Exchangeable Senior Notes

12 Months Ended

Dec. 31, 2016

NOTES PAYABLE AND REVOLVING LINES OF CREDIT

The components of notes payable are summarized as follows:



Notes Payable	December 31, 2016			December 31, 2015			Fixed Rate	Variable Rate	Basis Rate	Maturity Dates
Secured fixed rate notes payable ⁽¹⁾	$	2,297,968		$	1,613,490		2.8 - 6.1%			March 2017 - September 2026
Secured variable rate notes payable ⁽¹⁾	642,970			1,094,985				2.4 - 2.8%	Libor plus 1.6 - 2.0%	January 2017 - October 2023
Unsecured fixed rate notes payable	—			73,825			3.1%			March 2020
Unsecured variable rate notes payable	300,000			—				2.1%	Libor plus 1.4%	October 2021 - October 2023
Total	3,240,938			2,782,300
Plus: Premium on notes payable	—			872
Less: unamortized debt issuance costs	(27,350		)	(24,605		)
Total	$	3,213,588		$	2,758,567

(1) The loans are collateralized by mortgages on real estate assets and the assignment of rents.

On October 14, 2016, the Company entered into a credit agreement (the “Credit Agreement”) which provides for aggregate borrowings of up to $1.15 billion, consisting of a senior unsecured four-year revolving credit facility of $500 million (the “Revolving Credit Facility”), a senior unsecured five-year term loan of up to $430 million (the “Five-Year Term Loan Facility”) and a senior unsecured seven-year term loan of up to $220 million (the “Seven-Year Term Loan Facility” and, together with the Revolving Credit Facility and the Five-Year Term Loan Facility, the “Credit Facility”). The Company may request an increase in the amount of the commitments under the Credit Facility up to an aggregate of $1.5 billion, and extend the term of the Revolving Credit Facility for up to two additional periods of six months each, after satisfying certain conditions. The latest date by which capacity may be drawn on The Five-Year Term Loan Facility and Seven-Year Term Loan Facility are October 13, 2017 and April 4, 2017, respectively. Costs incurred in connection with the Credit Facility were approximately $8,000. These costs are being amortized as an adjustment to interest expense over the terms of each loan.

Amounts outstanding under the Credit Facility bear interest at floating rates, at the Company’s option, equal to either (i) LIBOR plus the applicable Eurodollar rate margin or (ii) the applicable base rate which is the applicable margin plus the highest of (a) 0.0%, (b) the federal funds rate plus 0.50%, (c) U.S. Bank’s prime rate or (d) the Eurodollar rate plus 1.00%. The applicable Eurodollar rate margin will range from 1.35% to 2.50% per annum and the applicable base rate margin will range from 0.35% to 1.50% per annum, in each case depending on the Company’s Consolidated Leverage Ratio, as defined in the Credit Agreement, and the type of loan. If the Operating Partnership obtains a specified investment grade rating from two or more specified credit rating agencies, and elects to use the alternative rates based on the Company’s debt rating, the applicable Eurodollar rate margin will range from 0.85% to 2.45% per annum and the applicable base rate margin will range from 0.00% to 1.45% per annum, in each case depending on the rating achieved and the type of loan.

The Credit Agreement is guaranteed by the Company and is not secured by any assets of the Company.

As of December 31, 2016, the Company was in compliance with all of its financial covenants.

The following table summarizes the scheduled maturities of notes payable at December 31, 2016:




2017	$	311,075
2018	356,018
2019	514,121
2020	831,289
2021	664,064
Thereafter	564,371
	$	3,240,938

Real estate assets are pledged as collateral for the secured loans. Of the Company’s $3,240,938 principal amount in notes payable outstanding at December 31, 2016, $2,660,814 were recourse due to guarantees or other security provisions. The Company is subject to certain restrictive covenants relating to the outstanding notes payable. The Company was in compliance with all financial covenants at December 31, 2016.

All of the Company’s lines of credit are guaranteed by the Company. The following table presents information on the Company’s lines of credit, the proceeds of which are used to repay debt and for general corporate purposes, for the periods indicated:

As of December 31, 2016

Revolving Lines of Credit

Amount Drawn

Capacity

Interest Rate

Origination Date

Maturity

Basis Rate ⁽¹⁾

Credit Line 1 ⁽²⁾

3,000

100,000

2.4%

6/4/2010

6/30/2018

LIBOR plus 1.7%

Credit Line 2 ⁽³⁾⁽⁴⁾

362,000

500,000

2.2%

10/14/2016

10/14/2020

LIBOR plus 1.4%

365,000

600,000

(1) 30-day USD LIBOR

(2) Secured by mortgages on certain real estate assets. One two-year extension available.

