Toggle SGML Header (+)


Section 1: 10-Q (10-Q)

Document
false--12-31Q12020000102599600014939760.4550.4850.011500000001500000001060162871150679241060162871150679240.4550.485106016287115067924189010001890100020403000204030002023287202128720232872021287 0001025996 2020-01-01 2020-03-31 0001025996 krc:KilroyRealtyL.P.Member 2020-01-01 2020-03-31 0001025996 2020-04-24 0001025996 2019-12-31 0001025996 2020-03-31 0001025996 2019-01-01 2019-03-31 0001025996 us-gaap:NoncontrollingInterestMember 2019-01-01 2019-03-31 0001025996 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-03-31 0001025996 us-gaap:ParentMember 2019-01-01 2019-03-31 0001025996 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0001025996 us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember 2019-01-01 0001025996 us-gaap:CommonStockMember 2019-01-01 2019-03-31 0001025996 us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember 2019-01-01 2019-03-31 0001025996 us-gaap:ParentMember 2019-03-31 0001025996 2018-12-31 0001025996 us-gaap:CommonStockMember 2018-12-31 0001025996 2019-01-01 0001025996 2019-03-31 0001025996 us-gaap:NoncontrollingInterestMember 2019-03-31 0001025996 us-gaap:ParentMember 2019-01-01 0001025996 us-gaap:NoncontrollingInterestMember 2018-12-31 0001025996 us-gaap:ParentMember 2018-12-31 0001025996 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001025996 us-gaap:CommonStockMember 2019-03-31 0001025996 us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember 2018-12-31 0001025996 us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember 2019-03-31 0001025996 us-gaap:CommonStockMember 2019-12-31 0001025996 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0001025996 us-gaap:CommonStockMember 2020-01-01 2020-03-31 0001025996 us-gaap:NoncontrollingInterestMember 2020-03-31 0001025996 us-gaap:AdditionalPaidInCapitalMember 2020-01-01 2020-03-31 0001025996 us-gaap:NoncontrollingInterestMember 2019-12-31 0001025996 us-gaap:AdditionalPaidInCapitalMember 2020-03-31 0001025996 us-gaap:ParentMember 2020-01-01 2020-03-31 0001025996 us-gaap:ParentMember 2019-12-31 0001025996 us-gaap:NoncontrollingInterestMember 2020-01-01 2020-03-31 0001025996 us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember 2020-01-01 2020-03-31 0001025996 us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember 2020-03-31 0001025996 us-gaap:CommonStockMember 2020-03-31 0001025996 us-gaap:ParentMember 2020-03-31 0001025996 us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember 2019-12-31 0001025996 krc:KilroyRealtyL.P.Member 2020-03-31 0001025996 krc:KilroyRealtyL.P.Member 2019-12-31 0001025996 krc:KilroyRealtyL.P.Member us-gaap:CapitalUnitsMember 2020-03-31 0001025996 krc:KilroyRealtyL.P.Member us-gaap:CapitalUnitsMember 2019-12-31 0001025996 krc:KilroyRealtyL.P.Member 2019-01-01 2019-03-31 0001025996 krc:KilroyRealtyL.P.Member krc:PartnersCapitalCommonUnitMember 2019-12-31 0001025996 krc:KilroyRealtyL.P.Member krc:PartnersCapitalCommonUnitMember 2020-01-01 2020-03-31 0001025996 krc:KilroyRealtyL.P.Member krc:PartnersCapitalCommonUnitMember 2020-03-31 0001025996 krc:KilroyRealtyL.P.Member us-gaap:NoncontrollingInterestMember 2020-01-01 2020-03-31 0001025996 krc:KilroyRealtyL.P.Member us-gaap:NoncontrollingInterestMember 2019-12-31 0001025996 krc:KilroyRealtyL.P.Member us-gaap:NoncontrollingInterestMember 2020-03-31 0001025996 krc:KilroyRealtyL.P.Member us-gaap:NoncontrollingInterestMember 2019-01-01 2019-03-31 0001025996 krc:KilroyRealtyL.P.Member us-gaap:NoncontrollingInterestMember 2019-03-31 0001025996 krc:KilroyRealtyL.P.Member 2019-01-01 0001025996 krc:KilroyRealtyL.P.Member krc:PartnersCapitalCommonUnitMember 2019-01-01 2019-03-31 0001025996 krc:KilroyRealtyL.P.Member krc:PartnersCapitalCommonUnitMember 2019-03-31 0001025996 krc:KilroyRealtyL.P.Member krc:PartnersCapitalCommonUnitMember 2018-12-31 0001025996 krc:KilroyRealtyL.P.Member us-gaap:NoncontrollingInterestMember 2018-12-31 0001025996 krc:KilroyRealtyL.P.Member 2019-03-31 0001025996 krc:KilroyRealtyL.P.Member krc:PartnersCapitalCommonUnitMember 2019-01-01 0001025996 krc:KilroyRealtyL.P.Member 2018-12-31 0001025996 krc:NonAffiliatedInvestorsMember krc:OperatingPartnershipMember 2020-01-01 2020-03-31 0001025996 krc:OfficePropertiesOwnedbyConsolidatedPropertyPartnershipsMember 2020-03-31 0001025996 us-gaap:VariableInterestEntityPrimaryBeneficiaryMember krc:A101FirstLLCand303SecondLLCMember 2020-03-31 0001025996 krc:SanFranciscoCaliforniaMember 2020-03-31 0001025996 krc:A101FirstLLCand303SecondLLCMember krc:DevelopmentPropertiesMember 2020-03-31 0001025996 us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2020-03-31 0001025996 us-gaap:VariableInterestEntityPrimaryBeneficiaryMember 2019-12-31 0001025996 krc:DevelopmentSitesMember 2020-03-31 0001025996 krc:OperatingPartnershipMember krc:FinancePartnershipMember 2020-01-01 2020-03-31 0001025996 krc:SanDiegoCaliforniaMember krc:DevelopmentPropertiesMember 2020-03-31 0001025996 krc:DevelopmentProjectsUnderConstructionMember 2020-03-31 0001025996 krc:OperatingPartnershipMember 2020-01-01 2020-03-31 0001025996 krc:OfficePropertiesMember 2020-03-31 0001025996 stpr:WA krc:DevelopmentPropertiesMember 2020-03-31 0001025996 krc:A101FirstLLCand303SecondLLCMember 2020-03-31 0001025996 krc:RedwoodLLCMember 2020-03-31 0001025996 us-gaap:VariableInterestEntityPrimaryBeneficiaryMember krc:A101FirstLLCand303SecondLLCMember 2019-12-31 0001025996 us-gaap:VariableInterestEntityPrimaryBeneficiaryMember us-gaap:RealEstateInvestmentMember 2020-03-31 0001025996 us-gaap:VariableInterestEntityPrimaryBeneficiaryMember us-gaap:RealEstateInvestmentMember 2019-12-31 0001025996 krc:KilroyRealtyFinanceInc.Member krc:FinancePartnershipMember 2020-01-01 2020-03-31 0001025996 krc:PropertiesandDevelopmentProjectsMember 2020-01-01 2020-03-31 0001025996 krc:SanFranciscoCaliforniaMember