Mortgage Notes Payable, Net

12 Months Ended

Dec. 31, 2019

The Company’s mortgage notes payable, net as of December 31, 2019 and 2018 consisted of the following:



		Outstanding Loan Amount as of						Effective Interest Rate as of
		December 31,						December 31,
Portfolio	Encumbered Properties	2019			2018			2019			Interest Rate	Maturity	Anticipated Repayment
		(In thousands)			(In thousands)
Class A-1 Net Lease Mortgage Notes	95	$	120,294		$	—		3.83	%		Fixed	May 2049	May 2026
Class A-2 Net Lease Mortgage Notes	106	121,000			—			4.52	%		Fixed	May 2049	May 2029
Total Net Lease Mortgage Notes	201	241,294			—

SAAB Sensis I	1	$	6,660		$	7,077		5.93	%		Fixed	Apr. 2025	Apr. 2025
Truist Bank II	17	10,860			13,412			5.50	%		Fixed	Jul. 2031	Jul. 2021
Truist Bank III	78	62,228			68,080			5.50	%		Fixed	Jul. 2031	Jul. 2021
Truist Bank IV	12	6,626			18,113			5.50	%		Fixed	Jul. 2031	Jul. 2021
Sanofi US I	1	125,000			125,000			5.16	%		Fixed	Jul. 2026	Jan. 2021
Stop & Shop ^[1]	4	45,000			36,812			3.49	%		Fixed	Jan. 2030	Jan. 2030
Mortgage Loan I^[2]	244	497,150			572,199			4.36	%		Fixed	Sep. 2020	Sep. 2020
Shops at Shelby Crossing	1	22,139			22,581			4.97	%		Fixed	Mar. 2024	Mar. 2024
Patton Creek	1	39,147			40,027			5.76	%		Fixed	Dec. 2020	Dec. 2020
Bob Evans I	23	23,950			23,950			4.71	%		Fixed	Sep. 2037	Sep. 2027
Mortgage Loan II	12	210,000			210,000			4.25	%		Fixed	Jan. 2028	Jan. 2028
Mortgage Loan III	22	33,400			33,400			4.12	%		Fixed	Jan. 2028	Jan. 2028
Mortgage Loan IV ^[3]	—	—			29,887			—	%		—	N/A	N/A
Gross mortgage notes payable	617	1,323,454			1,200,538			4.48	%	⁽⁴⁾
Deferred financing costs, net of accumulated amortization ^[5]		(15,564		)	(11,363		)
Mortgage premiums, net ^[6]		3,053			6,938
Mortgage notes payable, net		$	1,310,943		$	1,196,113

^__________


^[1]	The prior Stop & Shop loan was refinanced on December 19, 2019 with a new loan (see Stop&Shop Loan discussion in this Note). In connection with the prior loan, the Company paid prepayment penalties of approximately $2.0 million, which are included in the acquisition, transaction and other costs on the consolidated statement of operations and comprehensive (loss) income.


^[2]	In connection with repayment a portion of this mortgage note, the Company paid prepayment penalties of $1.6 million in the second quarter of 2019, which are included in the acquisition, transaction and other costs on the consolidated statement of operations and comprehensive (loss) income.

^[3]

This loan was repaid in connection with the issuance of the Net Lease Mortgage Notes (see definition below) in the second quarter of 2019 and all 39 properties, which were previously encumbered under Mortgage Loan IV were added to the collateral pool for the Net Lease Mortgage Notes. As a result of repaying the loan, remaining unamortized deferred financing costs of $0.8 million were written off, which is included in interest expense in the consolidated statement of operations. Also, the “pay-fixed” interest rate swap agreements related to Mortgage Loan IV were terminated upon repayment (see Note 8 — Derivatives and Hedging Activities), which is included in interest expense in the consolidated statement of operations.


^[4]	Calculated on a weighted-average basis for all mortgages outstanding as of December 31, 2019.

^[5]

Deferred financing costs represent commitment fees, legal fees and other costs associated with obtaining financing. These costs are amortized to interest expense over the terms of the respective financing agreements using the effective interest method. Unamortized deferred financing costs are generally expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financial transactions that do not close are expensed in the period in which it is determined that the financing will not close.


^[6]	Mortgage premiums or discounts are amortized as an increase or reduction to interest expense over the remaining terms of the respective mortgages.

As of December 31, 2019 and 2018, the Company had pledged $2.5 billion and $2.3 billion, respectively, in real estate investments, at cost as collateral for its mortgage notes payable. This real estate is not available to satisfy other debts and obligations unless first satisfying the mortgage notes payable on the properties. In addition, as of December 31, 2019, $1.2 billion in real estate investments were included in the unencumbered asset pool comprising the borrowing base under the Credit Facility (see Note 6 — Credit Facility for definition). Therefore, this real estate is only available to serve as collateral or satisfy other debts and obligations if it is first removed from the borrowing base under the Credit Facility.

The following table summarizes the scheduled aggregate principal payments on mortgage notes payable based on stated maturity dates for the five years subsequent to December 31, 2019 and thereafter:



(In thousands)	Future Principal Payments
2020	$	538,411
2021	206,882
2022	2,311
2023	2,643
2024	22,287
Thereafter	550,920
	$	1,323,454

The Company’s mortgage notes payable agreements require compliance with certain property-level financial covenants including debt service coverage ratios. As of December 31, 2019, the Company was in compliance with financial covenants under its mortgage notes payable agreements.

