Debt | Debt Total debt outstanding as of March 31, 2023 and December 31, 2022 was as follows: March 31, 2023 December 31, 2022 Debt, gross $ 72,379 $ 62,411 Mortgage discount (201) (212) Deferred financing costs, net (860) (541) Total Debt, Net $ 71,318 $ 61,658 As of March 31, 2023, the Company’s outstanding mortgage indebtedness included seven mortgage loans with various maturities through July 2032, as follows: Debt maturing during the year As of March 31, 2023 Weighted average interest rate 2023 (remaining) $ 17,390 3.28 % (1) 2024 — — % 2025 — — % 2026 24,124 4.56 % 2027 11,350 3.99 % Thereafter 19,515 4.79 % Total $ 72,379 4.22 % (1) See below for discussion of the swap agreement entered into with the mortgage loan obtained in connection with the acquisition of The Locale. The weighted average interest rate reflected is the fixed swap rate. The Company obtained a loan on January 24, 2023 which was secured by a mortgage encumbering Tennyson, one of the Company's multi-family investment properties. The loan has a principal balance of $10,250. The loan matures on February 1, 2030, bears interest at a rate of 4.84% and requires interest-only payment for the duration of its 7-year term. The Company obtained two loans on June 30, 2022 which were each secured by a mortgage encumbering one of the Company's multi-family investment properties. The loan secured by a mortgage on Kenilworth Court has a principal amount of $3,784, and the loan secured by a mortgage on The Lafayette has a principal amount of $5,481. Both loans mature on July 1, 2032, bear interest at a fixed rate of 4.74% and require interest-only payments for the duration of their 10-year term. The Company's mortgage on The Locale matures September 1, 2023. The principal balance of this mortgage was $17,390 at March 31, 2023. Prior to maturity, the Company expects it will exercise the one-year extension option provided for in the loan documents, which requires, among other criteria, that at the time of extension the mortgage is not in default and a minimum debt service coverage ratio and minimum loan to value ratio are met. The Company's ability to pay off the mortgages when they become due is dependent upon the Company's ability either to refinance the related mortgage debt or to sell the related asset. With respect to each mortgage loan, if the applicable wholly-owned property-owning subsidiary is unable to refinance or sell the related asset, or in the event that the estimated asset value is less than the mortgage balance, the applicable wholly-owned property-owning subsidiary may, if appropriate, satisfy a mortgage obligation by transferring title of the asset to the lender or permitting a lender to foreclose. As of March 31, 2023 and December 31, 2022, none of our mortgage debt was recourse to the Company, although Highlands or its subsidiaries may act as guarantor under customary, non-recourse, carve-out guarantees in connection with obtaining mortgage loans on certain of our investment properties. The loan documents governing the mortgage that encumbered State Street Market included a “cash trap” provision that was triggered when DICK'S Sporting Goods, which was an anchor tenant at the property, failed to renew its lease agreement. The lender exercised its right to trigger this “cash trap” provision, and, beginning in the fourth quarter of 2020, all of the cash flows from State Street Market which would otherwise have been available for our use were trapped into a blocked account controlled by the lender pending approval of a substitute lease or repayment of the loan. The Company sold State Street Market on March 10, 2022 and the mortgage, with an outstanding principal balance of $8,677 at the time of sale, was simultaneously repaid. The funds previously trapped and held by the lender, along with all required lender escrows, totaling $2.0 million, were returned to the Company in April 2022. Some of the mortgage loans require compliance with certain covenants, such as debt service coverage ratios and minimum net worth requirements. As of March 31, 2023 and December 31, 2022, the Company was in compliance with such covenants. LIBOR Reform Following announcements by the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates LIBOR, and ICE Benchmark Administration Limited, which administers LIBOR’s publication, publication of most LIBOR settings ceased after December 31, 2021. Publication of the remaining U.S. dollar LIBOR settings is expected to cease after June 30, 2023. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee ("ARRC"), which identified the Secured Overnight Financing Rate ("SOFR") as its preferred alternative rate for USD LIBOR in derivatives and other financial contracts. SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities, and the Federal Reserve Bank of New York started to publish SOFR in April 2018. The discontinuation, reform or replacement of LIBOR or any other benchmark rates may have an unpredictable impact on contractual mechanics in the credit markets or cause disruption to the broader financial markets and could have an adverse effect on LIBOR-based interest rates on our current or future debt obligations. As of March 31, 2023, the Company had one variable-rate mortgage with an interest rate swap to fix the rate at 3.28%. The derivative instrument had an original notional amount of $18,750 and is indexed to one-month USD-LIBOR. In December 2022, the Company completed an amendment to the mortgage loan agreement to replace LIBOR and establish SOFR as the alternate rate for this mortgage and interest rate swap. The amendment did not have a material impact to the Company's consolidated financial statements. |