Notes Payable

The following table summarizes the balance of the Company’s indebtedness as of December 31, 2015 and December 31, 2014.



	December 31, 2015			December 31, 2014
Notes Payable	$	2,278,445		$	915,003
Less: unamortized loan premium and deferred financing costs, net⁽¹⁾	(17,729		)	(2,320		)
Notes Payable, net	$	2,260,716		$	912,683

________________


(1)	Unamortized loan premium and deferred financing costs exclude debt issuance costs, net related to establishing the Company’s unsecured revolving credit facility and undrawn term loans. These costs are presented within prepaid expenses and other assets in the consolidated balance sheets. See the discussion of the adoption of ASU 2015-03 and ASU 2015-15 in Note 2.

The following table sets forth information as of December 31, 2015 and December 31, 2014 with respect to the Company’s outstanding indebtedness.



	December 31, 2015						December 31, 2014
	Principal Amount		Unamortized Loan Premium and Deferred Financing Costs, net				Principal Amount		Unamortized Loan Premium and Deferred Financing Costs, net				Interest Rate⁽¹⁾	Contractual Maturity Date
Unsecured Loans
Unsecured Revolving Credit Facility⁽²⁾	$	230,000	$	—			$	130,000	$	—			LIBOR+1.15% to 1.85%	4/1/2019⁽¹⁰⁾
5-Year Term Loan due April 2020⁽²⁾⁽³⁾	550,000		(5,571		)		150,000		(870		)		LIBOR+1.30% to 2.20%	4/1/2020
5-Year Term Loan due November 2020⁽²⁾	—		—				—		—				LIBOR +1.30% to 2.20%	11/17/2020
7-Year Term Loan due April 2022⁽²⁾⁽⁴⁾	350,000		(2,656		)		—		—				LIBOR +1.60% to 2.55%	4/1/2022
7-Year Term Loan due November 2022⁽²⁾	—		—				—		—				LIBOR + 1.60% to 2.55%	11/17/2022
Series A Notes	110,000		(1,011		)		—		—				4.34%	1/2/2023
Series B Notes	259,000		(2,378		)		—		—				4.69%	12/16/2025
Series C Notes	56,000		(509		)		—		—				4.79%	12/16/2027
Total Unsecured Loans	$	1,555,000	$	(12,125	)		$	280,000	$	(870	)

Mortgage Loans
Mortgage loan secured by Pinnacle II⁽⁵⁾	$	86,228	$	1,310		⁽⁶⁾	$	87,421	3,056			⁽⁶⁾	6.31%	9/6/2016
Mortgage loan secured by 901 Market	30,000		(119		)		49,600		(434		)		LIBOR+2.25%	10/31/2016
Mortgage loan secured by Rincon Center⁽⁷⁾	102,309		(355		)		104,126		(518		)		5.13%	5/1/2018
Mortgage loan secured by Sunset Gower/Sunset Bronson⁽⁸⁾⁽⁹⁾	115,001		(2,232		)		97,000		(678		)		LIBOR+2.25%	3/4/2019
Mortgage loan secured by Met Park North⁽¹⁰⁾	64,500		(509		)		64,500		(521		)		LIBOR+1.55%	8/1/2020
Mortgage loan secured by 10950 Washington⁽⁷⁾	28,407		(421		)		28,866		(493		)		5.32%	3/11/2022
Mortgage loan secured by Pinnacle I⁽¹¹⁾	129,000		(694		)		129,000		(796		)		3.95%	11/7/2022
Mortgage loan secured by Element L.A.	168,000		(2,584		)		59,490		(1,066		)		4.59%	11/6/2025
Mortgage loan secured by 275 Brannan	—		—				15,000		—				LIBOR+2.00%	N/A
Total mortgage loans before mortgage loan on real estate held for sale	$	723,445	$	(5,604	)		$	635,003	$	(1,450	)
Total	$	2,278,445	$	(17,729	)		$	915,003	$	(2,320	)

Mortgage loan on real estate held for sale
Mortgage loan secured by First Financial⁽¹²⁾	$	—	$	—			$	42,449	$	(369	)		4.58%	N/A

_________________


(1)	Interest rate with respect to indebtedness is calculated on the basis of a 360-day year for the actual days elapsed, excluding the amortization of loan fees and costs. Interest rates are as of December 31, 2015, which may be different than the interest rates as of December 31, 2014 for corresponding indebtedness.


(2)	The Company has the option to make an irrevocable election to change the interest rate depending on the Company’s credit rating. As of December 31, 2015, no such election has been made.


