ophthalmology, Ltd. and Associates Surgery Centers, LLC. The note balance as of September 30, 2018 and December 31, 2017 was $7,378. I

nterest expense incurred on this note was $72 and $211 for the three and nine months ended September 30, 2018, respectively, and $70 and $209 for the three and nine months ended September 30, 2017, respectively.

 

As of September 30, 2018, scheduled principal payments due for each fiscal year ended December 31 are listed below as follows:

 

 

 

The following table presents the pricing matrix for the Revolver and the Term Loan:

 

 

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 ongoing compliance with a number of customary affirmative and negative covenants, including limitations with respect to liens, indebtedness, distributions, mergers, consolidations, investments, restricted payments and asset sales. The Operating Partnership must also maintain (i) a maximum consolidated leverage ratio as of the end of each fiscal quarter of less than (y) 0.65:1.00 for each fiscal quarter ending prior to October 1, 2019 and (z) thereafter, 0.60:1.00, (ii) a minimum fixed charge coverage ratio of 1.50:1.00, (iii) a minimum net worth of $203,795 plus 75% of all net proceeds raised through subsequent equity offerings and (iv) a ratio of total secured recourse debt to total asset value of not greater than 0.10:1.00.

 

During the nine months ended September 30, 2018, the Company borrowed $142,900 under the Credit Facility (including the Term Loan) and repaid $10,400 for a net amount borrowed of $132,500. During the nine months ended September 30, 2017 the Company borrowed $205,400 under the Credit Facility and repaid $107,000 for a net amount borrowed of $98,400. I

nterest expense incurred on the Credit Facility was $3,211 and $7,872 for the three and nine months ended September 30, 2018, respectively (including interest expense incurred on the Term Loan) and $1,336 and $2,946 for the three and nine months ended September 30, 2017, respectively.

 

As of September 30, 2018 and December 31, 2017, the Company had the following outstanding borrowings under the Credit Facility:

 

 

Costs incurred related to modifying the Credit Facility, net of accumulated amortization, and are netted against the Company’s “Revolving Credit Facility, Net of Unamortized Discount” balance in the accompanying Consolidated Balance Sheets. The Company paid $2,750 of costs related to modifications to the Credit Facility as well as fees incurred related to adding properties to the borrowing base during the nine months ended September 30, 2018. Amortization expense incurred was $455 and $1,373 for the three and nine months ended September 30, 2018, respectively, and $308 and $742 for the three and nine months ended September 30, 2017, respectively, and is included in the “Interest Expense” line item in the accompanying Consolidated Statements of Operations.

 

To manage the interest rate risk related to the Term Loan, on August 7, 2018 the Company executed an interest rate swap with BMO that was designated as a cash flow hedge, with a notional amount of $100 million, a fixed interest rate of 2.88%, and a maturity date of . In accordance with the provisions of ASC Topic 815, the Company records the swap either as an asset or a liability measured at its fair value at each reporting period. When hedge accounting is applied, the effective portion of the change in the fair value of derivatives designated and that qualify as cash flow hedges is (i) recorded in accumulated other comprehensive income (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 transaction affects 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 (loss). Additionally, any ineffective portion of the change in fair value of the derivatives is recognized as an adjustment to net income (loss).

 

The Company’s interest rate swap is not traded on an exchange. The Company’s interest rate swap agreement is 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 counterparty, when evaluating the fair value of its derivative instruments.

 

The fair value of the Company’s interest rate swap agreement was $139 and zero as of September 30, 2018 and December 31, 2017, respectively. This amount is included in “Other Assets” on the Company’s Consolidated Balance Sheet as of September 30, 2018.

 

The table below details the components of the loss presented on the accompanying Consolidated Statements of Comprehensive Income (Loss) recognized on the Company’s interest rate swap agreement designated as a cash flow hedge for the three and nine months ended September 30, 2018 and 2017:

 

 

 

The weighted average interest rate and term of our debt was 4.35% and 4.46 years, respectively, at September 30, 2018, compared to 3.72% and 2.94 years, respectively, as of December 31, 2017.