Business Context and Reporting Period
This Form 8-K is a Current Report filed by NNN Healthcare/Office REIT, Inc. (referred to in the text as the registrant) on September 10, 2007. The filing discloses the completion of a significant asset acquisition and the establishment of a new credit facility to finance the transaction and repay prior debt.
Key Financial Metrics and Transactions
- Asset Acquisition: Acquired 2750 Monroe Boulevard (Quest Diagnostics Building) in Valley Forge, Pennsylvania, for a purchase price of $26,700,000.
- Acquisition Fee: Paid an acquisition fee of $801,000 (3.0% of the purchase price) to the Advisor and its affiliate.
- Debt Financing (New): Established a secured revolving line of credit with LaSalle Bank National Association with a maximum principal amount of $50,000,000 (expandable to $120,000,000).
- Debt Utilization: Borrowed approximately $27,870,000 under the new line of credit to finance the property acquisition.
- Debt Repayment: Borrowed $4,030,000 under the new line of credit to repay a prior unsecured promissory note of $6,100,000 (principal) owed to NNN Realty Advisors, Inc., utilizing net proceeds and IPO funds.
- Interest Rates: The new line of credit bears interest at LIBOR plus a margin of 1.45% to 1.60%, or the greater of the Prime Rate or Federal Funds Rate plus 0.5%.
- Collateral: The credit facility is secured by deeds of trust on the Triumph Hospital Northwest and Southwest properties (Houston/Sugarland, TX) and the newly acquired 2750 Monroe Boulevard property.
Material Changes
The filing reports a material increase in the company's real estate portfolio and debt obligations. The company transitioned from holding an unsecured note with a 6.86% fixed interest rate to a secured revolving credit facility with variable rates. The company's leverage increased significantly with the addition of approximately $31.9 million in new borrowings ($27.87M for acquisition + $4.03M for debt repayment) on September 10, 2007.
Guidance, Risks, and Covenants
- Financial Covenants: The new Loan Agreement imposes strict financial covenants, including minimum ratios for operating cash flow to interest expense and fixed charges, a maximum ratio of liabilities to asset value, a maximum distribution covenant, and a minimum net worth covenant.
- Restrictions: The agreement includes limitations on the incurrence of additional debt by the Operating Partnership and its subsidiaries, limitations on the nature of business, and restrictions on distributions.
- Term: The initial term of the credit facility is three years, with an option to extend for one 12-month period subject to conditions and a 0.20% extension fee.
- Unused Commitment Fee: A fee of 0.20% per annum is payable on the unused portion of the credit facility.
- Financial Statements: The filing states it is not practical to provide required financial statements at this time; they will be filed as an amendment within 71 days.
Investor Verification Checklist
- Verify the specific terms of the financial covenants (e.g., minimum debt service coverage ratios) to assess the risk of default.
- Confirm the current occupancy status and lease terms of the newly acquired 2750 Monroe Boulevard property.
- Review the upcoming amendment to this 8-K for the required pro forma financial information and audited statements.
- Monitor the company's ability to meet the minimum net worth and distribution covenants under the new LaSalle credit facility.
- Check for any subsequent filings regarding the expansion of the credit facility to the $120,000,000 maximum.