Debt

As of June 30, 2015, the Company had $9.4 billion of debt outstanding, including net premiums, with a weighted-average years to maturity of 4.7 years and weighted-average interest rate of 3.61%. The following table summarizes the carrying value of debt as of June 30, 2015 and December 31, 2014, and the debt activity for the six months ended June 30, 2015 (in thousands):



					Six Months Ended June 30, 2015
		Balance as of December 31, 2014			Debt Issuances		Repayments, Extinguishment and Assumptions			Accretion and (Amortization)			Balance as of June 30, 2015
Mortgage notes payable:
	Outstanding balance ⁽¹⁾	$	3,689,796		$	1,314	$	(176,570	)	$	—		$	3,514,540
	Net premiums ⁽²⁾⁽³⁾	70,139			—		—			(3,719		)	66,420
Other debt:
	Outstanding balance	45,325			—		(8,026		)	—			37,299
	Premium ⁽³⁾	501			—		—			(123		)	378
Mortgages and other debt, net		3,805,761			1,314		(184,596		)	(3,842		)	3,618,637

Corporate bonds:
	Outstanding balance	2,550,000			—		—			—			2,550,000
	Discount ⁽⁴⁾	(3,501		)	—		—			365			(3,136		)
Corporate bonds, net		2,546,499			—		—			365			2,546,864

Convertible debt:
	Outstanding balance	1,000,000			—		—			—			1,000,000
	Discount ⁽⁴⁾	(22,479		)	—		—			2,331			(20,148		)
Convertible debt, net		977,521			—		—			2,331			979,852

Credit facility:
	Outstanding balance	3,184,000			—		(884,000		)	—			2,300,000

Total debt		$	10,513,781		$	1,314	$	(1,068,596	)	$	(1,146	)	$	9,445,353

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(1)	Includes $124.3 million of mortgage notes secured by properties held for sale as of June 30, 2015.


(2)	Includes $5.8 million discount of mortgage notes associated with properties held for sale as of June 30, 2015.


(3)	Net premiums on mortgages notes payable and other debt were recorded upon the assumption of the respective debt instruments in relation to the various mergers and acquisitions. Amortization of these net premiums is recorded as a reduction to interest expense over the remaining term of the respective debt instruments using the effective-interest method.


(4)	Discounts on the corporate bonds and convertible debt were recorded based upon the fair value of the respective debt instruments as of the respective issuance dates. Amortization of these discounts is recorded as an increase to interest expense over the remaining term of the respective debt instruments using the effective-interest method.

Mortgage Notes Payable

The Company’s mortgage notes payable consist of the following as of June 30, 2015 (dollar amounts in thousands):



	Encumbered Properties	Gross Carrying Value of Collateralized Properties ⁽¹⁾		Outstanding Balance ⁽²⁾		Weighted-Average Interest Rate ⁽³⁾		Weighted-Average Years to Maturity
Fixed-rate debt ⁽⁴⁾	745	$	6,460,421	$	3,506,433	4.96	%	6.8
Variable-rate debt	1	24,615		8,107		3.13	%	1.2
Total ⁽⁵⁾	746	$	6,485,036	$	3,514,540	4.95	%	6.8

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(1)	Gross carrying value is gross real estate assets, including investment in direct financing leases, net of gross real estate liabilities.


(2)	Includes $124.3 million of mortgage notes secured by properties held for sale.


(3)	Weighted-average interest rate for variable-rate debt represents the interest rate in effect as of June 30, 2015.


(4)	Includes $285.0 million of variable-rate debt fixed by way of interest rate swap arrangements.


(5)	The table above does not include loan amounts associated with the Unconsolidated Joint Ventures of $170.1 million, of which $5.1 million is recourse to the Company. These loans mature on various dates ranging from September 2015 to July 2021.

The Company’s mortgage loan agreements generally require restrictions on corporate guarantees and the maintenance of financial covenants including maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios). As of June 30, 2015, the Company believes it was in compliance with the debt covenants under the mortgage loan agreements, except for a loan in default with a principal balance of $38.1 million that is described below.

During the three and six months ended June 30, 2015, an aggregate of $39.0 million and $111.3 million, respectively, of mortgage notes payable were repaid prior to maturity or assumed by the buyer in a property disposition. In connection with the extinguishments, the Company paid prepayment penalties and fees totaling $5,000 for the six months ended June 30, 2015, which are included in extinguishment of debt, net in the accompanying consolidated statements of operations. No such prepayment penalties were paid during the three months ended June 30, 2015. During the three and six months ended June 30, 2014, an aggregate of $132.8 million and $855.1 million, respectively, were repaid prior to maturity or assumed by the buyer in a property disposition with prepayment fees totaling $3.8 million and $32.9 million, respectively, which are included in extinguishment of debt, net in the accompanying consolidated statements of operations. In addition, the Company paid $10.1 million, during the six months ended June 30, 2014 for the settlement of interest rate swaps that were associated with certain mortgage notes that were repaid prior to maturity, which approximated the fair value of the interest rate swaps. No such swap settlements were paid during the three months ended June 30, 2014.

