NOTE 9. DEBT

All debt is incurred by the Operating Partnership. The Parent does not have any indebtedness, but guarantees the unsecured debt of the Operating Partnership.

The following table summarizes our debt at December 31 (dollars in thousands):

	2016					2015
	Weighted Average Interest Rate (1)			Amount Outstanding (2)		Weighted Average Interest Rate (1)			Amount Outstanding
Credit facilities		1.0	%	$	35,023	-			$	-
Senior notes (3)		3.3	%		6,417,492		3.3	%		6,516,392
Term loans		1.4	%		1,484,523		2.1	%		2,100,009
Unsecured other (4)		6.1	%		14,478		6.2	%		15,448
Secured mortgages (5)		4.9	%		979,585		5.1	%		1,172,473
Secured mortgages of consolidated entities (6)		3.0	%		1,677,193		2.9	%		1,822,509
Totals		3.2	%	$	10,608,294		3.2	%	$	11,626,831

(1)	The interest rates presented represent the effective interest rates (including amortization of debt issuance costs and the noncash premiums or discounts) at the end of the period for the debt outstanding.

(2)	Included in the outstanding balances are borrowings denominated in non-U.S. dollars, principally: euro ($3.3 billion), Japanese yen ($1.3 billion), Canadian dollars ($0.4 billion) and British pound sterling ($0.2 billion).

(3)	Notes are due January 2018 to June 2026 with effective interest rates ranging from 1.5% to 7.6% at December 31, 2016.

(4)

The balance at December 31, 2016, represents primarily assessment bonds that are due November 2019 to September 2033 with effective interest rates ranging from 4.5% to 7.9%. The assessment bonds are issued by municipalities and guaranteed by us as a means of financing infrastructure and secured by assessments (similar to property taxes) on various underlying real estate properties with an aggregate undepreciated cost of $737.4 million at December 31, 2016.

(5)	Debt is due May 2018 to December 2025 with effective interest rates ranging from 0.4% to 7.8% at December 31, 2016. The debt is secured by 145 real estate properties with an aggregate undepreciated cost of $2.4 billion at December 31, 2016.

(6)	Debt is due July 2017 to December 2027 with effective interest rates ranging from 2.4% to 5.3% at December 31, 2016. The debt is secured by 208 real estate properties with an aggregate undepreciated cost of $3.0 billion at December 31, 2016.

Credit Facilities

We have a global senior credit facility (the “Global Facility”), under which we may draw in British pounds sterling, Canadian dollars, euro, Japanese yen and U.S. dollars on a revolving basis. In 2016, we renewed and amended the Global Facility to increase our availability from $2.3 billion to $3.0 billion (subject to currency fluctuations). We have the ability to increase the Global Facility to $3.8 billion, subject to currency fluctuations and obtaining additional lender commitments. Pricing under the Global Facility, including the spread over LIBOR, facility fees and letter of credit fees, varies based on the public debt ratings of the Operating Partnership. The Global Facility is scheduled to mature in April 2020; however, we may extend the maturity date for six months on two occasions, subject to the satisfaction of certain conditions and payment of extension fees.

We also have a ¥45 billion ($384.4 million at December 31, 2016) Japanese yen revolver (the “Revolver”) with availability to increase to ¥56.5 billion ($482.6 million at December 31, 2016), subject to obtaining additional lender commitments. Pricing under the Revolver, including the spread over LIBOR, facility fees and letter of credit fees, varies based on the public debt ratings of the Operating Partnership. The Revolver is scheduled to mature in May 2018.

We refer to the Global Facility and the Revolver, collectively, as our “Credit Facilities.”

The following table summarizes information about our Credit Facilities (dollars in millions):

	2016			2015			2014
For the years ended December 31:
Weighted average daily interest rate		1.4	%		1.1	%		1.1	%
Weighted average daily borrowings	$	128		$	261		$	182
Maximum borrowings outstanding at any month-end	$	307		$	942		$	742
At December 31:
Aggregate lender – commitments	$	3,306		$	2,662		$	2,742
Less:
Borrowings outstanding		35			-			-
Outstanding letters of credit		36			32			35
Current availability	$	3,235		$	2,630		$	2,707

Senior Notes

The senior notes are unsecured and our obligations are effectively subordinated in certain respects to any of our debt that is secured by a lien on real property, to the extent of the value of such real property. The senior notes require interest payments be made quarterly, semi-annually or annually. All of the senior notes are redeemable at any time at our option, subject to certain prepayment penalties. Such repurchase and other terms are governed by the provisions of indenture agreements, various note purchase agreements or trust deeds.

