Notes Payable, net

The following table sets forth information with respect to the amounts included in notes payable, net as of:



	December 31, 2017			December 31, 2016			Interest Rate⁽¹⁾	Contractual Maturity Date
UNSECURED NOTES PAYABLE
Unsecured Revolving Credit Facility⁽²⁾	$	100,000		$	300,000		LIBOR + 1.15% to 1.85%	4/1/2019	⁽³⁾
5-Year Term Loan due April 2020⁽²⁾⁽⁴⁾	300,000			450,000			LIBOR + 1.30% to 2.20%	4/1/2020
5-Year Term Loan due November 2020⁽²⁾	75,000			175,000			LIBOR + 1.30% to 2.20%	11/17/2020
7-Year Term Loan due April 2022⁽²⁾⁽⁵⁾	350,000			350,000			LIBOR + 1.60% to 2.55%	4/1/2022
7-Year Term Loan due November 2022⁽²⁾⁽⁶⁾	125,000			125,000			LIBOR + 1.60% to 2.55%	11/17/2022
Series A Notes	110,000			110,000			4.34%	1/2/2023
Series E Notes	50,000			50,000			3.66%	9/15/2023
Series B Notes	259,000			259,000			4.69%	12/16/2025
Series D Notes	150,000			150,000			3.98%	7/6/2026
Registered Senior Notes⁽⁷⁾	400,000			—			3.95%	11/1/2027
Series C Notes	56,000			56,000			4.79%	12/16/2027
TOTAL UNSECURED NOTES PAYABLE	1,975,000			2,025,000
SECURED NOTES PAYABLE
Rincon Center⁽⁸⁾⁽⁹⁾	98,392			100,409			5.13%	5/1/2018
Sunset Gower Studios/Sunset Bronson Studios	5,001			5,001			LIBOR + 2.25%	3/4/2019	⁽³⁾
Met Park North⁽¹⁰⁾	64,500			64,500			LIBOR + 1.55%	8/1/2020
10950 Washington⁽⁸⁾	27,418			27,929			5.32%	3/11/2022
Element LA	168,000			168,000			4.59%	11/6/2025
Hill7⁽¹¹⁾	101,000			101,000			3.38%	11/6/2028
Pinnacle I⁽¹²⁾	—			129,000			3.95%	11/7/2022
Pinnacle II⁽¹²⁾	—			87,000			4.30%	6/11/2026
TOTAL SECURED NOTES PAYABLE	464,311			682,839
TOTAL NOTES PAYABLE	2,439,311			2,707,839
Held for sale balances⁽¹²⁾	—			(216,000		)
Unamortized deferred financing costs and loan discounts⁽¹³⁾	(17,931		)	(18,513		)
TOTAL NOTES PAYABLE, NET	$	2,421,380		$	2,473,326

_____________


(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 December 31, 2017, which may be different than the interest rates as of December 31, 2016 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, 2017, no such election had been made.


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


(4)	In July 2016, $300.0 million of the term loan was effectively fixed at 2.75% to 3.65% per annum through the use of two interest rate swaps. See Note 6 for details.


(5)	In July 2016, the outstanding balance of the term loan was effectively fixed at 3.36%% to 4.31% per annum through the use of two interest rate swaps. See Note 6 for details.


(6)	In June 2016, the outstanding balance of the term loan was effectively fixed at 3.03% to 3.98% per annum through the use of an interest rate swap. See Note 6 for details.


(7)	On October 2, 2017, the Company completed an underwritten public offering of $400.0 million of senior notes, which were issued at 99.815% of par.


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


(9)	On February 1, 2018, the Company repaid the full outstanding balance of the mortgage loan secured by our Rincon Center property.


(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)	The Company has a 55% ownership interest in the consolidated joint venture that owns the Hill7 property. The full amount of the loan is shown. This loan bears interest only at 3.38% until November 6, 2026, at which time the interest rate will increase and monthly debt service will include principle payments with a balloon payment at maturity.


(12)	On November 16, 2017, the Company sold its ownership interest in the consolidated joint venture that owned Pinnacle I and Pinnacle II. The debt balances related to these properties were classified as held for sale at December 31, 2016.


(13)	Excludes deferred financing costs related to properties held for sale and amounts related to establishing the Company’s unsecured revolving credit facility.

Current Year Activity

On November 16, 2017, the consolidated joint venture that owned Pinnacle I and Pinnacle II sold the properties to certain affiliates of Blackstone for $350.0 million, before credits, prorations and closing costs, including the assumption of $216.0 million of secured notes payable. The loan balance related to these properties as of December 31, 2016 is reflected in liabilities associated with real estate held for sale in the Consolidated Balance Sheets. The Company used proceeds from the sale and cash on hand to repay $100.0 million of the Company's 5-year term loan due November 2020.

On October 2, 2017, the operating partnership completed an underwritten public offering of $400.0 million senior notes due November 1, 2027. The net proceeds from the offering, after deducting the underwriting discounts and offering expenses, were approximately $396.7 million and was used to repay $150.0 million of the Company’s 5-year term loan due April 2020 with the remainder of the net proceeds, together with cash on hand, used to repay $250.0 million outstanding under the Company’s unsecured revolving credit facility.

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 Sunset Gower Studios and Sunset Bronson Studios, 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.

