5. Debt

Payments on mortgage notes are generally due in monthly installments of principal amortization and interest. Payments on the Unsecured Term Loans and the Unsecured Credit Facility (each defined below) are generally due in monthly installments of interest.

The following table sets forth a summary of the Company’s outstanding indebtedness, including mortgage notes payable and borrowings under the Company’s Unsecured Credit Facility and Unsecured Term Loans (each as defined below) as of March 31, 2013 and December 31, 2012 (dollars in thousands):

Loan	Interest Rate (1)	Principal outstanding as of March 31, 2013		Principal outstanding as of December 31, 2012		Current Maturity
Sun Life(2)	6.05%	4,014		4,079		Jun-1-2016
Webster Bank (3)	4.22%	5,947		5,984		Aug-4-2016
Bank of America Unsecured Credit Facility	LIBOR + 1.65%(4)	20,000		99,300		Sept-10-2016
Union Fidelity (5)	5.81%	6,813		6,898		Apr-30-2017
Webster Bank (6)	3.66%	3,183		3,203		May-29-2017
Webster Bank (7)	3.64%	3,427		3,450		May-31-2017
Bank of America Unsecured Term Loan	LIBOR + 1.65%(8)	150,000		150,000		Sept-10-2017
CIGNA-1 Facility(9)	6.50%	59,457		59,645		Feb-1-2018
CIGNA-2 Facility(10)	5.75%	60,650		60,863		Feb-1-2018
CIGNA-3 Facility(11)	5.88%	17,044		17,097		Oct-1-2019
Wells Fargo Bank, Unsecured Term Loan	LIBOR + 2.15%(12)	25,000		—		Feb-14-2020
Wells Fargo Bank, CMBS Loan (13)	4.31%	68,309		68,696		Dec-1-2022
		$	423,844	$	479,215

(1) Current interest rate as of March 31, 2013. At March 31, 2013 and December 31, 2012, the one-month LIBOR rate was 0.2037% and 0.2087%, respectively.

(2) The $4.1 million loan with Sun Life Assurance Company of Canada (U.S.) (“Sun Life”) was assumed on October 14, 2011 in connection with the acquisition of the property located in Gahanna, OH and the debt is collateralized by this property. The principal outstanding includes an unamortized fair market value premium of $0.2 million and $0.2 million as of March 31, 2013 and December 31, 2012, respectively.

(3) The $6.2 million loan with Webster Bank, National Association (“Webster Bank”) was entered into on August 4, 2011 in connection with the acquisition of the property located in Norton, MA and the debt is collateralized by this property.

(4) The spread over LIBOR for this unsecured revolving credit facility (“Unsecured Credit Facility”) is based on the Company’s consolidated leverage ratio and will range between 1.65% and 2.25%. The spread was 1.65% as of March 31, 2013 and December 31, 2012. The Company paid unused fees of $0.2 million for the three months ended March 31, 2013 and did not have unused fees for the three months ended March 31, 2012 as the Company did not enter into the Unsecured Credit Facility until September 10, 2012. The borrowing capacity as of March 31, 2013 was $180 million.

(5) The $7.2 million loan with Union Fidelity Life Insurance Co. (“Union Fidelity”) was assumed on July 28, 2011 in connection with the acquisition of the St. Louis, MO property and the debt is collateralized by this property. The principal outstanding includes an unamortized fair market value premium of $0.1 million and $0.2 million as of March 31, 2013 and December 31, 2012, respectively.

(6) The $3.25 million loan with Webster Bank loan was entered into on May 29, 2012 in connection with the acquisition of the property located in Portland, ME and the debt is collateralized by this property.

(7) The $3.5 million loan with Webster Bank loan was entered into on May 31, 2012 in connection with the acquisition of the property located in East Windsor, CT and the debt is collateralized by this property.

(8) The Bank of America, N.A. (“Bank of America”) unsecured term loan (“Bank of America Unsecured Term Loan”) was entered into on September 10, 2012. The spread over LIBOR is based on the Company’s consolidated leverage ratio and will range between 1.65% and 2.25%. The spread was 1.65% as of March 31, 2013 and December 31, 2012. The Company swapped LIBOR for a fixed rate for $100.0 million of the $150.0 million outstanding on the Bank of America Unsecured Term Loan. The net settlements of the swaps commenced on the effective date of the swaps, October 10, 2012. For further details refer to Note 6.

(9) The Connecticut General Life Insurance Company (“CIGNA”) facility originally entered into in July 2010 (the “CIGNA-1 Facility”), which loan has various properties as collateral, had no remaining borrowing capacity as of March 31, 2013.

(10) The CIGNA facility originally entered into in October 2010 (the “CIGNA-2 Facility”), which loan has various property as collateral, had a remaining borrowing capacity of approximately $2.9 million as of March 31, 2013, subject to customary terms and conditions, including underwriting.