(3)	Effective May 1, 2015, $300.0 million of the $550.0 million term loan has been effectively fixed at 2.66% to 3.56% per annum through the use of an interest rate swap. See Note 6 for details.


(4)	Effective May 1, 2015, the outstanding balance of the term loan has been effectively fixed at 3.21% to 4.16% per annum through the use of an interest rate swap. See Note 6 for details.


(5)	This loan bore interest only for the first five years. Beginning with the payment due October 6, 2011, monthly debt service includes annual debt amortization payments based on a 30-year amortization schedule with a balloon payment at maturity.


(6)	Represents unamortized amount of the non-cash mark-to-market adjustment.


(7)	Monthly debt service includes annual debt amortization payments based on a 30-year amortization schedule with a balloon payment at maturity.


(8)	Interest on $92.0 million of the outstanding loan balance has been effectively capped at 5.97% and 4.25% per annum on $50.0 million and $42.0 million, respectively, of the loan through the use of two interest rate caps through February 11, 2016. See Note 6 for details.


(9)	The maturity date may be extended once for an additional one-year term.


(10)	This loan bears interest only. Interest on the full loan amount has been effectively fixed at 3.71% per annum through use of an interest rate swap. See Note 6 for details.


(11)	This loan bears interest only for the first five years. Beginning with the payment due December 6, 2017, monthly debt service will include annual debt amortization payments based on a 30-year amortization schedule with a balloon payment at maturity.


(12)	This loan has been recorded as part of the liabilities associated with real estate held for sale as of December 31, 2014. The property was sold in 2015.

Current Year Activity

Sunset Gower and Sunset Bronson Loan

On March 4, 2015, the Company entered into an amended and restated loan agreement to enable it to draw up to an additional $160.0 million for budgeted construction costs associated with our ICON development and to extend the maturity date from February 11, 2018 to March 4, 2019 with a one-year extension option.

Element LA Loan

On October 9, 2015, the Company entered into and closed a ten-year mortgage loan in the amount of $168.0 million, secured by the Company’s Element L.A. campus. The proceeds from this loan was used to repay the then existing Element LA loan, which was scheduled to mature on November 1, 2017. The remaining proceeds were used to pay down a portion of the Two-Year Term Loan. Interest only under the loan is payable monthly at a fixed rate of 4.59%. No prepayment is allowed until three months prior to the maturity date. Defeasance is permitted (at Borrower’s cost) after the earlier of: (x) two years after securitization or (y) three years after the closing of the Loan. The loan is non-recourse, subject to customary carve-outs.

The repayment discussed above resulted in early extinguishment costs of $753 thousand recognized in Interest Expense within the Consolidated Statements of Operations.

Indebtedness

The Company presents its financial statements on a consolidated basis. Notwithstanding such presentation, except to the extent expressly indicated, such as in the case of the project financing for our Sunset Gower and Sunset Bronson properties, our separate property-owning subsidiaries are not obligors of or under the debt of their respective affiliates and each property-owning subsidiary’s separate liabilities do not constitute obligations of its respective affiliates.

Loan agreements include events of default that the Company believes are usual for loan and transactions of this type. As of the date of this filing, there has been no events of default associated with the Company’s loans.

The loan agreements for Rincon Center, 10950 Washington, Pinnacle I, Pinnacle II and Element LA require that some or all receipts collected from these properties be deposited in lockbox accounts under the control of the lenders to fund reserves such as capital improvements, taxes, insurance, debt service and operating expenditures. Included in restricted cash on the Company’s consolidated balance sheets at December 31, 2015 and December 31, 2014, are lockbox and reserve funds as follows:



Property	December 31, 2015		December 31, 2014
Rincon Center	$	14,237	$	10,936
Pinnacle I	1,792		2,099
Element LA	1,149		—
10950 Washington	1,014		775
Pinnacle II	722		434
	$	18,914	$	14,244

The minimum future annual principal payments due on the Company’s secured and unsecured notes payable at December 31, 2015, excluding the non-cash loan premium amortization, were as follows:



Year ended	Annual Principal Payments
2016	$	118,452
2017	2,705
2018	216,322
2019	2,885
2020	847,493
Thereafter	1,090,588
Total	$	2,278,445

Senior Unsecured Revolving Credit Facility and Term Loan Facilities

New Term Loan Agreement

On November 17, 2015, the Operating Partnership entered into a new term loan credit agreement (the “New Term Loan Agreement”) with a group of lenders for an unsecured $175.0 million five-year delayed draw term loan with a maturity date of November 2020 (“5-Year Term Loan due November 2020”) and an unsecured $125.0 million seven-year delayed draw term loan with a maturity date of November 2022 (“7-Year Term Loan due November 2022”). These term loans were undrawn as of December 31, 2015.