During the years ended December 31 we issued the following senior notes (dollars and euros in thousands):

	Principal Amount				Stated Interest Rate		Effective Interest Rate		Maturity Date
2015
May 2015 (1)	€	700,000	$	785,470		1.4%		1.5%	May 2021
October 2015			$	750,000		3.8%		4.0%	November 2025

2014
February 2014 (1)	€	700,000	$	959,420		3.4%		3.5%	February 2024
June 2014 (1)	€	500,000	$	680,550		3.0%		3.1%	June 2026
October 2014 (1)	€	600,000	$	756,420		1.4%		1.4%	October 2020

(1)	This debt is denominated in euro and the exchange rate used to calculate into U.S. dollar was the effective rate at the date of the transaction.

Term Loans

The following table summarizes our outstanding term loans at December 31 (dollars and borrowing currency in thousands):

Term Loan	Borrowing Currency	Initial Borrowing Date	Lender Commitment at 2016				Amount Outstanding at 2016			Amount Outstanding at 2015			Interest Rate	Maturity Date
			Borrowing Currency		USD		USD			USD
2014 Yen Term Loan (1)	JPY	May 2014					$	-		$	339,858		LIBOR plus 1.20%
Euro Term Loan (2)	USD, EUR, JPY and GBP	June 2014	€	500,000	$	525,000		193,293			561,879		LIBOR plus 0.98%	June 2017
Senior Term Loan (3)	USD	May 2015						-			400,000		LIBOR plus 1.00%
2015 Yen Term Loan (1)	JPY	June 2015						-			539,906		LIBOR plus 1.10%
2015 Canadian Term Loan	CAD	December 2015	$	371,925	$	276,322		276,322			267,872		CDOR rate plus 1.50%	February 2023
Yen Term Loan (1)	JPY	August 2016	¥	120,000,000	$	1,025,057		1,025,057			-		Yen LIBOR plus 0.65%	August 2022 and 2023
Subtotal								1,494,672			2,109,515
Debt issuance costs, net								(10,149	)		(9,506	)
Totals							$	1,484,523		$	2,100,009

(1)

In March 2016, we entered into an unsecured senior term loan agreement under which we could draw in Japanese yen and borrowed ¥11.2 billion ($99.5 million). In August 2016, we entered into a separate unsecured senior term loan agreement (the “Yen Term Loan”) under which we can draw in Japanese yen, of which ¥50.0 billion ($427.1 million at December 31, 2016) matures in August 2022 and ¥70.0 billion ($597.9 million at December 31, 2016) matures in August 2023. We may increase the borrowings up to ¥200.0 billion ($1.7 billion at December 31, 2016), subject to obtaining additional lender commitments. In the third quarter of 2016, we borrowed on the Yen Term Loan ($1.2 billion) and used the proceeds to repay and cancel the previous outstanding Japanese yen term loans entered into in 2014 and 2015 and 2016. The Yen Term Loan was fully drawn at December 31, 2016.

(2)

We may increase the borrowings up to €1.0 billion ($1.1 billion at December 31, 2016), subject to obtaining additional lender commitments. We may pay down and reborrow on this term loan. We may extend the maturity date twice, by one year each, subject to the satisfaction of certain conditions and payment of an extension fee.

(3)	We entered into the Senior Term Loan in connection with the KTR transaction and initially borrowed $1.0 billion. During 2016, we paid down the remaining balance and cancelled Senior Term Loan.

Secured Mortgage Debt

During 2016, we issued secured mortgage debt totaling $152.6 million. The debt has a stated interest rate of 3.3% (an effective interest rate of 3.5%) and matures in January 2022.

TMK bonds are a financing vehicle in Japan for special purposes companies known as TMKs. In 2016, we issued ¥25.7 billion ($244.6 million) of new TMK bonds and paid off or transferred substantially all of our outstanding TMK bonds leaving one TMK bond outstanding for ¥20.0 billion ($170.8 million at December 31, 2016). During 2015, we issued new TMK bonds totaling ¥23.0 billion ($191.0 million).

Debt Covenants

We have approximately $6.5 billion of senior notes and $1.5 billion of term loans outstanding at December 31, 2016, under three separate indentures, as supplemented, and are subject to certain financial covenants. We are also subject to financial covenants under our Credit Facilities and certain secured mortgage debt. At December 31, 2016, we were in compliance with all of our debt covenants.

