Notes Payable

The following table summarizes the balance of our indebtedness as of December 31, 2016 and 2015 (in thousands):



	December 31, 2016			December 31, 2015
Principal amount	$	502,476		$	418,698
Less: unamortized discount and deferred loan costs⁽¹⁾	(2,292		)	(544		)
Carrying value	$	500,184		$	418,154

(1) Unamortized discount and deferred loan costs exclude net debt issuance costs related to establishing our unsecured credit facility. These costs are presented in the line item “Deferred loan costs, net” in the consolidated balance sheets.

The following table summarizes the components and significant terms of our indebtedness as of December 31, 2016 and 2015 (dollars in thousands):



	December 31, 2016					December 31, 2015
	Principal Amount		Unamortized Discount and Deferred Loan Costs			Principal Amount		Unamortized Discount and Deferred Loan Costs			Contractual Maturity Date		Stated Interest Rate⁽¹⁾			Effective Interest Rate⁽²⁾
Secured Debt
$60m Term Loan⁽³⁾	$	59,674	$	(204	)	$	60,000	$	(283	)	8/1/2019	⁽⁴⁾	LIBOR+1.90%			3.95	%
Gilbert/La Palma	2,909		(145		)	3,044		(153		)	3/1/2031		5.125	%	⁽⁵⁾	5.39	%
12907 Imperial Highway	5,182		180			5,299		303			4/1/2018		5.950	%	⁽⁶⁾	3.50	%
1065 Walnut Street	9,711		192			9,855		292			2/1/2019	⁽⁷⁾	4.550	%	⁽⁸⁾	3.54	%
Unsecured Debt
$100M Term Loan Facility	100,000		—			100,000		—			6/11/2019		LIBOR+1.50%		⁽⁹⁾	3.40	%	⁽¹⁰⁾
Revolving Credit Facility	—		—			140,500		—			6/11/2018	⁽⁴⁾	LIBOR+1.55%		^(9)(11)	2.32	%
$225M Term Loan Facility	225,000		(1,680		)	—		—			1/14/2023		LIBOR+1.75%		⁽⁹⁾	2.65	%
Guaranteed Senior Notes⁽¹²⁾	100,000		(635		)	100,000		(703		)	8/6/2025		4.290	%		4.36	%
Total	$	502,476	$	(2,292	)	$	418,698	$	(544	)


(1)	Reflects the contractual interest rate under the terms of the loan as of December 31, 2016.


(2)	Reflects the effective interest rate at December 31, 2016, which includes the effect of the amortization of discounts/premiums and deferred loan costs and the effect of interest rate swaps that are effective as of December 31, 2016.


(3)	This term loan is secured by six properties. Beginning August 15, 2016, monthly payments of interest and principal are based on a 30 years amortization table. As of December 31, 2016, the interest rate on this variable-rate term loan has been effectively fixed through the use of two interest rate swaps, one of which is an amortizing swap. See Note 7 for details.


(4)	One additional one-year extension available at the borrower’s option.


(5)	Monthly payments of interest and principal based on a 20-year amortization table.


(6)	Monthly payments of interest and principal based on a 30-year amortization table, with a balloon payment at maturity. We may prepay the loan in full during the 90 day period prior to the maturity date with without incurring prepayment penalties.


(7)	One additional five-year extension available at the borrower’s option. We may prepay the loan in whole at any time on or after November 1, 2018 through the initial maturity date without incurring prepayment penalties, subject to certain notice requirements.


(8)	Monthly payments of interest and principal based on a 25-year amortization table, with a balloon payment at maturity.


(9)	The LIBOR margin will range from 1.25% to 1.85% for the $100.0 million term loan facility, 1.30% to 1.90% for the unsecured revolving credit facility and 1.50% to 2.25% for the $225.0 million term loan facility depending on the ratio of our outstanding consolidated indebtedness to the value of our consolidated gross asset value, which is measured on a quarterly basis.


(10)	As of December 31, 2016, interest on the $100 million term loan has been effectively fixed through the use of two interest rate swaps. See Note 7 for details.


(11)	The facility additionally bears interest at 0.30% or 0.20% of the daily undrawn amount of the unsecured revolving credit facility if the balance is under $100 million or over $100 million, respectively.


