Debt Obligations

9 Months Ended

Sep. 30, 2011

7. DEBT OBLIGATIONS

The following table sets forth information regarding the Company’s consolidated debt obligations outstanding at September 30, 2011 and December 31, 2010 (in thousands):

MORTGAGE DEBT:


							Effective
	September 30,			December 31,			Interest		Maturity
Property / Location	2011			2010			Rate		Date

Arboretum I, II, III & V	$	—		$	20,386		7.59	% (a)	Jul-11
Midlantic Drive/Lenox Drive/DCC I		—			56,514		8.05	% (b)	Oct-11
Research Office Center		—			39,145		5.30	% (c), (d)	Oct-11
Concord Airport Plaza		—			34,494		5.55	% (d), (e)	Jan-12
Newtown Square/Berwyn Park/Libertyview		56,940			58,102		7.25	%	May-13
Southpoint III		2,070			2,597		7.75	%	Apr-14
Tysons Corner		95,299			96,507		5.36	% (d)	Aug-15
Two Logan Square		89,800			89,800		7.57	%	Apr-16
One Logan Square		—			60,000		4.50	% (f)	Jul-16
IRS Philadelphia Campus		204,301			208,366		7.00	%	Sep-30
Cira South Garage		44,879			46,335		7.12	%	Sep-30

Principal balance outstanding		493,288			712,246
Plus: unamortized fixed-rate debt premiums (discounts), net		(1,421	)		(457	)

Total mortgage indebtedness	$	491,867		$	711,789


UNSECURED DEBT:
$345.0M 3.875% Guaranteed Exchangeable Notes due 2026		59,835			59,835		5.50	% (g)	Oct-11
Bank Term Loan		183,000			183,000		LIBOR + 0.800	% (h)	Jun-12
Credit Facility		166,000			183,000		LIBOR + 0.725	% (h)	Jun-12
$300.0M 5.750% Guaranteed Notes due 2012		152,296			175,200		5.73	%	Apr-12
$250.0M 5.400% Guaranteed Notes due 2014		242,681			242,681		5.53	%	Nov-14
$250.0M 7.500% Guaranteed Notes due 2015		248,585			250,000		7.77	%	May-15
$250.0M 6.000% Guaranteed Notes due 2016		250,000			250,000		5.95	%	Apr-16
$300.0M 5.700% Guaranteed Notes due 2017		300,000			300,000		5.68	%	May-17
$325.0M 4.950% Guaranteed Notes due 2018		325,000			—		5.14	%	Apr-18
Indenture IA (Preferred Trust I)		27,062			27,062		LIBOR + 1.25	%	Mar-35
Indenture IB (Preferred Trust I)		25,774			25,774		LIBOR + 1.25	%	Apr-35
Indenture II (Preferred Trust II)		25,774			25,774		LIBOR + 1.25	%	Jul-35

Principal balance outstanding		2,006,007			1,722,326
Less: unamortized exchangeable debt discount		(91	)		(906	)
unamortized fixed-rate debt discounts, net		(5,556	)		(2,763	)

Total unsecured indebtedness	$	2,000,360		$	1,718,657

Total Debt Obligations	$	2,492,227		$	2,430,446


(a)		On April 1, 2011, the Company prepaid the remaining balance of the loan without penalty.

(b)		On June 3, 2011, the Company prepaid the remaining balance of the loan without penalty.

(c)		On June 30, 2011, the Company prepaid the remaining balance of the loan without penalty. The unamortized fixed-rate debt premium of $0.3 million related to this loan was included as part of the gain (loss) on early extinguishment of debt in the Company’s consolidated statement of operations during the current year.

(d)		These loans were assumed upon acquisition of the related properties. The interest rates reflect the market rate at the time of acquisition.


(e)		On September 1, 2011, the Company prepaid the remaining balance of the loan without penalty. The unamortized fixed-rate debt premium of $0.2 million related to this loan was included as part of the gain (loss) on early extinguishment of debt in the Company’s consolidated statement of operations during the quarter.

(f)		This mortgage was subject to an interest rate floor of 4.50% on a monthly basis. On July 11, 2011, the Company prepaid the balance of the loan without penalty.

(g)		On October 20, 2011, holders representing $59.5 million of the outstanding Exchangeable Notes as of September 30, 2011, exercised their right to cause the Company to redeem their notes at par plus accrued and unpaid interest leaving an outstanding balance of $0.4 million. On October 15, 2016, the remaining holders have the right to request, with proper notice, the redemption of all or a portion of their Exchangeable Notes at a price equal to 100% of the principal amount of the Exchangeable Notes plus accrued and unpaid interest. Accordingly, the remaining balance of the Exchangeable Notes after October 20, 2011 will reflect a maturity date of October 15, 2016, notwithstanding their final maturity date of October 15, 2026.