krc:DevelopmentPropertiesMember 2020-03-31 0001025996 krc:DevelopmentPropertiesMember 2020-03-31 0001025996 stpr:WA 2020-03-31 0001025996 krc:DevelopmentProjectMember 2020-03-31 0001025996 stpr:WA krc:OfficePropertiesMember 2020-03-31 0001025996 krc:StabilizedResidentialPropertiesMember 2020-03-31 0001025996 krc:ResidentialdevelopmentprojectMember 2020-03-31 0001025996 krc:DevelopmentProjectsTenantImprovementMember 2020-03-31 0001025996 krc:KilroyRealtyL.P.Member us-gaap:RevolvingCreditFacilityMember 2019-12-31 0001025996 krc:KilroyRealtyL.P.Member us-gaap:RevolvingCreditFacilityMember 2020-03-31 0001025996 krc:KilroyRealtyL.P.Member us-gaap:RevolvingCreditFacilityMember 2020-01-01 2020-03-31 0001025996 krc:KilroyRealtyL.P.Member krc:OneHundredFiftyMillionTermLoanFacilityMember us-gaap:LineOfCreditMember 2019-12-31 0001025996 krc:KilroyRealtyL.P.Member krc:OneHundredFiftyMillionTermLoanFacilityMember us-gaap:LineOfCreditMember 2020-03-31 0001025996 krc:KilroyRealtyL.P.Member krc:OneHundredFiftyMillionTermLoanFacilityMember us-gaap:LineOfCreditMember 2020-01-01 2020-03-31 0001025996 krc:KilroyRealtyL.P.Member us-gaap:SeniorNotesMember 2020-03-31 0001025996 krc:KilroyRealtyL.P.Member us-gaap:RevolvingCreditFacilityMember us-gaap:LondonInterbankOfferedRateLIBORMember 2020-01-01 2020-03-31 0001025996 krc:KilroyRealtyL.P.Member krc:OneHundredFiftyMillionTermLoanFacilityMember us-gaap:LineOfCreditMember us-gaap:LondonInterbankOfferedRateLIBORMember 2020-01-01 2020-03-31 0001025996 krc:KilroyRealtyL.P.Member krc:UnsecuredTermLoanFacilityUnsecuredSeniorNotesandSecuredDebtMember 2020-03-31 0001025996 2018-06-30 0001025996 us-gaap:CommonStockMember krc:ForwardEquitySaleMember 2020-03-31 0001025996 krc:ForwardEquitySaleMember 2020-01-01 2020-03-31 0001025996 2020-02-18 2020-02-18 0001025996 us-gaap:CommonStockMember krc:ForwardEquitySaleMember 2020-03-25 2020-03-25 0001025996 us-gaap:CommonStockMember krc:A2018AtTheMarketProgramMember krc:ForwardEquitySaleMember 2020-03-31 0001025996 us-gaap:CommonStockMember krc:ForwardEquitySaleMember 2020-01-01 2020-03-31 0001025996 krc:ForwardEquitySaleMember 2020-03-25 2020-03-25 0001025996 2020-02-18 0001025996 krc:OperatingPartnershipMember 2019-01-01 2019-03-31 0001025996 krc:NonAffiliatedInvestorsMember krc:OperatingPartnershipMember 2019-01-01 2019-03-31 0001025996 krc:NonAffiliatedInvestorsMember krc:OperatingPartnershipMember 2019-01-01 2019-12-31 0001025996 krc:NonAffiliatedInvestorsMember us-gaap:CapitalUnitsMember 2020-03-31 0001025996 krc:OperatingPartnershipMember 2019-01-01 2019-12-31 0001025996 krc:NonAffiliatedInvestorsMember us-gaap:CapitalUnitsMember 2019-03-31 0001025996 krc:NonAffiliatedInvestorsMember us-gaap:CapitalUnitsMember 2019-12-31 0001025996 krc:KilroyRealtyL.P.Member us-gaap:CapitalUnitsMember 2019-03-31 0001025996 krc:PerformanceBasedRSUsMember 2020-01-01 2020-03-31 0001025996 krc:PerformanceBasedRSUsMember 2020-03-31 0001025996 krc:PerformanceBasedRSUsMember 2020-01-01 2020-01-31 0001025996 krc:MarketMeasureBasedRestrictedStockUnitsRsusMember 2020-01-01 2020-01-31 0001025996 krc:PerformanceBasedRSUsMember 2019-02-01 2019-02-28 0001025996 krc:TimeBasedRSUsMember 2020-01-01 2020-01-31 0001025996 krc:PerformanceBasedRSUsMember 2020-01-31 0001025996 us-gaap:RestrictedStockUnitsRSUMember 2020-01-01 2020-01-31 0001025996 krc:OneParticipantMember krc:PerformanceBasedRSUsMember 2020-01-01 2020-01-31 0001025996 krc:TimeBasedRestrictedStockUnitsRsusMember 2020-01-01 2020-01-31 0001025996 krc:TimeBasedRestrictedStockUnitsRSUsGrantMember 2020-01-01 2020-01-31 0001025996 krc:FortyFiveYearGroundLeaseExtensionOptionMember 2020-01-01 2020-03-31 0001025996 krc:TenYearGroundLeaseExtensionOptionMember 2020-01-01 2020-03-31 0001025996 krc:EnvironmentalMattersMember 2020-03-31 0001025996 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001025996 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0001025996 us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:LineOfCreditMember 2019-12-31 0001025996 us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SecuredDebtMember 2020-03-31 0001025996 us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:SecuredDebtMember 2019-12-31 0001025996 us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:LineOfCreditMember 2020-03-31 0001025996 us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:LineOfCreditMember 2020-03-31 0001025996 us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:SecuredDebtMember 2020-03-31 0001025996 us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:UnsecuredDebtMember 2019-12-31 0001025996 us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:UnsecuredDebtMember 2020-03-31 0001025996 us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:UnsecuredDebtMember 2020-03-31 0001025996 us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:LineOfCreditMember 2019-12-31 0001025996 us-gaap:FairValueInputsLevel2Member us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SecuredDebtMember 2019-12-31 0001025996 us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:UnsecuredDebtMember 2019-12-31 0001025996 us-gaap:SubsequentEventMember 2020-04-15 2020-04-15 0001025996 krc:A4.27UnsecuredSeniorNotesMember us-gaap:SeniorNotesMember us-gaap:SubsequentEventMember 2020-04-28 xbrli:shares iso4217:USD xbrli:shares krc:installment krc:compensation_plan krc:building krc:property krc:property_units utreg:sqft krc:trading_day krc:tenant utreg:acre krc:entity krc:ground_lease krc:property_partnership iso4217:USD krc:project krc:residential_unit xbrli:pure krc:VIE
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
Commission File Number: 1-12675 (Kilroy Realty Corporation)
Commission File Number: 000-54005 (Kilroy Realty, L.P.)
KILROY REALTY CORPORATION
KILROY REALTY, L.P.
(Exact name of registrant as specified in its charter)
 
