Debt

9 Months Ended

Sep. 30, 2019

7. Debt

A summary of the Company’s consolidated indebtedness is as follows (dollars in thousands):

	Interest Rate at						Carrying Value at
	September 30,		December 31,		Maturity Date at		September 30,			December 31,
	2019		2018		September 30, 2019		2019			2018
Mortgages Payable
Core Fixed Rate	3.88%-6.00%		3.88%-6.00%		Feb 2024 - Apr 2035		$	176,714		$	178,271
Core Variable Rate - Swapped ^(a)	3.41%-5.67%		3.41%-5.67%		Jan 2023 - Nov 2028			81,819			82,583
Total Core Mortgages Payable								258,533			260,854
Fund II Fixed Rate	4.75%		1.00%-4.75%		May 2020			200,000			205,262
Fund II Variable Rate	LIBOR+3.00%			—	March 2022			23,925			—
Fund II Variable Rate - Swapped ^(a)	4.27%		4.27%		Nov 2021			19,138			19,325
Total Fund II Mortgages Payable								243,063			224,587
Fund III Variable Rate	LIBOR+3.00%-LIBOR+3.10%		Prime+0.50%-LIBOR+4.65%		Jan 2020 - Jun 2020			74,145			90,096
Fund IV Fixed Rate	3.40%-4.50%		3.40%-4.50%		Oct 2025 - Jun 2026			8,189			8,189
Fund IV Variable Rate	LIBOR+1.60%-LIBOR+3.40%		LIBOR+1.60%-LIBOR+3.95%		Dec 2019 - Apr 2022			157,200			233,065
Fund IV Variable Rate - Swapped ^(a)	3.67%-4.61%		3.67%-4.23%		Mar 2020 - Dec 2022			88,601			71,841
Total Fund IV Mortgages Payable								253,990			313,095
Fund V Variable Rate	LIBOR+2.15%-LIBOR+2.25%		LIBOR+2.25%		Oct 2020 - Jan 2021			51,506			51,506
Fund V Variable Rate - Swapped ^(a)	4.01%-4.78%		4.61%-4.78%		Feb 2021 - Mar 2024			156,900			86,570
Total Fund V Mortgage Payable								208,406			138,076
Net unamortized debt issuance costs								(9,135	)		(10,173	)
Unamortized premium								676			753
Total Mortgages Payable							$	1,029,678		$	1,017,288
Unsecured Notes Payable
Core Term Loans		—	LIBOR+1.25%		Mar 2023		$	—		$	383
Core Variable Rate Unsecured Term Loans - Swapped ^(a)	2.49%-4.05%		2.54%-3.59%		Mar 2023			350,000			349,617
Total Core Unsecured Notes Payable								350,000			350,000
Fund II Unsecured Notes Payable	LIBOR+1.65%		LIBOR+1.40%		Sep 2020			40,000			40,000
Fund IV Term Loan/Subscription Facility	LIBOR+1.65%-LIBOR+2.00%		LIBOR+1.65%-LIBOR+2.75%		Dec 2019 - June 2021			87,625			40,825
Fund V Subscription Facility	LIBOR+1.60%		LIBOR+1.60%		May 2020			148,380			102,800

Net unamortized debt issuance costs								(328	)		(368	)
Total Unsecured Notes Payable							$	625,677		$	533,257
Unsecured Line of Credit
Core Unsecured Line of Credit		—		—		—	$	—		$	—

Total Debt - Fixed Rate ^(b)(c)							$	1,236,805		$	1,001,658
Total Debt - Variable Rate ^(d)								427,337			558,675
Total Debt								1,664,142			1,560,333
Net unamortized debt issuance costs								(9,463	)		(10,541	)
Unamortized premium								676			753
Total Indebtedness							$	1,655,355		$	1,550,545

(a)

At September 30, 2019, the stated rates ranged from LIBOR + 1.50% to LIBOR +1.90% for Core variable-rate debt; LIBOR + 1.39% for Fund II variable-rate debt; LIBOR + 3.00% to LIBOR + 3.10% for Fund III variable-rate debt; LIBOR + 1.60% to LIBOR +3.40% for Fund IV variable-rate debt; LIBOR + 2.15% to LIBOR + 2.25% for Fund V variable-rate debt; LIBOR + 1.25% for Core variable-rate unsecured term loans; and LIBOR + 1.35% for Core variable-rate unsecured lines of credit.

