NOTES PAYABLE

As of March 31, 2018 and December 31, 2017, the Company’s notes payable, including notes payable related to real estate held for sale, consisted of the following (dollars in thousands):



	Book Value as of March 31, 2018			Book Value as of December 31, 2017			Contractual Interest Rate as of March 31, 2018 ⁽¹⁾	Effective Interest Rate as of March 31, 2018 ⁽¹⁾	Payment Type	Maturity Date ⁽²⁾
Amended and Restated Portfolio Revolving Loan Facility ⁽³⁾	$	—		$	52,638		⁽³⁾	⁽³⁾	⁽³⁾	⁽³⁾
Union Bank Plaza Mortgage Loan ⁽³⁾	—			105,000			⁽³⁾	⁽³⁾	⁽³⁾	⁽³⁾
Portfolio Mortgage Loan #1 ⁽³⁾	—			59,651			⁽³⁾	⁽³⁾	⁽³⁾	⁽³⁾
Portfolio Mortgage Loan #3 ⁽³⁾	—			54,000			⁽³⁾	⁽³⁾	⁽³⁾	⁽³⁾
Corporate Technology Centre Mortgage Loan ⁽⁴⁾	137,541			138,219			3.50%	3.5%	Principal & Interest	04/01/2020
300-600 Campus Drive Revolving Loan ⁽³⁾	—			93,125			⁽³⁾	⁽³⁾	⁽³⁾	⁽³⁾
Portfolio Loan Facility ⁽⁵⁾	375,000			—			One-month LIBOR + 1.45%	3.3%	Interest Only	03/29/2020
Total notes payable principal outstanding	$	512,541		$	502,633
Deferred financing costs, net	(2,693		)	(334		)
Total notes payable, net	$	509,848		$	502,299

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⁽¹⁾ Contractual interest rate represents the interest rate in effect under the loan as of March 31, 2018. Effective interest rate is calculated as the actual interest rate in effect as of March 31, 2018, using interest rate indices as of March 31, 2018, where applicable.

⁽²⁾ Represents the initial maturity date or the maturity date as extended as of March 31, 2018; subject to certain conditions, the maturity dates of certain loans may be extended beyond the maturity date shown.

⁽³⁾ On March 29, 2018, the Company paid off the outstanding balances under these loans with proceeds from the Portfolio Loan Facility. See below, “— Recent Financing Transactions — Portfolio Loan Facility.”

⁽⁴⁾ In connection with the sales of two of the eight buildings at Corporate Technology Centre subsequent to March 31, 2018, the Company made a partial paydown on the Corporate Technology Centre Mortgage Loan. See Note 11, “Subsequent Events — Dispositions Subsequent to March 31, 2018.”

⁽⁵⁾ See below, “— Recent Financing Transactions — Portfolio Loan Facility.”

During the three months ended March 31, 2018 and 2017, the Company incurred $5.0 million and $4.0 million of interest expense, respectively. As of March 31, 2018 and December 31, 2017, $0.5 million and $1.4 million, respectively, of interest expense were payable. Included in interest expense for the three months ended March 31, 2018 was $0.3 million of amortization of deferred financing costs and $0.3 million of debt refinancing costs. Included in interest expense for the three months ended March 31, 2017 was $0.3 million of amortization of deferred financing costs. As a result of unrealized gains on the Company’s interest rate swap agreements for the three months ended March 31, 2017, interest expense was reduced by $11,000.

The following is a schedule of maturities, including principal amortization payments, for all notes payable outstanding as of March 31, 2018 (in thousands):



April 1, 2018 through December 31, 2018	$	2,072
2019	2,848
2020	507,621
	$	512,541

Certain of the Company’s notes payable contain financial debt covenants. As of March 31, 2018, the Company was in compliance with these debt covenants.

Recent Financing Transactions

Portfolio Loan Facility

On March 29, 2018, the Company, through indirect wholly owned subsidiaries (each a “Borrower”), entered into a two-year loan facility with Bank of America, N.A., as administrative agent, sole arranger and bookrunner (the “Lender”), for an amount of up to $500.0 million (the “Portfolio Loan Facility”), of which $375.0 million is term debt and $125.0 million is revolving debt. At closing, the term debt of $375.0 million was funded, of which $364.0 million was used to pay off the Amended and Restated Portfolio Revolving Loan Facility, the Union Bank Plaza Mortgage Loan, Portfolio Mortgage Loan #1, Portfolio Mortgage Loan #3 and the 300-600 Campus Drive Revolving Loan. The remaining term debt was used to pay origination fees and accrued interest, with any excess proceeds held by the Company for liquidity management. The Portfolio Loan Facility may be used for the repayment of debt, for tenant improvements, leasing commissions and capital improvements, for working capital or liquidity management of the Company and for other purposes described in the loan agreement.

The Portfolio Loan Facility matures on March 29, 2020, with two 12-month extension options, subject to certain terms and conditions contained in the loan documents. The Portfolio Loan Facility bears interest at a floating rate of 145 basis points over one-month LIBOR during the initial term of the loan and monthly payments are interest only with the entire balance and all outstanding interest and fees due at maturity, assuming no prior prepayment. The Company will have the right to prepay all or a portion of the Portfolio Loan Facility, subject to certain expenses potentially incurred by the Lender as a result of the prepayment and subject to certain conditions contained in the loan documents. In addition, the Portfolio Loan Facility contains customary representations and warranties, financial and other affirmative and negative covenants (including maintenance of an ongoing debt service coverage ratio), events of default and remedies typical for this type of facility.

The Portfolio Loan Facility is secured by the 100 & 200 Campus Drive Buildings, the 300-600 Campus Drive Buildings, Willow Oaks Corporate Center, Pierre Laclede Center, Union Bank Plaza, Emerald View at Vista Center, Granite Tower and Fountainhead Plaza.

Under the guaranty agreement related to the Portfolio Loan Facility (the “Guaranty”), KBS REIT Properties II, LLC (“REIT Properties II”), an indirect wholly owned subsidiary of the Company, (i) provides a guaranty of, among other sums described in the Guaranty, all principal and interest outstanding under the Portfolio Loan Facility in the event of certain bankruptcy or insolvency proceedings involving REIT Properties II, any Borrower or any of their affiliates and (ii) guarantees payment of, and agrees to protect, defend, indemnify and hold harmless the Lender for, from and against, any deficiency, loss or damage suffered by the Lender because of (a) certain intentional acts committed by any Borrower or (b) certain bankruptcy or insolvency proceedings involving REIT Properties II, any Borrower or any of their affiliates, as such acts are described in the Guaranty.