 
 
 
Kilroy Realty Corporation
Maryland
95-4598246
 
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
 
 
Kilroy Realty, L.P.
Delaware
95-4612685
 
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

12200 W. Olympic Boulevard, Suite 200, Los Angeles, California, 90064
(Address of principal executive offices) (Zip Code)

(310) 481-8400
(Registrant's telephone number, including area code)
 
 
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Registrant
Title of each class
Name of each exchange on which registered
Ticker Symbol
Kilroy Realty Corporation
Common Stock, $.01 par value
New York Stock Exchange
KRC
Securities registered pursuant to Section 12(g) of the Act:
Registrant
Title of each class
Kilroy Realty, L.P.
Common Units Representing Limited Partnership Interests
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    
Kilroy Realty Corporation    Yes      No  
Kilroy Realty, L.P.         Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    
Kilroy Realty Corporation     Yes      No  
Kilroy Realty, L.P.         Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Kilroy Realty Corporation
Large accelerated filer ☑    Accelerated filer 
Non-accelerated filer ☐    Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Kilroy Realty, L.P.
Large accelerated filer ☐    Accelerated filer 
Non-accelerated filer ☑    Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Kilroy Realty Corporation Yes       No  
Kilroy Realty, L.P. Yes       No  
As of April 24, 2020, 115,073,347 shares of Kilroy Realty Corporation common stock, par value $.01 per share, were outstanding.
 



EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended March 31, 2020 of Kilroy Realty Corporation and Kilroy Realty, L.P. Unless stated otherwise or the context otherwise requires, references to “Kilroy Realty Corporation” or the “Company,” “we,” “our,” and “us” mean Kilroy Realty Corporation, a Maryland corporation, and its controlled and consolidated subsidiaries, and references to “Kilroy Realty, L.P.” or the “Operating Partnership” mean Kilroy Realty, L.P., a Delaware limited partnership and its controlled and consolidated subsidiaries.
The Company is a real estate investment trust, or REIT, and the general partner of the Operating Partnership. As of March 31, 2020, the Company owned an approximate 98.3% common general partnership interest in the Operating Partnership. The remaining approximate 1.7% common limited partnership interests are owned by non-affiliated investors and certain directors and officers of the Company. As the sole general partner of the Operating Partnership, the Company exercises exclusive and complete discretion over the Operating Partnership’s day-to-day management and control and can cause it to enter into certain major transactions, including acquisitions, dispositions, and refinancings and cause changes in its line of business, capital structure and distribution policies.
There are a few differences between the Company and the Operating Partnership that are reflected in the disclosures in this Form 10-Q. We believe it is important to understand the differences between the Company and the Operating Partnership in the context of how the Company and the Operating Partnership operate as an interrelated, consolidated company. The Company is a REIT, the only material asset of which is the partnership interests it holds in the Operating Partnership. As a result, the Company generally does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing equity from time to time and guaranteeing certain debt of the Operating Partnership. The Company itself is not directly obligated under any indebtedness, but generally guarantees all of the debt of the Operating Partnership. The Operating Partnership owns substantially all of the assets of the Company either directly or through its subsidiaries, conducts the operations of the Company’s business and is structured as a limited partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Company, which the Company generally contributes to the Operating Partnership in exchange for units of partnership interest, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s incurrence of indebtedness or through the issuance of units of partnership interest.
Noncontrolling interests, stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The common limited partnership interests in the Operating Partnership are accounted for as partners’ capital in the Operating Partnership’s financial statements and, to the extent not held by the Company, as noncontrolling interests in the Company’s financial statements. The Operating Partnership’s financial statements reflect the noncontrolling interest in Kilroy Realty Finance Partnership, L.P., a Delaware limited partnership (the “Finance Partnership”). This noncontrolling interest represents the Company’s 1% indirect general partnership interest in the Finance Partnership, which is directly held by Kilroy Realty Finance, Inc., a wholly owned subsidiary of the Company. The differences between stockholders’ equity, partners’ capital and noncontrolling interest result from the differences in the equity issued by the Company and the Operating Partnership, and in the Operating Partnership’s noncontrolling interest in the Finance Partnership.
We believe combining the quarterly reports on Form 10-Q of the Company and the Operating Partnership into this single report results in the following benefits:
Combined reports better reflect how management and the analyst community view the business as a single operating unit;
Combined reports enhance investors’ understanding of the Company and the Operating Partnership by enabling them to view the business as a whole and in the same manner as management;
Combined reports are more efficient for the Company and the Operating Partnership and result in savings in time, effort and expense; and
Combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review.
To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:
consolidated financial statements;
the following notes to the consolidated financial statements:
Note 4, Stockholders’ Equity of the Company;
Note 6, Partners’ Capital of the Operating Partnership;