(11) The CIGNA facility originally entered into on July 8, 2011, (“CIGNA-3 Facility”), which loan has various properties as collateral. The CIGNA-3 Facility had a remaining borrowing capacity of approximately $47.9 million as of March 31, 2013, subject to customary terms and conditions, including underwriting.

(12) The spread over LIBOR is based on the Company’s consolidated leverage ratio and will range between 2.15% and 2.70%. The spread was 2.15% as of March 31, 2013. The Company swapped LIBOR for a fixed rate for $25.0 million of the $150.0 million capacity on the unsecured term loan. For further details refer to Note 6.

(13) The Wells Fargo Bank, National Association (“Wells Fargo Bank”) loan (“CMBS Loan”) was entered into on November 8, 2012 and is a non-recourse loan facility collateralized by 28 properties.

On February 14, 2013, the Company closed a $150.0 million unsecured term loan with Wells Fargo Bank with a maturity date of February 14, 2020 (the “Wells Fargo Unsecured Term Loan”). Borrowings under the Wells Fargo Unsecured Term Loan will bear interest at a floating rate equal to the one-month LIBOR plus a spread that will range from 2.15% and 2.70%, based on the Company’s consolidated leverage ratio. The spread was 2.15% as of March 31, 2013. The Wells Fargo Unsecured Term Loan has an accordion feature that allows the Company to increase its borrowing capacity to $250.0 million, subject to the satisfaction of certain conditions. The Company borrowed $25 million under this loan at closing and there were no subsequent draws through March 31, 2013. The remaining $125.0 million can be drawn down by the Company through February 14, 2014. On March 1, 2013, the Company entered into an interest rate swap to convert the one-month LIBOR to 1.33% (see Note 6 for further details). The Company incurred $1.4 million in deferred financing fees associated with the closing of the Wells Fargo Unsecured Term Loan, which will be amortized over its seven year term. The Company also incurred an annual fee of $50 thousand to be amortized over one year. The Wells Fargo Unsecured Term Loan has an unused commitment fee equal to 0.35% of its unused portion, which is paid monthly in arrears. During the period February 14, 2013 to March 31, 2013, the Company incurred an unused fee of $56 thousand.

Financial Covenant Considerations

The Company’s ability to borrow under the Unsecured Credit Facility, and the Bank of America Unsecured Term Loan and the Wells Fargo Unsecured Term Loan (together, the Bank of America Unsecured Term Loan and the Wells Fargo Unsecured Term Loan are the “Unsecured Term Loans”) is subject to its ongoing compliance with a number of customary financial covenants, including:

· a maximum consolidated leverage ratio of not greater than 0.60:1.00;

· a maximum secured leverage ratio of not greater than 0.45:1.00;

· a maximum unencumbered leverage ratio of not greater than 0.60:100;

· a maximum secured recourse debt ratio of not greater than 7.5%;

· a minimum fixed charge ratio of not less than 1.50 to 1.00;

· a minimum tangible net worth covenant test; and

· various thresholds on Company level investments.

If a default or event of default occurs and is continuing, the Company may be precluded from paying certain distributions (other than those required to allow it to qualify and maintain its status as a REIT) under the terms of the Unsecured Credit Facility and Unsecured Term Loans.

The CMBS Loan, CIGNA-1 Facility, CIGNA-2 Facility, CIGNA-3 Facility, the Union Fidelity loan, Sun Life loan, and the Webster Bank loans are collateralized by the specific properties whose acquisition costs were financed by the loans and by a first priority collateral assignment of the specific leases and rents. These debt facilities contain certain financial and other covenants. The Company was in compliance with all financial covenants as of March 31, 2013 and December 31, 2012.

Fair Value of Debt

The fair value of the Company’s debt was determined by discounting the future cash flows using the current rates at which loans would be made to borrowers with similar credit ratings for loans with similar remaining maturities, similar terms, and similar loan-to-value ratios. The discount rates ranged from 1.86% to 4.64% and 1.86% to 4.64% at March 31, 2013 and December 31, 2012, respectively, and were applied to each individual debt instrument. The fair value of the Company’s debt is based on Level 3 inputs. The following table presents the aggregate carrying value of the Company’s debt and the corresponding estimate of fair value as of March 31, 2013 and December 31, 2012 (in thousands):

	March 31, 2013				December 31, 2012
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Mortgage notes payable	$	228,844	$	240,533	$	229,915	$	242,175
Unsecured Credit Facility	$	20,000	$	20,000	$	99,300	$	99,300
Bank of America Unsecured Term Loan	$	150,000	$	150,000	$	150,000	$	150,000
Wells Fargo Bank Unsecured Term Loan	$	25,000	$	25,000	$	—	$	—