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Debt

6 Months Ended

Jun. 30, 2012

4.

Debt

As of June 30, 2012 and December 31, 2011, the Company’s debt consisted of the following:


	Balance as of June 30, 2012		Balance as of December 31, 2011		Contractual Interest Rate As of June 30, 2012			Payment Type	Loan Maturity
Plainfield Mortgage Loan	$	20,398,388	$	20,534,269		6.65	%	Principal and Interest	November 2017
Emporia Partners Mortgage Loan		4,907,309		5,053,094		5.88	%	Principal and Interest	September 2023
LTI Mortgage Loan		33,786,550		34,087,784		5.80	%	Principal and Interest	March 2016
LTI Mortgage Loan Premium		314,874		357,815		—		—	—
GE Mortgage Loan		6,898,974		—		5.98	%	Principal and Interest	June 2016
GE Mortgage Loan Premium		206,880		—		—		—	—

Mortgage Loan Total		66,512,975		60,032,962

Credit Facility		95,880,000		35,395,985		3.00	% ⁽¹⁾	Interest Only	November 2014 ⁽²⁾
Mezzanine Loan		4,500,000		—		6.75	% ⁽³⁾	Principal and Interest	July 2012
Bridge Loan		6,200,000		—		6.75	% ⁽⁴⁾	Principal and Interest	October 2012

Total	$	173,092,975	$	95,428,947

(1)

Prior to the amendment effective November 18, 2011, the interest rate on the Credit Facility was a one-month LIBO Rate + 3.75% subject to a minimum LIBO Rate of 2.0%. Under the terms of the amended credit agreement, the interest rate on the Credit Facility is a one-month LIBO Rate + 2.75%. As of June 30, 2012 the LIBO Rate was 0.25%.

(2)	The Credit Facility agreement allows for a one-year extension, as long as an event of default does not occur. Maturity date assumes the one-year extension is exercised.

(3)	The interest rate on the Mezzanine Loan is a daily LIBO Rate + 6.50%. As of June 30, 2012 the LIBO Rate was 0.25%.

(4)	The interest rate on the Bridge Loan is a daily LIBO Rate + 6.50%. As of June 30, 2012 the LIBO Rate was 0.25%.

Mortgage Loans

In connection with the acquisition of the GE property, pursuant to the Assumption Agreement dated May 31, 2012 (the “GE Assumption Agreement”), the Company, through a wholly-owned subsidiary of the Operating Partnership, assumed the obligations under the GE mortgage debt. The GE mortgage debt is held by U.S. Bank, National Association, as trustee. The GE mortgage debt is secured by a first mortgage and security agreement on the Company’s interest in the underlying property, a fixture filing, and an assignment of leases, rents, income and profits and has a term of ten years, maturing on June 1, 2016. The GE mortgage debt bears a fixed interest rate of 5.98% per annum for the term of the loan, and provides for monthly principal and interest payments. Pursuant to the GE Assumption Agreement, the Company, through a wholly-owned subsidiary of the Operating Partnership, serves as guarantor of certain obligations under the loan.

In connection with the acquisition of the LTI property, pursuant to the Note and Deed of Trust Assumption Agreement dated May 13, 2011 (the “LTI Assumption Agreement”), the Company, through a wholly-owned subsidiary of the Operating Partnership, assumed the obligations of the contributors and sellers under the LTI mortgage debt. The LTI mortgage debt was securitized, and Wells Fargo Bank, N.A. acts as trustee related thereto. The LTI mortgage debt is secured by a deed of trust, security agreement and fixture filing, and an assignment of leases and rents. The LTI mortgage debt calls for monthly principal and interest payments. In connection with the LTI Assumption Agreement, the Company, through a wholly-owned subsidiary of the Operating Partnership, became obligated as non-recourse carve-out guarantors of the LTI mortgage debt. “Non-recourse carve-outs,” or exceptions, to the non-recourse nature of the debt, represent acts committed by the single-purpose entity borrower controlled by the Company and the Operating Partnership, that would obligate the guarantors, depending on the nature of the default, for either (a) the entire amount of the loan; or (b) liability for the losses, if any, incurred by the lender in connection with the default.

