Note 9 – Mortgages Payable

The following table summarizes certain information as of December 31, 2018 and 2017, with respect to the Company’s senior mortgage indebtedness (amounts in thousands):

	Outstanding Principal						As of December 31, 2018
Property	December 31, 2018			December 31, 2017			Interest Rate			Interest-onl y through date		Maturity Date

Fixed Rate:
ARIUM at Palmer Ranch	$	41,348		$	26,925			4.41	%		May 2020		May 1, 2025
ARIUM Grandewood (1)		19,713			—			4.35	%		July 2020		July 1, 2025
ARIUM Gulfshore		—			32,626			—			—		—
ARIUM Hunter’s Creek		72,294			72,294			3.65	%		November 2019		November 1, 2024
ARIUM Metrowest		64,559			—			4.43	%		May 2021		May 1, 2025
ARIUM Pine Lakes		26,950			26,950			3.95	%		Interest-only		November 1, 2023
ARIUM Westside		52,150			52,150			3.68	%		August 2021		August 1, 2023
Ashford Belmar		100,675			—			4.53	%		December 2022		December 1, 2025
Ashton Reserve I		30,878			31,401			4.67	%		(2)		December 1, 2025
Citrus Tower		41,438			41,438			4.07	%		October 2019		October 1, 2024
Enders Place at Baldwin Park (3)		23,822			24,287			4.30	%		(2)		November 1, 2022
James on South First		26,500			26,500			4.35	%		January 2019		January 1, 2024
Outlook at Greystone		22,105			—			4.30	%		June 2021		June 1, 2025
Park & Kingston (4)		18,432			18,432			3.41	%		Interest-only		April 1, 2020
Plantation Park		26,625			—			4.64	%		July 2024		July 1, 2028
Roswell City Walk		51,000			51,000			3.63	%		December 2019		December 1, 2026
Sovereign		28,227			28,788			3.46	%		(2)		November 10, 2022
The Brodie		34,825			34,825			3.71	%		(2)		December 1, 2023
The Links at Plum Creek		40,000			—			4.31	%		April 2020		October 1, 2025
The Mills		26,298			26,777			4.21	%		(2)		January 1, 2025
The Preserve at Henderson Beach		35,602			36,311			4.65	%		(2)		January 5, 2023
Villages of Cypress Creek		26,200			26,200			3.23	%		October 2020		October 1, 2022 (5)
Wesley Village		40,545			40,545			4.25	%		April 2019		April 1, 2024

Floating Rate (6) :
ARIUM Glenridge		49,500			48,431			3.68	%		September 2021		September 1, 2025
ARIUM Grandewood (1)		19,672			34,294			3.75	%		July 2020		July 1, 2025
ARIUM Palms		30,320			24,999			3.75	%		September 2020		September 1, 2025
Ashton Reserve II		15,213			15,270			3.85	%		August 2022		August 1, 2025
Marquis at Crown Ridge		28,634			29,217			3.96	%		(2)		June 1, 2024 (7)
Marquis at Stone Oak		42,725			43,125			3.96	%		(2)		June 1, 2024 (7)
Marquis at The Cascades I		32,899			33,207			3.96	%		(2)		June 1, 2024 (7)
Marquis at The Cascades II		22,960			23,175			3.96	%		(2)		June 1, 2024 (7)
Marquis at TPC		16,826			17,184			3.96	%		(2)		June 1, 2024 (7)
Preston View		41,657			41,066			3.85	%		August 2022		August 1, 2025
Sorrel		38,684			38,684			4.64	%		November 2019		May 1, 2023
Veranda at Centerfield		26,100			—			3.60	%		July 2021		July 26, 2023 (5)
Total		1,215,376			946,101
Fair value adjustments		2,204			2,638
Deferred financing costs, net		(11,444	)		(9,245	)
Total	$	1,206,136		$	939,494

(1)

ARIUM Grandewood has a fixed rate loan and a floating rate loan.

(2)

The loan requires monthly payments of principal and interest.

(3)

The principal balance includes a $16.2 million loan at a fixed rate of 3.97% and a $7.6 million supplemental loan at a fixed rate of 5.01%.

(4)

The principal balance includes a $15.3 million loan at a fixed rate of 3.21% and a $3.2 million supplemental loan at a fixed rate of 4.34%.

(5)

The loan has two one-year extension options subject to certain conditions.

(6)

All the Company’s floating rate mortgages bear interest at one-month LIBOR + margin. In December 2018, one-month LIBOR in effect was 2.35%. LIBOR rate is subject to a rate cap. Please refer to Note 11 for further information.

(7)

The loan can be extended, subject to certain conditions, in connection with an election to convert to a fixed interest rate loan.

