Secured and Unsecured Debt of the Operating Partnership (Kilroy Realty, L.P. [Member]) | 3 Months Ended |
Mar. 31, 2014 |
Kilroy Realty, L.P. [Member] | ' |
Debt Instrument [Line Items] | ' |
Secured and Unsecured Debt of the Operating Partnership | ' |
Secured and Unsecured Debt of the Operating Partnership |
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Secured Debt |
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The following table sets forth the composition of our secured debt as of March 31, 2014 and December 31, 2013: |
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Type of Debt | Annual Stated Interest Rate (1) | | GAAP | | Maturity Date | | March 31, 2014 (3) | | December 31, 2013 (3) | | |
Effective Rate (1)(2) | | |
| | | | | | | (in thousands) | | |
Mortgage note payable | 4.27% | | 4.27% | | Feb-18 | | $ | 132,539 | | | $ | 133,117 | | | |
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Mortgage note payable (4) | 4.48% | | 4.48% | | Jul-27 | | 97,000 | | | 97,000 | | | |
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Mortgage note payable (4) | 6.05% | | 3.50% | | Jun-19 | | 91,696 | | | 92,502 | | | |
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Mortgage note payable | 6.51% | | 6.51% | | Feb-17 | | 67,415 | | | 67,663 | | | |
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Mortgage note payable (4) | 5.23% | | 3.50% | | Jan-16 | | 54,120 | | | 54,570 | | | |
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Mortgage note payable (4) | 5.57% | | 3.25% | | Feb-16 | | 41,300 | | | 41,654 | | | |
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Mortgage note payable (4) | 5.09% | | 3.50% | | Aug-15 | | 34,712 | | | 34,845 | | | |
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Mortgage note payable (4) | 4.94% | | 4.00% | | Apr-15 | | 27,307 | | | 27,641 | | | |
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Mortgage note payable | 7.15% | | 7.15% | | May-17 | | 8,387 | | | 8,972 | | | |
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Other | Various | | Various | | Various | | 2,470 | | | 2,470 | | | |
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Total | | | | | | | $ | 556,946 | | | $ | 560,434 | | | |
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______________ |
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-1 | All interest rates presented are fixed-rate interest rates. | | | | | | | | | | | | | | |
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-2 | This represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of discounts/premiums, excluding debt issuance costs. | | | | | | | | | | | | | | |
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-3 | Amounts reported include the amounts of unamortized debt premiums and discounts for the periods presented. | | | | | | | | | | | | | | |
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-4 | The secured debt and the related properties that secure the debt are held in a special purpose entity and the properties are not available to satisfy the debts and other obligations of the Company or the Operating Partnership. | | | | | | | | | | | | | | |
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Although our mortgage loans are secured and non-recourse to the Company and the Operating Partnership, the Company provides limited customary secured debt guarantees for items such as voluntary bankruptcy, fraud, misapplication of payments and environmental liabilities. |
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4.25% Exchangeable Senior Notes |
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The table below summarizes the balance and significant terms of the Company’s 4.25% Exchangeable Notes due November 2014 (the “4.25% Exchangeable Notes”) outstanding as of March 31, 2014 and December 31, 2013. |
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| 4.25% Exchangeable Notes | | | | | | | | |
| March 31, | | December 31, | | | | | | | | |
2014 | 2013 | | | | | | | | |
| (in thousands) | | | | | | | | |
Principal amount | $ | 172,500 | | | $ | 172,500 | | | | | | | | | |
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Unamortized discount | (2,972 | ) | | (4,128 | ) | | | | | | | | |
Net carrying amount of liability component | $ | 169,528 | | | $ | 168,372 | | | | | | | | | |
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Carrying amount of equity component | $19,835 | | | | | | | | |
Issuance date | Nov-09 | | | | | | | | |
Maturity date | Nov-14 | | | | | | | | |
Stated coupon rate (1) | 4.25% | | | | | | | | |
Effective interest rate (2) | 7.13% | | | | | | | | |
Exchange rate per $1,000 principal value of the 4.25% Exchangeable Notes, as adjusted (3) | 27.8307 | | | | | | | | |
Exchange price, as adjusted (3) | $35.93 | | | | | | | | |
Number of shares on which the aggregate consideration to be delivered on conversion is determined (3) | 4,800,796 | | | | | | | | |
_______________ |
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-1 | Interest on the 4.25% Exchangeable Notes is payable semi-annually in arrears on May 15th and November 15th of each year. | | | | | | | | | | | | | | |