The Company wrote off the deferred financing costs and net premiums associated with these mortgage notes payable, which resulted in a gain of $0.4 million during the six months ended June 30, 2015. No such gain was recorded during the three months ended June 30, 2015. During the three and six months ended June 30, 2014, a loss of $2.6 million and a gain of $17.0 million, respectively, were recorded in relation to the write-off of deferred financing costs and net premiums. These costs are included in extinguishment of debt, net in the accompanying consolidated statements of operations. The mortgage notes payable repaid during the six months ended June 30, 2015 had a weighted-average interest rate of 5.78% and a weighted-average remaining term of 4.5 years at the time of extinguishment.

On January 13, 2015, a substantially vacant office building in Bethesda, Maryland was foreclosed upon after the Company elected to stop making debt service payments on the related non-recourse loan with an outstanding balance of $53.8 million as of December 31, 2014. As a result of the foreclosure, the Company forfeited its right to the property and was relieved of all obligations on the non-recourse loan. During the six months ended June 30, 2015, the Company recorded a gain on the forgiveness of debt of $4.9 million, which is included in other income, net in the accompanying consolidated statements of operations.

On March 6, 2015, the Company received a notice of default from the lender of a non-recourse loan, with a principal balance of $38.1 million as of June 30, 2015, due to the Company’s failure to pay a reserve payment required per the loan agreement. Due to the default, the Company is currently accruing interest at the default rate of interest of 10.68% per annum. The Company is actively negotiating a restructuring of the loan with the lender.

The following table summarizes the scheduled aggregate principal repayments due on mortgage notes subsequent to June 30, 2015 (in thousands):



	Total
July 1, 2015 - December 31, 2015	$	11,524
2016	252,235
2017	457,932
2018	220,184
2019	296,006
Thereafter	2,276,659
Total ⁽¹⁾	$	3,514,540

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(1)	Includes $124.3 million of mortgage notes included in liabilities held for sale.

Other Debt

As of June 30, 2015, the Company had a secured term loan from KBC Bank, N.V. with an outstanding principal balance of $37.3 million and remaining unamortized premium of $0.4 million (the “KBC Loan”). The interest coupon on the KBC Loan is fixed at 5.81% annually until its maturity in January 2018. The KBC Loan is non-recourse to the Company, subject to limited non-recourse exceptions. The KBC Loan provides for monthly payments of both principal and interest. The scheduled principal repayments subsequent to June 30, 2015 are $3.8 million, $12.5 million, $7.7 million and $13.3 million for the years ended December 31, 2015, 2016, 2017 and 2018, respectively.

The KBC Loan is secured by various investment assets held by the Company. The following table is a summary of the amount outstanding and carrying value of the collateral by asset type as of June 30, 2015 (in thousands):



	Outstanding Balance		Collateral Carrying Value
Loans held for investment	$	10,305	$	20,698
Intercompany mortgage loans	2,882		8,834
CMBS	24,112		40,199
	$	37,299	$	69,731

Corporate Bonds

As of June 30, 2015, the OP had aggregate senior unsecured notes of $2.55 billion outstanding (the “Senior Notes”). The following table presents the three senior notes with their respective terms (dollar amounts in thousands):



	Outstanding Balance		Interest Rate		Maturity Date
2017 Senior Notes	$	1,300,000	2.0	%	February 6, 2017
2019 Senior Notes	750,000		3.0	%	February 6, 2019
2024 Senior Notes	500,000		4.6	%	February 6, 2024
Total balance and weighted-average interest rate	$	2,550,000	2.8	%

The Senior Notes are guaranteed by the General Partner. The OP may redeem all or a part of any series of the Senior Notes at any time, at its option, for the redemption prices set forth in the indenture governing the Senior Notes. With respect to the 2019 Senior Notes and the 2024 Senior Notes, if such Senior Notes are redeemed on or after January 6, 2019 with respect to the 2019 Senior Notes, or November 6, 2023 with respect to the 2024 Senior Notes, the redemption price will equal 100% of the principal amount of the Senior Notes of the applicable series to be redeemed, plus accrued and unpaid interest on the amount being redeemed to, but excluding, the applicable redemption date. The Senior Notes are registered under the Securities Act of 1933, as amended, and are freely transferable.

