Secured and Unsecured Debt of the Operating Partnership

12 Months Ended

Dec. 31, 2019

Secured and Unsecured Debt of the Operating Partnership

Secured and Unsecured Debt of the Company

In this Note 8, the “Company” refers solely to Kilroy Realty Corporation and not to any of our subsidiaries. The Company itself does not hold any indebtedness. All of our secured and unsecured debt is held directly by the Operating Partnership.

The Company generally guarantees all the Operating Partnership’s unsecured debt obligations including the unsecured revolving credit facility, the $150.0 million unsecured term loan facility and all of the unsecured senior notes. At December 31, 2019 and 2018, the Operating Partnership had $3.3 billion and $2.6 billion, respectively, outstanding in total, including unamortized discounts and deferred financing costs, under these unsecured debt obligations.

In addition, although the remaining $0.3 billion of the Operating Partnership’s debt as of December 31, 2019 and 2018, is secured and non-recourse to the Company, the Company provides limited customary secured debt guarantees for items such as voluntary bankruptcy, fraud, misapplication of payments and environmental liabilities.

Debt Covenants and Restrictions

One of the covenants contained within the unsecured revolving credit facility and the unsecured term loan facility as discussed further below in Note 9 prohibits the Company from paying dividends during an event of default in excess of an amount which results in distributions to us in an amount sufficient to permit us to pay dividends to our stockholders that we reasonably believe are necessary to (a) maintain our qualification as a REIT for federal and state income tax purposes and (b) avoid the payment of federal or state income or excise tax.

Kilroy Realty L.P. [Member]

Debt Instrument [Line Items]

Secured and Unsecured Debt of the Operating Partnership

Secured Debt

The following table sets forth the composition of our secured debt as of December 31, 2019 and 2018:



	Annual Stated Interest Rate ⁽¹⁾	GAAP Effective Rate ⁽¹⁾⁽²⁾	Maturity Date	December 31,
Type of Debt	Annual Stated Interest Rate ⁽¹⁾	GAAP Effective Rate ⁽¹⁾⁽²⁾	Maturity Date	2019			2018
				(in thousands)
Mortgage note payable	3.57%	3.57%	December 2026	$	170,000		$	170,000
Mortgage note payable ⁽³⁾	4.48%	4.48%	July 2027	89,502			91,332
Mortgage note payable ⁽³⁾⁽⁴⁾	6.05%	3.50%	June 2019	—			75,238
Total secured debt				$	259,502		$	336,570
Unamortized Deferred Financing Costs				(909		)	(1,039		)
Total secured debt, net				$	258,593		$	335,531

______________


(1)	All interest rates presented are fixed-rate interest rates.


(2)	Represents the effective interest rate including the amortization of initial issuance discounts/premiums excluding the amortization of deferred financing costs.


(3)	The secured debt and the related properties that secure the debt are held in a special purpose entity and the properties are not available to satisfy the debts and other obligations of the Company or the Operating Partnership.


(4)	In February 2019, the Company repaid this mortgage note payable at par.

The Operating Partnership’s secured debt was collateralized by operating properties with a combined net book value of approximately $251.2 million as of December 31, 2019.

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

As of December 31, 2019, all of the Operating Partnership’s secured loans contained restrictions that would require the payment of prepayment penalties for the acceleration of outstanding debt. The mortgage notes payable are secured

by deeds of trust on certain of our properties and the assignment of certain rents and leases associated with those properties.

Unsecured Senior Notes

The following table summarizes the balance and significant terms of the registered unsecured senior notes issued by the Operating Partnership and outstanding, including unamortized discounts of $6.5 million and $6.6 million and unamortized deferred financing costs of $18.7 million and $15.4 million as of December 31, 2019 and 2018, respectively:



					Net Carrying Amount as of December 31,
	Issuance date	Maturity date	Stated coupon rate	Effective interest rate⁽¹⁾	2019			2018
					(in thousands)
3.050% Unsecured Senior Notes ⁽²⁾	September 2019	February 2030	3.050%	3.064%	$	500,000		$	—
Unamortized discount and deferred financing costs					(5,998		)	—
Net carrying amount					$	494,002		$	—

4.750% Unsecured Senior Notes ⁽³⁾	November 2018	December 2028	4.750%	4.800%	$	400,000		$	400,000
Unamortized discount and deferred financing costs					(4,446		)	(4,960		)
Net carrying amount					$	395,554		$	395,040

4.350% Unsecured Senior Notes⁽⁴⁾	October 2018	October 2026	4.350%	4.350%	$	200,000		$	200,000
Unamortized discount and deferred financing costs					(1,186		)	(1,375		)
Net carrying amount					$	198,814		$	198,625

4.300% Unsecured Senior Notes ⁽⁴⁾	July 2018	July 2026	4.300%	4.300%	$	50,000		$	50,000
Unamortized discount and deferred financing costs					(290		)	(342		)
Net carrying amount					$	49,710		$	49,658

