Debt | 9 Months Ended |
Sep. 30, 2014 |
Debt Disclosure [Abstract] | ' |
Debt | ' |
Debt |
Our borrowings consisted of the following (dollars in thousands): |
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| September 30, | | December 31, | | | | | | | |
2014 | 2013 | | | | | | | |
Mortgage loans, effective interest rates ranging from 4.40% to 6.63%, maturing at various dates through June 2023(1) | $ | 301,422 | | | $ | 274,648 | | | | | | | | |
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Unsecured term loan, effective interest rates ranging from LIBOR plus 1.45% to LIBOR plus 1.90%, with staggered maturity dates ranging from October 2018 to October 2020(1) | 300,000 | | | 300,000 | | | | | | | | |
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Unsecured revolving credit facility, effective interest rate of LIBOR plus 1.50%, maturing October 2017(1) | 213,000 | | | 99,000 | | | | | | | | |
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| $ | 814,422 | | | $ | 673,648 | | | | | | | | |
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(1) | At September 30, 2014, LIBOR was 0.16%. All references to LIBOR in the condensed consolidated financial statements refer to one-month LIBOR. | | | | | | | | | | | | | |
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(a) Mortgage Loans |
The following table provides a summary of our mortgage debt at September 30, 2014 and December 31, 2013 (dollars in thousands): |
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Encumbered Property | Contractual | | Effective | | Maturity | | September 30, | | December 31, |
Interest Rate | Interest | Date | 2014 | 2013 |
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Annapolis Business Center(1) | 5.74% | | 6.25 | % | | Jun-14 | | $ | — | | | $ | 8,076 | |
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Storey Park(2)(3) | LIBOR + 2.75% | | 5.8 | % | | Oct-14 | | 22,000 | | | 22,000 | |
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Jackson National Life Loan(4) | 5.19% | | 5.19 | % | | Aug-15 | | 65,242 | | | 66,116 | |
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Hanover Business Center Building D | 8.88% | | 6.63 | % | | Aug-15 | | 142 | | | 252 | |
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Chesterfield Business Center Buildings C, D, G and H | 8.50% | | 6.63 | % | | Aug-15 | | 399 | | | 681 | |
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440 First Street, NW Construction Loan(2) | LIBOR + 2.50% | | 4.78 | % | | May-16 | | 23,493 | | | 21,699 | |
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Gateway Centre Manassas Building I | 7.35% | | 5.88 | % | | November 2016 | | 484 | | | 638 | |
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Hillside I and II | 5.75% | | 4.62 | % | | Dec-16 | | 13,051 | | | 13,349 | |
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Redland Corporate Center Buildings II & III | 4.20% | | 4.64 | % | | Nov-17 | | 66,127 | | | 67,038 | |
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Hanover Business Center Building C | 7.88% | | 6.63 | % | | Dec-17 | | 543 | | | 653 | |
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840 First Street, NE | 5.72% | | 6.01 | % | | Jul-20 | | 36,694 | | | 37,151 | |
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Battlefield Corporate Center | 4.26% | | 4.4 | % | | Nov-20 | | 3,732 | | | 3,851 | |
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Chesterfield Business Center Buildings A,B,E and F | 7.45% | | 6.63 | % | | Jun-21 | | 1,725 | | | 1,873 | |
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Airpark Business Center | 7.45% | | 6.63 | % | | Jun-21 | | 941 | | | 1,022 | |
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1211 Connecticut Avenue, NW | 4.22% | | 4.47 | % | | Jul-22 | | 29,833 | | | 30,249 | |
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1401 K Street, NW | 4.80% | | 4.93 | % | | Jun-23 | | 37,016 | | | — | |
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| | | 5.06 | % | (5) | | | 301,422 | | | 274,648 | |
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Unamortized fair value adjustments | | | | | | | (500 | ) | | (663 | ) |
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Total contractual principal balance | | | | | | | $ | 300,922 | | | $ | 273,985 | |
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(1) | The loan was prepaid, without penalty, on May 1, 2014 with borrowings under our unsecured revolving credit facility. | | | | | | | | | | | | | |
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(2) | At September 30, 2014, LIBOR was 0.16%. | | | | | | | | | | | | | |
