XML 24 R13.htm IDEA: XBRL DOCUMENT v3.21.2
DEBT
 9 Months Ended
Sep. 30, 2021
Debt Disclosure [Abstract]  
DEBT DEBT
Mortgage Notes Payable, Net
As of September 30, 2021 and December 31, 2020, the Company’s mortgage notes payable consisted of the following:
Collateral2021 Principal
Amount		2020 Principal
Amount		Contractual Interest
Rate (1)		Effective
Interest Rate (1)		Loan
Maturity
Accredo property$8,538,000 $8,538,000 3.80%3.80%8/1/2025
Six Dollar General properties3,693,074 3,747,520 4.69%4.69%4/1/2022
Dana property— 4,466,865 4.56%4.56%4/1/2023
Northrop Grumman property (8)6,971,012 5,518,589 3.35%3.35%5/21/2031
exp US Services property3,272,333 3,321,931 (4)4.25%11/17/2024
Harley Davidson property (2)6,525,824 — 4.25%4.25%9/1/2024
Wyndham property (3)5,522,100 5,607,000 
One-month LIBOR + 2.05%
4.34%6/5/2027
Williams Sonoma property (3)4,368,000 4,438,200 
One-month LIBOR + 2.05%
4.34%6/5/2022
Omnicare property4,130,640 4,193,171 4.36%4.36%5/1/2026
EMCOR property2,771,646 2,811,539 4.35%4.35%12/1/2024
Husqvarna property6,379,182 6,379,182 (5)4.60%2/20/2028
AvAir property19,950,000 19,950,000 3.80%3.80%8/1/2025
3M property8,058,500 8,166,000 
One-month LIBOR + 2.25%
5.09%3/29/2023
Cummins property8,222,700 8,332,200 
One-month LIBOR + 2.25%
5.16%4/4/2023
Texas Health property4,304,825 4,363,203 4.00%4.00%12/5/2024
Bon Secours property5,124,127 5,180,552 5.41%5.41%9/15/2026
Costco property18,850,000 18,850,000 4.85%4.85%1/1/2030
Taylor Fresh Foods12,350,000 12,350,000 3.85%3.85%11/1/2029
Levins property (6)2,671,067 2,032,332 3.75%3.75%2/16/2026
Dollar General Bakersfield property (6)2,244,201 2,268,922 3.65%3.65%2/16/2028
Labcorp property (6)5,342,133 4,020,418 3.75%3.75%2/16/2026
GSA (MSHA) property (6)1,728,428 1,752,092 3.65%3.65%2/16/2026
PreK Education property (7)4,957,705 5,037,846 4.25%4.25%12/1/2021
Solar Turbines, Amec Foster, ITW Rippey properties (7)9,044,276 9,214,700 3.35%3.35%11/1/2026
Dollar General Big Spring property (7)590,962 599,756 4.50%4.50%4/1/2022
Gap property (7)3,512,484 3,569,990 4.15%4.15%8/1/2023
L3Harris property (8)6,260,223 5,185,929 3.35%3.35%5/21/2031
Sutter Health property (7)13,669,395 13,879,655 4.50%4.50%3/9/2024
Walgreens property (7)3,094,060 3,172,846 4.25%4.25%7/16/2030
Total mortgage notes payable182,146,897 176,948,438 
Plus unamortized mortgage premium, net (9)239,979 447,471 
Less unamortized deferred financing costs(1,472,537)(1,469,991)
Mortgage notes payable, net$180,914,339 $175,925,918 
(1)Contractual interest rate represents the interest rate in effect under the mortgage note payable as of September 30, 2021. Effective interest rate is calculated as the actual interest rate in effect as of September 30, 2021, consisting of the contractual interest rate and the effect of the interest rate swap, if applicable (see Note 8 for further information regarding the Company’s derivative instruments).
(2)Reclassified to mortgage note payable at June 30, 2021 from mortgage note payable related to real estate investments held for sale as of December 31, 2020 due to a subsequent decision not to sell the real estate investment property securing the loan which was reclassified back to assets held and used from assets held for sale (see Note 3 for additional information).