3.450% Unsecured Senior Notes ⁽⁵⁾	December 2017	December 2024	3.450%	3.470%	$	425,000		$	425,000
Unamortized discount and deferred financing costs					(2,907		)	(3,493		)
Net carrying amount					$	422,093		$	421,507

3.450% Unsecured Senior Notes ⁽⁶⁾	February 2017	February 2029	3.450%	3.450%	$	75,000		$	75,000
Unamortized discount and deferred financing costs					(390		)	(432		)
Net carrying amount					$	74,610		$	74,568

3.350% Unsecured Senior Notes ⁽⁶⁾	February 2017	February 2027	3.350%	3.350%	$	175,000		$	175,000
Unamortized discount and deferred financing costs					(825		)	(941		)
Net carrying amount					$	174,175		$	174,059

4.375% Unsecured Senior Notes ⁽⁷⁾	September 2015	October 2025	4.375%	4.444%	$	400,000		$	400,000
Unamortized discount and deferred financing costs					(3,185		)	(3,738		)
Net carrying amount					$	396,815		$	396,262

4.250% Unsecured Senior Notes ⁽⁸⁾	July 2014	August 2029	4.250%	4.350%	$	400,000		$	400,000
Unamortized discount and deferred financing costs					(5,100		)	(5,632		)
Net carrying amount					$	394,900		$	394,368

3.800% Unsecured Senior Notes ⁽⁹⁾	January 2013	January 2023	3.800%	3.800%	$	300,000		$	300,000
Unamortized discount and deferred financing costs					(834		)	(1,108		)
Net carrying amount					$	299,166		$	298,892

Total Unsecured Senior Notes, Net					$	2,899,839		$	2,402,979

________________________


(1)	Represents the effective interest rate including the amortization of initial issuance discounts, excluding the amortization of deferred financing costs.


(2)	Interest on these notes is payable semi-annually in arrears on February 15th and August 15th of each year, beginning on February 15, 2020.


(3)	Interest on these notes is payable semi-annually in arrears on June 15th and December 15th of each year.


(4)	Interest on these notes is payable semi-annually in arrears on April 18th and October 18th of each year.


(5)	Interest on these notes is payable semi-annually in arrears on June 15th and December 15th of each year.


(6)	Interest on these notes is payable semi-annually in arrears on February 17th and August 17th of each year.


(7)	Interest on these notes is payable semi-annually in arrears on April 1st and October 1st of each year.


(8)	Interest on these notes is payable semi-annually in arrears on February 15th and August 15th of each year.


(9)	Interest on these notes is payable semi-annually in arrears on January 15th and July 15th of each year.

Unsecured Senior Notes - Registered Offerings

In September 2019, the Operating Partnership issued $500.0 million of aggregate principal amount of unsecured senior notes in a registered public offering. The outstanding balance of the unsecured senior notes is included in unsecured debt, net of an initial issuance discount of $0.6 million, on our consolidated balance sheets. The unsecured senior notes, which are scheduled to mature on February 15, 2030, require semi-annual interest payments each February and August based on a stated annual interest rate of 3.050%. The Operating Partnership may redeem the notes at any time prior to February 15, 2030, either in whole or in part, subject to the payment of an early redemption premium prior to a par call option period commencing three months prior to maturity.

In November 2018, the Operating Partnership issued $400.0 million of aggregate principal amount of unsecured senior notes in a registered public offering. The outstanding balance of the unsecured senior notes is included in unsecured debt, net of initial issuance discount of $1.5 million, on our consolidated balance sheets. The unsecured senior notes, which are scheduled to mature on December 15, 2028, require semi-annual interest payments each June and December based on a stated annual interest rate of 4.750%. The Operating Partnership may redeem the notes at any time prior to December 15, 2028, either in whole or in part, subject to the payment of an early redemption premium subject to a par call option.

In December 2018, we used a portion of the net proceeds from the issuance of our $400.0 million, 4.750% unsecured senior notes to early redeem, at our option, the $250.0 million aggregate principal amount of our outstanding 6.625% unsecured senior notes that were scheduled to mature on June 1, 2020. In connection with our early redemption, we incurred a $12.6 million loss on early extinguishment of debt comprised of an $11.8 million premium paid to the note holders at the redemption date and a $0.8 million write-off of the unamortized discount and unamortized deferred financing costs.

