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 (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 the 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, 2024, 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, 2024, the Company borrowed $38,500 under the Credit Facility and repaid $25,900, for a net amount borrowed of $12,600. 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. Interest expense incurred on the Credit Facility was $6,184 and $12,240 for the three and six months ended June 30, 2024, respectively, and $7,181 and $14,169 for the three and six months ended June 30, 2023, respectively.

As of June 30, 2024 and December 31, 2023, 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 $550 and $1,099 for the three and six months ended June 30, 2024, respectively, and $549 and $1,098 for the three and six months ended June 30, 2023, 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, through certain of its wholly owned subsidiaries, entered into or assumed loans in connection with the acquisitions of the Rosedale, Dumfries, and Toledo facilities. The Dumfries loan matured and was paid in full in June 2024. As of June 30, 2024 and December 31, 2023, the Company had the following outstanding borrowings under these loans:

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Amortization expense incurred related to debt issuance costs was $13 and $26 for the three and six months ended June 30, 2024, respectively, and $38 and $77 for the three and six months ended June 30, 2023, respectively, and is included in the “Interest Expense” line item in the accompanying Condensed Consolidated Statements of Operations.

The Company made principal payments of $11,287 and $628 during the six months ended June 30, 2024 and 2023, respectively. Interest expense incurred on these loans was $245 and $518 for the three and six months ended June 30, 2024, respectively, and $700 and $1,395 for the three and six months ended June 30, 2023, respectively.

As of June 30, 2024, scheduled principal payments due for each year ended December 31 were as follows:

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Derivative Instruments - Interest Rate Swaps

The Company has ten interest rate swaps and three 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, 2024, six of the Company’s interest rate swaps related to Term Loan A. The combined notional value of these swaps is $350 million, with $200 million of the swaps maturing in August 2024 and the remaining $150 million maturing in April 2026. In addition, the Company has three forward starting interest rate swaps with a combined notional value of $200 million, each with a maturity date of April 2026, that will become effective on the August 2024 maturity date of the existing swaps noted above. Currently, the Term Loan A swaps fix the SOFR component of Term Loan A at a rate of 1.50% through August 2024. 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, 2024, four of the Company’s interest rate swaps related to Term Loan B with a combined notional value of $150 million that fix the SOFR component of 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 income 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. As of June 30, 2024 and December 31, 2023, all of the Company’s swaps meet the criteria for hedge accounting.

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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 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 $27,672 and $25,125 as of June 30, 2024 and December 31, 2023, respectively. The balances are included in the “Derivative Asset” line item on the Company’s Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023, respectively.

The table below details the components of the amounts presented on the accompanying Condensed Consolidated Statements of Comprehensive (Loss) Income recognized on the Company’s interest rate swaps designated as cash flow hedges for the three and six months ended June 30, 2024 and 2023:

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During the next twelve months, the Company estimates that an additional $15,684 will be reclassified as a decrease to interest expense. Additionally, during the three and six months ended June 30, 2024, the Company recorded total interest expense in its Condensed Consolidated Statements of Operations of $6,992 and $13,883, respectively.

Weighted-Average Interest Rate and Term

The weighted average interest rate and term of the Company’s debt was 3.89% and 2.5 years at June 30, 2024, compared to 3.83% and 2.9 years as of December 31, 2023.