NOTE 12. LONG-TERM DEBT

Credit Facility. The Company has a revolving credit facility (the “Credit Facility”) with Bank of Montreal (“BMO”) as the administrative agent for the lenders thereunder. The Credit Facility is guaranteed by certain wholly-owned subsidiaries of the Company. The Credit Facility bank group is led by BMO and also includes Wells Fargo and Branch Banking & Trust Company. The Credit Facility matures on August 1, 2018, with the ability to extend the term for 1 year.

The Credit Facility has a total borrowing capacity of $75.0 million with the ability to increase that capacity up to $125.0 million during the term. The Credit Facility provides the lenders with a secured interest in the equity of the Company subsidiaries that own the properties included in the borrowing base. The indebtedness outstanding under the Credit Facility accrues interest at a rate ranging from the 30-day LIBOR plus 135 basis points to the 30-day LIBOR plus 225 basis points based on the total balance outstanding under the Credit Facility as a percentage of the total asset value of the Company, as defined in the Credit Facility. The Credit Facility also accrues a fee of 20 to 25 basis points for any unused portion of the borrowing capacity based on whether the unused portion is greater or less than 50% of the total borrowing capacity.

At March 31, 2017, the current commitment level under the Credit Facility was $75.0 million. The available borrowing capacity under the Credit Facility was approximately $50.5 million, based on the level of borrowing base assets. As of March 31, 2017, the Credit Facility had a $24.5 million balance.

On March 14, 2017, the Company entered into an amendment of the Credit Facility (the “Third Amendment”). The Third Amendment modified Section 8.8(n) of the Credit Facility, which pertains to permitted stock repurchases by the Company, to increase the aggregate stock repurchases permitted under the Credit Facility. Pursuant to the Third Amendment, the Company expects to be able to continue to make additional repurchases of its own common stock under the New $10 Million Repurchase Program.

The Credit Facility is subject to customary restrictive covenants including, but not limited to, limitations on the Company’s ability to: (a) incur indebtedness; (b) make certain investments; (c) incur certain liens; (d) engage in certain affiliate transactions; and (e) engage in certain major transactions such as mergers. In addition, the Company is subject to various financial maintenance covenants including, but not limited to, a maximum indebtedness ratio, a maximum secured indebtedness ratio, and a minimum fixed charge coverage ratio. The Credit Facility also contains affirmative covenants and events of default including, but not limited to, a cross default to the Company’s other indebtedness and upon the occurrence of a change of control. The Company’s failure to comply with these covenants or the occurrence of an event of default could result in acceleration of the Company’s debt and other financial obligations under the Credit Facility.

Mortgage Notes Payable. On February 22, 2013, the Company closed on a $7.3 million non-recourse first mortgage loan originated with UBS Real Estate Securities Inc., secured by its interest in the two-building office complex leased to Hilton Resorts Corporation, which was acquired on January 31, 2013. The mortgage loan matures in February 2018, carries a fixed rate of interest of 3.655% per annum, and requires payments of interest only prior to maturity.

On March 8, 2013, the Company closed on a $23.1 million non-recourse first mortgage loan originated with Bank of America, N.A., secured by its interest in fourteen income properties. The mortgage loan carried a fixed rate of 3.67% per annum, and required payments of interest only prior to its maturity. On September 16, 2016, in conjunction with the sale of the fourteen income properties, the buyer assumed the $23.1 million mortgage loan. Accordingly, the Company is no longer subject to this loan as of March 31, 2017.

On September 30, 2014, the Company closed on a $30.0 million non-recourse first mortgage loan originated with Wells Fargo, secured by its interest in six income properties. The mortgage loan matures in October 2034, and carries a fixed rate of 4.33% per annum during the first ten years of the term, and requires payments of interest only during the first ten years of the loan. After the tenth anniversary of the effective date of the loan, the cash flows, as defined in the related loan agreement, generated by the underlying six income properties must be used to pay down the principal balance of the loan until paid off or until the loan matures. The loan is fully pre-payable after the tenth anniversary of the effective date of the loan.

On April 15, 2016, the Company closed on a $25.0 million non-recourse first mortgage loan originated with Wells Fargo, secured by the Company’s income property leased to Wells Fargo located in Raleigh, North Carolina. The mortgage loan has a 5-year term with two years interest only, and interest and a 25-year amortization for the balance of the term. The mortgage loan bears a variable rate of interest based on the 30-day LIBOR plus a rate of 190 basis points. The interest rate for this mortgage loan has been fixed through the use of an interest rate swap that fixed the rate at 3.17%. The mortgage loan can be prepaid at any time subject to the termination of the interest rate swap.