Long-Term Debt Maturities

Principal payments due on our debt, for each year through the period ending December 31, 2026, and thereafter were as follows at December 31, 2016 (in thousands):

	Unsecured
		Credit		Senior			Term Loans			Secured
Maturity		Facilities		Notes			and Other			Mortgage Debt			Total
2017 (1) (2)		$	-	$	-		$	194,150		$	428,196		$	622,346
2018			35,023		175,000			961			570,291			781,275
2019			-		618,294			1,084			446,360			1,065,738
2020			-		831,071			1,190			428,725			1,260,986
2021			-		1,237,871			1,012			141,548			1,380,431
2022			-		737,870			427,886			163,172			1,328,928
2023			-		850,000			874,916			174,624			1,899,540
2024			-		737,870			911			133,308			872,089
2025			-		750,000			976			134,727			885,703
2026			-		527,050			696			1,223			528,969
Thereafter			-		-			5,368			1,161			6,529
Subtotal			35,023		6,465,026			1,509,150			2,623,335			10,632,534
Premiums (discounts), net			-		(19,573	)		-			43,286			23,713
Debt issuance costs, net			-		(27,961	)		(10,149	)		(9,843	)		(47,953	)
Totals		$	35,023	$	6,417,492		$	1,499,001		$	2,656,778		$	10,608,294

(1)	We expect to repay the amounts maturing in 2017 with cash generated from operations, proceeds from dispositions of wholly owned real estate properties, or as necessary, with borrowings on our Credit Facilities.

(2)	Included in 2017 maturities is the Euro Term Loan that can be extended until 2019.

Interest Expense

The following table summarizes the components of interest expense for the years ended December 31 (in thousands):

	2016			2015			2014
Gross interest expense	$	383,098		$	394,012		$	377,666
Amortization of premium, net		(30,596	)		(45,253	)		(21,440	)
Amortization of debt issuance costs		15,459			13,412			14,116
Interest expense before capitalization	$	367,961		$	362,171		$	370,342
Capitalized amounts		(64,815	)		(60,808	)		(61,457	)
Net interest expense	$	303,146		$	301,363		$	308,885
Total cash paid for interest, net of amounts capitalized	$	322,442		$	345,916		$	258,441

Early Extinguishment of Debt

In 2014 and 2015, we repurchased or repaid certain debt before the maturity date in an effort to reduce our borrowing costs and extend our debt maturities. As a result, we recognize gains or losses represented by the difference between the recorded debt (including premiums and discounts and related debt issuance costs) and the consideration we paid to retire the debt, including fees.

The following table summarizes the activity related to the repurchase of debt and net loss on early extinguishment of debt for the years ending December 31 (in millions):

	2015		2014
Senior notes:
Original principal amount	$	709.7	$	1,290.4
Cash purchase price	$	789.0	$	1,460.3
Term loans:
Original principal amount	$	600.0	$	-
Cash repayment price	$	600.0	$	-
Secured mortgage debt:
Original principal amount	$	571.5	$	528.0
Cash repayment price	$	595.5	$	531.2
Total:
Original principal amount	$	1,881.2	$	1,818.4
Cash purchase / repayment price	$	1,984.5	$	1,991.5
Losses on early extinguishment of debt	$	86.3	$	165.3

During 2016, we repaid certain debt at the earliest available payment date with no prepayment costs. As a result, we recorded a gain of $2.5 million, which related to premiums associated with the extinguished debt, net of remaining debt issuance costs.

Exchangeable Senior Notes

We had exchangeable senior notes that were issued by the Operating Partnership and were exchangeable into common stock of the Parent. The accounting for the exchangeable senior notes required us to separate the fair value of the derivative instrument (exchange feature) from the debt instrument and account for it separately as a derivative. During the reporting periods, any adjustments to the fair value of the derivative were recorded in earnings as Foreign Currency and Derivative Gains (Losses), Net. The derivative on the debt instrument was amortized over the term of the exchangeable notes. During March 2015, the holders of the exchangeable notes exchanged $459.8 million of their notes for 11.9 million shares of common stock of the Parent and $0.2 million of their notes for cash.

The fair value of the exchange option was $43.0 million immediately before the exchange in March 2015. When the debt was exchanged into common stock, the value of the derivative associated with the debt was reclassified to Additional Paid-In Capital. We recognized unrealized gains of $8.3 million during the first quarter of 2015 and unrealized losses of $10.3 million for the year ended December 31, 2014 on the change in fair value of the derivative instrument associated with the exchangeable debt.