Debt

The following table sets forth a summary of the Company’s outstanding indebtedness, including borrowings under the Company’s unsecured credit facility, unsecured term loans, unsecured notes, and mortgage notes as of June 30, 2017 and December 31, 2016.



Loan	Principal Outstanding as of June 30, 2017 (in thousands)			Principal Outstanding as of December 31, 2016 (in thousands)			Interest Rate ⁽¹⁾		Current Maturity	Prepayment Terms ⁽²⁾
Unsecured credit facility:
Unsecured Credit Facility ⁽³⁾	$	130,000		$	28,000		L + 1.15%		Dec-18-2019	i
Total unsecured credit facility	130,000			28,000

Unsecured term loans:
Unsecured Term Loan C	150,000			150,000			L + 1.30%		Sep-29-2020	i
Unsecured Term Loan B	150,000			150,000			L + 1.30%		Mar-21-2021	i
Unsecured Term Loan A	150,000			150,000			L + 1.30%		Mar-31-2022	i
Total unsecured term loans	450,000			450,000
Less: Total unamortized deferred financing fees and debt issuance costs	(3,046		)	(3,392		)
Total carrying value unsecured term loans	446,954			446,608

Unsecured notes:
Series F Unsecured Notes	100,000			100,000			3.98	%	Jan-05-2023	ii
Series A Unsecured Notes	50,000			50,000			4.98	%	Oct-1-2024	ii
Series D Unsecured Notes	100,000			100,000			4.32	%	Feb-20-2025	ii
Series B Unsecured Notes	50,000			50,000			4.98	%	Jul-1-2026	ii
Series C Unsecured Notes	80,000			80,000			4.42	%	Dec-30-2026	ii
Series E Unsecured Notes	20,000			20,000			4.42	%	Feb-20-2027	ii
Total unsecured notes	400,000			400,000
Less: Total unamortized deferred financing fees and debt issuance costs	(1,899		)	(2,034		)
Total carrying value unsecured notes	398,101			397,966

Mortgage notes (secured debt):
Union Fidelity Life Insurance Company	—			5,384			5.81	%	Apr-30-2017	iii
Webster Bank, National Association	—			2,853			3.66	%	May-29-2017	iv
Webster Bank, National Association	—			3,073			3.64	%	May-31-2017	iv
Wells Fargo, National Association	—			4,043			5.90	%	Aug-1-2017	v
Connecticut General Life Insurance Company -1 Facility	35,012			35,320			6.50	%	Feb-1-2018	vi
Connecticut General Life Insurance Company -2 Facility	36,539			36,892			5.75	%	Feb-1-2018	vi
Connecticut General Life Insurance Company -3 Facility	16,004			16,141			5.88	%	Feb-1-2018	vi
Wells Fargo Bank, National Association CMBS Loan	55,778			56,608			4.31	%	Dec-1-2022	vii
Thrivent Financial for Lutherans	3,960			4,012			4.78	%	Dec-15-2023	iv
Total mortgage notes	147,293			164,326
Total unamortized fair market value premiums	66			112
Less: Total unamortized deferred financing fees and debt issuance costs	(718		)	(873		)
Total carrying value mortgage notes	146,641			163,565
Total / weighted average interest rate ⁽⁴⁾	$	1,121,696		$	1,036,139		3.62	%

(1)

Current interest rate as of June 30, 2017. At June 30, 2017, the one-month LIBOR (“L”) was 1.22389%. The current interest rate is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums. The spread over the applicable rate for the Company's unsecured credit facility and unsecured term loans is based on the Company's consolidated leverage ratio, as defined in the respective loan agreements.

(2)

Prepayment terms consist of (i) pre-payable with no penalty; (ii) pre-payable with penalty; (iii) pre-payable without penalty two months prior to the maturity date; (iv) pre-payable without penalty three months prior to the maturity date; (v) pre-payable without penalty three months prior to the maturity date, however can be defeased; (vi) pre-payable without penalty six months prior to the maturity date; and (vii) pre-payable without penalty three months prior to the maturity date, however can be defeased beginning January 1, 2016.


(3)	The capacity of the unsecured credit facility is currently $450.0 million. Deferred financing fees and debt issuance costs, net of accumulated amortization related to the unsecured credit facility of approximately $2.0 million and $2.3 million is included in prepaid expenses and other assets on the accompanying Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016, respectively.


(4)	The weighted average interest rate was calculated using the fixed interest rate swapped on the current notional amount of $450.0 million of debt, and is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums.

The aggregate undrawn nominal commitment on the unsecured credit facility as of June 30, 2017 was approximately $314.4 million, including issued letters of credit. The Company's actual borrowing capacity at any given point in time may be less and is restricted to a maximum amount based on the Company's debt covenant compliance. Total accrued interest for the Company's indebtedness was approximately $5.4 million and $5.7 million as of June 30, 2017 and December 31, 2016, respectively, and is included in accounts payable, accrued expenses and other liabilities on the accompanying Consolidated Balance Sheets.

The table below sets forth the costs included in interest expense related to the Company's debt arrangements on the accompanying Consolidated Statement of Operations for the three and six months ended June 30, 2017 and June 30, 2016.



	Three months ended June 30,				Six months ended June 30,
Costs Included in Interest Expense (in thousands)	2017		2016		2017		2016
Amortization of deferred financing fees and debt issuance costs and fair market value premiums	$	504	$	401	$	1,007	$	780
Facility fees and unused fees	$	278	$	344	$	553	$	688

On May 30, 2017, the mortgage note held with Wells Fargo, National Association, in which the property located in Yorkville, WI served as collateral for the mortgage note, was paid in full.

On March 3, 2017, the mortgage note held with Webster Bank, National Association, in which the property located in East Windsor, CT served as collateral for the mortgage note, was paid in full.

On March 1, 2017, the mortgage note held with Webster Bank, National Association, in which the property located in Portland, ME served as collateral for the mortgage note, was paid in full.

On March 1, 2017, the mortgage note held with Union Fidelity Life Insurance Company, in which the property located in Hazelwood, MO served as collateral for the mortgage note, was paid in full.

Financial Covenant Considerations

The Company was in compliance with all financial and other covenants as of June 30, 2017 and December 31, 2016 related to its unsecured credit facility, unsecured term loans, unsecured notes, and mortgage notes. The real estate net book value of the properties that are collateral for the Company’s debt arrangements was approximately $207.3 million and $229.9 million at June 30, 2017 and December 31, 2016, respectively, and is limited to senior, property-level secured debt financing arrangements.

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 approximately 1.77% to 4.23% and 1.92% to 4.85% at June 30, 2017 and December 31, 2016, respectively, and were applied to each individual debt instrument. The applicable fair value guidance establishes a three tier value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The fair value of the Company’s debt is based on Level 3 inputs. The following table presents the aggregate principal outstanding of the Company’s debt and the corresponding estimate of fair value as of June 30, 2017 and December 31, 2016 (in thousands).



	June 30, 2017					December 31, 2016
	Principal Outstanding			Fair Value		Principal Outstanding			Fair Value
Unsecured credit facility	$	130,000		$	130,000	$	28,000		$	28,000
Unsecured term loans	450,000			450,000		450,000			450,000
Unsecured notes	400,000			417,932		400,000			399,091
Mortgage notes	147,293			149,236		164,326			166,099
Total principal amount	1,127,293			$	1,147,168	1,042,326			$	1,043,190
Add: Total unamortized fair market value premiums	66					112
Less: Total unamortized deferred financing fees and debt issuance costs	(5,663		)			(6,299		)
Total carrying value	$	1,121,696				$	1,036,139