DEBT

Mortgage Notes Payable

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



Collateral	2019 Principal Balance			2018 Principal Balance			Contractual Interest Rate (1)	Effective Interest Rate (1)	Loan Maturity
Accredo Health/Walgreens properties	$	6,853,442		$	6,996,469		3.95%	3.95%	7/1/2021
Six Dollar General properties	3,819,264			3,885,334			4.69%	4.69%	4/1/2022
Dana property	4,551,250			4,632,398			4.56%	4.56%	4/1/2023
Northrop Grumman property	5,666,866			5,809,367			4.40%	4.40%	3/2/2021
exp US Services property	3,385,353			3,446,493			(3)	4.25%	11/17/2024
Harley property	6,748,029			6,868,254			4.25%	4.25%	9/1/2024
Wyndham property (2)	5,716,200			5,820,600			One-month LIBOR + 2.05%	4.34%	6/5/2027
Williams Sonoma property (2)	4,530,600			4,615,800			One-month LIBOR + 2.05%	4.34%	6/5/2022
Omnicare property	4,273,552			4,349,963			4.36%	4.36%	5/1/2026
EMCOR property	2,862,484			2,911,577			4.35%	4.35%	12/1/2024
Husqvarna property	6,379,182			6,379,182			(4)	4.60%	2/20/2028
AvAir property	14,575,000			14,575,000			(5)	4.84%	3/27/2028
3M property	8,290,000			8,360,000			One-month LIBOR + 2.25%	5.09%	3/29/2023
Cummins property	8,458,600			8,530,000			One-month LIBOR + 2.25%	5.16%	4/4/2023
24 Hour Fitness property (6)	6,283,898			8,900,000			4.64%	4.64%	4/1/2049
Texas Health property (7)	4,400,000			4,842,500			4.00%	4.00%	12/5/2024
Bon Secours property	5,250,000			5,250,000			5.41%	5.41%	9/15/2026
Costco property	18,850,000			18,850,000			4.85%	4.85%	1/1/2030
Taylor Fresh Foods property (8)	12,350,000			—			3.85%	3.85%	11/1/2029
Levins property (8)	2,079,793			—			One-month LIBOR + 1.93%	3.74%	1/5/2021
Island Pacific Supermarket property (8)	1,891,225			—			One-month LIBOR + 1.93%	3.74%	1/5/2021
Dollar General property (8)	2,324,338			—			One-month LIBOR + 1.48%	3.38%	3/5/2021
Rite Aid property (8)	3,659,338			—			One-month LIBOR + 1.50%	3.25%	5/5/2021
PMI Preclinical property (8)	4,118,613			—			One-month LIBOR + 1.48%	3.38%	3/5/2021
EcoThrift property (8)	2,639,237			—			One-month LIBOR + 1.21%	2.96%	7/5/2021
GSA (MSHA) property (8)	1,796,361			—			One-month LIBOR + 1.25%	3.00%	8/5/2021
PreK Education property (8)	5,140,343			—			4.25%	4.25%	12/1/2021
Dinan Cars property (8) (10)	2,710,834			—			One-month LIBOR + 2.27%	4.02%	1/5/2022
Solar Turbines/Wood Group/ITW Rippey properties (8)	9,434,692			—			3.35%	3.35%	11/1/2026
Dollar General property (8)	611,161			—			4.50%	4.50%	4/1/2022
Gap property (8)	3,643,166			—			4.15%	4.15%	8/1/2023
L-3 Communications property (8)	5,284,884			—			4.69%	4.69%	4/1/2022
Sutter Health property (8)	14,161,776			—			4.50%	4.50%	3/9/2024
Walgreens property (8)	3,000,000			—			7.50%	7.50%	5/6/2020
Total mortgage notes payable	195,739,481			125,022,937
Plus: unamortized mortgage premium, net of discount (9)	489,664			—
Less: unamortized deferred financing costs	(2,189,938		)	(2,313,629		)
Mortgage notes payable, net	$	194,039,207		$	122,709,308

(1)

Contractual interest rate represents the interest rate in effect under the mortgage note payable as of December 31, 2019. Effective interest rate is calculated as the actual interest rate in effect as of December 31, 2019, consisting of the contractual interest rate and the effect of the interest rate swap, if applicable. For further information regarding the Company’s derivative instruments (see Note 8).

