Mortgages Payable (Mortgages Payable)

9 Months Ended

Sep. 30, 2012

Mortgages Payable

Debt instrument

Mortgages Payable

6.     Mortgages Payable

During the first nine months of 2012, we assumed mortgages totaling $70.0 million, payable to third-party lenders, as compared to $67.4 million of mortgages assumed in the first nine months of 2011. These mortgages are secured by the properties on which the debt was placed and are non-recourse. 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 the first nine months of 2012, we repaid one mortgage in full for $10.7 million.

During the first nine months of 2012, aggregate net premiums totaling $7.1 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 September 30, 2012, we remain in compliance with these covenants.

As a result of assuming these mortgages payable, we incurred deferred financing costs of $685,000 during the first nine months of 2012 and $917,000 during the first nine months of 2011, which were classified as part of other assets on our consolidated balance sheet.  The balance of these deferred financing costs was $1.2 million at September 30, 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 at September 30, 2012 and December 31, 2011, sorted by maturity date (dollars in thousands):

At September 30, 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(3)	6.3%	4.6%	$  12,095	$   219		$ 12,314
12/28/13(4)(5)	8.3%	8.3%	4,510	--		4,510
12/28/13(4)(5)	8.3%	8.3%	4,270	--		4,270
9/1/14(3)	6.3%	5.1%	11,550	226		11,776
6/10/15	4.7%	4.8%	23,625	(53	)	23,572
1/10/16	6.0%	3.7%	13,048	859		13,907
6/6/17	5.7%	2.7%	10,150	1,269		11,419
10/1/20	6.0%	4.3%	8,983	936		9,919
9/3/21(6)	2.6%	4.0%	8,394	(793	)	7,601
7/8/22	6.4%	4.0%	29,308	4,798		34,106
			$ 125,933	$   7,461		$ 133,394

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(3)	6.3%	4.6%	12,410	314	12,724
12/28/13(4)(5)	8.3%	8.3%	4,510	--	4,510
12/28/13(4)(5)	8.3%	8.3%	4,270	--	4,270
9/1/14(3)	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)These are mortgages, with different maturity dates, associated with one property.

(4)These are mortgages, with the same maturity date, associated with one property.

(5)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.

(6)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%.