Washington Real Estate Investment Trust Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Notes Payable

Notes Payable

12 Months Ended

Dec. 31, 2019

UNSECURED LINES OF CREDIT PAYABLE

During the first quarter of 2018, we entered into an amended and restated credit agreement (“Credit Agreement”) which provides for a $700.0 million unsecured revolving credit facility (“Revolving Credit Facility”), the continuation of an existing $150.0 million unsecured term loan (“2015 Term Loan”) and an additional $250.0 million unsecured term loan (“2018 Term Loan”). The Revolving Credit Facility has a four-year term ending in March 2022, with two six-month extension options, and expands our prior $600.0 million unsecured revolving credit facility that was set to expire in June 2019. The Credit Agreement has an accordion feature that allows us to increase the facility up to $1.5 billion in the aggregate, to the extent the lenders agree to provide additional revolving loan commitments or term loans.

The 2015 Term Loan has a 5.5 year term and currently has an interest rate of one month LIBOR plus 110 basis points, based on WashREIT's current unsecured debt ratings. We entered into two interest rate swaps to effectively fix the interest rate at 2.7% (see note 8).

The 2018 Term Loan increases and replaces the $150.0 million unsecured term loan, initially entered into on July 22, 2016 (“2016 Term Loan”), that was scheduled to mature in July 2023. The 2018 Term Loan is scheduled to mature in July 2023 and bears interest at a rate of either one month LIBOR plus a margin ranging from 0.85% to 1.75% or the base rate plus a margin ranging from 0% to 0.75% (in each case depending upon WashREIT’s credit rating). We used the $100.0 million of additional proceeds from the 2018 Term Loan primarily to repay outstanding borrowings on the Revolving Credit Facility.

We had previously used interest rate derivatives to effectively fix the interest rate of the 2016 Term Loan. These interest rate derivatives now effectively fix the interest rate on a $150.0 million portion of the 2018 Term Loan at 2.31%. In March 2018, we entered into interest rate derivatives that commenced on June 29, 2018 to effectively fix the interest rate on the remaining $100.0 million of the 2018 Term Loan at 3.71%. The 2018 Term Loan has an all-in fixed interest rate of 2.87%.

The amount of the Revolving Credit Facility unused and available at December 31, 2019 was as follows (in thousands):



Committed capacity	$	700,000
Borrowings outstanding	(56,000		)
Unused and available	$	644,000

We executed borrowings and repayments on the Revolving Credit Facility during 2019 as follows (in thousands):



Balance at December 31, 2018	$	188,000
Borrowings	687,000
Repayments	(819,000		)
Balance at December 31, 2019	$	56,000

The Revolving Credit Facility bears interest at a rate of either one month LIBOR plus a margin ranging from 0.775% to 1.55% or the base rate plus a margin ranging from 0% to 0.55% (in each case depending upon WashREIT’s credit rating). The base rate is the highest of the administrative agent's prime rate, the federal funds rate plus 0.5% and the LIBOR market index rate plus 1.0%. In addition, the Revolving Credit Facility requires the payment of a facility fee ranging from 0.10% to 0.30% (depending on WashREIT’s credit rating) on the $700 million committed capacity, without regard to usage. As of December 31, 2019, the interest rate on the facility was LIBOR plus 1.00%, the one month LIBOR was 1.70% and the facility fee was 0.20%.

All outstanding advances for the Revolving Credit Facility are due and payable upon maturity in March 2022, unless extended pursuant to one or both of the two six-month extension options. Interest only payments are due and payable generally on a monthly basis.

For the three years ended December 31, 2019, we recognized interest expense (excluding facility fees) and facility fees as follows (in thousands):



	Year Ended December 31,
	2019		2018		2017
Interest expense (excluding facility fees)	$	6,554	$	6,843	$	3,857
Facility fees	1,400		1,371		1,217

The Revolving Credit Facility contains and the prior unsecured credit facility that it replaced contained certain financial and non-financial covenants, all of which we have met as of December 31, 2019 and 2018. Included in these covenants are limits on our total indebtedness, secured and unsecured indebtedness and required debt service payments.

