Mortgage Notes Payable, Net

9 Months Ended

Sep. 30, 2022

Mortgage notes payable, net as of September 30, 2022 and December 31, 2021 consisted of the following:


		Encumbered Properties	Outstanding Loan Amount (1)				Effective Interest Rate		Interest Rate
Country	Portfolio		September 30, 2022		December 31, 2021					Maturity
			(In thousands)		(In thousands)
Finland:	Finland Properties	5	$	72,505	$	83,940	1.7%	(2)	Fixed/Variable	Feb. 2024

France:	French Properties	7	68,586		79,403		2.5%	(3)	Fixed/Variable	May 2025

Germany:	Germany Properties	5	50,459		58,417		1.8%	(4)	Fixed/Variable	Jun. 2023

Luxembourg/ The Netherlands:	Benelux Properties	3	117,576		136,120		1.4%		Fixed	Jun. 2024
	Total EUR denominated	20	309,126		357,880

United Kingdom:	McLaren	3	112,461		136,471		6.1%		Fixed	Apr. 2024
	Trafalgar Court	—	—		37,834		2.0%		Variable	Sep. 2022
	United Kingdom Properties - Bulk Loan	41	184,930		252,352		3.0%	(5)	Fixed/Variable	Aug. 2023
	Total GBP denominated	44	297,391		426,657

United States:	Penske Logistics	1	70,000		70,000		4.7%	(6)	Fixed	Nov. 2028
	Multi-Tenant Mortgage Loan I	10	162,580		162,580		4.4%	(6)	Fixed	Nov. 2027
	Multi-Tenant Mortgage Loan II	8	32,750		32,750		4.4%	(6)	Fixed	Feb. 2028
	Multi-Tenant Mortgage Loan III	7	98,500		98,500		4.9%	(6)	Fixed	Dec. 2028
	Multi-Tenant Mortgage Loan IV	16	97,500		97,500		4.6%	(6)	Fixed	May 2029
	Multi-Tenant Mortgage Loan V	12	204,000		204,000		3.7%	(6)	Fixed	Oct. 2029
	Total USD denominated	54	665,330		665,330
	Gross mortgage notes payable	118	1,271,847		1,449,867		3.6%
	Mortgage discount		(1,324)		(2,374)
	Deferred financing costs, net of accumulated amortization (7)		(12,344)		(16,578)
	Mortgage notes payable, net	118	$	1,258,179	$	1,430,915	3.6%

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(1)Amounts borrowed in local currency and translated at the spot rate in effect at the applicable reporting date.

(2)80% fixed as a result of a “pay-fixed” interest rate swap agreement and 20% variable. Variable portion is approximately 1.4% plus 3-month Euribor.

Euribor rate in effect as of September 30, 2022.

(3)90% fixed as a result of a “pay-fixed” interest rate swap agreement and 10% variable. Variable portion is approximately 2.3% plus 3-month Euribor. Euribor rate in effect as of September 30, 2022.

(4)80% fixed as a result of a “pay-fixed” interest rate swap agreement and 20% variable. Variable portion is approximately 1.55% plus 3-month Euribor. Euribor rate in effect as of September 30, 2022.

(5)80% fixed as a result of a “pay-fixed” interest rate swap agreement and 20% variable. Variable portion is approximately 2.0% plus daily SONIA as of January 25, 2022 rate in effect as of September 30, 2022. This loan requires principal repayments that began in 2020 based on amounts specified under the loan.

(6)The borrowers’ (wholly owned subsidiaries of the OP) financial statements are included within the Company’s consolidated financial statements, however, the borrowers’ assets and credit are only available to pay the debts of the borrowers and their liabilities constitute obligations of the borrowers.

(7)Deferred financing costs represent commitment fees, legal fees, and other costs associated with obtaining commitments for financing. These costs are amortized over the terms of the respective financing agreements using the effective interest method. Unamortized deferred financing costs are expensed when the associated debt is refinanced or paid down before maturity. Costs incurred in seeking financial transactions that do not close are expensed in the period in which it is determined that the financing will not close.

The following table presents future scheduled aggregate principal payments on the Company’s gross mortgage notes payable over the next four calendar years and thereafter as of September 30, 2022:


(In thousands)	Future Principal Payments (1)
2022 (remainder)	$	4,176
2023	231,213
2024	302,542
2025	68,586


Thereafter	665,330
Total	$	1,271,847

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(1)Assumes exchange rates of £1.00 to $1.11 for GBP and €1.00 to $0.98 for EUR as of September 30, 2022 for illustrative purposes, as applicable.

The total gross carrying value of unencumbered assets as of September 30, 2022 was $2.1 billion, of which approximately $1.2 billion was included in the unencumbered asset pool comprising the borrowing base under the Revolving Credit Facility (as defined in Note 5 — Revolving Credit Facility and Term Loan, Net) and therefore is not available to serve as collateral for future borrowings.

Mortgage Covenants

The Company’s mortgage notes payable agreements require compliance with certain property-level financial covenants including debt service coverage ratios. As of September 30, 2022, the Company was in compliance with all of its financial covenants under its mortgage notes payable agreements.