(3) Unsecured. Two six-month extensions available.

(4) Basis Rate as of December 31, 2016. Rate is subject to change based on our consolidated leverage ratio.

EXCHANGEABLE SENIOR NOTES

In September 2015, the Operating Partnership issued $575,000 of its 3.125% Exchangeable Senior Notes due 2035. Costs incurred to issue the 2015 Notes were approximately $11,992, consisting primarily of a 2.0% underwriting fee. These costs are being amortized as an adjustment to interest expense over five years, which represents the estimated term based on the first available redemption date, and are included in other assets in the consolidated balance sheets. The 2015 Notes are general unsecured senior obligations of the Operating Partnership and are fully guaranteed by the Company. Interest is payable on April 1 and October 1 of each year beginning April 1, 2016, until the maturity date of October 1, 2035. The Notes bear interest at 3.125% per annum and contain an exchange settlement feature, which provides that the 2015 Notes may, under certain circumstances, be exchangeable for cash (for the principal amount of the 2015 Notes) and, with respect to any excess exchange value, for cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at the Company’s option. The exchange rate of the 2015 Notes as of December 31, 2016 was approximately 10.56 shares of the Company’s common stock per $1,000 principal amount of the 2015 Notes.

The Operating Partnership may redeem the 2015 Notes at any time to preserve the Company’s status as a REIT. In addition, on or after October 5, 2020, the Operating Partnership may redeem the 2015 Notes for cash, in whole or in part, at 100% of the principal amount plus accrued and unpaid interest, upon at least 30 days but not more than 60 days prior written notice to the holders of the 2015 Notes. The holders of the 2015 Notes have the right to require the Operating Partnership to repurchase the 2015 Notes for cash, in whole or in part, on October 1 of the years 2020, 2025 and 2030, (unless the Operating Partnership has called the 2015 Notes for redemption), and upon the occurrence of certain designated events, in each case for a repurchase price equal to 100% of the principal amount of the 2015 Notes plus accrued and unpaid interest. Certain events are considered “Events of Default,” as defined in the indenture governing the 2015 Notes, which may result in the accelerated maturity of the 2015 Notes.

On June 21, 2013, the Operating Partnership issued $250,000 of its 2.375% Exchangeable Senior Notes due 2033 at a 1.5% discount, or $3,750. Costs incurred to issue the 2013 Notes were approximately $1,672. These costs are being amortized as an adjustment to interest expense over five years, which represents the estimated term based on the first available redemption date, and are included in other assets in the consolidated balance sheets. The 2013 Notes are general unsecured senior obligations of the Operating Partnership and are fully guaranteed by the Company. Interest is payable on January 1 and July 1 of each year beginning January 1, 2014, until the maturity date of July 1, 2033. The 2013 Notes bear interest at 2.375% per annum and contain an exchange settlement feature, which provides that the 2013 Notes may, under certain circumstances, be exchangeable for cash (for the principal amount of the 2013 Notes) and, with respect to any excess exchange value, for cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at the Company’s option. The exchange rate of the 2013 Notes as of December 31, 2016 was approximately 18.49 shares of the Company’s common stock per $1,000 principal amount of the 2013 Notes.

Additionally, the 2013 Notes and the 2015 Notes can be exchanged during any calendar quarter, if the last reported sale price of the common stock of the Company is greater than or equal to 130% of the exchange price for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter. The price of the Company’s common stock exceeded 130% of the exchange price for the required time period for the 2013 Notes during the quarter ended December 31, 2016. Therefore, holders of the 2013 Notes may elect to exchange such notes during the quarter ending March 31, 2017. The price of the Company’s common stock did not exceed 130% of the exchange price for the required time period for the 2015 Notes during the quarter ended December 31, 2016.

The Operating Partnership may redeem the 2013 Notes at any time to preserve the Company’s status as a REIT. In addition, on or after July 5, 2018, the Operating Partnership may redeem the 2013 Notes for cash, in whole or in part, at 100% of the principal amount plus accrued and unpaid interest, upon at least 30 days but not more than 60 days prior written notice to the holders of the 2013 Notes. The holders of the 2013 Notes have the right to require the Operating Partnership to repurchase the 2013 Notes for cash, in whole or in part, on July 1 of the years 2018, 2023 and 2028, and upon the occurrence of certain designated events, in each case for a repurchase price equal to 100% of the principal amount of the 2013 Notes plus accrued and unpaid interest. Certain events are considered “Events of Default,” as defined in the indenture governing the 2013 Notes, which may result in the accelerated maturity of the 2013 Notes.

