NOTES AND BONDS PAYABLE

As of December 31, 2016 and December 31, 2015, the Company’s notes and bonds payable consisted of the following (dollars in thousands):



	Book Value as of December 31, 2016			Book Value as of December 31, 2015			Contractual Interest Rate as of December 31, 2016 ⁽¹⁾	Effective Interest Rate at December 31, 2016 ⁽¹⁾	Payment Type	Maturity Date ⁽²⁾
Richardson Portfolio Mortgage Loan	$	40,594		$	41,177		One-Month LIBOR + 2.10%	2.72%	Principal & Interest	05/01/2017
Bellevue Technology Center Mortgage Loan	59,400			52,960			One-Month LIBOR + 2.25%	2.87%	Principal & Interest	03/01/2017 ⁽³⁾
Portfolio Revolving Loan Facility ⁽⁴⁾	11,799			47,087			One-Month LIBOR + 2.25%	2.87%	Principal & Interest	05/01/2017
Portfolio Mortgage Loan	106,479			100,032			One-Month LIBOR + 2.25%	2.87%	Principal & Interest	07/01/2017
Burbank Collection Mortgage Loan	9,812			9,098			One-Month LIBOR + 2.35%	3.04%	Principal & Interest	09/30/2017
50 Congress Mortgage Loan	31,525			28,075			One-Month LIBOR + 1.90%	2.52%	Interest Only ⁽⁵⁾	10/01/2017
1180 Raymond Bond Payable	6,635			6,795			6.50%	6.50%	Principal & Interest	09/01/2036
Central Building Mortgage Loan	27,600			24,896			One-Month LIBOR + 1.75%	2.37%	Interest Only	11/13/2018
Maitland Promenade II Mortgage Loan ⁽⁶⁾	20,877			20,182			One-Month LIBOR + 2.90%	3.52%	Principal & Interest	01/01/2018
Westmoor Center Mortgage Loan	62,000			56,036			One-Month LIBOR + 2.25%	2.87%	Interest Only ⁽⁵⁾	02/01/2018
Plaza Buildings Senior Loan	109,866			111,000			One-Month LIBOR + 1.90%	2.52%	Principal & Interest	01/14/2017 ⁽⁷⁾
424 Bedford Mortgage Loan	24,832			25,358			3.91%	3.91%	Principal & Interest	10/01/2022
1180 Raymond Mortgage Loan	31,000			28,100			One-Month LIBOR + 2.25%	2.87%	Interest Only	12/01/2017
KBS SOR (BVI) Holdings, Ltd. Series A Debentures ⁽⁸⁾	251,811			—			4.25%	4.25%	⁽⁶⁾	03/01/2023
Westpark Portfolio Mortgage Loan	83,200			—			One-Month LIBOR + 2.50%	3.12%	Interest Only ⁽⁵⁾	07/01/2020
353 Sacramento Mortgage Loan ⁽⁹⁾	85,500			—			One-Month LIBOR + 2.75%	3.46%	Interest Only	10/14/2018
Total Notes and Bonds Payable principal outstanding	962,930			550,796
Net Premium/(Discount) on Notes and Bonds Payable ⁽¹⁰⁾	88			50
Deferred financing costs, net	(12,394		)	(3,523		)
Total Notes and Bonds Payable, net	$	950,624		$	547,323

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⁽¹⁾ Contractual interest rate represents the interest rate in effect under the loan as of December 31, 2016. Effective interest rate is calculated as the actual interest rate in effect as of December 31, 2016 (consisting of the contractual interest rate and contractual floor rates), using interest rate indices at December 31, 2016, where applicable.

⁽²⁾ Represents the initial maturity date or the maturity date as extended as of December 31, 2016; subject to certain conditions, the maturity dates of certain loans may be extended beyond the date shown.

⁽³⁾Subsequent to December 31, 2016, the maturity date of the Bellevue Technology Center Mortgage Loan was extended to March 1, 2019.

⁽⁴⁾The Portfolio Revolving Loan Facility is secured by the 1800 West Loop Building and the Iron Point Business Park. The Portfolio Revolving Loan Facility is comprised of $63.5 million of revolving debt and $12.4 million of non-revolving debt available to be used for tenant improvements, leasing commissions and capital improvements, subject to certain terms and conditions contained in the loan documents. As of December 31, 2016, $11.8 million of non-revolving debt had been disbursed to the Company and the remaining $63.5 million of revolving debt and $0.6 million of non-revolving debt is available for future disbursements, subject to certain conditions contained in the loan documents.