Information related to revolving credit facilities for the three years ended December 31, 2019 as follows (in thousands, except percentage amounts):



	Year Ended December 31,
	2019			2018			2017
Total revolving credit facilities at December 31	$	700,000		$	700,000		$	600,000
Borrowings outstanding at December 31	56,000			188,000			166,000
Weighted average daily borrowings during the year	196,074			230,934			179,633
Maximum daily borrowings during the year	300,000			429,000			252,000
Weighted average interest rate during the year	3.34		%	2.96		%	2.15		%
Weighted average interest rate on borrowings outstanding at December 31	2.73		%	3.52		%	2.54		%

The covenants under our Revolving Credit Facility require us to insure our properties against loss or damage in amounts customarily maintained by similar businesses or as they may be required by applicable law. The covenants for the notes require us to keep all of our insurable properties insured against loss or damage at least equal to their then full insurable value. We have an insurance policy that has no terrorism exclusion, except for non-certified nuclear, chemical and biological acts of terrorism. Our financial condition and results of operations are subject to the risks associated with acts of terrorism and the potential for uninsured losses as the result of any such acts. Effective November 26, 2002, under this existing coverage, any losses caused by certified acts of terrorism would be partially reimbursed by the United States under a formula established by federal law. Under this formula, the United States pays 85% of covered terrorism losses exceeding the statutorily established deductible paid by the insurance provider, and insurers pay 10% until aggregate insured losses from all insurers reach $100 billion in a calendar year. If the aggregate amount of insured losses under this program exceeds $100 billion during the applicable period for all insured and insurers combined, then each insurance provider will not be liable for payment of any amount which exceeds the aggregate amount of $100 billion. On December 20, 2019, The Terrorism Risk Insurance Program Reauthorization Act of 2019 was signed into law, extending the program through December 31, 2027.

NOTES PAYABLE

Our unsecured notes and term loans outstanding as of December 31, 2019 and 2018 are as follows (in thousands):



			Effective		December 31,						Payoff Date/
	Coupon/Stated Rate		Rate ⁽¹⁾		2019			2018			Maturity Date ⁽²⁾
10 Year Unsecured Notes	4.95	%	5.05	%	250,000			$	250,000		10/1/2020
2015 Term Loan	1 Month LIBOR + 110 basis points		2.72	%	150,000			150,000			3/15/2021
10 Year Unsecured Notes	3.95	%	4.02	%	300,000			300,000			10/15/2022
2018 Term Loan ⁽³⁾	1 Month LIBOR + 110 basis points		2.87	%	250,000			250,000			7/21/2023
30 Year Unsecured Notes	7.25	%	7.36	%	50,000			50,000			2/25/2028
Total principal					1,000,000			1,000,000
Premiums and discounts, net					(797		)	(1,189		)
Deferred issuance costs, net					(2,481		)	(3,414		)
Total					$	996,722		995,397

______________________________


⁽¹⁾	For fixed rate notes, the effective rate represents the yield on issuance date, including the effects of discounts on the notes. For variable rate notes, the effective rate represents the rate as fixed by interest rate derivatives (see note 8).


⁽²⁾	No principal amounts are due prior to maturity.


⁽³⁾	The 2018 Term Loan increased and replaced the 2016 Term Loan (see note 6).

On April 30, 2019, we entered into a six-month, $450.0 million unsecured term loan facility (“2019 Term Loan”), maturing on October 30, 2019 with an option to extend for a six-month period. The 2019 Term Loan bore interest, at WashREIT’s option, at a rate of either LIBOR plus a margin ranging from 0.75% to 1.65% or the base rate plus a margin ranging 0.0% to 0.65% (in each case depending upon WashREIT’s credit rating). The base rate was the highest of the administrative agent’s prime rate, the federal funds rate plus 0.50% and the daily one-month LIBOR rate plus 1.0%. At WashREIT’s election, the 2019 Term Loan had an interest rate of one-week LIBOR plus 100 basis points, based on WashREIT’s current unsecured debt rating. The 2019 Term Loan was used to fund the acquisition of the Assembly Portfolio (see note 3). During the third quarter of 2019, we repaid the $450.0 million of borrowings on the 2019 Term Loan with proceeds from the sale of the Retail Portfolio (see note 3).

The required principal payments on the unsecured notes and term loans as of December 31, 2019 are as follows (in thousands):



2020	$	250,000
2021	150,000
2022	300,000
2023	250,000
2024	—
Thereafter	50,000
	$	1,000,000

Interest on these notes is payable semi-annually, except for the term loans, for which interest is payable monthly. These notes contain certain financial and non-financial covenants, all of which we have met as of December 31, 2019. Included in these covenants is the requirement to maintain a minimum level of unencumbered assets, as well as limits on our total indebtedness, secured indebtedness and required debt service payments.