Stop & Shop Loan

On December 18, 2019, subsidiaries of the Company entered into a loan agreement (“Stop&Shop Loan”) with Morgan Stanley Bank, N.A., (“Lender”) for a principal amount of $45.0 million at a fixed interest rate of 3.445% per annum. The Stop&Shop Loan requires monthly interest-only payments, with the principal balance due on the maturity date in January 2030 and is secured by mortgage interests in four of the Company’s properties, three of which are located in the state of Massachusetts, totaling approximately 0.3 million square feet. The Stop&Shop Loan permits the Lender to securitize the loan or any portion thereof.

Net Lease Mortgage Notes

On May 30, 2019, subsidiaries of the Company completed the issuance of $242.0 million aggregate principal amount of Net Lease Mortgage Notes (the “Net Lease Mortgage Notes”), in a private placement exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). The Net Lease Mortgage Notes have been issued using a master trust structure, which enables additional series of notes to be issued upon the contribution of additional properties to the collateral pool without the need to structure a new securitization transaction. Any new notes that are so issued will be cross collateralized with the current Net Lease Mortgage Notes.

The Net Lease Mortgage Notes were issued in two classes, Class A-1 (the “Class A-1 Net Lease Mortgage Notes”) and Class A-2 (the “Class A-2 Net Lease Mortgage Notes”). The Class A-1 Net Lease Mortgage Notes are rated AAA (sf) by Standard & Poor’s and had an initial principal amount of $121.0 million with an anticipated repayment date in May 2026 and an interest rate of 3.78% per annum. The Class A-2 Net Lease Mortgage Notes are rated A (sf) by Standard & Poor’s and had an initial principal amount of $121.0 million initial principal amount with an anticipated repayment date in May 2029 and an interest rate of 4.46% per annum. The Class A-1 Net Lease Mortgage Notes require interest and principal amortization payments until the applicable anticipated repayment date. The Class A-2 Net Lease Mortgage Notes are interest-only until June 2020, when principal amortization payments are required until the applicable anticipated repayment date. The Net Lease Mortgage Notes are collectively currently amortizing at a rate of approximately 0.5% per annum. The Net Lease Mortgage Notes may be redeemed at any time prior to their anticipated repayment date subject to payment of a make-whole premium. If any class of Net Lease Mortgage Notes is not paid in full at its respective anticipated repayment date, additional interest will begin to accrue on those Net Lease Mortgage Notes. The Net Lease Mortgage Notes have a rated final payment date in May 2049.

As of December 31, 2019, the collateral pool for the Net Lease Mortgage Notes was comprised of 201 of the Company’s double- and triple-net leased single tenant properties that had been transferred to the subsidiaries of the Company that issued the Net Lease Mortgage Notes, together with the related leases and certain other rights and interests. The net proceeds from the sale of the Net Lease Mortgage Notes were used to repay $204.9 million in indebtedness related to 192 of the properties then in the collateral pool securing the Net Lease Mortgage Notes, and approximately $37.1 million of the remaining net proceeds were available to the Company for general corporate purposes, including to fund acquisitions. At closing, the Company repaid mortgage notes of $29.9 million previously secured by 39 individual properties and repaid $175.0 million in outstanding borrowings under the Credit Facility. The Company removed 153 of its properties from the borrowing base under the Credit Facility to serve as part of the collateral pool for the Net Lease Mortgage Notes in connection with this repayment and added ten recently acquired properties to the collateral pool securing the Net Lease Mortgage Notes.

The subsidiaries of the Company may release or exchange properties from the collateral pool securing the Net Lease Mortgage Notes subject to various terms and conditions, including paying any applicable make-whole premium and limiting the total value of properties released or exchanged to not more than 35% of the aggregate collateral value. These conditions, including the make-whole premium, do not apply under certain circumstances, including a prepayment in an aggregate amount of up to 35% of the initial principal balance if the prepayment is funded with proceeds from qualifying deleveraging events, such as a firm commitment underwritten registered public equity offering by the Company that generates at least $75.0 million in net proceeds, that occur following June 2021.

The Net Lease Mortgage Notes benefit from two debt service coverage ratio tests. If the monthly debt service coverage ratio falls below 1.3x and is not cured, cash flow that would be available to pay certain subordinated expenses or be released to the Company will instead be deposited into a reserve account. If the three month average debt service coverage ratio falls below 1.2x and is not cured, all remaining cash flow after payments of interest on the Net Lease Mortgage Notes will be applied to pay principal on the Net Lease Mortgage Notes (first on the Class A-1 Net Lease Mortgage Notes and then on the Class A-2 Net Lease Mortgage Notes).

Mortgage Loan II

On December 8, 2017, certain subsidiaries of the Company entered into a loan agreement (“Mortgage Loan II”) with Societe Generale and UBS AG (collectively, the “Lenders II”). The Mortgage Loan II requires monthly interest-only payments, with the principal balance due on the maturity date in January 2028 and is secured by mortgage interests in 12 of the Company’s properties in eight states totaling approximately 2.4 million rentable square feet. The Mortgage Loan II permits the Lenders II to securitize the loan or any portion thereof.