Interest on the New Term Loan Agreement is generally to be paid based upon, at our option, either (i) LIBOR plus the applicable LIBOR margin or (ii) a specified base rate plus the applicable base rate margin, dependent on the Operating Partnership’s leverage ratio. The applicable LIBOR margin will range from 1.30% to 2.20% for the 5-year Term Loan due November 2020, depending on our Leverage Ratio (as defined in the New Term Loan Agreement) and 1.60% to 2.55% for the 7-Year Term Loan due November 2022, depending on our Leverage Ratio (as defined in the New Term Loan Agreement). Beginning on February 13, 2016, each term loan is subject to an unused commitment fee of .20%.

The Operating Partnership has the right to terminate or reduce unused commitments under either term loan in the New Term Loan Agreement without penalty or premium. Subject to the satisfaction of certain conditions, the Operating Partnership has the right to increase the availability of either or both of the term loans so long as the aggregate commitments under both term loans do not exceed $475.0 million.

If the Company obtains a credit rating for the Company’s senior unsecured long term indebtedness, the Operating Partnership may make an irrevocable election to change the interest rate. During 2015, our senior unsecured long term indebtedness was assigned an investment grade rating. The Company has not made the credit rating election.

A&R Credit Agreement

The Operating Partnership maintains and periodically amends its A&R Credit Agreement with a group of lenders. On April 1, 2015, the agreement governing the credit facility was amended and restated to, among other things, (i) extend the maturity date of the A&R Credit Agreement with a one-year extension option, (ii) increase available revolving credit from $300.0 million to $400.0 million, (iii) increase the five-year term loan facility from $150.0 million to $550.0 million and extended the maturity date to April 2020 (“5-Year Term Loan due April 2020) and (iv) add a $350.0 million seven-year term loan with a maturity date of April 2022 (“7-Year Term Loan due April 2022”). On November 17, 2015, the Operating Partnership amended and restated the Credit Facility (“Amended and Restated Credit Facility”) to align certain terms therein with the less restrictive terms of the New Term Loan Agreement. The 5-Year Term Loan due 2020 and the 7-Year Term Loan due 2022 were used towards the EOP Acquisition. The A&R Credit Agreement is available for other purposes, including for payment of pre-development and development costs incurred in connection with properties owned by the Operating Partnership or any subsidiary, to finance capital expenditures and the repayment of indebtedness of the Company, the Operating Partnership and its subsidiaries, to provide for general working capital needs of the Company, the Operating Partnership and its subsidiaries and for the general corporate purposes of the Company, the Operating Partnership and its subsidiaries, and to pay fees and expenses incurred in connection with the Amended and Restated Credit Facility.

Interest on the Amended Credit Facility is generally to be paid based upon, at our option, either (i) LIBOR plus the applicable LIBOR margin or (ii) a specified base rate plus the applicable base rate margin, dependent on the Operating Partnership’s leverage ratio. The applicable LIBOR margin will range from 1.15% to 1.85% (previously 1.15% to 1.55%) for the A&R Credit Agreement, 1.30% to 2.20% (previously 1.30% to 1.90%) for the 5-year Term Loan due April 2020, depending on our Leverage Ratio (as defined in the Amended and Restated Credit Facility) and 1.60% to 2.55% for the 7-year Term Loan due April 2022, depending on our Leverage Ratio (as defined in the Amended and Restated Credit Facility). The Amended Facility requires a facility fee in an amount equal to 0.20% or 0.35% of the Operating Partnership’s revolving credit commitments depending on the Operating Partnership’s leverage ratio. Unused amounts under the Amended and Restated Credit Facility are not subject to a separate fee.

Subject to the satisfaction of certain conditions and lender commitments, the Operating Partnership may increase the availability of the Amended and Restated Credit Facility so long as the aggregate commitments under the Amended and Restated Credit Facility do not exceed $2.0 billion.

If the Company obtains a credit rating for the Company’s senior unsecured long-term indebtedness, the Operating Partnership may make an irrevocable election to change the interest rate and facility fee. During 2015, our senior unsecured long term indebtedness was assigned an investment grade rating. The Company has not made the credit rating election.

Unsecured Term Loan Facility

On April 1, 2015, the Operating Partnership entered into a new credit agreement with a group of lenders for an unsecured $550.0 million two-year term loan credit facility (“2-Year Term Loan”). The 2-Year Term Loan was fully drawn and repaid during 2015. Amounts paid down are no longer available for re-borrowing. The Company recognized $851 thousand of costs related to an early extinguishment of debt recognized in Interest Expense within the consolidated statements of operations.

