NOTES AND BONDS PAYABLE

As of September 30, 2017 and December 31, 2016, the Company’s notes and bonds payable, including notes payable related to real estate held for sale, consisted of the following (dollars in thousands):



	Book Value as of September 30, 2017			Book Value as of December 31, 2016			Contractual Interest Rate as of September 30, 2017 ⁽¹⁾	Effective Interest Rate at September 30, 2017⁽¹⁾	Payment Type	Maturity Date ⁽²⁾
Richardson Portfolio Mortgage Loan	$	37,036		$	40,594		One-Month LIBOR + 2.10%	3.34%	Principal & Interest	05/01/2018
Bellevue Technology Center Mortgage Loan ⁽³⁾	58,860			59,400			One-Month LIBOR + 2.25%	3.49%	Principal & Interest	03/01/2019
Portfolio Revolving Loan Facility ⁽⁴⁾	44,600			11,799			One-Month LIBOR + 2.75%	3.99%	Principal & Interest	05/01/2019
Portfolio Mortgage Loan ⁽⁵⁾	107,905			106,479			One-Month LIBOR + 2.25%	3.49%	Principal & Interest	07/01/2018
Burbank Collection Mortgage Loan	9,591			9,812			One-Month LIBOR + 2.35%	3.60%	Principal & Interest	09/30/2018
50 Congress Mortgage Loan ⁽⁶⁾	—			31,525			⁽⁶⁾	⁽⁶⁾	⁽⁶⁾	⁽⁶⁾
1180 Raymond Bond Payable	6,505			6,635			6.50%	6.50%	Principal & Interest	09/01/2036
Central Building Mortgage Loan	27,600			27,600			One-Month LIBOR + 1.75%	2.99%	Interest Only	11/13/2018
Maitland Promenade II Mortgage Loan ⁽³⁾	21,830			20,877			One-Month LIBOR + 2.90%	4.13%	Principal & Interest	01/01/2018
Westmoor Center Mortgage Loan ⁽³⁾	61,582			62,000			One-Month LIBOR + 2.25%	3.49%	Principal & Interest	02/01/2018
Plaza Buildings Senior Loan ⁽³⁾	108,886			109,866			One-Month LIBOR + 1.90%	3.14%	Principal & Interest	01/14/2018
424 Bedford Mortgage Loan	24,422			24,832			3.91%	3.91%	Principal & Interest	10/01/2022
1180 Raymond Mortgage Loan	31,000			31,000			One-Month LIBOR + 2.25%	3.49%	Interest Only	12/01/2017
KBS SOR (BVI) Holdings, Ltd. Series A Debentures ⁽⁷⁾	274,541			251,811			4.25%	4.25%	⁽⁷⁾	03/01/2023
Westpark Portfolio Mortgage Loan	85,200			83,200			One-Month LIBOR + 2.50%	3.74%	Interest Only ⁽⁸⁾	07/01/2020
353 Sacramento Mortgage Loan ⁽⁹⁾	—			85,500			⁽⁹⁾	⁽⁹⁾	⁽⁹⁾	⁽⁹⁾
Crown Pointe Mortgage Loan	50,500			—			One-Month LIBOR + 2.60%	3.84%	Interest Only	02/13/2020
125 John Carpenter Mortgage Loan	50,130			—			⁽¹⁰⁾	2.99%	Interest Only	10/01/2022
Total Notes and Bonds Payable principal outstanding	1,000,188			962,930
Net Premium/(Discount) on Notes and Bonds Payable ⁽¹¹⁾	124			88
Deferred financing costs, net	(10,064		)	(12,394		)
Total Notes and Bonds Payable, net	$	990,248		$	950,624

_____________________

⁽¹⁾ Contractual interest rate represents the interest rate in effect under the loan as of September 30, 2017. Effective interest rate is calculated as the actual interest rate in effect as of September 30, 2017 (consisting of the contractual interest rate and contractual floor rates), using interest rate indices at September 30, 2017, where applicable.

⁽²⁾ Represents the initial maturity date or the maturity date as extended as of September 30, 2017; subject to certain conditions, the maturity dates of certain loans may be extended beyond the date shown.