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-2 | The rate at which we record interest expense for financial reporting purposes, which reflects the amortization of the discounts on the 4.25% Exchangeable Notes. This rate represents our conventional debt borrowing rate at the date of issuance. | | | | | | | | | | | | | | |
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-3 | The exchange rate, exchange price and the number of shares to be delivered upon conversion are subject to adjustment under certain circumstances including increases in our common dividends. | | | | | | | | | | | | | | |
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The 4.25% Exchangeable Notes are exchangeable for shares of the Company’s common stock prior to maturity only upon the occurrence of certain events. During the three months ended March 31, 2014, the closing sale price per share of the common stock of the Company was more than 130% of the exchange price per share of the Company’s common stock for at least 20 trading days in the specified period. As a result, for the three month period ended March 31, 2014, the 4.25% Exchangeable Notes are exchangeable at the exchange rate stated above and may be exchangeable thereafter, if one or more of the events were again to occur during future measurement periods. |
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For the three months ended March 31, 2014 and 2013, the per share average trading price of the Company’s common stock on the NYSE was higher than the $35.93 exchange price for the 4.25% Exchangeable Notes, as presented below: |
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| Three Months Ended March 31, | | | | | | | | | | | | |
| 2014 | | 2013 | | | | | | | | | | | | |
Per share average trading price of the Company’s common stock | $55.18 | | $51.14 | | | | | | | | | | | | |
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The 4.25% Exchangeable Notes were exchangeable as of March 31, 2014 and March 31, 2013. If the Exchangeable Notes were exchanged, the approximate fair value of the shares upon exchange at March 31, 2014 and 2013, using the per share average trading price presented in the table above, would have been as follows: |
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| Three Months Ended March 31, | | | | | | | | |
| 2014 | | 2013 | | | | | | | | |
| (in thousands) | | | | | | | | |
Approximate fair value of shares upon exchange | $ | 270,602 | | | $ | 247,300 | | | | | | | | | |
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Principal amount of the 4.25% Exchangeable Notes | 172,500 | | | 172,500 | | | | | | | | | |
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Approximate fair value in excess amount of principal amount | $ | 98,102 | | | $ | 74,800 | | | | | | | | | |
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See Notes 14 and 15 for a discussion of the impact of the 4.25% Exchangeable Notes on our diluted earnings per share and unit calculations for the periods presented. |
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Interest Expense for the Exchangeable Notes |
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The unamortized discount on the 4.25% Exchangeable Notes is accreted as additional interest expense from the date of issuance through the maturity date of the applicable Exchangeable Notes. The following table summarizes the total interest expense attributable to the 4.25% Exchangeable Notes based on the respective effective interest rates, before the effect of capitalized interest, for the three months ended March 31, 2014 and 2013: |
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| Three Months Ended March 31, | | | | | | | | |
| 2014 | | 2013 | | | | | | | | |
| (in thousands) | | | | | | | | |
Contractual interest payments | $ | 1,833 | | | $ | 1,833 | | | | | | | | | |
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Amortization of discount | 1,156 | | | 1,078 | | | | | | | | | |
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Interest expense attributable to the Exchangeable Notes | $ | 2,989 | | | $ | 2,911 | | | | | | | | | |
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Capped Call Transactions |
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In connection with the offering of the 4.25% Exchangeable Notes, we entered into capped call option transactions (“capped calls”) to mitigate the dilutive impact of the potential exchange of the 4.25% Exchangeable Notes. The table below summarizes our capped call option positions for the 4.25% Exchangeable Notes as of March 31, 2014 and December 31, 2013. |
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| 4.25% Exchangeable Notes | | | | | | | | | | | | |
Referenced shares of common stock | 4,800,796 | | | | | | | | | | | | | |
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Exchange price including effect of capped calls | $ | 42.81 | | | | | | | | | | | | | |