Multi-Tenant Mortgage Loan III

During the three months ended December 31, 2020, a major tenant failed to renew its lease triggering a cash sweep event under one of the Company’s mortgage loans secured by seven of the Company’s properties with a balance of $98.5 million as of September 30, 2022. The event triggering the cash sweep was not, however, an event of default. During the first quarter of 2021, the Company cured the cash sweep event through one of the available options under the loan by putting a $3.2 million letter of credit in place (subject to future increase under the terms of the loan agreement, to a maximum amount of $7.4 million). During the third quarter of 2021, the amount of the letter of credit was increased by an additional $4.2 million, resulting in the lender holding the $7.4 million maximum amount in respect to this obligation as of September 30, 2021. This $7.4 million letter of credit is being held by the lender until such time the Company is able to find a suitable replacement tenant and it reduces the availability for future borrowings under the Revolving Credit Facility.

The borrower entities under the same mortgage loan identified, based upon a review conducted during the three months ended June 30, 2022, that during the three months ended March 31, 2022, they failed to maintain the debt service coverage ratio required by the loan agreement for such period (a “DSCR Trigger Event”). Such failure, upon delivery of notice of the same by the lender, triggered a separate cash sweep event under the loan. A DSCR Trigger Event is not an event of default and instead triggers a cash sweep event. The lender has notified the borrower entities of the occurrence of a DSCR Trigger Event under the loan for the three-months ended March 31, 2022 and the continuance of such DSCR Trigger Event for the three months ended June 30, 2022. Per the loan agreement the Company is able to cure the cash sweep event resulting from a DSCR Trigger Event by delivering a letter of credit in the face amount of the excess cash flow for the trailing three months immediately preceding the date of the DSCR Trigger Event. Such letter of credit is thereafter recalculated and increased (but never decreased) every three-month period thereafter until such time as the borrowers demonstrate compliance with the debt service coverage ratio required by the loan for a period of two consecutive calendar quarters. The Company has cured the cash sweep event resulting from the DSCR Trigger Event referenced above for the relevant periods by delivering a letter of credit to the lender in the face amount of approximately $0.9 million. The face value of such letter of credit will be increased by $1.3 million to reflect the continuance of the DSCR Trigger Event for the three months ended September 30, 2022 in due course in accordance with the loan agreement. Such letter of credit will be held by the lender until such time as the Company restores debt service coverage ratio compliance under the loan for the requisite two-calendar-quarter time period. Upon issuance and for so long as it remains outstanding, such letter of credit will dollar-for-dollar reduce availability for future borrowings under the Revolving Credit Facility.

French Properties

During the second and third quarters of 2021, the Company also triggered a cash sweep under one of its loans with a balance of €70.0 million ($68.6 million) as of September 30, 2022 because the aggregate weighted average unexpired lease term (“WAULT”) of the collateral portfolio was less than three years. This was not an event of default and instead triggered a cash sweep event. For so long as the cash sweep is in effect, the lender is sweeping 30% of excess cash flow and retaining such amount in an excess cash collateral account. As of September 30, 2022, the amount of cash swept was €5.5 million ($5.4 million) and is recorded in restricted cash on the Company’s consolidated balance sheet.

If and when the aggregate WAULT of the loan collateral again exceeds three years the cash sweep will cease (so long as the aggregate WAULT of the loan collateral thereafter continues to exceed three years). The lender will be required to release all funds retained by the lender in the excess cash flow account in respect of this WAULT cash sweep upon the loan collateral achieving an aggregate WAULT of not less than four years. Per the terms of the applicable loan agreement, the funds held in the excess cash flow account are included for purposes of the calculation of the loan to value ratio.

Multi-Tenant Mortgage Loan IV

During the three months ended September 30, 2021, a tenant exercised its right to terminate its lease effective December 31, 2022. Notice of the termination triggered a lease sweep event, which began in the fourth quarter of 2021, under one of the Company’s mortgage loans. This was not, however, an event of default. The mortgage loan had a balance of $97.5 million as of September 30, 2022 and it encumbers 16 properties, one of which is leased by the tenant that exercised its right to terminate its lease. Pursuant to the terms of the loan agreement, the lender is sweeping all cash flow attributable to the lease that triggered the lease sweep event into a rollover reserve account in an amount up to, but not to exceed, an aggregate cap of $0.8 million. The reserve will be held by the lender who is required to make the reserve funds available to the Company to fund re-tenanting expenses for the property. The lease sweep event will be cured under the loan agreement if and when the Company leases the space to a new tenant approved by the lender and, at such time, any amounts remaining in the rollover reserve account in respect of the lease sweep event will be released to the Company.

McLaren Loan

In April 2021, the Company partially funded its acquisition of the McLaren properties with a loan secured by a mortgage in the amount of £101.0 million ($112.5 million as of September 30, 2022). The maturity date of the loan is April 23, 2024 and it bears interest at 6.0% per annum. The loan is interest-only with the principal due at maturity. The Company recorded a discount of approximately $3.1 million related to this mortgage.

Trafalgar Court Loan

In September 2021, the Company assumed a £28.0 million ($38.6 million as of the date assumed of September 2, 2021) mortgage in connection with its acquisition of the Trafalgar Court property located in Guernsey, Channel Islands. The loan matured and was repaid on September 28, 2022 and bore interest at a rate of GBP LIBOR plus 2.0% per year through October 20, 2021. The rate changed to the Sterling Overnight Index Average plus 2.0% after October 20, 2021, continuing through the maturity date of the loan. The loan was interest-only with the principal due at maturity.