(3)The loans on each of the Williams Sonoma and Wyndham properties (collectively, the “Property”) located in Summerlin, Nevada were originated by Nevada State Bank (“Bank”). The loans 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 loans, is an event of default under the terms of both loans. 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 loan to value ratio is ever more than 60%, the borrower shall, upon the Bank’s written demand, reduce the principal balance of the loans so that the loan to value ratio is no more than 60%.
(4)The initial contractual interest rate is 4.25% and starting November 18, 2022, the interest rate becomes the U.S. Treasury Bill index rate plus 3.25%.
(5)The initial contractual interest rate is 4.60% through February 20, 2023 and then the greater of 4.60% or five-year Treasury Constant Maturity (“TCM”) plus 2.45% through February 20, 2028.
(6)The mortgage note as of September 30, 2021 was refinanced on March 5, 2021 with a new lender and terms. The mortgage note as of December 31, 2020 was acquired through the Merger on December 31, 2019.
(7)The loan was acquired through the Merger on December 31, 2019.
(8)The loans on the Northrop Grumman and L3Harris properties were refinanced during the second quarter of 2021. The initial contractual interest rate is 3.35% through June 1, 2026 and then the Prime Rate in effect as of June 1, 2026 plus 0.25% through May 21, 2031; provided that the second fixed interest rate will not be lower than 3.35% per annum.
(9)Represents unamortized net mortgage premium acquired through the Merger.
The following summarizes the face value, carrying amount and fair value of the Company’s mortgage notes payable (Level 3 measurement) as of September 30, 2021 and December 31, 2020:
September 30, 2021December 31, 2020
Face ValueCarrying
Value		Fair ValueFace valueCarrying
Value		Fair Value
Mortgage notes payable$182,146,897 $180,914,339 $183,304,467 $176,948,438 $175,925,918 $177,573,106 
Disclosures of the fair values of financial instruments are 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 fair value.
Mortgage Notes Payable Related to Real Estate Investments Held For Sale, Net
As discussed in detail in Note 3, the Company classified two properties as real estate held for sale as of December 31, 2020, which were collateral for mortgage notes payable. No properties were classified as held for sale as of September 30, 2021. The following table summarizes the Company's mortgage notes payable related to real estate investments held for sale as of December 31, 2020:
CollateralDecember 31,
2020
Harley Davidson property$6,623,346 
EcoThrift property2,573,509 
Total9,196,855 
Plus unamortized mortgage premium1,550 
Less deferred financing costs(109,967)
Mortgage notes payable, net$9,088,438 
Credit Facility, Net
The details of the Company's credit facilities as of September 30, 2021 and December 31, 2020 follow:
September 30,
2021		December 31,
2020
Credit facility$— $6,000,000 
Less unamortized deferred financing costs— (21,724)
Credit facility, net$— $5,978,276 
On March 29, 2021, the Company entered into a new credit facility with Banc of California (the “Credit Facility”) for an aggregate line of credit of $22,000,000 with a maturity date of March 30, 2023, which replaced the prior credit facility provided by Pacific Mercantile Bank (“PMB”) with a balance outstanding of $6,000,000 as of December 31, 2020. The Company borrowed $6,000,000 under the Credit Facility and repaid the $6,000,000 that was owed to PMB on March 31, 2021. The Credit Facility provides the Company with a $17,000,000 revolving line of credit for real estate acquisitions (including the $6,000,000 borrowed to repay PMB) and an additional $5,000,000 revolving line of credit for working capital. Under the terms of the Credit Facility, the Company will 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 4.75% per annum. The Company paid Banc of California origination fees of $77,000 in connection with the Credit Facility and will pay an unused commitment fee of 0.15% per annum of the unused portion of the Credit Facility, charged quarterly in arrears based on the average unused commitment available under the Credit Facility.
The Credit Facility's unamortized deferred financing costs of $97,092 as of September 30, 2021 were reclassified and presented under prepaid and other assets in the Company's unaudited condensed consolidated balance sheet as of September 30, 2021. Effective December 31, 2021, the Company will present the Credit Facility's unamortized deferred financing costs for the comparative periods under prepaid and other assets in the consolidated balance sheets and will disclose the unamortized values in the consolidated notes to the financial statements.