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The capped calls are expected to terminate upon the earlier of the maturity date of the 4.25% Exchangeable Notes or upon the date upon which the 4.25% Exchangeable Notes are no longer outstanding resulting from an exchange or repurchase by us. The initial cost of capped calls were recorded as a reduction to additional paid-in capital. |
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Unsecured Senior Notes |
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The following table summarizes the balance and significant terms of the registered unsecured senior notes issued by the Operating Partnership as of March 31, 2014 and December 31, 2013: |
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| | | | | | | | | Principal Amount as of |
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| Issuance date | | Maturity date | | Stated | | Effective interest rate (1) | | March 31, | | December 31, |
coupon rate | 2014 | 2013 |
| | | | | | | | | (in thousands) |
3.800% Unsecured Senior Notes (2) | Jan-13 | | Jan-23 | | 3.80% | | 3.80% | | $ | 300,000 | | | $ | 300,000 | |
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Unamortized discount | | | | | | | | | (87 | ) | | (90 | ) |
Net carrying amount | | | | | | | | | $ | 299,913 | | | $ | 299,910 | |
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4.800% Unsecured Senior Notes (3) | Jul-11 | | Jul-18 | | 4.80% | | 4.83% | | $ | 325,000 | | | $ | 325,000 | |
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Unamortized discount | | | | | | | | | (320 | ) | | (339 | ) |
Net carrying amount | | | | | | | | | $ | 324,680 | | | $ | 324,661 | |
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6.625% Unsecured Senior Notes (4) | May-10 | | Jun-20 | | 6.63% | | 6.74% | | $ | 250,000 | | | $ | 250,000 | |
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Unamortized discount | | | | | | | | | (1,313 | ) | | (1,367 | ) |
Net carrying amount | | | | | | | | | $ | 248,687 | | | $ | 248,633 | |
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5.000% Unsecured Senior Notes (5) | Nov-10 | | Nov-15 | | 5.00% | | 5.01% | | $ | 325,000 | | | $ | 325,000 | |
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Unamortized discount | | | | | | | | | (63 | ) | | (73 | ) |
Net carrying amount | | | | | | | | | $ | 324,937 | | | $ | 324,927 | |
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________________________ |
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-1 | This represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of initial issuance discounts, excluding debt issuance costs. | | | | | | | | | | | | | | |
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-2 | Interest on the 3.800% unsecured senior notes is payable semi-annually in arrears on January 15th and July 15th of each year. | | | | | | | | | | | | | | |
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-3 | Interest on the 4.800% unsecured senior notes is payable semi-annually in arrears on January 15th and July 15th of each year. | | | | | | | | | | | | | | |
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-4 | Interest on the 6.625% unsecured senior notes is payable semi-annually in arrears on June 1st and December 1st of each year. | | | | | | | | | | | | | | |
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-5 | Interest on the 5.000% unsecured senior notes is payable semi-annually in arrears on May 3rd and November 3rd of each year. | | | | | | | | | | | | | | |
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In addition to the registered unsecured senior note issuances listed above, we also had outstanding Series B unsecured senior notes with an aggregate principal balance of $83.0 million and effective interest rate of 6.45% as of March 31, 2014 and December 31, 2013, that mature in August 2014. The Series B notes require semi-annual interest payment each February 4th and August 4th of each year based on a fixed annual interest rate of 6.45%. |
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Term Loan Facility |
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The Company’s outstanding borrowings under the term loan facility were $150.0 million as of March 31, 2014 and December 31, 2013. The term loan facility bears interest at an annual rate of LIBOR plus 1.750%, which can vary depending on the Operating Partnership’s credit rating, and is scheduled to mature on March 29, 2016. Under the terms of the term loan facility, we may exercise an option to extend the maturity date by one year. We may elect to borrow up to an additional $100.0 million under an accordion option, subject to bank approval and obtaining commitments for any additional borrowing capacity. |
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Unsecured Revolving Credit Facility |
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The following table summarizes the balance and terms of our revolving credit facility as of March 31, 2014 and December 31, 2013: |
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| March 31, | | December 31, | | | | | | | | |
2014 | 2013 | | | | | | | | |
| (in thousands) | | | | | | | | |