The Operating Partnership continues to be the borrower under the New Credit Agreement and the Amended and Restated Credit Facility, and the Company and all subsidiaries that own unencumbered properties will continue to provide guaranties unless the Company obtains and maintains a credit rating of at least BBB- from S&P or Baa3 from Moody’s, in which case such guaranties are not required except under limited circumstances.

Guaranteed Senior Notes

On November 16, 2015, the Operating Partnership entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with various purchasers, which provides for the private placement of $425.0 million of senior guaranteed notes by the Operating Partnership, of which (i) $110.0 million are designated as 4.34% Series A Guaranteed Senior Notes due January 2, 2023 (the “Series A Notes”), (ii) $259.0 million are designated as 4.69% Series B Guaranteed Senior Notes due December 16, 2025 (the “Series B Notes”) and (iii) $56.0 million are designated as 4.79% Series C Guaranteed Senior Notes due December 16, 2027 (the “Series C Notes, ”and collectively with the Series A Notes and Series B Notes, the “Notes”). The Notes were issued on December 16, 2015 and upon issuance, the Notes pay interest semi-annually on the 16th day of June and December in each year until their respective maturities.

The Operating Partnership may prepay at any time all, or from time to time any part of, the Notes, in an amount not less than 5% of the aggregate principal amount of any series of the Notes then outstanding in the case of a partial prepayment, at 100% of the principal amount so prepaid plus a make-whole premium.

The Operating Partnership’s obligations under the Notes will be fully and unconditionally guaranteed by the Company. Subsidiaries of the Company will also issue unconditional guarantees upon the occurrence of certain conditions, including such subsidiaries providing guarantees under the New Credit Agreement and Amended and Restated Credit Facility, by and among the Operating Partnership, the financial institutions party thereto, and Wells Fargo Bank, National Association as administrative agent.

Debt Covenants

The Company’s ability to borrow under the New Term Loan Agreement, the Amended and Restated Credit Facility, and the Note Purchase Agreement remains subject to ongoing compliance with financial and other covenants as defined in the respective agreements, including maintaining a leverage ratio (maximum of 0.60:1.00), unencumbered leverage ratio (maximum of 0.60:1.00), fixed charge coverage ratio (minimum of 1.50:1.00), secured indebtedness leverage ratio (maximum of 0.55:1.00), and unsecured interest coverage ratio (minimum 2.00:1.00). Certain financial covenant ratios are subject to change in the occurrence of material acquisitions as defined in the respective agreements. Other covenants include, certain limitations on dividend payouts and distributions, limits on certain types of investments outside of the Operating Partnership’s primary business, and other customary affirmative and negative covenants.

The Company was in compliance with its financial covenants at December 31, 2015.

Repayment Guaranties

Sunset Gower and Sunset Bronson Loan

In connection with the loan secured by our Sunset Gower and Sunset Bronson properties, the Company has guaranteed in favor of and promised to pay to the lender 19.5% of the principal payable under the loan in the event the borrower, a wholly-owned entity of the Company’s Operating Partnership, does not do so. At December 31, 2015, the outstanding balance was $115.0 million, which results in a maximum guarantee amount for the principal under this loan of $22.4 million. Furthermore, the Company agreed to guarantee the completion of the construction improvements including tenant improvements, as defined in the agreement, in the event of any default of the borrower. If the borrower fails to complete the remaining required work, the guarantor agrees to perform timely all of the completion obligations, as defined in the agreement. As of the date of this filing, there has been no event of default associated with this loan.

901 Market Loan

In connection with our 901 Market Street loan, we have guaranteed in favor of and promised to pay to the lender 35.0% of the principal under the loan in the event the borrower, a wholly-owned entity of our Operating Partnership, does not do so. At December 31, 2015, the outstanding balance was $30.0 million, which results in a maximum guarantee amount for the principal under this loan of $10.5 million. Furthermore, we agreed to guarantee the completion of the construction improvements, including tenant improvements, as defined in the agreement, in the event of any default of the borrower. The borrower has completed various of the improvements subject to this completion guaranty. If the borrower fails to complete the remaining required work, the guarantor agrees to perform timely all of the completion obligations, as defined in the agreement. As of the date of this filing, there has been no event of default associated with this loan.

Other Loans

Although the rest of our loans are secured and non-recourse to the Company and the Operating Partnership, the Operating Partnership provides limited customary secured debt guarantees for items such as voluntary bankruptcy, fraud, misapplication of payments and environmental liabilities.