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(3) | The loan was repaid on October 16, 2014. Simultaneously with the repayment, our 97% owned consolidated joint venture entered into a new $22.0 million land loan with an applicable interest rate of LIBOR plus 2.50%, which matures on October 16, 2016, with a one-year extension at our option. | | | | | | | | | | | | | |
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(4) | At September 30, 2014, the loan was secured by the following properties: Plaza 500, Van Buren Office Park, Rumsey Center, Snowden Center, Greenbrier Technology Center II and Norfolk Business Center. The terms of the loan allow us to substitute collateral, as long as certain debt-service coverage and loan-to-value ratios are maintained, or to prepay a portion of the loan, with a prepayment penalty, subject to a debt-service yield. | | | | | | | | | | | | | |
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(5) | Weighted average interest rate on total mortgage debt. | | | | | | | | | | | | | |
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Land Loan |
On October 16, 2014, our 97% owned consolidated joint venture that owns Storey Park repaid a $22.0 million loan that encumbered the Storey Park land and was subject to a 5.0% interest rate floor. Simultaneously with the repayment, the joint venture entered into a new $22.0 million land loan with a variable interest rate of LIBOR plus 2.50%. The new loan matures on October 16, 2016, with a one-year extension at our option, and is repayable in full without penalty at any time during the term of the loan. Per the terms of the loan agreement, $6.0 million of the outstanding principal balance and all of the outstanding accrued interest is recourse to us. |
Construction Loan |
On June 5, 2013, we entered into a construction loan (the “Construction Loan”) that is collateralized by our 440 First Street, NW property, which underwent a major redevelopment that was substantially completed in October 2013. The Construction Loan has a borrowing capacity of up to $43.5 million, of which we initially borrowed $21.7 million in the second quarter of 2013 and borrowed an additional $1.8 million in January 2014. The Construction Loan has a variable interest rate of LIBOR plus a spread of 2.5% and matures in May 2016, with two one-year extension options at our discretion. We can repay all or a portion of the Construction Loan, without penalty, at any time during the term of the loan. At September 30, 2014, per the terms of the loan agreement, 50% of the outstanding principal balance and all of the outstanding accrued interest were recourse to us. The percentage of outstanding principal balance that is recourse to us can be reduced upon the property achieving certain operating thresholds. As of September 30, 2014, we were in compliance with all the financial covenants of the Construction Loan. |
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(b) Unsecured Term Loan |
The table below shows the outstanding balances and the interest rates of the three tranches of the $300.0 million unsecured term loan at September 30, 2014 (dollars in thousands): |
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| Maturity Date | | Amount | | Interest Rate(1) | | | | | | | |
Tranche A | October 2018 | | $ | 100,000 | | | LIBOR, plus 145 basis points | | | | | | | |
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Tranche B | October 2019 | | 100,000 | | | LIBOR, plus 160 basis points | | | | | | | |
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Tranche C | October 2020 | | 100,000 | | | LIBOR, plus 190 basis points | | | | | | | |
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| | | $ | 300,000 | | | | | | | | | | |
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(1) | At September 30, 2014, LIBOR was 0.16%. The interest rate spread is subject to change based on our maximum total indebtedness ratio. Based on our maximum total indebtedness ratio at September 30, 2014, the applicable interest rate spreads on Tranche A, Tranche B and Tranche C of the unsecured term loan will increase by 20 basis points, 20 basis points and 15 basis points, respectively, in November 2014. For more information, see note 9(e) Debt – Financial Covenants. | | | | | | | | | | | | | |
The term loan agreement contains various restrictive covenants substantially identical to those contained in our unsecured revolving credit facility, including with respect to liens, indebtedness, investments, distributions, mergers and asset sales. In addition, the agreement requires that we satisfy certain financial covenants that are also substantially identical to those contained in our unsecured revolving credit facility. The agreement also includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations of our Company under the agreement to be immediately due and payable. As of September 30, 2014, we were in compliance with all the financial covenants of the unsecured term loan. |