(12)	Interest is payable semiannually on February 6 and August 6 of each year, beginning on February 6, 2016. We may prepay at any time all or, from time to time, any part of the notes, in amounts not less than $2.5 million of the notes then outstanding at (i) 100% of the principal amount so prepaid and (ii) the Make-Whole Amount (as defined in the credit agreement).

Contractual Debt Maturities

The following table summarizes the contractual debt maturities and scheduled amortization payments, excluding debt discounts/premiums and deferred loan costs, as of December 31, 2016, and does not consider extension options available to us as noted in the table above (in thousands):



2017	$	1,213
2018	6,163
2019	167,641
2020	166
2021	175
Thereafter	327,118
Total	$	502,476

$225 Million Term Loan Facility

On January 14, 2016, we entered into a credit agreement for a senior unsecured term loan facility (the “$225 Million Term Loan Facility”) that initially permits aggregate borrowings of up to $125.0 million, the total of which we borrowed the same day at closing. Under the terms of the credit agreement, we are permitted to add one or more incremental term loans in an aggregate amount not to exceed $100.0 million (the “Accordion”), subject to the satisfaction of specified conditions. On April 15, 2016, we exercised the Accordion in full, thereby increasing the aggregate amount outstanding under the $225 Million Term Loan Facility to $225.0 million. The maturity date of the $225 Million Term Loan Facility is January 14, 2023.

Interest on the $225 Million Term Loan Facility accrues based upon, at our option, either (i) LIBOR plus the applicable Eurodollar rate margin or (ii) the applicable base rate which is the greater of (a) the federal funds rate plus 0.50%, (b) the administrative agent’s prime rate or (c) the thirty-day LIBOR plus 1.00%, plus the applicable base rate margin. Until we obtain an investment grade rating by two or more of Standard & Poor’s, Moody’s Investor Services and Fitch Ratings (the “Rating Agencies”), and elect to use the alternative rates based on our debt rating, the applicable Eurodollar rate margin will range from 1.50% to 2.25% per annum, and the applicable base rate margin will range from 0.50% to 1.25% per annum, depending on our Leverage Ratio (as defined in the credit agreement).

We have the option to voluntarily prepay any amounts borrowed under the $225 Million Term Loan Facility in whole or in part at any time, subject to certain notice requirements. To the extent that we prepay all or any portion of a loan on or prior to January 14, 2018, we will pay a prepayment premium equal to (i) if such prepayment occurs prior to January 14, 2017, 2.00% of the principal amount so prepaid and (ii) if such prepayment occurs on or after January 14, 2017, but prior to January 14, 2018, 1.00% of the principal amount so prepaid. Amounts borrowed under the $225 Million Term Loan Facility and repaid or prepaid may not be reborrowed.

The $225 Million Term Loan Facility contains usual and customary events of default including defaults in the payment of principal, interest or fees, defaults in compliance with the covenants set forth in the credit agreement and other loan documentation, cross-defaults to certain other indebtedness, and bankruptcy and other insolvency defaults. If an event of default occurs and is continuing under the $225 Million Term Loan Facility, all outstanding principal amounts, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable.

Unsecured Credit Facility

As of December 31, 2016, we have a senior unsecured revolving credit facility with a borrowing capacity of $200.0 million (the “Revolver”) and a senior unsecured term loan facility (the “$100 Million Term Loan Facility”) with a borrowing capacity of $100.0 million (together the “Credit Facility”). The Revolver is scheduled to mature on June 11, 2018, with one 12-month extension option available, subject to certain conditions, and the $100 Million Term Loan Facility is scheduled to mature on June 11, 2019. The aggregate principal amount of the Credit Facility may be increased to a total of up to $600.0 million, which may be comprised of additional revolving commitments under the Revolver or an increase to the $100 Million Term Loan Facility, or any combination of the foregoing, subject to the satisfaction of specified conditions and the identification of lenders willing to make available such additional amounts.

Interest on the Credit Facility accrues, at our option, at either (i) LIBOR plus the applicable LIBOR margin or (ii) the applicable base rate which is the greater of (a) the federal funds rate plus 0.50%, (b) the administrative agent’s prime rate or (c) the thirty-day LIBOR plus 1.00%, plus the applicable base rate margin. Until we attain an investment grade rating by two or more of the Rating Agencies, and elect to use the alternative rates based on our debt rating, the applicable LIBOR margin will range from 1.30% to 1.90% for the Revolver and 1.25% to 1.85% for the $100 Million Term Loan Facility, depending on our Leverage Ratio (as defined in the credit agreement). In February 2015, the Revolver and the $100 Million Term Loan Facility were assigned an investment grade rating of BBB- by Fitch Ratings. Additionally, there is a quarterly facility fee that is paid on the undrawn portion of the Revolver in an amount equal to 0.20% or 0.30% depending on the undrawn amount of the Revolver.