(2)

The notes on each of the Williams Sonoma and Wyndham properties (collectively, the “Property”) located in Summerlin, Nevada were originated by Nevada State Bank (“Bank”). The notes are collateralized by a deed of trust and a security agreement with assignment of rents and fixture filing. In addition, the individual loans are subject to a cross collateralization and cross default agreement whereby any default under, or failure to comply with the terms of any one or both of the notes is an event of default under the terms of both notes. The value of the property must be in an amount sufficient to maintain a loan to value ratio of no more than 60%. If the note to value ratio is ever more than 60%, the borrower shall, upon the Bank’s written demand, reduce the principal balance of the notes so that the note to value ratio is no more than 60%.


(3)	The initial contractual interest rate is 4.25% and starting November 18, 2022, the interest rate is T-Bill index plus 3.25%.


(4)	The initial contractual interest rate is 4.60% for the first five years and the greater of 4.60% or five-year Treasury Constant Maturity (“TCM”) plus 2.45% for the second five years.


(5)	The initial contractual interest rate for the note payable outstanding as of December 31, 2019 is 4.84% for the first five-years and the greater of 4.60% or five-year TCM plus 2.45% for the second five-years.


(6)	The loan refinancing on March 7, 2019 reduced the principal amount and the interest rate and it extended the maturity. The interest rate for the note payable outstanding as of December 31, 2019 adjusts in the 133rd, 253rd and 313th months.


(7)	The prior year loan was repaid on the March 13, 2019 maturity date. On December 16, 2019, the Company obtained a mortgage note payable with a new note for $4,400,000 through a nonaffiliated lender. The note is secured by the Texas Health property and it matures on December 5, 2024.


(8)	The loan was acquired through the Merger on December 31, 2019.


(9)	Represents unamortized net mortgage premium acquired through the Merger.

(10)

The Company negotiated a lease termination with Dinan Cars effective January 31, 2020 in exchange for a termination payment of $783,182. Lease termination proceeds from Dinan Cars were used to reduce the principal balance under this mortgage by $650,000 and establish a payment reserve with the remaining $133,182. In connection with the principal prepayment, we terminated the related swap agreement on February 4, 2020 at a cost of 47,000.

The following summarizes the face value, carrying amount and fair value of the Company’s mortgage notes payable as of December (Level 3 measurement):



	2019						2018
	Face Value		Carrying Value		Fair Value		Face Value		Carrying Value		Fair Value
Mortgage notes payable	$	195,739,481	$	194,039,207	$	200,535,334	$	125,022,937	$	122,709,308	$	123,821,490

Disclosures of the fair values of financial instruments is based on pertinent information available to the Company as of the period end and require a significant amount of judgment. The actual value could be materially different from the Company’s estimate of value.

Unsecured Credit Facility



	December 31,
	2019			2018
Unsecured Credit Facility	$	7,740,000		$	9,000,000
Less unamortized deferred financing costs	(90,139		)	(2,000		)
	$	7,649,861		$	8,998,000

On December 19, 2019, the Company, NNN LP, the Operating Partnership, Merger Sub, BrixInvest and modiv, LLC (collectively, the “Borrowers”) entered into a Loan and Security Agreement (the “New Credit Facility”) with Pacific Mercantile Bank ("Lender"). The New Credit Facility supersedes and replaces the Company's prior credit facility. The New Credit Facility is a line of credit for a maximum principal amount of $12,000,000 consisting of two facilities: (1) a purchase contract and other loans facility (the “Purchase Contract and Other Loans Facility”) of up to $10,000,000 and (2) a nonformula loans facility (the “Nonformula Loans Facility”) of up to $2,000,000. The Purchase Contract and Other Loans Facility matures on October 1, 2020, unless earlier terminated or extended, and the Nonformula Loans Facility matures on October 15, 2020, unless earlier terminated or extended. As of December 31, 2019 and 2018, the unsecured line of credit had an outstanding balance of $7,740,000 and $9,000,000 under the New Credit Facility and the prior credit facility, respectively. During February 2020, the Company drew the remaining $4,260,000 available under the New Credit Facility.

