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Notes Payable | 9 Months Ended
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Sep. 30, 2016
Debt Disclosure [Abstract] |
Notes Payable | Notes Payable The following table summarizes the balances of the Company’s indebtedness as of:
| September 30, 2016 |  | December 31, 2015
Notes payable | $ | 2,427,440 |  |  | $ | 2,278,445 |
Less: unamortized loan premium and deferred financing costs, net(1) | (19,497 | ) |  | (17,729 | )
Notes payable, net | $ | 2,407,943 |  |  | $ | 2,260,716 |
________________
(1) | Deferred financing costs exclude debt issuance costs, net, related to establishing the Company’s unsecured revolving credit facility and undrawn term loans. The amounts included in prepaid expenses and other assets, net was $1.7 million and $4.1 million as of September 30, 2016 and December 31, 2015, respectively.
The following table sets forth information as of September 30, 2016 and December 31, 2015 with respect to the Company’s outstanding indebtedness, excluding net deferred financing costs related to unsecured revolving credit facility and undrawn term loans.
| September 30, 2016 |  | December 31, 2015 |  |  |  |  |
| Principal Amount |  | 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) | $ | 120,000 |  |  | $ | — |  |  | $ | 230,000 |  |  | $ | — |  |  | LIBOR+ 1.15% to 1.85% |  | 4/1/2019 | (3)
5-Year Term Loan due April 2020(2)(4) | 450,000 |  |  | (3,783 | ) |  | 550,000 |  |  | (5,571 | ) |  | LIBOR+ 1.30% to 2.20% |  | 4/1/2020 |
5-Year Term Loan due November 2020(2) | 175,000 |  |  | (793 | ) |  | — |  |  | — |  |  | LIBOR +1.30% to 2.20% |  | 11/17/2020 |
7-Year Term Loan due April 2022(2)(5) | 350,000 |  |  | (2,372 | ) |  | 350,000 |  |  | (2,656 | ) |  | LIBOR+ 1.60% to 2.55% |  | 4/1/2022 |
7-Year Term Loan due November 2022(2)(6) | 125,000 |  |  | (970 | ) |  | — |  |  | — |  |  | LIBOR + 1.60% to 2.55% |  | 11/17/2022 |
Series A Notes | 110,000 |  |  | (970 | ) |  | 110,000 |  |  | (1,011 | ) |  | 4.34% |  | 1/2/2023 |
Series E Notes | 50,000 |  |  | (311 | ) |  | — |  |  | — |  |  | 3.66% |  | 9/15/2023 |
Series B Notes | 259,000 |  |  | (2,335 | ) |  | 259,000 |  |  | (2,378 | ) |  | 4.69% |  | 12/16/2025 |
Series D Notes | 150,000 |  |  | (922 | ) |  | — |  |  | — |  |  | 3.98% |  | 7/6/2026 |
Series C Notes | 56,000 |  |  | (552 | ) |  | 56,000 |  |  | (509 | ) |  | 4.79% |  | 12/16/2027 |
Total Unsecured Loans | 1,845,000 |  |  | (13,008 | ) |  | 1,555,000 |  |  | (12,125 | ) |  |  |  |  |
Mortgage Loans |  |  |  |  |  |  |  |  |  |  |  |
Mortgage Loan secured by Rincon Center(7) | 100,886 |  |  | (236 | ) |  | 102,309 |  |  | (355 | ) |  | 5.13% |  | 5/1/2018 |
Mortgage Loan secured by Sunset Gower/Sunset Bronson(8) | 5,001 |  |  | (1,712 | ) |  | 115,001 |  |  | (2,232 | ) |  | LIBOR+2.25% |  | 3/4/2019 | (3)
Mortgage Loan secured by Met Park North(9) | 64,500 |  |  | (426 | ) |  | 64,500 |  |  | (509 | ) |  | LIBOR+1.55% |  | 8/1/2020 |
Mortgage Loan secured by 10950 Washington(7) | 28,053 |  |  | (371 | ) |  | 28,407 |  |  | (421 | ) |  | 5.32% |  | 3/11/2022 |
Mortgage Loan secured by Pinnacle I(10)(11) | 129,000 |  |  | (618 | ) |  | 129,000 |  |  | (694 | ) |  | 3.95% |  | 11/7/2022 |
Mortgage Loan secured by Element L.A. | 168,000 |  |  | (2,387 | ) |  | 168,000 |  |  | (2,584 | ) |  | 4.59% |  | 11/6/2025 |
Mortgage Loan secured by Pinnacle II(11) | 87,000 |  |  | (739 | ) |  | 86,228 |  |  | 1,310 |  | (12) | 4.30% |  | 6/11/2026 |
Mortgage Loan secured by 901 Market | — |  |  | — |  |  | 30,000 |  |  | (119 | ) |  | N/A |  | N/A |
Total Mortgage Loans(13) | 582,440 |  |  | (6,489 | ) |  | 723,445 |  |  | (5,604 | ) |  |  |  |  |
Total | $ | 2,427,440 |  |  | $ | (19,497 | ) |  | $ | 2,278,445 |  |  | $ | (17,729 | ) |  |  |  |  |
_________________
(1) | Interest rate with respect to indebtedness is calculated on the basis of a 360-day year for the actual days elapsed. Interest rates are as of September 30, 2016, which may be different than the interest rates as of December 31, 2015 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 September 30, 2016, no such election had been made.
(3) | The maturity date may be extended once for an additional one-year term.