⁽⁵⁾Represents the payment type required under the loan as of December 31, 2016. Certain future monthly payments due under this loan also include amortizing principal payments. For more information of the Company's contractual obligations under its notes and bonds payable, see five-year maturity table below.

⁽⁶⁾Interest on the Maitland Promenade II Mortgage Loan is calculated at a variable annual rate of 290 basis points over one-month LIBOR, but at no point shall the interest rate be less than 3.25%.

⁽⁷⁾Subsequent to December 31, 2016, the maturity date of the Plaza Buildings Senior Loan was extended to January 14, 2018.

⁽⁸⁾ See " - Israeli Bond Financing" below.

⁽⁹⁾ As of December 31, 2016, $85.5 million had been disbursed to the Company and up to $30.0 million is available for future disbursements to be used for tenant improvements, leasing commissions and capital improvements, subject to certain terms and conditions contained in the loan documents. In addition, the Company has entered into an interest rate cap that effectively limits one-month LIBOR on up to $115.5 million of the outstanding loan balance at 3.0% effective October 14, 2016 through October 14, 2018.

⁽¹⁰⁾Represents the unamortized premium/discount on notes and bonds payable due to the above- and below-market interest rates when the debt was assumed. The discount/premium is amortized over the remaining life of the notes and bonds payable.

During the years ended December 31, 2016, 2015 and 2014, the Company incurred $29.2 million, $15.0 million and $15.6 million of interest expense, respectively. Included in interest expense for the years ended December 31, 2016, 2015 and 2014, was $4.3 million, $2.7 million and $2.8 million of amortization of deferred financing costs, respectively. Additionally, during the years ended December 31, 2016, 2015 and 2014, the Company capitalized $2.0 million, $1.9 million and $2.0 million of interest, respectively, to its investments in undeveloped land. As of December 31, 2016, the Company’s deferred financing costs were $12.5 million, net of amortization, of which $12.4 million is included in notes and bonds payable, net and $0.1 million is included in prepaid expenses and other assets on the accompanying consolidated balance sheets. As of December 31, 2015, the Company’s deferred financing costs were $4.7 million, net of amortization, of which $3.5 million is included in notes and bonds payable, net and $1.2 million is included in prepaid expenses and other assets on the accompanying consolidated balance sheets. As of December 31, 2016 and 2015, the Company’s interest payable was $5.3 million and $1.2 million, respectively.

The following is a schedule of maturities, including principal amortization payments, for all notes and bonds payable outstanding as of December 31, 2016 (in thousands):



2017	$	402,153
2018	196,253
2019	52,251
2020	132,876
2021	51,241
Thereafter	128,156
	$	962,930

The Company’s notes payable contain financial debt covenants. As of December 31, 2016, the Company was in compliance with all of these debt covenants.

Israeli Bond Financing

On March 2, 2016, KBS Strategic Opportunity BVI, a wholly owned subsidiary of the Company, filed a final prospectus with the Israel Securities Authority for a proposed offering of up to 1,000,000,000 Israeli new Shekels of Series A debentures (the “Debentures”) at an annual interest rate not to exceed 4.25%. On March 1, 2016, KBS Strategic Opportunity BVI commenced the institutional tender of the Debentures and accepted application for 842.5 million Israeli new Shekels. On March 7, 2016, KBS Strategic Opportunity BVI commenced the public tender of the Debentures and accepted 127.7 million Israeli new Shekels. In the aggregate, KBS Strategic Opportunity BVI accepted 970.2 million Israeli new Shekels (approximately $249.2 million as of March 8, 2016) in both the institutional and public tenders at an annual interest rate of 4.25%. KBS Strategic Opportunity BVI issued the Debentures on March 8, 2016. The terms of the Debentures require principal installment payments equal to 20% of the face value of the Debentures on March 1st of each year from 2019 to 2023.

As of December 31, 2016, the Company incurred legal, rating and underwriting fees of approximately $9.8 million in connection with the offering. In addition, the Company funded interest reserves of 20.8 million Israeli new Shekels (approximately $5.4 million as of December 31, 2016) and 1.0 million Israeli new Shekels (approximately $0.3 million as of December 31, 2016) of expense reserve required by the Debenture documents.

The deed of trust that governs the terms of the Debentures contains various financial covenants. As of December 31, 2016, the Company was in compliance with all of these financial debt covenants.