Credit Facility

On November 18, 2011, the Company, through the Operating Partnership, entered into an amendment and restatement to the credit agreement with KeyBank (the “Restated KeyBank Credit Agreement”), as administrative agent, and Bank of America, as syndication agent (collectively the “Lenders”) thereby increasing the total amount of the Credit Facility to $70.0 million in a revised revolving credit facility, with each Lender committing $35.0 million. The revised credit facility has a term of two years, maturing on November 18, 2013, with an option to extend for one year. During the initial two-year term of the revised credit agreement, the Company, through the Operating Partnership, may request an increase in the total commitments under the Credit Facility up to $150.0 million, subject to certain conditions. The Company drew an additional $0.4 million for related financing costs from the revised credit facility. Under the terms of the Restated KeyBank Credit Agreement, the Operating Partnership has the option of selecting the applicable variable rate for each revolving loan, or portion thereof, of either (a) LIBO Rate multiplied by the Statutory Reserve Rate (as defined in the Restated KeyBank Credit Agreement) to which the administrative agent is subject, with respect to this rate, for Eurocurrency funding, plus 2.75% (“LIBO Rate-based”), or (b) an alternate base rate, which is the greatest of the (i) Prime Rate, (ii) Federal Funds Rate plus 0.50%, or (iii) the adjusted LIBO Rate-based rate set forth in subsection (a) plus 1.00%. Once the applicable variable rate is selected, 1.75% is added to that rate. The Operating Partnership may change this election from time to time, as provided by the Credit Facility terms. As of June 30, 2012 the Company selected the LIBO Rate-based rate.

On January 31, 2012, the Company, through the Operating Partnership and four wholly-owned special purpose entities (“SPEs”) entered into that certain Joinder Agreement (the “Joinder Agreement”) with KeyBank and North Shore Community Bank & Trust Company (the “Subsequent Lender”), pursuant to which the Subsequent Lender agreed to become a lender party to the Restated KeyBank Credit Agreement, and agreed to provide a financing commitment of up to $10.0 million. Pursuant to the Joinder Agreement, the total commitment under the Restated KeyBank Credit Agreement increased to an aggregate of $80.0 million, governed by and subject to the terms and conditions of the Restated KeyBank Credit Agreement.

On January 31, 2012, in connection with the acquisition of the AT&T property as discussed in Note 3, Real Estate, a draw of $22.0 million was made from the Restated KeyBank Credit Agreement to partially finance such acquisition and on February 8, 2012 the unused borrowing base availability on the revolver of $1.7 million was drawn upon and was used to pay down the Mezzanine Loan discussed below.

On March 16, 2012, the total commitment under the Restated KeyBank Credit Agreement increased to an aggregate of $115.0 million when Regions Bank agreed to become a participating lender to the Restated KeyBank Credit Agreement, providing a financing commitment of up to $35.0 million, governed by and subject to the terms and conditions of the Restated KeyBank Credit Agreement.

On March 22, 2012, in connection with the acquisition of the Westinghouse property as discussed in Note 3, Real Estate, a draw of $27.1 million was made from the Restated KeyBank Credit Agreement to partially finance such acquisition.

On June 29, 2012, in connection with the acquisition of the Travelers property as discussed in Note 3, Real Estate, a draw of $9.7 million was made from the Restated KeyBank Credit Agreement to partially finance such acquisition.

As of June 30, 2012, $95.9 million of the Credit Facility was utilized, which is secured by the Renfro, Will Partners, ITT, Quad/Graphics, AT&T, Westinghouse and Travelers properties. Per the terms of the revised credit agreement, the maximum loan available is the lesser of the total commitments ($115.0 million) or the aggregate borrowing base availability ($95.9 million). Therefore, the borrowing base availability was fully utilized as of June 30, 2012.