The Purchase Contract and Other Loans Facility can be used to fund the Company’s acquisition of single-tenant, income producing commercial, office, industrial or retail real estate property, in an amount of up to 70% of the purchase price of such acquisition, or for general corporate purposes. The Nonformula Loans Facility can be used to fund other business operations of the Company, including working capital. The Company intends to repay amounts outstanding under the New Credit Facility from gross offering proceeds from the sale of shares of the Company’s common stock or mortgage financing on one or more of the properties owned, either directly or indirectly through one or more wholly-owned single member special purposes entities, by the Operating Partnership.

Under the terms of the New Credit Facility, the Borrowers pay a variable rate of interest on outstanding amounts equal to one percentage point over the prime rate published in The Wall Street Journal, provided that the interest rate in effect on any one day shall not be less than 5.50% per annum. The interest rate was 5.75% and 6.50% as of December 31, 2019 and 2018, respectively. The current interest rate is 5.50%, which is the minimum rate.

To secure the payment and performance of all obligations under the New Credit Facility, each of modiv, LLC and BrixInvest granted to Lender a security interest in all of their right, title and interest in their accounts, inventory, equipment, deposit accounts, intellectual property, general intangibles, investment property and other property. The New Credit Facility is also secured by a continuing guaranty in the amount of $17,000,000 executed by Raymond E. Wirta, Chairman of the Board of the Company, and a trust belonging to Mr. Wirta (“Wirta Trust”).

The New Credit Facility contains customary representations, warranties and covenants, which are substantially similar to those in the prior credit facility. The Company’s ability to borrow under the New Credit Facility will be subject to its ongoing compliance with various affirmative and negative covenants, including with respect to indebtedness, guaranties, mergers and asset sales, liens, dividends, corporate existence and financial reporting obligations. The New Credit Facility also contains customary events of default, including, without limitation, nonpayment of principal, interest, fees or other amounts when due, violation of covenants, breaches of representations or warranties and change of ownership. Upon the occurrence of an event of default, Lender may accelerate the repayment of amounts outstanding under the New Credit Facility, take possession of any collateral securing the Credit Facility and exercise other remedies subject, in certain instances, to the expiration of an applicable cure period. The agreement requires the Company to maintain a minimum debt service coverage ratio of 1.25 to 1.00, measured quarterly.

On March 13, 2020, the Company amended the New Credit Facility to extend the maturity date of $4,940,000 of Purchase Contract Loans and $2,000,000 of Other Loans from March 31, 2020 to July 31, 2020, and to extend the maturity date of $3,060,000 of Other Loans from May 4, 2020 to August 31, 2020. As a result of the amendment, a temporary moratorium on new borrowings under the New Credit Facility is in place until October 1, 2020. In addition, entering into the amendment was deemed a “trigger event” under the New Credit Facility and, accordingly, the guaranty, payment and indemnification obligations provided by the Company's Chairman, Mr. Wirta, under the New Credit Facility are now effective; however, if the two loans referenced herein are paid in full in accordance with the amendment, then the trigger event will be deemed cured. The Purchase Contract Loans Facility matures on October 1, 2020, unless earlier terminated or extended, and the Nonformula Loans Facility matures on October 15, 2020, unless earlier terminated or extended. The Company expects to refinance or extend the New Credit Facility prior to the maturity dates.