The Credit Facility is secured by substantially all of the Company’s tangible and intangible assets, including intellectual property. The Credit Facility requires the Company to maintain a minimum debt service coverage ratio of 1.25 to 1.00 and minimum tangible NAV (as defined in the loan agreement) of $120,000,000, measured quarterly. Mr. Wirta, the Company’s Chairman, and the Wirta Family Trust guaranteed the $6,000,000 initial borrowing, which guarantee expired upon the full repayment of the $6,000,000 in August 2021. Mr. Wirta and the Wirta Family Trust have also guaranteed the $5,000,000 revolving line of credit for working capital. On March 29, 2021, the Company entered into an updated indemnification agreement with Mr. Wirta and the Wirta Family Trust with respect to their guarantees of borrowings under the Credit Facility pursuant to which the Company agreed to indemnify Mr. Wirta and the Wirta Family Trust if they are required to make payments to Banc of California pursuant to such guarantees.
The Credit Facility contains customary representations, warranties and covenants, which are substantially similar to those in the Company's prior credit facility provided by PMB. The Company’s ability to borrow under the 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, tangible net worth, corporate existence and financial reporting obligations. The 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, Banc of California may accelerate the repayment of amounts outstanding under the 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.
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. All of these notes were repaid by April 6, 2020.
Economic Relief Notes Payable
On April 20, 2020, a subsidiary of the Company entered into a loan agreement and promissory note evidencing an unsecured loan in the aggregate amount of $517,000 made to this subsidiary under the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The PPP is administered by the U.S. Small Business Administration (the “SBA”). Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of the loan granted under the PPP. In December 2020, the subsidiary of the Company submitted its application for forgiveness of the total amount of the loan to PMB. After PMB’s review, the Company updated its forgiveness application on February 10, 2021, PMB submitted the application to the SBA on February 10, 2021, and on February 16, 2021, the subsidiary of the Company was notified by PMB that the Company's application for forgiveness of the PPP loan had been approved by the SBA in the full amount of $517,000. Accordingly, the forgiveness of the PPP loan was recorded as other income in the first quarter of 2021.
Compliance with All Debt Agreements
The Company's maximum leverage, as defined and approved by the board of directors, including all of the independent directors, is 55% of the aggregate value of the Company’s tangible assets. The Company uses available leverage based on the relative cost of debt and equity capital, and to address strategic borrowing advantages potentially available to the Company.
Pursuant to the terms of mortgage notes payable on certain of the Company’s properties and the 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 such financial loan covenants as of September 30, 2021.
The following summarizes the future principal repayments of the Company’s mortgage notes payable and credit facility as of September 30, 2021:
Mortgage Notes
Payable		Credit FacilityTotal
October through December 2021$5,578,530 $— $5,578,530 
202211,173,350 — 11,173,350 
202322,204,003 — 22,204,003 
202431,565,888 — 31,565,888 
202528,970,170 — 28,970,170 
202626,484,067 — 26,484,067 
Thereafter56,170,889 — 56,170,889 
Total principal182,146,897 — 182,146,897 
Plus unamortized mortgage premium, net of unamortized discount239,979 — 239,979 
Less deferred financing costs(1,472,537)— (1,472,537)
Net principal$180,914,339 $— $180,914,339 
Interest Expense
The following is a reconciliation of the components of interest expense for the three and nine months ended September 30, 2021 and 2020:
Three Months Ended
September 30,		Nine Months Ended
September 30,
2021202020212020
Mortgage notes payable:
Interest expense$1,812,254 $2,154,363 $5,638,890 $6,454,546 
Amortization of deferred financing costs and mortgage premium, net141,235 435,179 355,661 693,810 
Prepayment penalties— 190,574 23,900 237,574 
(Gain) loss on interest rate swaps (1)(166,539)(231,207)(586,782)1,164,490 
Credit facilities:
Interest expense27,486 128,333 169,571 449,791 
Amortization of deferred financing costs16,605 42,288 60,468 117,624 
Other504 12,998 49,622 78,226 
Total interest expense$1,831,545 $2,732,528 $5,711,330 $9,196,061 
(1)    Includes unrealized (gain) loss on interest rate swaps of $(166,338) and $(272,912) for the three months ended September 30, 2021 and 2020, respectively, and $(684,057) and $1,019,840 for the nine months ended September 30, 2021 and 2020, respectively (see Note 8 for more details). Accrued interest payable of $54,980 and $45,636 as of September 30, 2021 and December 31, 2020, 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.