Deferred financing costs

Costs incurred in obtaining long-term financing are amortized on a straight-line basis to interest expense over the terms of the related financing agreements, as applicable, which approximates the effective interest method. Amortization of deferred financing costs, including the amounts related to the Revolving credit facilities, was $4.3 million, $2.5 million and $1.3 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Fair value adjustments of debt

The Company records a fair value adjustment based upon the fair value of the loans on the date they were assumed in conjunction with acquisitions. The fair value adjustments are being amortized to interest expense over the remaining life of the loans. Amortization of fair value adjustments was $0.4 million, $0.3 million and $0.4 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Loss on Extinguishment of Debt and Modification Costs

Upon repayment of or in conjunction with a material change (i.e. a 10% or greater difference in the cash flows between instruments) in the terms of an underlying debt agreement, the Company writes-off any unamortized deferred financing costs and fair market value adjustments related to the original debt that was extinguished. Prepayment penalties incurred on the early repayment of debt and costs incurred in a debt modification that are not capitalized are also included in loss on extinguishment of debt and debt modification costs on the consolidated statements of operations.

Refinancing of ARIUM Gulfshore

On April 26, 2018, the Company, with borrowings under the Senior Credit Facility and secured by the ARIUM Gulfshore property, paid off the previous loan of $32.6 million plus prepayment costs of approximately $0.3 million. The Company accounted for the refinancing as an extinguishment of debt.

Refinancing of ARIUM at Palmer Ranch

On April 26, 2018, the Company, through an indirect subsidiary, entered into an approximately $41.3 million loan, which is secured by ARIUM at Palmer Ranch, and paid off the previous loan of $26.9 million. The Company accounted for the refinancing as a debt modification.

Refinancing of ARIUM Glenridge

On August 28, 2018, the Company, through an indirect subsidiary, entered into a $49.5 million loan, which is secured by ARIUM Glenridge, and paid off the previous loan of $48.4 million plus prepayment costs of approximately $0.5 million. The Company accounted for the refinancing as an extinguishment of debt.

Refinancing of ARIUM Palms

On August 29, 2018, the Company, through an indirect subsidiary, entered into an approximately $30.3 million loan, which is secured by ARIUM Palms, and paid off the previous loan of $25.0 million. The Company accounted for the refinancing as a debt modification.

Master Credit Facility with Fannie Mae

On April 30, 2018, the Company, through certain subsidiaries of the Operating Partnership, entered into a Master Credit Facility Agreement (the “Fannie Facility”), which was issued through Fannie Mae’s Multifamily Delegated Underwriting and Servicing Program. The Fannie Facility includes certain restrictive covenants, including indebtedness, liens, investments, mergers and asset sales, and distributions. The Fannie Facility also contains events of default, including payment defaults, covenant defaults, bankruptcy events, and change of control events. Each note under the Fannie Facility is cross-defaulted and cross-collateralized and the Company has guaranteed the obligations under the Fannie Facility. As of December 31, 2018, the mortgage loans secured by ARIUM Grandewood, ARIUM Metrowest, Ashton Reserve II, Outlook at Greystone and Preston View were issued under the Fannie Facility.

The following information is presented with respect to the Company’s refinancing activity under its Fannie Facility.

Refinancing of Ashton Reserve II

On July 31, 2018, the Fannie Facility provided for a $15.2 million variable rate advance, which was used with additional funding at close to pay off the previous loan of $15.3 million plus prepayment costs of approximately $0.2 million. The Company accounted for the refinancing as an extinguishment of debt.

Refinancing of Preston View

On July 31, 2018, the Fannie Facility provided for a $41.7 million variable rate advance, which was used to pay off the previous loan of $41.1 million plus prepayment costs of approximately $0.4 million. The Company accounted for the refinancing as an extinguishment of debt.

The Company may request future fixed rate advances or variable rate advances under the Fannie Facility either by borrowing against the value of the mortgaged properties (based on the valuation methodology established in the Fannie Facility) or adding eligible properties to the collateral pool, subject to customary conditions, including satisfaction of minimum debt service coverage and maximum loan-to-value tests. The proceeds of any future advances made under the Fannie Facility may be used, among other things, for the acquisition and refinancing of additional properties to be identified in the future.

Debt maturities

As of December 31, 2018, contractual principal payments for the five subsequent years and thereafter are as follows (amounts in thousands):

Year	Total
2019	$	7,365
2020		30,753
2021		15,905
2022		91,472
2023		221,215
Thereafter		848,666
	$	1,215,376
Add: Unamortized fair value debt adjustment		2,204
Subtract: Deferred financing costs		(11,444	)
Total	$	1,206,136

The net book value of real estate assets providing collateral for these above borrowings, including the Senior Credit Facility, Amended Junior Credit Facility and Fannie Facility, was $1,691.2 million as of December 31, 2018.

The mortgage loans encumbering the Company’s properties are generally nonrecourse, subject to certain exceptions for which the Company would be liable for any resulting losses incurred by the lender. These exceptions vary from loan to loan but generally include fraud or a material misrepresentation, misstatement or omission by the borrower, intentional or grossly negligent conduct by the borrower that harms the property or results in a loss to the lender, filing of a bankruptcy petition by the borrower, either directly or indirectly, and certain environmental liabilities. In addition, upon the occurrence of certain events, such as fraud or filing of a bankruptcy petition by the borrower, the Company or our joint ventures would be liable for the entire outstanding balance of the loan, all interest accrued thereon and certain other costs, including penalties and expenses. The mortgage loans generally have a period where a prepayment fee or yield maintenance would be required.