Short-term Notes Payable

In connection with the Self-Management Transaction, the Company assumed from BrixInvest its unsecured short-term notes payable (formerly known as “Convertible Promissory Notes”) of $4,800,000 on December 31, 2019. The notes represent private party notes and bear interest at a fixed rate of 8% with all interest and principal due on the maturity date. In accordance with the Omnibus Amendment to the Convertible Promissory Notes signed on September 17, 2019 by BrixInvest and the holders of the notes, the following were the agreed upon amendments to the Convertible Promissory Notes (the "Agreement"), among others:


•	the maturity date shall be the later of (i) January 6, 2020 or (ii) five business days following the closing of certain transactions as defined in the Agreement;


•	the notes shall be repaid in an amount equal to (i) the sum of (x) all accrued and unpaid interest due on the note and (y) 1.2 times the original outstanding principal balance on the notes, which aggregated $4,000,000 and $800,000 (the "Maturity Date Extension Consideration");


•	each investor who does not make a conversion election, as defined in the Agreement, will be entitled to payment by the Company of a one-time amortization fee equal to 50 basis points of the outstanding principal balance of each respective convertible promissory note on the maturity date; and

•

the Company shall repay the outstanding principal and all accrued and unpaid interest due on the convertible promissory notes, along with the Maturity Date Extension Consideration and the amortization fee (collectively, the “Total Balance”) in three equal installments to occur as follows: (i) the first payment of one-third of the Total Balance shall be made on the maturity date; (ii) the second payment of one-third of the Total Balance shall be made 30 days following the maturity date; and (iii) the final payment of one-third of the Total Balance shall be made 60 days following the maturity date. Interest shall continue to accrue on the outstanding principal balance until payment is made in full.

Except for six notes from one borrower aggregating $1,242,233 which maturity date has been extended to April 30, 2020, all notes have been paid subsequent to December 31, 2019. In exchange for this extension in the maturity date, the Company paid 2%, or $24,845, as an extension fee and agreed to an increase in the interest rate from 8% to 10% per annum during the extension period.

All Debt Agreements

Pursuant to the terms of mortgage notes payable on certain of the Company’s properties and the New Credit Facility, the Company and/or the Borrowers are subject to certain financial loan covenants. The Company and/or the Borrowers were in compliance with all terms and conditions of the applicable loan agreements as of December 31, 2019.

The following summarizes the future principal repayments of the Company’s mortgage notes payable, unsecured credit facility and short-term notes payable as of December 31, 2019:



	Mortgage Notes Payable			New Credit Facility			Short-term Notes Payable		Total
2020	$	6,262,287		$	7,740,000		$	4,800,000	$	18,802,287
2021	33,031,199			—			—		33,031,199
2022	24,479,249			—			—		24,479,249
2023	26,222,084			—			—		26,222,084
2024	27,256,880			—			—		27,256,880
Thereafter	78,487,782			—			—		78,487,782
Total principal	195,739,481			7,740,000			4,800,000		208,279,481
Plus: unamortized mortgage premium, net of discount	489,664			—			—		489,664
Less: deferred financing costs, net	(2,189,938		)	(90,139		)	—		(2,280,077		)
Total	$	194,039,207		$	7,649,861		$	4,800,000	$	206,489,068

Interest Expense

The following is a reconciliation of the components of interest expense:



	Years Ended December 31,
	2019		2018
Mortgage notes payable:
Interest expense	$	5,698,605	$	4,065,686
Amortization of deferred financing costs	601,659		897,535
Loss on interest rate swaps (1)	843,174		261,198
Unsecured credit facility:
Interest expense	190,130		323,409
Amortization of deferred financing costs	36,542		30,000
Forfeited loan fee	12,500		—
Total interest expense	$	7,382,610	$	5,577,828


(1)	Includes unrealized loss on interest rate swaps of $970,210 and $149,714 for years ended December 31, 2019 and 2018, respectively (see Note 8). Accrued interest payable of $22,282 and $7,649 at December 31, 2019 and 2018, respectively, represents the unsettled portion of the interest rate swaps for the period from origination of the interest rate swap through the respective balance sheet dates.