(c) Unsecured Revolving Credit Facility |
During the third quarter of 2014, we borrowed $105.0 million under the unsecured revolving credit facility, of which $89.0 million was used to fund the acquisition of 11 Dupont Circle, NW and $16.0 million was used for general corporate purposes. During the third quarter of 2014, we repaid an additional $8.0 million of the outstanding balance under the unsecured revolving credit facility with our portion of the proceeds from the new 1750 H Street, NW mortgage loan and available cash. For the three and nine months ended September 30, 2014, our weighted average borrowings under the unsecured revolving credit facility were $125.9 million and $112.0 million, respectively, with a weighted average interest rate of 1.6% and 1.7%, respectively, compared with weighted average borrowings of $50.4 million and $154.9 million, with a weighted average interest rate of 2.6% and 2.8%, respectively, for the three and nine months ended September 30, 2013, respectively. Our maximum outstanding borrowings were $216.0 million for both the three and nine months ended September 30, 2014 compared with $83.0 million and $245.0 million for the three and nine months ended September 30, 2013, respectively. At September 30, 2014, outstanding borrowings under the unsecured revolving credit facility were $213.0 million with a weighted average interest rate of 1.7%. At September 30, 2014, LIBOR was 0.16% and the applicable spread on our unsecured revolving credit facility was 150 basis points. The available capacity under the unsecured revolving credit facility was $97.1 million as of the date of this filing. We are required to pay an annual commitment fee of 0.25% based on the amount of unused capacity under the unsecured revolving credit facility. Based on our leverage ratio at September 30, 2014, the applicable interest rate spread on the unsecured revolving credit facility will increase by 20 basis points in November 2014. For more information, see note 9(e) Debt – Financial Covenants. As of September 30, 2014, we were in compliance with all the financial covenants of the unsecured revolving credit facility. |
(d) Interest Rate Swap Agreements |
At September 30, 2014, we fixed LIBOR, at a weighted average interest rate of 1.5%, on $300.0 million of our variable rate debt through eleven interest rate swap agreements. See note 10, Derivative Instruments, for more information about our interest rate swap agreements. |
(e) Financial Covenants |
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Our outstanding corporate debt agreements contain specific financial covenants that may impact future financing decisions made by us or may be impacted by a decline in operations. These covenants relate to our allowable leverage, minimum tangible net worth, fixed charge coverage and other financial metrics. As of September 30, 2014, we were in compliance with the covenants of our unsecured term loan and unsecured revolving credit facility and any such financial covenants of our mortgage debt (including the Construction Loan). |
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Our continued ability to borrow under the unsecured revolving credit facility is subject to compliance with financial and operating covenants, and a failure to comply with any of these covenants could result in a default under the credit facility. These debt agreements also contain cross-default provisions that would be triggered if we were in default under other loans, including mortgage loans, in excess of certain amounts. In the event of a default, the lenders could accelerate the timing of payments under the debt obligations and we may be required to repay such debt with capital from other sources, which may not be available on attractive terms, or at all, which would have a material adverse effect on our liquidity, financial condition, results of operations and ability to make distributions to our shareholders. |
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Our unsecured revolving credit facility and unsecured term loan are subject to interest rate spreads that float based on the quarterly measurement of our maximum consolidated total indebtedness to gross asset value ratio. Based on our leverage ratio at September 30, 2014, the applicable interest rate spread on the unsecured revolving credit facility will increase by 20 basis points and the applicable interest rate spreads on Tranche A, Tranche B and Tranche C of our unsecured term loan will increase by 20 basis points, 20 basis points and 15 basis points, respectively, in November 2014. |