Agreement in Principle with Senior Noteholder Group

On January 22, 2015, the Company announced that it had entered into an agreement in principle with an ad hoc group of holders (the “Senior Noteholder Group”), which the Company had been advised then represented a majority of the aggregate principal amounts outstanding of each of the Senior Notes, which, in each case, were issued by the OP and guaranteed by the Company under an Indenture, dated February 6, 2014 (the “Indenture”), by and among the OP, U.S. Bank National Association, as trustee, and the guarantors named therein. Pursuant to such agreement, the Senior Noteholder Group agreed not to issue a notice of default, prior to March 3, 2015, for the Company’s failure to timely deliver a quarterly report on Form 10-Q for the third quarter of 2014 (the “2014 Third Quarter 10-Q”) containing financial information required to be included therein for the OP, which was required to be delivered pursuant to the terms of the Indenture. In exchange, the Company agreed to sign a confidentiality agreement with the Senior Noteholder Group’s counsel and pay reasonable and documented fees and out-of-pocket expenses of such counsel up to $300,000. Furthermore, the parties agreed that in the event a notice of default related to the Company’s failure to timely deliver such third quarter 2014 financial statements was issued by the senior noteholders on or after March 3, 2015, the 60-day cure period set forth in the Indenture would be reduced by one day for each day after January 19, 2015 that such notice of default was given. Such agreement was subsequently definitively documented and a supplement to the Indenture was entered into on February 9, 2015. The agreement was reached after the ad hoc group organized and directed counsel to the Senior Noteholder Group to engage in discussions with the Company regarding the terms of a possible resolution in response to the Company’s failure to timely deliver such third quarter 2014 financial information regarding the OP. The Company and the OP filed the 2014 Third Quarter 10-Q containing the required financial information with the SEC on March 2, 2015. The Company has also filed subsequent required financial information and other necessary deliverables in a timely manner. As such, the Company believes it was in compliance with the Indenture as of that date and continues to be in compliance as of June 30, 2015.

Convertible Debt

As of June 30, 2015, the OP had two tranches of convertible notes with an aggregate balance of $1.0 billion outstanding to the General Partner (the “Convertible Notes”) comprised of notes due in 2018 (“2018 Convertible Notes”) and notes due in 2020 (“2020 Convertible Notes”). The Convertible Notes are identical to the General Partner’s registered issuance of the same amount of notes to various purchasers in a public offering. The following table presents each of the 2018 Convertible Notes and the 2020 Convertible Notes listed below with their respective terms (dollar amounts in thousands):



	Outstanding Balance		Interest Rate		Conversion Rate ⁽¹⁾	Maturity Date
2018 Convertible Notes	$	597,500	3.00	%	60.5997	August 1, 2018
2020 Convertible Notes	402,500		3.75	%	66.7249	December 15, 2020
Total balance and weighted-average interest rate	$	1,000,000	3.30	%

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(1)	Conversion rate represents the amount of the General Partner OP Units per $1,000 principal amount.

In connection with any permissible conversion election made by the holders of the identical convertible notes issued by the General Partner, the General Partner may elect to convert the 2018 Convertible Notes into cash, General Partner OP Units or a combination thereof, in limited circumstances prior to February 1, 2018 and may convert the 2018 Convertible Notes at any time into such consideration on or after February 1, 2018. Additionally, the General Partner may elect to convert the 2020 Convertible Notes into cash, General Partner OP Units or a combination thereof, in limited circumstances prior to June 15, 2020 and may convert the 2020 Convertible Notes at any time into such consideration on or after June 15, 2020.

The Company received notice from the trustee under the indentures (the “Convertible Indentures”) governing each of the Convertible Notes, of the Company’s failure to timely deliver the Company’s 2014 Third Quarter 10-Q. As required by the terms of the Convertible Indentures, the Company and the OP filed the 2014 Third Quarter 10-Q containing the required financial information with the SEC on March 2, 2015. As such, the Company believes it was in compliance with the Convertible Indentures as of that date and continues to be in compliance as of June 30, 2015.

Credit Facility

The General Partner, as guarantor, and the OP, as borrower, are parties to an unsecured credit facility (the “Credit Facility”) pursuant to a credit agreement, dated as of June 30, 2014, as amended, with Wells Fargo, National Association, as administrative agent and other lenders party thereto (the “Credit Agreement”).