i


Note 11, Net Income Available to Common Stockholders Per Share of the Company;
Note 12, Net Income Available to Common Unitholders Per Unit of the Operating Partnership;
Note 13, Supplemental Cash Flow Information of the Company; and
Note 14, Supplemental Cash Flow Information of the Operating Partnership;
“Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
—Liquidity and Capital Resources of the Company;” and
—Liquidity and Capital Resources of the Operating Partnership.”
This report also includes separate sections under “Part I – Financial Information, Item 4. Controls and Procedures” and separate Exhibit 31 and Exhibit 32 certifications for the Company and the Operating Partnership to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Company and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.


ii


KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
QUARTERLY REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2020
TABLE OF CONTENTS
 
 
 
 
Page
 
 
PART I – FINANCIAL INFORMATION
 
Item 1.
 
 
 
 
  
 
  
 
  
Item 1.
 
 
 
 
 
 
 
 
 
 
 
Item 2.
  
Item 3.
 
Item 4.
 
 
 
PART II – OTHER INFORMATION
 
Item 1.
 
Item 1A.
 
Item 2.
 
Item 3.
 
Item 4.
 
Item 5.
 
Item 6.
 
 




PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) OF KILROY REALTY CORPORATION

KILROY REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except share data)
 
March 31, 2020
 
December 31, 2019
ASSETS
 
 
 
REAL ESTATE ASSETS:
 
 
 
Land and improvements
$
1,506,357

 
$
1,466,166

Buildings and improvements
5,997,523

 
5,866,477

Undeveloped land and construction in progress
2,318,236

 
2,296,130

Total real estate assets held for investment
9,822,116

 
9,628,773

Accumulated depreciation and amortization
(1,622,369
)
 
(1,561,361
)
Total real estate assets held for investment, net
8,199,747

 
8,067,412

CASH AND CASH EQUIVALENTS (Note 4)
762,134

 
60,044

RESTRICTED CASH
16,300

 
16,300

MARKETABLE SECURITIES (Note 10)
19,984

 
27,098

CURRENT RECEIVABLES, NET
16,534

 
26,489

DEFERRED RENT RECEIVABLES, NET
352,352

 
337,937

DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET
204,392

 
212,805

RIGHT OF USE GROUND LEASE ASSETS (Note 9)
96,145

 
96,348

PREPAID EXPENSES AND OTHER ASSETS, NET (Note 2)
67,559

 
55,661

TOTAL ASSETS
$
9,735,147

 
$
8,900,094

LIABILITIES AND EQUITY
 
 
 
LIABILITIES:
 
 
 
Secured debt, net (Notes 3 and 10)
$
257,359

 
$
258,593

Unsecured debt, net (Notes 3, 10 and 15)
3,050,103

 
3,049,185

Unsecured line of credit (Notes 3 and 10)
380,000

 
245,000

Accounts payable, accrued expenses and other liabilities
417,547

 
418,848

Ground lease liabilities (Note 9)
98,247

 
98,400

Accrued dividends and distributions (Note 15)
57,620

 
53,219

Deferred revenue and acquisition-related intangible liabilities, net
130,843

 
139,488

Rents received in advance and tenant security deposits
65,913

 
66,503

Total liabilities
4,457,632

 
4,329,236

COMMITMENTS AND CONTINGENCIES (Note 9)

 

EQUITY:
 
 
 
Stockholders’ Equity (Note 4):
 
 
 
Common stock, $.01 par value, 150,000,000 shares authorized, 115,067,924 and 106,016,287 shares issued and outstanding, respectively
1,151

 
1,060

Additional paid-in capital
5,067,181

 
4,350,917

Distributions in excess of earnings
(76,182
)
 
(58,467
)
Total stockholders’ equity
4,992,150

 
4,293,510

Noncontrolling Interests (Notes 1 and 5):
 
 
 
Common units of the Operating Partnership
87,655

 
81,917

Noncontrolling interests in consolidated property partnerships
197,710

 
195,431

Total noncontrolling interests
285,365

 
277,348

Total equity
5,277,515

 
4,570,858

TOTAL LIABILITIES AND EQUITY
$
9,735,147

 
$
8,900,094




See accompanying notes to consolidated financial statements.