The Credit Facility is guaranteed by the Company and by substantially all of the current and future subsidiaries of the Operating Partnership that own an unencumbered property. The Credit Facility is not secured by the Company’s properties or by equity interests in the subsidiaries that hold such properties.

The Revolver and the $100 Million Term Loan Facility may be voluntarily prepaid in whole or in part at any time without premium or penalty. Amounts borrowed under the $100 Million Term Loan Facility and repaid or prepaid may not be re-borrowed.

The Credit Facility contains usual and customary events of default including defaults in the payment of principal, interest or fees, defaults in compliance with the covenants set forth in the Credit Facility and other loan documentation, cross-defaults to certain other indebtedness, and bankruptcy and other insolvency defaults. If an event of default occurs and is continuing under the Credit Facility, the unpaid principal amount of all outstanding loans, together with all accrued unpaid interest and other amounts owing in respect thereof, may be declared immediately due and payable.

As of December 31, 2016, we did not have any borrowings outstanding under our Revolver, leaving $200.0 million available for additional borrowings.

On February 14, 2017, we amended and expanded the Credit Facility. For additional details see Note 17 – Subsequent Events.

Debt Covenants

The $225 Million Term Loan Facility and the Credit Facility both include a series of financial and other covenants that we must comply with, including the following covenants which are tested on a quarterly basis:


•	Maintaining a ratio of total indebtedness to total asset value of not more than 60%;


•	Maintaining a ratio of secured debt to total asset value of not more than 45%;


•	Maintaining a ratio of total secured recourse debt to total asset value of not more than 15%;


•	Maintaining a minimum tangible net worth of at least the sum of (i) $283,622,250, and (ii) an amount equal to at least 75% of the net equity proceeds received by the Company after March 31, 2014;


•	Maintaining a ratio of adjusted EBITDA to fixed charges of at least 1.5 to 1.0;


•	Maintaining a ratio of total unsecured debt to total unencumbered asset value of not more than 60%;


•	Maintaining a ratio of unencumbered NOI to unsecured interest expense of at least 1.75 to 1.0.

Additionally, the $225 Million Term Loan Facility and the Credit Facility provide that our distributions may not exceed the greater of (i) 95.0% of our funds from operations or (ii) the amount required for us to qualify and maintain our status as a REIT and avoid the payment of federal or state income or excise tax in any 12 month period.

Our $100.0 million unsecured guaranteed senior notes (the “Notes”) contain a series of financial and other covenants with which we must comply. The financial covenants, which are tested on a quarterly basis, are the same as those that we must comply with under the $225 Million Term Loan Facility and the Credit Facility, as detailed above. In addition, we are required to maintain at all times a credit rating on the Notes from either S&P, Moody’s or Fitch. At issuance, the Notes were assigned an investment grade rating of BBB- by Fitch, which most recently affirmed in August 2016, with a stable outlook. Subject to the terms of the Notes, upon certain events of default, including, but not limited to, (i) a default in the payment of any principal, make-whole payment amount, or interest under the Notes, (ii) a default in the payment of certain of our other indebtedness, (iii) a default in compliance with the covenants set forth in the Notes agreement, and (iv) bankruptcy and other insolvency defaults, the principal and accrued and unpaid interest and the make-whole payment amount on the outstanding Notes will become due and payable at the option of the purchasers.

Our $60.0 million term loan contains the following financial covenants:


•	Maintaining a Debt Service Coverage Ratio (as defined in the term loan agreement) of at least 1.10 to 1.00, to be tested quarterly;


•	Maintaining Unencumbered Liquid Assets (as defined in the term loan agreement) of not less than (i) $5,000,000, or (ii) $8,000,000 if we elect to have Line of Credit Availability (as defined in the term loan agreement) included in the calculation, of which $2,000,000 must be cash or cash equivalents, to be tested annually as of December 31 of each year;


•	Maintaining a minimum Fair Market Net Worth (as defined in the term loan agreement) of at least $75,000,000, to be tested annually as of December 31 of each year.

We were in compliance with all of our quarterly and annual debt covenants as of December 31, 2016.