As of June 30, 2015, the Credit Facility allowed for maximum borrowings of $3.6 billion, consisting of a $1.0 billion term loan and a $2.6 billion revolving credit facility. The outstanding balance on the Credit Facility was $2.3 billion, of which $1.3 billion bore a floating interest rate of 1.98%, at June 30, 2015. The remaining outstanding balance on the Credit Facility of $1.0 billion is, in effect, fixed through the use of derivative instruments used to hedge interest rate volatility. Including the spread, which can vary based on the General Partner’s credit rating, the interest rate on this portion was 3.28% at June 30, 2015. As of June 30, 2015, a maximum of $1.3 billion was available to the OP for future borrowings, subject to borrowing availability. The Credit Facility matures on June 30, 2018. Subsequent to June 30, 2015, the General Partner and the OP entered into the Second Amendment to Credit Agreement (the “Second Amendment”) with Wells Fargo, National Association and other lenders party to the Credit Agreement. The Second Amendment further reduced the maximum capacity under the Credit Facility from $3.6 billion to $3.3 billion and modified certain financial covenants beginning in the third quarter of 2015. For further discussion on the Second Amendment, please refer to Note 21 – Subsequent Events.

On December 23, 2014, the General Partner and the OP, as the borrower, entered into a Consent and Waiver Agreement (the “Consent and Waiver”) with respect to the Credit Agreement. The Consent and Waiver, among other things, (i) provided an extension from the lenders for the delivery of the Company’s full-year 2014 audited financial statements, (ii) permanently reduced the maximum amount of capacity under the Credit Agreement to $3.6 billion, including the reduction of commitments under the undrawn term loan commitments and the Company’s revolving facilities as well as the elimination of the $25.0 million swingline facility, (iii) provided that until the date that all required financial deliverables have been delivered, no further loans or letters of credit would be requested under the Credit Agreement by the Company, other than in accordance with the cash flow forecast provided by the Company to the lenders thereunder and that the Company would not pay any dividends on, or make any other Restricted Payment (as defined in the Credit Agreement) on, its respective common equity and (iv) provided that the Company would provide additional financial and other information to the lenders from time to time. In connection with the Consent and Waiver, the Company agreed to pay certain customary fees to the consenting lenders and agreed to reimburse certain customary expenses of the arrangers.

The Company filed the 2014 Third Quarter 10-Q and other necessary deliverables on March 2, 2015 and its Annual Report on Form 10-K, as amended, with the SEC on March 30, 2015. As such, all limitations on making Restricted Payments, which included dividends, or borrowing funds have been lifted.

The revolving credit facility generally bears interest at an annual rate of LIBOR plus from 1.00% to 1.80% or Base Rate plus 0.00% to 0.80% (based upon the General Partner’s then current credit rating). “Base Rate” is defined as the highest of the prime rate, the federal funds rate plus 0.50% or a floating rate based on one month LIBOR, determined on a daily basis. The term loan facility generally bears interest at an annual rate of LIBOR plus 1.15% to 2.05%, or Base Rate plus 0.15% to 1.05% (based upon the General Partner’s then current credit rating). In addition, the Credit Agreement provides the flexibility for interest rate auctions, pursuant to which, at the Company’s election, the Company may request that lenders make competitive bids to provide revolving loans, which competitive bids may be at pricing levels that differ from the foregoing interest rates.

The Credit Agreement provides for monthly interest payments under the Credit Facility. In the event of default, at the election of the majority of the lenders (or automatically upon a bankruptcy event of default with respect to the OP or the General Partner), the commitments of the lenders under the Credit Facility terminate, and payment of any unpaid amounts in respect of the Credit Facility is accelerated. The revolving credit facility and the term loan facility both terminate on June 30, 2018, in each case, unless extended in accordance with the terms of the Credit Agreement. The Credit Agreement provides for a one-year extension option with respect to each of the revolving credit facility and the term loan facility, exercisable at the Company’s election and subject to certain customary conditions, as well as certain customary “amend and extend” provisions. At any time, upon timely notice by the OP and subject to any breakage fees, the OP may prepay borrowings under the Credit Facility (subject to certain limitations applicable to the prepayment of any loans obtained through an interest rate auction, as described above). The OP incurs a fee equal to 0.15% to 0.25% per annum (based upon the General Partner’s then current credit rating) multiplied by the commitments (whether or not utilized) in respect of the dollar revolving credit facility and the multi-currency credit facility. In addition, the OP incurs customary administrative agent, letter of credit issuance, letter of credit fronting, extension and other fees.

The Credit Facility requires restrictions on corporate guarantees, as well as the maintenance of financial covenants, including the maintenance of certain financial ratios (such as specified debt to equity and debt service coverage ratios) and the maintenance of a minimum net worth. The Company believes it was in compliance with the Credit Agreement and is not restricted from accessing the borrowing availability under the Credit Facility as of June 30, 2015.