1


KILROY REALTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except share and per share data)
 
 
Three Months Ended March 31,
 
2020
 
2019
REVENUES
 
 
 
Rental income (Note 8)
$
218,633

 
$
199,382

Other property income
2,695

 
1,820

Total revenues
221,328

 
201,202

EXPENSES
 
 
 
Property expenses
38,983

 
38,149

Real estate taxes
22,202

 
18,639

Ground leases (Note 9)
2,317

 
1,972

General and administrative expenses (Notes 7 and 10)
19,010

 
23,341

Leasing costs
1,456

 
1,757

Depreciation and amortization
74,370

 
66,135

Total expenses
158,338

 
149,993

OTHER (EXPENSES) INCOME
 
 
 
Interest income and other net investment (loss) gain (Note 10)
(3,128
)
 
1,828

Interest expense (Note 3)
(14,444
)
 
(11,243
)
      Total other (expenses) income
(17,572
)
 
(9,415
)
NET INCOME
45,418

 
41,794

Net income attributable to noncontrolling common units of the Operating Partnership
(705
)
 
(700
)
Net income attributable to noncontrolling interests in consolidated property partnerships
(4,896
)
 
(4,191
)
Total income attributable to noncontrolling interests
(5,601
)
 
(4,891
)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
$
39,817

 
$
36,903

Net income available to common stockholders per share – basic (Note 11)
$
0.37

 
$
0.36

Net income available to common stockholders per share – diluted (Note 11)
$
0.37

 
$
0.36

Weighted average common shares outstanding – basic (Note 11)
106,875,234

 
100,901,390

Weighted average common shares outstanding – diluted (Note 11)
107,389,575

 
101,443,179


























See accompanying notes to consolidated financial statements.

2


KILROY REALTY CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited; in thousands, except share and per share/unit data)


 
Common Stock
 
Total
Stock-
holders’
Equity
 
Noncontrolling Interests
 
Total
Equity
 
Number of
Shares
 
Common
Stock
 
Additional
Paid-in
Capital
 
Distributions
in Excess of
Earnings
 
BALANCE AS OF DECEMBER 31, 2019
106,016,287

 
$
1,060

 
$
4,350,917

 
$
(58,467
)
 
$
4,293,510

 
$
277,348

 
$
4,570,858

Net income
 
 
 
 
 
 
39,817

 
39,817

 
5,601

 
45,418

Issuance of common stock (Note 4)
8,897,110

 
89

 
721,705

 
 
 
721,794

 
 
 
721,794

Issuance of share-based compensation awards
 
 
 
 
1,720

 
 
 
1,720

 
 
 
1,720

Non-cash amortization of share-based compensation (Note 7)
 
 
 
 
8,653

 
 
 
8,653

 
 
 
8,653

Settlement of restricted stock units for shares of common stock
269,972

 
3

 
(3
)
 
 
 

 
 
 

Repurchase of common stock, stock options and restricted stock units
(117,445
)
 
(1
)
 
(9,798
)
 
 
 
(9,799
)
 
 
 
(9,799
)
Exchange of common units of the Operating Partnership
2,000

 

 
81

 
 
 
81

 
(81
)
 

Distributions to noncontrolling interests in consolidated property partnerships
 
 
 
 
 
 
 
 

 
(2,617
)
 
(2,617
)
Adjustment for noncontrolling interest
 
 
 
 
(6,094
)
 
 
 
(6,094
)
 
6,094

 

Dividends declared per common share and common unit ($0.485 per share/unit)
 
 
 
 
 
 
(57,532
)
 
(57,532
)
 
(980
)
 
(58,512
)
BALANCE AS OF MARCH 31, 2020
115,067,924

 
$
1,151

 
$
5,067,181

 
$
(76,182
)
 
$
4,992,150

 
$
285,365

 
$
5,277,515

 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
Common Stock
 
Total
Stock-
holders’
Equity
 
Noncontrolling Interests
 
Total
Equity
 
Number of
Shares
 
Common
Stock
 
Additional
Paid-in
Capital
 
Distributions
in Excess of
Earnings
BALANCE AS OF DECEMBER 31, 2018
100,746,988

 
$
1,007

 
$
3,976,953

 
$
(48,053
)
 
$
3,929,907

 
$
271,354

 
$
4,201,261

Net income
 
 
 
 
 
 
36,903

 
36,903

 
4,891

 
41,794

Opening adjustment to Distributions in Excess of Earnings upon adoption of ASC 842
 
 
 
 
 
 
(3,146
)
 
(3,146
)
 
 
 
(3,146
)
Issuance of share-based compensation awards
 
 
 
 
2,210

 
 
 
2,210

 
 
 
2,210

Non-cash amortization of share-based compensation
 
 
 
 
8,817

 
 
 
8,817

 
 
 
8,817

Settlement of restricted stock units for shares of common stock
393,240

 
4

 
(4
)
 
 
 

 
 
 

Repurchase of common stock, stock options and restricted stock units
(175,204
)
 
(1
)
 
(12,129
)
 
 
 
(12,130
)
 
 
 
(12,130
)
Exchange of common units of the Operating Partnership
2,000

 

 
78

 
 
 
78

 
(78
)
 

Distributions to noncontrolling interests in consolidated property partnerships
 
 
 
 
 
 
 
 

 
(6,309
)
 
(6,309
)
Adjustment for noncontrolling interest
 
 
 
 
279

 
 
 
279

 
(279
)
 

Dividends declared per common share and common unit ($0.455 per share/unit)
 
 
 
 
 
 
(48,394
)
 
(48,394
)
 
(921
)
 
(49,315
)
BALANCE AS OF MARCH 31, 2019
100,967,024

 
$
1,010

 
$
3,976,204

 
$
(62,690
)
 
$
3,914,524

 
$
268,658

 
$
4,183,182













See accompanying notes to consolidated financial statements.

