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Secured and Unsecured Debt of the Operating Partnership | 9 Months Ended
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Sep. 30, 2023
Kilroy Realty L.P. |
Debt Instrument [Line Items] |
Secured and Unsecured Debt of the Operating Partnership | Secured and Unsecured Debt of the Operating Partnership Secured Debt In July 2023, certain of our and the Operating Partnership’s subsidiaries entered into a $375.0 million mortgage loan transaction (the “Loan”) secured by, among other things, a deed of trust, assignment of leases and rents, security agreement and fixture filing encumbering two office buildings, 608 apartment units and over 95,000 square feet of retail at the Company’s One Paseo mixed-use campus in Del Mar, California. The Loan matures on August 10, 2034, bears interest at an annual rate of 5.90% and requires monthly interest payments only, which commenced on September 10, 2023. In addition, the Operating Partnership has entered into a guaranty in favor of the lender in connection with the Loan. The Loan is generally non-recourse to the Operating Partnership, but the lender has recourse to the Operating Partnership for certain recourse exceptions. Unsecured Debt The Company generally guarantees all of the Operating Partnership’s unsecured debt obligations including the unsecured revolving credit facility, the unsecured term loan facility and all of the unsecured senior notes. Partial Repurchase of $425.0 Million Unsecured Senior Note During the three months ended September 30, 2023, the Company completed open-market repurchases of $14.3 million of the Operating Partnership’s 3.45% $425.0 million unsecured senior notes due December 15, 2024 at a discount, leaving an aggregate remaining principal balance of $410.7 million. Unsecured Revolving Credit Facility and Term Loan Facility The following table summarizes the balance and terms of our unsecured revolving credit facility as of September 30, 2023 and December 31, 2022:
| September 30, 2023 |  | December 31, 2022
| (in thousands)
Outstanding borrowings | $ | — |  |  | $ | — |
Remaining borrowing capacity | 1,100,000 |  |  | 1,100,000 |
Total borrowing capacity (1) | $ | 1,100,000 |  |  | $ | 1,100,000 |
Interest rate (2) | 6.31 | % |  | 5.20 | %
Facility fee-annual rate (3) | 0.200%
Maturity date (4) | July 31, 2025
________________________ (1)Total borrowing capacity is reduced by the amount of our outstanding letters of credit which total approximately $5.2 million as of the date of this report. We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $500.0 million under an accordion feature pursuant to the terms of the unsecured revolving credit facility. (2)Our unsecured revolving credit facility interest rate was calculated using a contractual rate of Secured Overnight Financing Rate (“SOFR”) plus a SOFR adjustment of 0.10% (“Adjusted SOFR”) and a margin of 0.900% based on our credit rating as of September 30, 2023 and December 31, 2022. We may be entitled to a temporary 0.01% reduction in the interest rate provided we meet certain sustainability goals with respect to the ongoing reduction of greenhouse gas emissions. (3)Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs. As of September 30, 2023 and December 31, 2022, $3.7 million and $5.3 million of unamortized deferred financing costs, respectively, which are included in prepaid expenses and other assets, net on our consolidated balance sheets, remained to be amortized through the maturity date of our unsecured revolving credit facility. (4)The maturity date may be extended by two six-month periods, at the Company’s option. The Company intends to borrow under the unsecured revolving credit facility from time to time for general corporate purposes, to finance development and redevelopment expenditures, to fund potential acquisitions and to potentially repay long-term debt and to supplement cash balances given uncertainties and volatility in market conditions. In January 2023, the Operating Partnership entered into the first amendment to its existing unsecured term loan facility agreement to (i) exercise the accordion feature under the term loan agreement to provide for $100.0 million of additional term loan commitments and (ii) increase the borrowing capacity under the accordion feature to provide additional term loan commitments or add one or more tranches of term loans up to an aggregate amount of $650.0 million. In March 2023, the Operating Partnership further amended the unsecured term loan facility agreement to exercise the accordion feature to provide for $20.0 million of additional term loan commitments, bringing the total borrowing capacity of the unsecured term loan facility to $520.0 million. The following table summarizes the balance and terms of our unsecured term loan facility as of September 30, 2023 and December 31, 2022:
| September 30, 2023 |  | December 31, 2022
| (in thousands)
Outstanding borrowings | $ | 520,000 |  |  | $ | 200,000 |
Remaining borrowing capacity | — |  |  | 200,000 |
Total borrowing capacity (1) | $ | 520,000 |  |  | $ | 400,000 |
Interest rate (2) | 6.37 | % |  | 5.23 | %
Undrawn facility fee-annual rate (3) | 0.200%
Maturity date (4) | October 3, 2024
____________________ (1)We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $130.0 million and $100.0 million as of September 30, 2023 and December 31, 2022, respectively, under an accordion feature pursuant to the terms of the unsecured term loan facility. (2)Our unsecured term loan facility interest rate was calculated using a contractual rate of Adjusted SOFR plus a margin of 0.950% based on our credit rating as of September 30, 2023 and December 31, 2022. (3)Our undrawn facility fee is paid on a quarterly basis and is calculated based on the remaining borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs. As of September 30, 2023 and December 31, 2022, $3.1 million and $4.5 million, respectively, of unamortized deferred financing costs remained to be amortized through the maturity date of our unsecured term loan facility. (4)The maturity date may be extended by two twelve-month periods, at the Company’s option. Debt Covenants and Restrictions The unsecured revolving credit facility, unsecured term loan facility, the unsecured senior notes, including the private placement notes, and certain other secured debt arrangements contain covenants and restrictions requiring us to meet certain financial ratios and reporting requirements. Some of the more restrictive financial covenants include a maximum ratio of total debt to total asset value, a minimum fixed-charge coverage ratio, a maximum ratio of secured debt to total asset value, a minimum unsecured debt ratio and a minimum unencumbered asset pool debt service coverage ratio. Noncompliance with one or more of the covenants and restrictions could result in the full principal balance of the associated debt becoming immediately due and payable. We were in compliance with all of our debt covenants as of September 30, 2023. Debt Maturities The following table summarizes the stated debt maturities and scheduled amortization payments for all outstanding debt as of September 30, 2023:
Year | (in thousands)
Remaining 2023 | $ | 1,465 |
2024 (1) | 936,716 |
2025 | 406,246 |
2026 | 401,317 |
2027 | 249,125 |
2028 | 400,000 |
Thereafter | 2,575,000 |
Total aggregate principal value (2) | $ | 4,969,869 |
________________________ (1)Includes the $520.0 million outstanding as of September 30, 2023 on the unsecured term loan facility maturing on October 3, 2024, for which the Company has two twelve-month extension options. (2)Includes gross principal balance of outstanding debt before the effect of the following at September 30, 2023: $29.5 million of unamortized deferred financing costs for the unsecured term loan facility, unsecured senior notes and secured debt and $5.6 million of unamortized discounts for the unsecured senior notes. Capitalized Interest and Loan Fees The following table sets forth gross interest expense, including debt discount and deferred financing cost amortization, net of capitalized interest, for the three and nine months ended September 30, 2023 and 2022. The interest expense capitalized was recorded as a cost of development and redevelopment and increased the carrying value of undeveloped land and construction in progress.
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
| (in thousands)
Gross interest expense | $ | 49,893 |  |  | $ | 39,659 |  |  | $ | 139,148 |  |  | $ | 118,995 |
Capitalized interest and deferred financing costs | (20,056) |  |  | (19,677) |  |  | (57,257) |  |  | (58,267) |
Interest expense | $ | 29,837 |  |  | $ | 19,982 |  |  | $ | 81,891 |  |  | $ | 60,728 |

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