(4) | Effective May 1, 2015, $300.0 million of the term loan has been effectively fixed at 2.66% to 3.56% per annum through the use of an interest rate swap. In July 2016, the Company amended this interest rate swap to add a 0.00% floor to one-month LIBOR, and then de-designated the original swap and designated the amended swap as a hedge in order to minimize the ineffective portion of the original derivative related to this loan. Therefore, the effective interest rate with respect to $300.0 million of the term loan increased to a range of 2.75% to 3.65% per annum. See Note 11—Derivative Instruments for details.
(5) | 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. In July 2016, the Company amended this interest rate swap to add a 0.00% floor to one-month LIBOR, and then de-designated the original swap and designated the amended swap as a hedge in order to minimize the ineffective portion of the original derivative related to this loan. Therefore, the effective interest rate increased to a range of 3.36% to 4.31% per annum. See Note 11—Derivative Instruments for details.
(6) | Effective June 1, 2016, the outstanding balance of the term loan has been effectively fixed at 3.03% to 3.98% per annum through the use of an interest rate swap. See Note 11—Derivative Instruments for details.
(7) | Monthly debt service includes annual debt amortization payments based on a 30-year amortization schedule with a balloon payment at maturity.
(8) | Through February 11, 2016, interest on $92.0 million of the outstanding loan balance was effectively capped at 5.97% and 4.25% on $50.0 million and $42.0 million, respectively, of the loan through the use of two interest rate caps. These interest rate caps were not renewed after maturity.
(9) | 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 11—Derivative Instruments for details.
(10) | 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.
(11) | The Company owns approximately 65% of the ownership interests in the joint venture that owns the Pinnacle I and II properties.
(12) | Represents unamortized premium amount of the non-cash mark-to-market adjustment.
(13) | Total mortgage loans do not include the balance related to a loan entered on October 7, 2016 for $101.0 million with a fixed interest rate of 3.38% per annum. This loan was entered into in conjunction with the acquisition of the Hill7 office property through a joint venture with Canadian Pension Plan Investment Board. The Company owns 55% of the ownership interest in the joint venture. See Note 20—Subsequent Events for details.
Current Year Activity On May 3, 2016, the Company drew on the $175.0 million 5-Year Term Loan due November 2020 and $125.0 million 7-Year Term Loan due November 2022, both of which were entered into on November 17, 2015. Amounts drawn were used to fully pay down $30.0 million of the 901 Market mortgage loan that was set to mature on October 31, 2016, to partially pay down $110.0 million of the Sunset Gower/Sunset Bronson mortgage loans and $100.0 million of the 5-Year Term Loan due April 2020. On June 7, 2016, Pinnacle II Hudson MC Partners, the Company’s joint venture, entered into a $87.0 million ten-year mortgage loan secured by its Pinnacle II office property. This new loan has a maturity date of June 11, 2026 and bears a fixed rate of 4.30% per annum with interest only payable every month during the term of the loan and principal payment at maturity. Proceeds were used to fully pay down the previous loan secured by the Company’s Pinnacle II office property that was scheduled to mature on September 6, 2016. On July 6, 2016, the Company entered into a private placement of debt for $150.0 million of 3.98% senior guaranteed notes due July 6, 2026. The $150.0 million was drawn on July 6, 2016. Proceeds were used to pay down the unsecured revolving credit facility. The Company also secured an additional $50.0 million of funds from a private placement of 3.66% senior guaranteed notes due September 15, 2023, which was drawn on September 15, 2016. On October 7, 2016, the Company entered into a $101.0 million mortgage loan with a fixed interest rate of 3.38% per annum, interest only. This loan agreement was entered into in conjunction with the acquisition of Hill7 office property through a joint venture with Canadian Pension Plan Investment Board. See Note 20—Subsequent Events for details. 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 the Sunset Gower and Sunset Bronson properties, the Company’s 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 have been no events of default associated with the Company’s loans. The minimum future principal payments due on the Company’s secured and unsecured notes payable at September 30, 2016 were as follows (before the impact of extension options, if applicable):
|  | Annual Principal Payments
Remaining 2016 |  | $ | 601 |
2017 |  | 2,714 |
2018 |  | 101,157 |
2019 |  | 127,886 |
2020 |  | 692,493 |
Thereafter |  | 1,502,589 |
Total |  | $ | 2,427,440 |
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 fully drawn on May 3, 2016. A&R Credit Agreement On April 1, 2015, the operating partnership entered into the Second Amended and Restated Credit Agreement dated as of March 31, 2015 (the “Credit Facility”), which extended the maturity dates, increased the availability of the unsecured revolving credit facility to $400.0 million, increased the availability of 5-Year Term Loan due April 2020 to $550.0 million, and added a $350.0 million 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. Borrowings under the Credit Facility were used towards the EOP Acquisition in 2015. The Amended and Restated Credit Facility is available for other purposes, including for payment of pre-development and development costs incurred in connection with properties owned by the Company, to finance capital expenditures and the repayment of indebtedness of the Company, to provide for general working capital needs and for general corporate purposes of the Company, and to pay fees and expenses incurred in connection with the Amended and Restated Credit Facility. 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, designated as three notes with various interest rates and maturity dates (“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. Additional senior guaranteed notes were issued in 2016; for further detail, refer to the current activity section above. Debt Covenants The operating partnership’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, when considering the most restrictive terms, 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 0.45:1.00), 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 operating partnership was in compliance with its financial covenants at September 30, 2016. Repayment Guaranties Sunset Gower and Sunset Bronson Loan In connection with the loan secured by the 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 operating partnership, does not do so. As of September 30, 2016, the outstanding balance was $5.0 million, which results in a maximum guarantee amount for the principal under this loan of $1.0 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. Other Loans Although the rest of the operating partnership’s loans are secured and non-recourse to 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.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.19,20,22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 + Details
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