Mortgages Payable (Mortgages Payable)

12 Months Ended

Dec. 31, 2012

Mortgages Payable

Debt instrument

Mortgages Payable

8.     Mortgages Payable

During 2012 and 2011, we assumed mortgages totaling $110.5 million and $67.4 million, respectively. These mortgages are secured by the properties on which the debt was placed.  Although this mortgage debt is non-recourse, there are limited customary exceptions for items such as bankruptcy, misrepresentation, fraud, misapplication of payments, environmental liabilities, failure to pay taxes, insurance premiums, liens on the property, and uninsured losses. We expect to pay off the mortgages as soon as prepayment penalties and costs make it economically feasible to do so. We intend to continue our policy of primarily identifying property acquisitions that are free from mortgage indebtedness.  In 2012, we repaid one mortgage in full for $10.7 million.

During 2012, aggregate net premiums totaling $10.0 million were recorded upon assumption of the mortgages for above-market interest rates, as compared to net premiums totaling $820,000 recorded in 2011. Amortization of these net premiums is recorded as a reduction to interest expense over the remaining term of the respective notes, using a method that approximates the effective-interest method. These mortgages contain customary covenants, such as limiting our ability to further mortgage each applicable property or to discontinue insurance coverage, without the prior consent of the lender.  At December 31, 2012, we remain in compliance with these covenants.

As a result of assuming these mortgages payable, we incurred deferred financing costs of $1.1 million during 2012 and $917,000 during 2011, which were classified as part of other assets, net, on our consolidated balance sheets.  The balance of these deferred financing costs was $1.5 million at December 31, 2012, and $751,000 at December 31, 2011, which is being amortized over the remaining term of each mortgage.

The following is a summary of our mortgages payable as of December 31, 2012 and 2011, sorted by maturity date (dollars in thousands):

At December 31, 2012

Maturity Date(1)	Stated Interest Rate(2)	Effective Interest Rate	Remaining Principal Balance(1)		Amortized Premium (Discount) Balance		Mortgage Payable Balance
12/1/13	6.3%	4.6%	$	11,987	$	172	$	12,159
12/28/13(3)	8.3%	8.3%	4,510		--		4,510
12/28/13(3)	8.3%	8.3%	4,270		--		4,270
9/1/14	6.3%	5.1%	11,509		196		11,705
6/10/15	4.7%	4.8%	23,625		(48)		23,577
1/10/16	6.0%	3.7%	12,982		794		13,776
1/8/17	5.7%	3.8%	6,883		454		7,337
2/8/17	5.8%	4.0%	29,510		1,829		31,339
6/6/17	5.7%	2.7%	10,150		1,201		11,351
10/1/20	6.0%	4.2%	8,765		907		9,672
9/3/21(4)	2.6%	4.0%	8,359		(771)		7,588
7/8/22	6.4%	4.0%	29,308		4,675		33,983
4/1/25	6.9%	5.1%	4,069		532		4,601
			$	165,927	$	9,941	$	175,868

At December 31, 2011

Maturity Date(1)	Stated Interest Rate(2)	Effective Interest Rate	Remaining Principal Balance(1)		Amortized Premium (Discount) Balance		Mortgage Payable Balance
5/6/12	5.9%	5.2%	$	10,664	$	26	$	10,690
12/1/13	6.3%	4.6%	12,410		314		12,724
12/28/13(3)	8.3%	8.3%	4,510		--		4,510
12/28/13(3)	8.3%	8.3%	4,270		--		4,270
9/1/14	6.3%	5.1%	11,671		359		12,030
6/10/15	4.7%	4.8%	23,625		(68)		23,557
			$	67,150	$	631	$	67,781

(1) The mortgages require monthly payments, with a principal payment due at maturity.

(2) The mortgages are at fixed interest rates, except for: (1)  the mortgage maturing on June 10, 2015 with a floating variable interest rate calculated as the sum of the current 1 month LIBOR plus 4.5%, not to exceed an all-in interest rate of 5.5%, and (2) the mortgage maturing on September 3, 2021 with a floating interest rate calculated as the sum of the current 1 month LIBOR plus 2.4%.

(3) As part of the assumption of these mortgages payable related to our 2011 acquisitions, we also acquired an $8.8 million note receivable, upon which we will receive interest income at a stated rate of 8.14% through December 28, 2013.

(4) As part of the assumption of this mortgage payable related to our 2012 acquisitions, we also acquired an interest rate swap which essentially fixes the interest rate on this mortgage payable at 6.0%.