3


KILROY REALTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
 
 
Three Months Ended March 31,
 
2020
 
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
45,418

 
$
41,794

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization of real estate assets and leasing costs
72,438

 
64,971

Depreciation of non-real estate furniture, fixtures and equipment
1,932

 
1,164

Revenue reversals (recoveries) for doubtful accounts
6,487

 
(3,543
)
Non-cash amortization of share-based compensation awards
6,783

 
7,211

Non-cash amortization of deferred financing costs and debt discounts and premiums
505

 
135

Non-cash amortization of net below market rents
(2,586
)
 
(2,094
)
Non-cash amortization of deferred revenue related to tenant-funded tenant improvements
(4,420
)
 
(3,817
)
Straight-line rents
(19,995
)
 
(12,895
)
Amortization of right of use ground lease assets
203

 
144

Net change in other operating assets
7,966

 
(8,382
)
Net change in other operating liabilities
8,209

 
15,102

Net cash provided by operating activities
122,940

 
99,790

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Expenditures for development properties and undeveloped land
(167,328
)
 
(181,695
)
Expenditures for operating properties and other capital assets
(44,084
)
 
(31,837
)
Net cash used in investing activities
(211,412
)
 
(213,532
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net proceeds from issuance of common stock (Note 4)
721,794

 

Borrowings on unsecured revolving credit facility (Note 3)
190,000

 
190,000

Repayments on unsecured revolving credit facility (Note 3)
(55,000
)
 
(50,000
)
Principal payments and repayments of secured debt (Note 3)
(1,266
)
 
(74,930
)
Financing costs
(160
)
 
(942
)
Repurchase of common stock and restricted stock units
(9,799
)
 
(12,130
)
Distributions to noncontrolling interests in consolidated property partnerships
(2,608
)
 
(6,301
)
Dividends and distributions paid to common stockholders and common unitholders
(52,399
)
 
(46,996
)
Net cash provided by (used in) financing activities
790,562

 
(1,299
)
Net increase (decrease) in cash and cash equivalents and restricted cash
702,090

 
(115,041
)
Cash and cash equivalents and restricted cash, beginning of period
76,344

 
171,034

Cash and cash equivalents and restricted cash, end of period
$
778,434

 
$
55,993




















See accompanying notes to consolidated financial statements.

4





ITEM 1: FINANCIAL STATEMENTS (UNAUDITED) OF KILROY REALTY, L.P.

KILROY REALTY, L.P.
CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except unit data)
 
 
March 31, 2020
 
December 31, 2019
ASSETS 
 
 
 
REAL ESTATE ASSETS:
 
 
 
Land and improvements
$
1,506,357

 
$
1,466,166

Buildings and improvements
5,997,523

 
5,866,477

Undeveloped land and construction in progress
2,318,236

 
2,296,130

Total real estate assets held for investment
9,822,116

 
9,628,773

Accumulated depreciation and amortization
(1,622,369
)
 
(1,561,361
)
Total real estate assets held for investment, net
8,199,747

 
8,067,412

CASH AND CASH EQUIVALENTS (Note 4)
762,134

 
60,044

RESTRICTED CASH
16,300

 
16,300

MARKETABLE SECURITIES (Note 10)
19,984

 
27,098

CURRENT RECEIVABLES, NET
16,534

 
26,489

DEFERRED RENT RECEIVABLES, NET
352,352

 
337,937

DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET
204,392

 
212,805

RIGHT OF USE GROUND LEASE ASSETS (Note 9)
96,145

 
96,348

PREPAID EXPENSES AND OTHER ASSETS, NET (Note 2)
67,559

 
55,661

TOTAL ASSETS
$
9,735,147

 
$
8,900,094

LIABILITIES AND CAPITAL
 
 
 
LIABILITIES:
 
 
 
Secured debt, net (Notes 3 and 10)
$
257,359

 
$
258,593

Unsecured debt, net (Notes 3, 10 and 15)
3,050,103

 
3,049,185

Unsecured line of credit (Notes 3 and 10)
380,000

 
245,000

Accounts payable, accrued expenses and other liabilities
417,547

 
418,848

Ground lease liabilities (Note 9)
98,247

 
98,400

Accrued distributions (Note 15)
57,620

 
53,219

Deferred revenue and acquisition-related intangible liabilities, net
130,843

 
139,488

Rents received in advance and tenant security deposits
65,913

 
66,503

Total liabilities
4,457,632

 
4,329,236

COMMITMENTS AND CONTINGENCIES (Note 9)

 

CAPITAL:
 
 
 
Common units, 115,067,924 and 106,016,287 held by the general partner and 2,021,287 and 2,023,287
held by common limited partners issued and outstanding, respectively (Note 6)
5,074,003


4,369,758

Noncontrolling interests in consolidated property partnerships and subsidiaries (Note 1)
203,512


201,100

Total capital
5,277,515


4,570,858

TOTAL LIABILITIES AND CAPITAL
$
9,735,147


$
8,900,094













See accompanying notes to consolidated financial statements.

5


KILROY REALTY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except unit and per unit data)

 
Three Months Ended March 31,
 
2020
 
2019
REVENUES
 
 
 
Rental income (Note 8)
$
218,633

 
$
199,382

Other property income
2,695

 
1,820

Total revenues
221,328

 
201,202

EXPENSES
 
 
 
Property expenses
38,983

 
38,149

Real estate taxes
22,202

 
18,639

Ground leases (Note 9)
2,317

 
1,972

General and administrative expenses (Notes 7 and 10)
19,010

 
23,341

Leasing costs
1,456

 
1,757

Depreciation and amortization
74,370

 
66,135

Total expenses
158,338

 
149,993

OTHER (EXPENSES) INCOME
 
 
 
Interest income and other net investment (loss) gain (Note 10)
(3,128
)
 
1,828

Interest expense (Note 3)
(14,444
)
 
(11,243
)
Total other (expenses) income
(17,572
)
 
(9,415
)
NET INCOME
45,418

 
41,794

Net income attributable to noncontrolling interests in consolidated property partnerships and subsidiaries
(5,029
)
 
(4,286
)
NET INCOME AVAILABLE TO COMMON UNITHOLDERS
$
40,389

 
$
37,508

Net income available to common unitholders per unit – basic (Note 12)
$
0.37

 
$
0.36

Net income available to common unitholders per unit – diluted (Note 12)
$
0.36

 
$
0.36

Weighted average common units outstanding – basic (Note 12)
108,897,027

 
102,925,166

Weighted average common units outstanding – diluted (Note 12)
109,411,368

 
103,466,955




























See accompanying notes to consolidated financial statements.