Mezzanine Loan

On January 31, 2012, a property-owning SPE wholly-owned by the Company’s Operating Partnership (the “Property SPE”) entered into that certain Mezzanine Credit Agreement in which KeyBank serves as the initial lender (the “Mezzanine Credit Agreement”) with total commitments of $15.0 million (the “Mezzanine Loan”). Additional lenders may be added pursuant to the terms of the Mezzanine Credit Agreement. In connection with the acquisition of the AT&T property, on January 31, 2012, the Property SPE made a draw of $12.4 million on the Mezzanine Loan to partially finance such acquisition. The Property SPE and any other entities that become a Borrower (as defined therein) pursuant to the terms of the Mezzanine Credit Agreement may request additional borrowings up to the total loan amount committed. The Mezzanine Loan has a term of six months, and bears interest at a rate of daily LIBO Rate plus 650 basis points, with an initial rate of 6.77%. The terms of the Mezzanine Credit Agreement require that the proceeds of the Mezzanine Loan be used to acquire the AT&T, Westinghouse and GE properties through the maturity date, July 31, 2012. The terms also require periodic payments equal to the net equity raised in the Company’s Public Offering, subject to a monthly minimum amount of $4.0 million.

In connection with the acquisition of the Westinghouse property on March 22, 2012, as discussed in Note 3, Real Estate, the Property SPE made a draw of $9.0 million from the Mezzanine Loan to partially finance such acquisition. On May 31, 2012, the property SPE made a draw of $8.5 million, of which approximately $6.0 million was used to partially finance the acquisition of the GE property and the remainder was used to pay acquisition fees earned by the Company’s Advisor for the AT&T, Westinghouse and GE property acquisitions. The balance was paid in full on July 31, 2012.

Bridge Loan

On June 29, 2012, the Company, through a wholly-owned subsidiary of the Operating Partnership, entered into a bridge loan with KeyBank (the “Bridge Loan”) thereby obtaining $6.2 million to partially fund the acquisition of the Travelers property. The Bridge Loan has a term of four months, and bears interest at the LIBO Rate plus 6.50%, which resulted in a 6.75% interest rate when the Travelers property was acquired.

Debt Covenant Compliance

Pursuant to the terms of the Credit Facility, the Operating Partnership, in consolidation with the Company, is subject to certain loan compliance covenants. As part of the amendment effective November 18, 2011, beginning with the quarter ended December 31, 2011 and continuing through June 29, 2012, the Company was required to maintain liquidity of $2.0 million (as defined in the agreement). Thereafter, the liquidity requirement increased to $3.0 million for the remainder of the term of the loans. Additional loan compliance covenants include, but are not limited to, a maximum total leverage ratio (65%), a minimum interest coverage ratio (1.85 to 1), a minimum fixed charge ratio (1.60 to 1), a maximum variable debt ratio (30%), and minimum tangible net worth of at least $50 million plus 80% of the net proceeds of any equity issuance after the effective date and 100% of the equity in any properties contributed after the effective date. Pursuant to the varying-interest rate debt limitations, the Company effected an interest rate cap agreement for a notional amount of $60.0 million, which expires on December 31, 2012. The cost of the interest rate cap agreement was $10,000.

The Mezzanine Credit Agreement contains a financial covenant requirement, which states that gross proceeds from equity raised are subject to a monthly minimum amount of $4.0 million for the first three months of the six-month term and $5.0 million thereafter.

The Bridge Loan contains a financial covenant requirement, which states that gross proceeds from equity raised are subject to a monthly minimum amount of $5.0 million for the term of the loan.

The Company was in compliance with all of its debt covenants as of June 30, 2012.

The following summarizes the future principal repayments of all loans as of June 30, 2012 per the loan terms discussed above:


2012	$	11,361,218	⁽ ¹ ⁾
2013		1,396,049
2014		97,363,643	⁽²⁾
2015		1,576,752
2016		38,564,152	⁽ ³ ⁾
Thereafter		22,309,407

Total	$	172,571,221

(1)	Amount includes payment of the balances of the Mezzanine Loan and Bridge Loan, which expire on July 31, 2012 and October 31, 2012, respectively.

(2)	Amount includes payment of the balance of the Credit Facility upon expiration on November 18, 2014, assuming the one-year extension is exercised.

(3)	Amount includes payment of the balances of the LTI and GE mortgage loans which mature in 2016. Principal repayments on both mortgage loans do not include the valuation premium of $0.5 million.

The weighted average interest rate of the Company’s fixed rate debt as of June 30, 2012 was approximately 6.09%.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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