Unsecured Senior Notes - Private Placement

In May 2018, the Operating Partnership entered into a note purchase agreement in a private placement (the “2018 Note Purchase Agreement”) in connection with the issuance and sale of $50.0 million principal amount of the Operating Partnership’s 4.30% Senior Notes, Series A, due July 18, 2026 (the “Series A Notes due 2026”), and $200.0 million principal amount of the Operating Partnership’s 4.35% Senior Notes, Series B, due October 18, 2026 (the “Series B Notes due 2026” and, together with the Series A Notes, the “Series A and B Notes due 2026”), as shown in the table above. The Company drew the full amount of the Series A Notes due 2026 on July 18, 2018. On October 22, 2018, the Company drew the full amount of the Series B Notes due 2026. The Series A and B Notes due 2026 mature on their respective due dates, unless earlier redeemed or prepaid pursuant to the terms of the 2018 Note Purchase Agreement. Interest on the Series A and B Notes due 2026 is payable semi-annually in arrears on April 18 and October 18 of each year beginning April 18, 2019. As of December 31, 2019, there was $50.0 million and $200.0 million issued and outstanding aggregate principal amount of Series A and Series B Notes due 2026, respectively.

The Operating Partnership may, at its option and upon notice to the purchasers of the Series A and B Notes due 2026, prepay at any time all, or from time to time any part of the principal amounts then outstanding (in an amount not less than 5% of the aggregate principal amount of the Series A and B Notes due 2026 then outstanding in the case of a partial prepayment), at 100% of the principal amount so prepaid, plus the make-whole amount determined for the prepayment date with respect to such principal amount as set forth in the 2018 Note Purchase Agreement.

In connection with the issuance of the Series A and B Notes due 2026, the Company entered into an agreement whereby it will guarantee the payment by the Operating Partnership of all amounts due with respect to the Series A and B Notes due 2026 and the performance by the Operating Partnership of its obligations under the 2018 Note Purchase Agreement.

Unsecured Revolving Credit Facility and Term Loan Facility

The following table summarizes the balance and terms of our unsecured revolving credit facility as of December 31, 2019 and 2018:



	December 31, 2019			December 31, 2018
	(in thousands)
Outstanding borrowings	$	245,000		$	45,000
Remaining borrowing capacity	505,000			705,000
Total borrowing capacity ⁽¹⁾	$	750,000		$	750,000
Interest rate ⁽²⁾	2.76		%	3.48		%
Facility fee-annual rate ⁽³⁾	0.200%
Maturity date	July 2022

_______________


(1)	We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $600.0 million under an accordion feature under the terms of the unsecured revolving credit facility and unsecured term loan facility.


(2)	Our unsecured revolving credit facility interest rate was calculated based on the contractual rate of LIBOR plus 1.000% as of December 31, 2019 and 2018.

(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 December 31, 2019 and 2018, $3.4 million and $4.7 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.

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.

During the first quarter of 2018, we borrowed the full $150.0 million borrowing capacity of our unsecured term loan facility. In connection with the funding of the outstanding borrowings, we transferred $30.0 million of outstanding borrowings under the unsecured revolving credit facility to the balance of our unsecured term loan facility. As a result, only $120.0 million of cash proceeds were received from the funding of the unsecured term loan facility. The following table summarizes the balance and terms of our unsecured term loan facility as of December 31, 2019 and 2018, which is included in unsecured debt, net on our consolidated balance sheets:



	December 31, 2019			December 31, 2018
	(in thousands)
Outstanding borrowings	$	150,000		$	150,000
Remaining borrowing capacity	—			—
Total borrowing capacity ⁽¹⁾	$	150,000		$	150,000
Interest rate ⁽²⁾	2.85		%	3.49		%
Undrawn facility fee-annual rate	0.200%
Maturity date	July 2022

_______________


(1)	As of December 31, 2019 and 2018, $0.7 million and $0.9 million of unamortized deferred financing costs, respectively, remained to be amortized through the maturity date of our unsecured term loan facility.


(2)	Our unsecured term loan facility interest rate was calculated based on the contractual rate of LIBOR plus 1.100% as of December 31, 2019 and 2018.

Debt Covenants and Restrictions

The unsecured revolving credit facility, the unsecured term loan facility, the unsecured senior notes, the Series A and B Notes due 2026 and Series A and B Notes due 2027 and 2029 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 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 believe we were in compliance with all of our debt covenants as of December 31, 2019 and 2018.

Debt Maturities

The following table summarizes the stated debt maturities and scheduled amortization payments as of December 31, 2019:



Year	(in thousands)
2020	$	5,137
2021	5,342
2022	400,554
2023	305,775
2024	431,006
Thereafter	2,431,688
Total aggregate principal value ⁽¹⁾	$	3,579,502

________________________


(1)	Includes gross principal balance of outstanding debt before the effect of the following at December 31, 2019: $20.3 million of unamortized deferred financing costs for the unsecured term loan facility, unsecured senior notes and secured debt and $6.5 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/premium and deferred financing cost amortization, net of capitalized interest, for the years ended 2019, 2018 and 2017. The interest expense capitalized was recorded as a cost of development and increased the carrying value of undeveloped land and construction in progress.



	Year Ended December 31,
	2019			2018			2017
	(in thousands)
Gross interest expense	$	129,778		$	117,789		$	112,577
Capitalized interest and deferred financing costs	(81,241		)	(68,068		)	(46,537		)
Interest expense	$	48,537		$	49,721		$	66,040