6


KILROY REALTY, L.P.
CONSOLIDATED STATEMENTS OF CAPITAL
(Unaudited; in thousands, except unit and per unit data)
 
 
Partners’ Capital
 
Noncontrolling Interests in Consolidated Property Partnerships and Subsidiaries
 
 
 
Number of
Common
Units
 
Common
Units
 
Total
Capital
BALANCE AS OF DECEMBER 31, 2019
108,039,574

 
$
4,369,758

 
$
201,100

 
$
4,570,858

Net income
 
 
40,389

 
5,029

 
45,418

Issuance of common units (Note 4)
8,897,110

 
721,794

 
 
 
721,794

Issuance of share-based compensation awards
 
 
1,720

 
 
 
1,720

Non-cash amortization of share-based compensation (Note 7)
 
 
8,653

 
 
 
8,653

Settlement of restricted stock units
269,972

 

 
 
 

Repurchase of common units, stock options and restricted stock units
(117,445
)
 
(9,799
)
 
 
 
(9,799
)
Distributions to noncontrolling interests in consolidated property partnerships
 
 
 
 
(2,617
)
 
(2,617
)
Distributions declared per common unit ($0.485 per unit)
 
 
(58,512
)
 
 
 
(58,512
)
BALANCE AS OF MARCH 31, 2020
117,089,211

 
$
5,074,003

 
$
203,512

 
$
5,277,515

 
 
 
 
 
 
 
 



 
Partners’ Capital
 
Noncontrolling Interests in Consolidated Property Partnerships and Subsidiaries
 
 
 
Number of
Common
Units
 
Common
Units
 
Total
Capital
BALANCE AS OF DECEMBER 31, 2018
102,772,275

 
$
4,003,700

 
$
197,561

 
$
4,201,261

Net income
 
 
37,508

 
4,286

 
41,794

Opening adjustment to Partners’ Capital upon adoption of ASC 842
 
 
(3,146
)
 
 
 
(3,146
)
Issuance of share-based compensation awards
 
 
2,210

 
 
 
2,210

Non-cash amortization of share-based compensation
 
 
8,817

 
 
 
8,817

Settlement of restricted stock units
393,240

 

 
 
 

Repurchase of common units, stock options and restricted stock units
(175,204
)
 
(12,130
)
 
 
 
(12,130
)
Distributions to noncontrolling interests in consolidated property partnerships
 
 
 
 
(6,309
)
 
(6,309
)
Distributions declared per common unit ($0.455 per unit)
 
 
(49,315
)
 
 
 
(49,315
)
BALANCE AS OF MARCH 31, 2019
102,990,311

 
$
3,987,644


$
195,538


$
4,183,182






















See accompanying notes to consolidated financial statements.

7


KILROY REALTY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)

 
Three Months Ended March 31,
 
2020
 
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
45,418

 
$
41,794

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization of real estate assets and leasing costs
72,438

 
64,971

Depreciation of non-real estate furniture, fixtures and equipment
1,932

 
1,164

Revenue reversals (recoveries) for doubtful accounts
6,487

 
(3,543
)
Non-cash amortization of share-based compensation awards
6,783

 
7,211

Non-cash amortization of deferred financing costs and debt discounts and premiums
505

 
135

Non-cash amortization of net below market rents
(2,586
)
 
(2,094
)
Non-cash amortization of deferred revenue related to tenant-funded tenant improvements
(4,420
)
 
(3,817
)
Straight-line rents
(19,995
)
 
(12,895
)
Amortization of right of use ground lease assets
203

 
144

Net change in other operating assets
7,966

 
(8,382
)
Net change in other operating liabilities
8,209

 
15,102

Net cash provided by operating activities
122,940

 
99,790

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Expenditures for development properties and undeveloped land
(167,328
)
 
(181,695
)
Expenditures for operating properties and other capital assets
(44,084
)
 
(31,837
)
Net cash used in investing activities
(211,412
)
 
(213,532
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net proceeds from issuance of common units (Note 4)
721,794

 

Borrowings on unsecured revolving credit facility (Note 3)
190,000

 
190,000

Repayments on unsecured revolving credit facility (Note 3)
(55,000
)
 
(50,000
)
Principal payments and repayments of secured debt (Note 3)
(1,266
)
 
(74,930
)
Financing costs
(160
)
 
(942
)
Repurchase of common units and restricted stock units
(9,799
)
 
(12,130
)
Distributions to noncontrolling interests in consolidated property partnerships
(2,608
)
 
(6,301
)
Distributions paid to common unitholders
(52,399
)
 
(46,996
)
Net cash provided by (used in) financing activities
790,562

 
(1,299
)
Net increase (decrease) in cash and cash equivalents and restricted cash
702,090

 
(115,041
)
Cash and cash equivalents and restricted cash, beginning of period
76,344

 
171,034

Cash and cash equivalents and restricted cash, end of period
$
778,434

 
$
55,993

 


















See accompanying notes to consolidated financial statements.

8


KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.    Organization, Ownership and Basis of Presentation

Organization and Ownership

Kilroy Realty Corporation (the “Company”) is a self-administered real estate investment trust (“REIT”) active in premier office and mixed-use submarkets along the West Coast. We own, develop, acquire and manage real estate assets, consisting primarily of Class A properties in the coastal regions of Greater Los Angeles, San Diego County, the San Francisco Bay Area and Greater Seattle, which we believe have strategic advantages and strong barriers to entry. Class A real estate encompasses attractive and efficient buildings of high quality that are attractive to tenants, are well-designed and constructed with above-average material, workmanship and finishes and are well-maintained and managed. We qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). The Company’s common stock is publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “KRC”.

We own our interests in all of our real estate assets through Kilroy Realty, L.P. (the “Operating Partnership”) and Kilroy Realty Finance Partnership, L.P. (the “Finance Partnership”). We generally conduct substantially all of our operations through the Operating Partnership. Unless stated otherwise or the context indicates otherwise, the terms “Kilroy Realty Corporation” or the “Company,” “we,” “our,” and “us” refer to Kilroy Realty Corporation and its consolidated subsidiaries and the term “Operating Partnership” refers to Kilroy Realty, L.P. and its consolidated subsidiaries. The descriptions of our business, employees and properties apply to both the Company and the Operating Partnership.