(b)

Includes $696.5 million and $609.9 million, respectively, of variable-rate debt that has been fixed with interest rate swap agreements as of the periods presented.

(c)

Fixed-rate debt at September 30, 2019 includes $155.4 million of Core swaps that may be used to hedge debt instruments of the Funds.

(d)

Includes $143.0 million and $143.8 million, respectively, of variable-rate debt that is subject to interest cap agreements.

Credit Facility

On February 20, 2018, the Company entered into a $500.0 million senior unsecured credit facility (the “Credit Facility”), comprised of a $150.0 million senior unsecured revolving credit facility (the “Revolver”) which bears interest at LIBOR + 1.35%, and a $350.0 million senior unsecured term loan (the “Term Loan”) which bears interest at LIBOR + 1.25%. The Credit Facility refinanced the Company’s existing $300.0 million credit facility (comprised of the $150.0 million Core unsecured revolving line of credit and the $150.0 million term loan), $150.0 million in Core unsecured term loans and repaid a $40.4 million mortgage secured by its 664 North Michigan Property. The Revolver and Term Loans mature on March 31, 2022 and March 31, 2023, respectively.

The Company’s Credit Facility was amended, and the capacity of the unsecured revolving line of credit was increased on October 8, 2019 (Note 15).

Mortgages Payable

During the nine months ended September 30, 2019:

•

The Company obtained four new Fund mortgages totaling $118.3 million with a weighted-average interest rate of LIBOR + 1.65% collateralized by four properties and maturing in 2022 through 2024.

•

The Company refinanced a Fund IV loan in the amount of $23.8 million, of which $18.9 million had been drawn at September 30, 2019, and which bears interest at a rate of LIBOR + 1.75% and matures in 2022.

•

Fund III mortgage, which had a balance of $4.7 million and an interest rate of Prime + 0.5%, was assumed by the purchasing venture in a property sale (Note 2). The Company also repaid a Fund IV loan in full, which had a balance of $38.2 million and an interest rate of LIBOR + 2.35%. The Company repaid one Fund III loan in the amount of $9.8 million and two Fund IV loans in the aggregate amount of $18.4 million in connection with the sale of the properties. The Company also made scheduled principal payments of $4.6 million.

•

The Company re-borrowed $49.0 million in the third quarter pursuant to the requirements of a loan amendment entered into during the second quarter and the Company also drew down $8.7 million on a Fund III construction loan

•

The Company modified two Fund IV loans to increase the commitment of BSP Venture I’s mortgage by $9.4 million; and to decrease the 717 North Michigan Avenue mortgage balance by $9.9 million, decrease future availability by $3.9 million and reduce the interest rate to LIBOR + 3.10%. The Company also modified a Fund III loan to decrease the balance by $10.0 million to $39.5 million and reduce the interest rate to LIBOR plus 3.10% from LIBOR plus 4.65%.

•

The Company entered into interest rate swap contracts to effectively fix the variable portion of the interest rates of four of the new obligations with a notional value of $91.5 million at a weighted-average interest rate of 2.74%.

At September 30, 2019 and December 31, 2018, the Company’s mortgages were collateralized by 41 and 43 properties, respectively, and the related tenant leases. Certain loans are cross-collateralized and contain cross-default provisions. The loan agreements contain customary representations, covenants and events of default. Certain loan agreements require the Company to comply with affirmative and negative covenants, including the maintenance of debt service coverage and leverage ratios. A portion of the Company’s variable-rate mortgage debt has been effectively fixed through certain cash flow hedge transactions (Note 8).

The mortgage loan collateralized by the property held by Brandywine Holdings in the Core Portfolio, was in default and subject to litigation at September 30, 2019 and December 31, 2018. This loan was originated in June 2006 and had an original principal amount of $26.3 million and a scheduled maturity of July 1, 2016. The loan bears interest at a stated rate of approximately 6.00%, and is subject to additional default interest of 5%. In April 2017, the successor to the lender, Wilmington – 5190 Brandywine Parkway, LLC, initiated lawsuits against Brandywine Holdings in Delaware Superior Court and Delaware Chancery Court for, among other things, judgment on the note (the “Note Complaint”) and foreclosure on the property. In a contemporaneously filed action in Delaware Superior Court (the “Guaranty Complaint”), the successor lender initiated a lawsuit against the Operating Partnership as guarantor of certain guaranteed obligations of Brandywine Holdings set forth in a non-recourse carve-out guaranty executed by the Operating Partnership. The Guaranty Complaint alleges that the Operating Partnership is liable for the full balance of the principal, accrued interest as well as fees and costs under the note, which the lender alleges was approximately $33.0 million as of November 9, 2017 (exclusive of accruing interest, default interest, fees and costs). In August 2019, the Delaware Superior Court heard arguments on the parties’ cross-motions for summary judgement regarding both the Guaranty Complaint and the Note Complaint. The Company believes it has valid defenses regarding the Guaranty Complaint and the Note Complaint and has been vigorously defending itself. A decision on the cross-motions for summary judgment is expected before the end of 2019.