Outstanding borrowings | $ | — | | | $ | 45,000 | | | | | | | | | |
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Remaining borrowing capacity | 500,000 | | | 455,000 | | | | | | | | | |
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Total borrowing capacity (1) | $ | 500,000 | | | $ | 500,000 | | | | | | | | | |
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Interest rate (2) | — | % | | 1.62 | % | | | | | | | | |
Facility fee-annual rate (3) | 0.30% | | | | | | | | |
Maturity date (4) | Apr-17 | | | | | | | | |
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-1 | We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $200.0 million under an accordion feature under the terms of the revolving credit facility. | | | | | | | | | | | | | | |
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-2 | The revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.450% as of both March 31, 2014 and December 31, 2013. | | | | | | | | | | | | | | |
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-3 | The facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, from 2010 to 2012 we incurred debt origination and legal costs of which, as of March 31, 2014, approximately $4.5 million remains to be amortized through the maturity date of the revolving credit facility. | | | | | | | | | | | | | | |
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-4 | Under the terms of the revolving credit facility, we may exercise an option to extend the maturity date by one year. | | | | | | | | | | | | | | |
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The Company intends to borrow amounts under the revolving credit facility from time to time for general corporate purposes, to fund potential acquisitions, to finance development and redevelopment expenditures and to potentially repay long-term debt. |
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Debt Covenants and Restrictions |
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The revolving credit facility, the term loan facility, the unsecured senior notes, and certain other secured debt arrangements contain covenants and restrictions requiring us to meet certain financial ratios and reporting requirements. Some of the more restrictive financial covenants include a maximum ratio of total debt to total asset value, a minimum fixed-charge coverage ratio, a minimum unsecured debt ratio and a minimum unencumbered asset pool debt service coverage ratio. Noncompliance with one or more of the covenants and restrictions could result in the full or partial principal balance of the associated debt becoming immediately due and payable. We believe we were in compliance with all of our debt covenants as of March 31, 2014. |
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Debt Maturities |
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The following table summarizes the stated debt maturities and scheduled amortization payments, excluding debt discounts and premiums, as of March 31, 2014: |
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Year | (in thousands) | | | | | | | | | | | | |
Remaining 2014 | $ | 262,932 | | | | | | | | | | | | | |
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2015 | 395,104 | | | | | | | | | | | | | |
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2016 | 249,431 | | | | | | | | | | | | | |
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2017 | 71,748 | | | | | | | | | | | | | |
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2018 | 451,728 | | | | | | | | | | | | | |
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Thereafter | 718,011 | | | | | | | | | | | | | |
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Total (1) | $ | 2,148,954 | | | | | | | | | | | | | |
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________________________ |
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-1 | Includes gross principal balance of outstanding debt before impact of net unamortized premiums totaling approximately $8.7 million. | | | | | | | | | | | | | | |
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Capitalized Interest and Loan Fees |
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The following table sets forth gross interest expense reported in continuing operations, including debt discount/premium and loan cost amortization, net of capitalized interest, for the three months ended March 31, 2014 and 2013. The interest expense capitalized was recorded as a cost of development and redevelopment, and increased the carrying value of undeveloped land and construction in progress. |
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| Three Months Ended March 31, | | | | | | | | |
| 2014 | | 2013 | | | | | | | | |
| (in thousands) | | | | | | | | |
Gross interest expense | $ | 28,034 | | | $ | 27,466 | | | | | | | | | |
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Capitalized interest | (10,782 | ) | | (7,732 | ) | | | | | | | | |
Interest expense | $ | 17,252 | | | $ | 19,734 | | | | | | | | | |
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