⁽³⁾On November 8, 2017, in connection with the sale of property, the Company repaid the entire principal balance and all other sums due under this loan. See note 15, “Subsequent Events - Singapore Transaction” for more information.

⁽⁴⁾The Portfolio Revolving Loan Facility is secured by the 1800 West Loop Building and the Iron Point Business Park. On May 1, 2017, the Company entered into a loan modification agreement to extend the maturity date of the Portfolio Revolving Loan Facility to May 1, 2019. As a result of this modification, the Portfolio Revolving Loan Facility bears interest at a floating rate of 2.75% over one-month LIBOR. The Portfolio Revolving Loan Facility is comprised of $30.0 million of revolving debt and $45.0 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 September 30, 2017, $44.6 million of non-revolving debt had been disbursed to the Company and $29.8 million of revolving debt is available for future disbursements, subject to certain conditions contained in the loan documents. On November 8, 2017, in connection with the sale of property, the Company repaid the entire principal balance and all other sums due under this loan. See note 15, “Subsequent Events - Singapore Transaction” for more information.

⁽⁵⁾On November 8, 2017, in connection with the sale of certain properties secured by this loan, the Company repaid all but $10.0 million principal balance. The Portfolio Mortgage Loan is now only secured by one office property in the Austin Suburban Portfolio, Park Centre. See note 15, “Subsequent Events - Singapore Transaction” for more information.

⁽⁶⁾On May 15, 2017, in connection with the disposition of 50 Congress Street, the Company repaid the $31.4 million outstanding principal balance due under the 50 Congress Street Mortgage Loan.

⁽⁷⁾See “ – Israeli Bond Financing” below.

⁽⁸⁾Represents the payment type required under the loan as of September 30, 2017. 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.

⁽⁹⁾On July 6, 2017, in connection with the partial interest sale of 353 Sacramento, the 353 Sacramento Mortgage Loan was deconsolidated from the Company's balance sheet. See note 12, “Investment in Unconsolidated Joint Ventures” for a further discussion on the Company’s partial sale of 353 Sacramento.

⁽¹⁰⁾The 125 John Carpenter Mortgage Loan bears interest at a floating rate of the greater of (a) 2.0% or (b) 175 basis points over one-month LIBOR.

⁽¹¹⁾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 three and nine months ended September 30, 2017, the Company incurred $9.6 million and $29.3 million of interest expense, respectively. Included in interest expense for the three and nine months ended September 30, 2017 was $1.0 million and $3.6 million of amortization of deferred financing costs, respectively. Additionally, during the three and nine months ended September 30, 2017, the Company capitalized $0.6 million and $1.7 million of interest to its investments in undeveloped land, respectively. During the three and nine months ended September 30, 2016, the Company incurred $8.0 million and $20.4 million of interest expense, respectively. Included in interest expense for the three and nine months ended September 30, 2016 was $1.1 million and $2.9 million of amortization of deferred financing costs, respectively. Additionally, during the three and nine months ended September 30, 2016 , the Company capitalized $0.5 million and $1.5 million of interest to its investments in undeveloped land, respectively.

As of September 30, 2017, the Company’s deferred financing costs were $10.1 million, net of amortization, which are included in notes and bonds payable, net on the accompanying consolidated balance sheets. 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, respectively. As of September 30, 2017 and December 31, 2016, the Company’s interest payable was $3.0 million and $5.3 million, respectively.

The following is a schedule of maturities, including principal amortization payments, for all notes and bonds payable outstanding as of September 30, 2017 (in thousands):



October 1, 2017 through December 31, 2017	$	32,706
2018	376,228
2019	158,157
2020	189,922
2021	55,787
Thereafter	187,388
	$	1,000,188

The Company’s notes payable contain financial debt covenants. As of September 30, 2017, 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 September 30, 2017, the Company has one foreign currency option for an aggregate notional amount of $285.4 million to hedge its exposure to foreign currency exchange rate movements. See note 9, “Derivative Instruments” for a further discussion on the Company’s foreign currency option.

The deed of trust that governs the terms of the Debentures contains various financial covenants. As of September 30, 2017, the Company was in compliance with all of these financial debt covenants.