During the third quarter of 2019, the company recognized income of $5.0 million related to Fund II’s New Market Tax Credit transaction (“NMTC”) involving its City Point project. NMTCs were created to encourage economic development in low income communities and provided for a 39% tax credit on certain qualifying invested equity/loans. In 2012, the NMTCs were transferred to a group of investors (“Investors”) in

exchange for $5.2 million. The NMTCs were subject to recapture under various circumstances, including redemption of the loan/investment prior to a requisite seven-year hold period, and recognition of income was deferred. Upon the expiration of the seven-year period and no further obligations, the Company recognized income of $5.0 million during the three months ended September 30, 2019, which is included in Other income in the consolidated statements of income.

Unsecured Notes Payable

Unsecured notes payable for which total availability was $17.6 million and $62.3 million at September 30, 2019 and December 31, 2018, respectively, are comprised of the following:

•

As discussed above, the Core unsecured term loans totaling $300.0 million were refinanced in February 2018, into one $350.0 million term loan with an interest rate of LIBOR+ 1.25% and maturing in March 2023. The outstanding balance of the Core term loans was $350.0 million at September 30, 2019 and December 31, 2018. During the nine months ended September 30, 2019, the Company entered into interest rate swap contracts to effectively fix the variable portion of the interest rate with a notional value of $156.0 million at a weighted-average interest rate of 2.43%, which may be used to swap the Company’s unhedged, unsecured, LIBOR-based variable-rate debt. The Company previously entered into swap agreements fixing the rates of the remaining Core term loan balance.

•

Fund II has a $40.0 million term loan secured by the real estate assets of City Point Phase II and guaranteed by the Company and the Operating Partnership. The outstanding balance of the Fund II term loan was $40.0 million at each of September 30, 2019 and December 31, 2018. Total availability was $0.0 million at each of September 30, 2019 and December 31, 2018.

•

At Fund IV there is a $80.2 million bridge facility and a $27.0 million subscription line, which were modified from their previous limits of $41.8 million and $15.0 million, respectively, during the second quarter of 2019. The outstanding balance of the Fund IV bridge facility was $79.2 million at September 30, 2019 and $40.8 million at December 31, 2018. Total availability was $1.0 million at each of September 30, 2019 and December 31, 2018. The outstanding balance of the Fund IV subscription line was $8.4 million at September 30, 2019 and $0 at December 31, 2018. Total availability was $15.0 million at both September 30, 2019 and December 31, 2018, reflecting letters of credit of $3.6 million and $7.4 million, respectively.

•

Fund V has a $150.0 million subscription line collateralized by Fund V’s unfunded capital commitments and guaranteed by the Operating Partnership. The outstanding balance and total available credit of the Fund V subscription line was $148.4 million and $1.6 million, respectively at September 30, 2019. The outstanding balance and total available credit of the Fund V subscription line was $102.8 million and $47.2 million, respectively at December 31, 2018.

Unsecured Revolving Line of Credit

The Company had a total of $133.2 million and $137.7 million available under its $150.0 million Core unsecured revolving line of credit reflecting the issuance of letters of credit of $16.8 million and $12.3 million at September 30, 2019 and December 31, 2018, respectively. At each of September 30, 2019 and December 31, 2018, all of the Core unsecured revolving line of credit was swapped to a fixed rate.

The capacity of the Company’s unsecured revolving line of credit was increased on October 8, 2019 (Note 15).

Scheduled Debt Principal Payments

The scheduled principal repayments of the Company’s consolidated indebtedness, as of September 30, 2019 are as follows (in thousands):

Year Ending December 31,
2019 (Remainder)	$	121,846
2020		561,472
2021		240,659
2022		91,357
2023		412,305
Thereafter		236,503
		1,664,142
Unamortized premium		676
Net unamortized debt issuance costs		(9,463	)
Total indebtedness	$	1,655,355

See Note 4 for information about liabilities of the Company’s unconsolidated affiliates.