Convertible Debt. On March 11, 2015, the Company issued $75.0 million aggregate principal amount of 4.50% Convertible Notes. The Convertible Notes bear interest at a rate of 4.50% per year, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2015. The Convertible Notes will mature on March 15, 2020, unless earlier purchased or converted. The initial conversion rate was 14.5136 shares of common stock for each $1,000 principal amount of Convertible Notes, which represented an initial conversion price of approximately $68.90 per share of common stock. On July 20, 2016, the Company’s Board of Directors implemented a quarterly dividend in place of the previous semi-annual dividend. As a result, effective February 7, 2017, the adjusted conversion rate is 14.5307 shares of common stock for each $1,000 principal amount of Convertible Notes, which represents an adjusted conversion price of approximately $68.82 per share of common stock.

The conversion rate is subject to adjustment in certain circumstances. Holders may not surrender their Convertible Notes for conversion prior to December 15, 2019 except upon the occurrence of certain conditions relating to the closing sale price of the Company’s common stock, the trading price per $1,000 principal amount of Convertible Notes, or specified corporate events. The Company may not redeem the Convertible Notes prior to the stated maturity date and no sinking fund is provided for the Convertible Notes. The Convertible Notes are convertible, at the election of the Company, into solely cash, solely shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock. The Company intends to settle the Convertible Notes in cash upon conversion, with any excess conversion value to be settled in shares of our common stock. In accordance with GAAP, the Convertible Notes are accounted for as a liability with a separate equity component recorded for the conversion option. A liability was recorded for the Convertible Notes on the issuance date at fair value based on a discounted cash flow analysis using current market rates for debt instruments with similar terms. The difference between the initial proceeds from the Convertible Notes and the estimated fair value of the debt instruments resulted in a debt discount, with an offset recorded to additional paid-in capital representing the equity component. The discount on the Convertible Notes was approximately $6.1 million at issuance, which represents the cash discount paid of approximately $2.6 million and the approximate $3.5 million attributable to the value of the conversion option recorded in equity, which is being amortized into interest expense through the maturity date of the Convertible Notes. As of March 31, 2017, the unamortized debt discount of our Convertible Notes was approximately $3.8 million.

Long-term debt as of March 31, 2017 and December 31, 2016 consisted of the following:


	March 31, 2017					December 31, 2016
			Due Within					Due Within
	Total		One Year			Total		One Year
Credit Facility	$	24,500,000	$	—		$	34,300,000	$	—
Mortgage Note Payable (originated with UBS)		7,300,000		7,300,000	(1)		7,300,000		—
Mortgage Note Payable (originated with Wells Fargo)		30,000,000		—			30,000,000		—
Mortgage Note Payable (originated with Wells Fargo)		25,000,000		—			25,000,000		—
4.50% Convertible Senior Notes due 2020, net of discount		71,172,151		—			70,880,581		—
Loan Costs, net of accumulated amortization		(1,158,841)		—			(1,235,380)		—
Total Long-Term Debt	$	156,813,310	$	7,300,000		$	166,245,201	$	—

⁽¹⁾

The maturity schedule below reflects $31.8 million due in 2018 while the amount due within one year above totals $7.3 million. The difference of $24.5 million is for the Credit Facility which matures on August 1, 2018, which is more than one year from the balance sheet date of March 31, 2017.

Payments applicable to reduction of principal amounts as of March 31, 2017 will be required as follows:


Year Ending December 31,	Amount
2018		31,800,000
2019		—
2020		75,000,000
2021		25,000,000
2022		—
Thereafter		30,000,000
Total Long-Term Debt - Face Value	$	161,800,000

The carrying value of long-term debt as of March 31, 2017 consisted of the following:


	Total
Current Face Amount	$	161,800,000
Unamortized Discount on Convertible Debt		(3,827,849)
Loan Costs, net of accumulated amortization		(1,158,841)
Total Long-Term Debt	$	156,813,310

For the three months ended March 31, 2017, interest expense, excluding amortization of loan costs and debt discounts, was approximately $1.7 million with approximately $2.6 million paid during the period. For the three months ended March 31, 2016, interest expense, excluding amortization of loan costs and debt discounts, was approximately $1.7 million with approximately $2.5 million paid during the period. No interest was capitalized during the three months ended March 31, 2017 or 2016.

The amortization of loan costs incurred in connection with the Company’s long-term debt is included in interest expense in the consolidated statements of operations. Loan costs are amortized over the term of the respective loan agreements using the straight-line method, which approximates the effective interest method. For the three months ended March 31, 2017 or 2016, the amortization of loan costs totaled approximately $113,000 and $102,000, respectively.

The amortization of the approximately $6.1 million discount on the Convertible Notes is also included in interest expense in the consolidated statements of operations. The discount is amortized over the term of the Convertible Notes using the effective interest method. For the three months ended March 31, 2017 or 2016, the amortization of the discount totaled approximately $292,000 and $273,000, respectively.

The Company was in compliance with all of its debt covenants as of March 31, 2017 and December 31, 2016.