GAAP requires entities with convertible debt instruments that may be settled entirely or partially in cash upon conversion to separately account for the liability and equity components of the instrument in a manner that reflects the issuer’s economic interest cost. The Company therefore accounts for the liability and equity components of the 2013 Notes and 2015 Notes separately. The equity components are included in paid-in capital in stockholders’ equity in the consolidated balance sheets, and the value of the equity components are treated as original issue discount for purposes of accounting for the debt components. The discounts are being amortized as interest expense over the remaining period of the debt through its first redemption date, July 1, 2018 for the 2013 Notes and October 1, 2020 for the 2015 Notes. The effective interest rate on the liability components of both the 2013 Notes and the 2015 Notes is 4.0%, which approximates the market rate of interest of similar debt without exchange features (i.e. nonconvertible debt) at the time of issuance.

Information about the carrying amount of the equity component, the principal amount of the liability component, its unamortized discount and its net carrying amount were as follows for the periods indicated:



	December 31, 2016			December 31, 2015
Carrying amount of equity component - 2013 Notes	$	—		$	—
Carrying amount of equity component - 2015 Notes	22,597			22,597
Carrying amount of equity components	$	22,597		$	22,597
Principal amount of liability component - 2013 Notes	$	63,170		$	85,364
Principal amount of liability component - 2015 Notes	575,000			575,000
Unamortized discount - equity component - 2013 Notes	(1,187		)	(2,605		)
Unamortized discount - equity component - 2015 Notes	(17,355		)	(21,565		)
Unamortized cash discount - 2013 Notes	(281		)	(633		)
Unamortized debt issuance costs	(9,033		)	(11,698		)
Net carrying amount of liability components	$	610,314		$	623,863

The amount of interest cost recognized relating to the contractual interest rate and the amortization of the discount on the liability component for the 2013 Notes and 2015 Notes was as follows for the periods indicated:



	For the Year Ended December 31,
	2016		2015		2014
Contractual interest	$	19,483	$	9,939	$	5,936
Amortization of discount	4,980		3,310		2,683
Total interest expense recognized	$	24,463	$	13,249	$	8,619

Repurchase of 2013 Notes

During April 2016, the Company repurchased a total principal amount of $2,555 of the 2013 Notes. The Company paid cash for the principal amount and issued a total of 18,031 shares of common stock valued at $1,686 for the exchange value in excess of the principal amount.

During February 2016, the Company repurchased a total principal amount of $19,639 of the 2013 Notes. The Company paid cash for the principal amount, and issued a total of 130,909 shares of common stock valued at $11,380 for the exchange value in excess of the principal amount.

As part of the 2015 Notes offering, the Company repurchased $164,636 of the 2013 Notes for $227,212 on September 15, 2015. The Company allocated the value of the consideration paid to repurchase the 2013 Notes (1) to the extinguishment of the liability component and (2) to the reacquisition of the equity component. The amount allocated to the extinguishment of the liability component is equal to the fair value of that component immediately prior to extinguishment. The difference between the consideration attributed to the extinguishment of the liability component and the sum of (a) the net carrying amount of the repurchased liability component, and (b) the related unamortized debt issuance costs, is recognized as a gain on debt extinguishment. The remaining settlement consideration is allocated to the reacquisition of the equity component of the repurchased 2013 Notes and recognized as a reduction of stockholders’ equity.

Information about the repurchases is as follows:



	February 2016			April 2016			September 2015
Principal amount repurchased	$	19,639		$	2,555		$	164,636
Amount allocated to:
Extinguishment of liability component	$	18,887		$	2,476		$	157,100
Reacquisition of equity component	12,132			1,766			70,112
Total consideration paid for repurchase	$	31,019		$	4,242		$	227,212
Exchangeable senior notes repurchased	$	19,639		$	2,555		$	164,636
Extinguishment of liability component	(18,887		)	(2,476		)	(157,100		)
Discount on exchangeable senior notes	(716		)	(72		)	(6,931		)
Related debt issuance costs	(36		)	(7		)	(605		)
Gain/(loss) on repurchase	$	—		$	—		$	—