Certain loan agreements require that some or all receipts collected from properties are 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, 2017 and December 31, 2016 are lockbox and reserve funds as follows:



Property	December 31, 2017		December 31, 2016
Rincon Center	$	14,220	$	16,291
Element LA	3,581		2,627
Hill7	2,392		1,643
10950 Washington	1,406		1,249
Pinnacle I	—		1,811
Pinnacle II	—		1,382
Total	$	21,599	$	25,003

The following table provides information regarding the Company’s future minimum principal payments due on the Company’s notes payable (before the impact of extension options, if applicable) as of December 31, 2017:



For the Year Ended December 31,	Annual Principal Payments
2018	$	98,930
2019	105,569
2020	440,095
2021	632
2022	500,085
Thereafter	1,294,000
Total	$	2,439,311

Senior Unsecured Notes Payable

Registered Senior Notes

On October 2, 2017, our operating partnership completed an underwritten public offering of $400.0 million in senior notes due November 1, 2027. The notes were issued at 99.815% of par, with a coupon of 3.95%. The notes are fully and unconditionally guaranteed by the Company.

Term Loan Agreement

On November 17, 2015, the operating partnership entered into a term loan credit agreement with a group of lenders for an unsecured $175.0 million 5-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 7-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.

Interest on the 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 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 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 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 2016, its senior unsecured long-term indebtedness was assigned an investment grade rating. The Company has not made the credit rating election.

Credit Facility Agreement

The operating partnership maintains and periodically amends its credit facility agreement with a group of lenders. On April 1, 2015, the agreement was amended and restated to, among other things, (i) extend the maturity date of the unsecured revolving credit facility 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 from $150.0 million to $550.0 million and extend 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 agreement (“Amended and Restated Credit Facility Agreement”) to align certain terms therein with the less restrictive terms of the term loan agreement. The 5-Year Term Loan due April 2020 and the 7-Year Term Loan due April 2022 were used towards the EOP Acquisition.

The unsecured revolving credit facility is available for various purposes, including payment of redevelopment 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 general corporate purposes of the Company, the operating partnership and its subsidiaries.

Interest on the unsecured revolving 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. Unused amounts under the Amended and Restated Credit Facility Agreement 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 credit facility agreement so long as the aggregate commitments under the unsecured revolving 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 2016, our senior unsecured long-term indebtedness was assigned an investment grade rating. The Company has not made the credit rating election.

The operating partnership continues to be the borrower under the Amended and Restated Credit Facility Agreement, and the Company and all subsidiaries that own unencumbered properties will continue to provide guarantees 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 guarantees are not required except under limited circumstances.

The following table summarizes borrowing capacity and outstanding borrowings under the unsecured revolving credit facility as of:



	December 31, 2017		December 31, 2016
Outstanding borrowings⁽¹⁾	$	100,000	$	300,000
Remaining borrowing capacity⁽¹⁾	300,000		100,000
Total borrowing capacity	$	400,000	$	400,000
Interest rate⁽²⁾	LIBOR + 1.15% to 1.85%
Facility fee-annual rate⁽²⁾	0.20% or 0.35%
Contractual maturity date⁽³⁾	4/1/2019

_________________


(1)	On January 30, 2018, the Company borrowed an additional $100.0 million bringing the total outstanding borrowings to $200.0 million.


(2)	The rate is based on the operating partnership’s leverage ratio.


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

Guaranteed Senior Notes

On November 16, 2015, the operating partnership entered into a note purchase agreement with various purchasers, which provides for the private placement of $425.0 million of guaranteed senior 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”). These 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.

On July 6, 2016, the Company entered into a private placement of debt for $150.0 million of 3.98% guaranteed senior notes due July 6, 2026 (the “Series D Notes”). Upon issuance, the notes pay interest semi-annually on the 6th day of January and July in each year until maturity. The Company also secured an additional $50.0 million of funds from a private placement of 3.66% guaranteed senior notes due September 15, 2023 (the “Series E Notes”), which were drawn on September 15, 2016. Upon issuance, the notes pay interest semi-annually on the 15th day of March and September in each year until maturity.

The operating partnership may prepay at any time all or, from time to time, any part of the guaranteed senior notes in an amount not less than 5% of the aggregate principal amount of any series of guaranteed senior 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 guaranteed senior 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 Amended and Restated Credit Facility Agreement, by and among the operating partnership, the financial institutions party thereto, and Wells Fargo Bank, National Association as administrative agent.

Debt Covenants

The operating partnership’s ability to borrow under the unsecured notes payable remains subject to ongoing compliance with financial and other covenants as defined in their respective agreements. 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 following table summarizes existing covenants and their covenant levels, when considering the most restrictive term:



Covenant Ratio		Covenant Level
Leverage ratio		less than 60%
Unencumbered leverage ratio		less than 60%
Fixed charge coverage ratio		greater than 1.5x
Secured indebtedness leverage ratio		less than 45%
Unsecured interest coverage ratio		greater than 2x

The operating partnership was in compliance with its financial covenants as of December 31, 2017.

Repayment Guarantees

Registered Senior Notes

The Company has fully and unconditionally guaranteed the operating partnership’s registered senior notes of $400.0 million due November 1, 2027.

Sunset Gower Studios and Sunset Bronson Studios Loan

In connection with the loan secured by the Sunset Gower Studios and Sunset Bronson Studios 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. At December 31, 2017, 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, the operating partnership provides limited customary secured debt guarantees for items such as voluntary bankruptcy, fraud, misapplication of payments and environmental liabilities.

Interest Expense

The following table represents a reconciliation from the gross interest expense to the amount on the interest expense line item in the Consolidated Statements of Operations:



	Year Ended December 31,
	2017			2016			2015
Gross interest expense⁽¹⁾	$	94,660		$	82,887		$	52,437
Capitalized interest	(10,655		)	(11,307		)	(6,516		)
Amortization of deferred financing costs and loan discount/premium, net	6,032			4,464			4,746
Interest expense	$	90,037		$	76,044		$	50,667

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(1)	Includes interest on the Company’s notes payable and hedging activities and extinguishment costs related to partial paydowns in our term loans of $1.1 million during the year ended December 31, 2017.