(h)		On March 31, 2011, the maturity dates of the Bank Term Loan and the Credit Facility were extended to June 29, 2012 from June 29, 2011. On June 29, 2011, the Company paid a total extension fee amounting to $1.2 million which is equal to 15 basis points of the outstanding principal balance of the Bank Term Loan and of the committed amount under the Credit Facility. The extension of the maturity dates was at the Company’s option under the Bank Term Loan and the Credit Facility agreements. There were no changes in the terms and conditions of the loan agreements as a result of the maturity date extensions.

During the nine-month periods ended September 30, 2011 and 2010, the Company’s weighted-average effective interest rate on its mortgage notes payable was 6.83% and 6.62%, respectively.

During the nine-months ended September 30, 2011, the Company repurchased $24.3 million of its outstanding unsecured Notes in a series of transactions which are summarized in the table below (in thousands):


	Repurchase							Deferred Financing
Notes	Amount		Principal		Loss			Amortization
2012 5.750% Notes	$	23,765	$	22,904	$	(857	)	$	32
2015 7.500% Notes		1,600		1,415		(212	)		8

	$	25,365	$	24,319	$	(1,069	)	$	40

The Parent Company unconditionally guarantees the unsecured debt obligations of the Operating Partnership (or is a co-borrower with the Operating Partnership) but does not, by itself incur indebtedness.

The Company utilizes credit facility borrowings for general business purposes, including the acquisition, development and redevelopment of properties and the repayment of other debt. The per annum variable interest rate on the outstanding balances is LIBOR plus 0.725%. The interest rate and facility fee are subject to adjustment upon a change in the Company’s unsecured debt ratings. The Company has the option to increase the Credit Facility to $800.0 million provided that the Company has not committed any defaults under the Credit Facility and is able to acquire additional commitments from its existing lenders or new lenders. As of September 30, 2011, the Company had $166.0 million of borrowings and $10.6 million in letters of credit outstanding, leaving $423.4 million of unused availability under the Credit Facility. During the nine-month periods ended September 30, 2011 and 2010, the weighted-average interest rate on Credit Facility borrowings was 0.98% and 1.14%, respectively. As of September 30, 2011 and 2010, the weighted average interest rate on the Credit Facility was 0.95% and 0.98%, respectively.

The Credit Facility requires the maintenance of ratios related to minimum net worth, debt-to-total capitalization and fixed charge coverage and includes non-financial covenants. The Company was in compliance with all financial covenants as of September 30, 2011.

The Company accounts for its outstanding 3.875% Guaranteed Exchangeable Notes in accordance with the accounting standard for convertible debt instruments. The accounting standard requires the initial proceeds from the Company’s issuance of the 3.875% Guaranteed Exchangeable Notes to be allocated between a liability component and an equity component in a manner that reflects interest expense at the interest rate of a similar nonconvertible debt that could have been issued by the Company at such time. This is accomplished through the creation of a discount on the debt that would be accreted using the effective interest method as additional non-cash interest expense over the period the debt is expected to remain outstanding (i.e. through the first optional redemption date).

The principal amount outstanding of the 3.875% Guaranteed Exchangeable Notes was $59.8 million, both at September 30, 2011 and December 31, 2010, respectively. At certain times and upon certain events, the notes are exchangeable for cash up to their principal amount and, with respect to the remainder, if any, of the exchange value in excess of such principal amount, cash or common shares or a combination of both at the Company’s option. The initial exchange rate is 25.4065 shares per $1,000 principal amount of notes (which is equivalent to an initial exchange price of $39.36 per share). The carrying amount of the equity component is $24.4 million and is reflected within additional paid-in capital in the Company’s consolidated balance sheets. The unamortized debt discount is $0.1 million at September 30, 2011 and $0.9 million at December 31, 2010, respectively, and will be amortized through October 15, 2011. The effective interest rate at September 30, 2011 and December 31, 2010 was 5.5%. The Company recognized contractual coupon interest of $0.6 million and $1.7 million for the three and nine-month periods ended September 30, 2011 and $0.7 million and $2.6 million for the three and nine-month periods ended September 30, 2010, respectively. In addition, the Company recognized interest expense on amortization of debt discount of $0.3 million and $0.8 million during the three and nine-month periods ended September 30, 2011 and $0.3 million and $1.3 million during the three and nine-month periods ended September 30, 2010, respectively. Debt discount write-offs resulting from debt repurchases amounted to $1.6 million for the nine-month period ended September 30, 2010. There were no repurchases of the notes during the three and nine-month periods ended September 30, 2011. See note (g) to the above table for activity subsequent to September 30, 2011.

As of September 30, 2011, the Company’s aggregate scheduled principal payments of debt obligations, excluding amortization of discounts and premiums, were as follows (in thousands):


2011	$	62,732
2012		513,694
2013		66,467
2014		254,401
2015		348,079
Thereafter		1,253,922

Total principal payments		2,499,295
Net unamortized premiums/(discounts)		(7,068	)

Outstanding indebtedness	$	2,492,227