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Mortgages Payable (Mortgages Payable)
6 Months Ended
Jun. 30, 2013
Mortgages Payable
 
Debt instrument  
Mortgages Payable

7.     Mortgages Payable

 

During the first six months of 2013, we assumed mortgages totaling $630.0 million, excluding net premiums.  The mortgages are secured by the properties on which the debt was placed. Of the $630.0 million of mortgages assumed during the first six months of 2013, approximately $608.8 million is considered non-recourse with 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.  Approximately $6.6 million has full recourse to Realty Income, and the remaining $14.6 million of the assumed debt is not guaranteed by Realty Income.  We expect to pay off the mortgages as soon as prepayment penalties have declined to a level that will make it economically feasible to do so.  We intend to continue to primarily identify property acquisitions that are free from mortgage indebtedness.

 

During the first six months of 2013, aggregate net premiums totaling $28.4 million were recorded upon assumption of the mortgages for above-market interest rates, as compared to net premiums totaling $10.0 million recorded in 2012. Amortization of these net premiums is recorded as a reduction to interest expense over the remaining term of the respective mortgages, 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 June 30, 2013, we remain in compliance with these covenants.

 

As a result of assuming mortgages payable in the first six months of 2013 and in all of 2012, we incurred deferred financing costs of $211,000 and $1.1 million, respectively, 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 June 30, 2013 and at December 31, 2012, which is being amortized over the remaining term of each mortgage.

 

The following is a summary of all our mortgages payable as of June 30, 2013 and December 31, 2012, respectively (dollars in thousands):

 

 

 

 

 

Weighted

 

Weighted

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

Average

 

Average

 

Average

 

 

 

 

 

 

 

 

 

 

 

Stated

 

Effective

 

Remaining

 

Remaining

 

Unamortized

 

Mortgage

 

 

 

Number of

 

Interest

 

Interest

 

Years Until

 

Principal

 

Premium

 

Payable

 

As Of

 

Properties(1)

 

Rate(2)

 

Rate(3)

 

Maturity

 

Balance

 

Balance

 

Balance

 

6/30/13

 

229

 

5.4%

 

3.9%

 

4.5

 

$

793,217

 

$

33,892

 

$

827,109

 

12/31/12

 

11

 

5.8%

 

4.4%

 

4.8

 

$

165,927

 

$

9,941

 

$

175,868

 

 

(1)   At June 30, 2013, there were 51 mortgages on 229 properties, while at December 31, 2012, there were 13 mortgages on 11 properties.  The mortgages require monthly payments, with principal payments due at maturity.  The mortgages are at fixed interest rates, except for: (1) a $23.6 million mortgage maturing on June 10, 2015 with a floating variable interest rate calculated as the sum of the current one month LIBOR plus 4.5%, not to exceed an all-in interest rate of 5.5%, (2) a $8.3 million mortgage maturing on September 3, 2021, with a floating interest rate calculated as the sum of the current one month LIBOR plus 2.4%, and (3) a $32.4 million mortgage maturing on April 10, 2017, which is fixed at 5.07% through December 28, 2015, but is reset to the greater of 4.0%, or the two-year swap rate plus 2.75% thereafter.  As part of the $8.3 million mortgage payable assumed in 2012, we also acquired an interest rate swap which essentially fixes the interest rate on this mortgage payable at 6.0%.  As part of the $32.4 million mortgage payable assumed in 2013, we have the opportunity to prepay the mortgage at par on December 28, 2015, prior to the variable interest rate reset.  As part of two mortgages totaling $8.8 million and maturing on December 28, 2013, we also acquired an $8.8 million note receivable, upon which we receive interest income at a stated rate of 8.1% through December 28, 2013.

(2)   Stated interest rates ranged from 2.5% to 8.3% at June 30, 2013, while stated interest rates ranged from 2.6% to 8.3% at December 31, 2012.

(3)   Effective interest rates ranged from 2.4% to 9.3% at June 30, 2013, while effective interest rates ranged from 2.7% to 8.3% at December 31, 2012.

 

The following table summarizes the maturity of mortgages payable, excluding net premiums of $33.9 million, as of June 30, 2013 (dollars in millions):

 

Year of

 

 

 

 

Maturity

 

 

 

 

2013

 

 

$

24.3

 

2014

 

 

64.4

 

2015

 

 

125.5

 

2016

 

 

248.4

 

2017

 

 

133.0

 

Thereafter

 

 

197.6

 

Totals

 

 

$

793.2