Our stabilized portfolio of operating properties was comprised of the following properties at March 31, 2020:

 
Number of
Buildings
 
Rentable
Square Feet
 
Number of
Tenants
 
Percentage 
Occupied
 
Percentage Leased
Stabilized Office Properties (1)
114

 
14,323,572

 
479

 
93.5
%
 
97.3
%

________________________
(1)
Includes stabilized retail space.

 
Number of
Buildings
 
Number of
Units
 
2020 Average Occupancy
Stabilized Residential Property
1

 
200

 
93.5
%


Our stabilized portfolio includes all of our properties with the exception of development and redevelopment properties currently committed for construction, under construction, or in the tenant improvement phase, undeveloped land, recently completed residential properties not yet stabilized and real estate assets held for sale. We define redevelopment properties as those properties for which we expect to spend significant development and construction costs on the existing or acquired buildings pursuant to a formal plan, the intended result of which is a higher economic return on the property. We define properties in the tenant improvement phase as office properties that we are developing or redeveloping where the project has reached cold shell condition and is ready for tenant improvements, which may require additional major base building construction before being placed in service. Projects in the tenant improvement phase are added to our stabilized portfolio once the project reaches the earlier of 95% occupancy or one year from the date of the cessation of major base building construction activities. Costs capitalized to construction in progress for development and redevelopment properties are transferred to land and improvements, buildings and improvements, and deferred leasing costs on our consolidated balance sheets at the historical cost of the property as the projects are placed in service.

During the three months ended March 31, 2020, we added two development projects to our stabilized portfolio consisting of 750,370 square feet of office space in San Francisco, California and 95,871 square feet of retail space in San Diego, California. As of March 31, 2020, the following properties were excluded from our stabilized portfolio. We did not have any redevelopment properties or properties held for sale at March 31, 2020.
 
Number of
Properties/Projects
 
Estimated Rentable
Square Feet (1) / Units
In-process development projects - tenant improvement
3
 
1,275,000

In-process development projects - under construction (2)
5
 
1,016,000

Completed residential development project (3)
2
 
462 units

________________________
(1)
Estimated rentable square feet upon completion.

9

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




(2)
In addition to the estimated office and life science rentable square feet noted above, development projects under construction also include 339 residential units.
(3)
Represents recently completed residential phases at our mixed-use development in San Diego, California that are not yet stabilized.

Our stabilized portfolio also excludes our future development pipeline, which as of March 31, 2020 was comprised of five future development sites, representing approximately 61 gross acres of undeveloped land.

As of March 31, 2020, all of our properties and development projects were owned and all of our business was conducted in the state of California with the exception of eight office properties, one development project in the tenant improvement phase and one future development project located in the state of Washington. All of our properties and development projects are 100% owned, excluding four office properties owned by three consolidated property partnerships and two development projects held by consolidated variable interest entities established to facilitate potential transactions intended to qualify as like-kind exchanges pursuant to Section 1031 of the Code (“Section 1031 Exchange”). Two of the three consolidated property partnerships, 100 First Street Member, LLC (“100 First LLC”) and 303 Second Street Member, LLC (“303 Second LLC”), each owned one office property in San Francisco, California through subsidiary REITs. As of March 31, 2020, the Company owned a 56% common equity interest in both 100 First LLC and 303 Second LLC. The third consolidated property partnership, Redwood City Partners, LLC (“Redwood LLC”) owned two office properties in Redwood City, California. As of March 31, 2020, the Company owned an approximate 93% common equity interest in Redwood LLC. The remaining interests in all three property partnerships were owned by unrelated third parties.

Ownership and Basis of Presentation

The consolidated financial statements of the Company include the consolidated financial position and results of operations of the Company, the Operating Partnership, the Finance Partnership, 303 Second LLC, 100 First LLC, Redwood LLC and all of our wholly-owned and controlled subsidiaries. The consolidated financial statements of the Operating Partnership include the consolidated financial position and results of operations of the Operating Partnership, the Finance Partnership, 303 Second LLC, 100 First LLC, Redwood LLC and all of our wholly-owned and controlled subsidiaries. All intercompany balances and transactions have been eliminated in the consolidated financial statements.

As of March 31, 2020, the Company owned an approximate 98.3% common general partnership interest in the Operating Partnership. The remaining approximate 1.7% common limited partnership interest in the Operating Partnership as of March 31, 2020 was owned by non-affiliated investors and certain of our executive officers and directors. Both the general and limited common partnership interests in the Operating Partnership are denominated in common units. Generally, the number of common units held by the Company is equivalent to the number of outstanding shares of the Company’s common stock, and the rights of all the common units to quarterly distributions and payments in liquidation mirror those of the Company’s common stockholders. The common limited partners have certain redemption rights as provided in the Operating Partnership’s Seventh Amended and Restated Agreement of Limited Partnership, as amended, the “Partnership Agreement”.

Kilroy Realty Finance, Inc., which is a wholly-owned subsidiary of the Company, is the sole general partner of the Finance Partnership and owns a 1.0% common general partnership interest in the Finance Partnership. The Operating Partnership owns the remaining 99.0% common limited partnership interest. With the exception of the Operating Partnership and our consolidated property partnerships, all of our subsidiaries are wholly-owned.

The accompanying interim financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying interim financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented. However, the results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. The interim financial statements for the Company and the Operating Partnership should be read in conjunction with the audited consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2019.

Variable Interest Entities
The Operating Partnership is a variable interest entity (“VIE”) that is consolidated by the Company as the primary beneficiary as the Operating Partnership is a limited partnership in which the common limited partners do not have substantive kick-out or participating rights. At March 31, 2020, the consolidated financial statements of the Company included four VIEs in addition to

10

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




the Operating Partnership: two of the consolidated property partnerships, 100 First LLC and 303 Second LLC, and two entities established during the fourth quarter of 2019 to facilitate potential future Section 1031 Exchanges. At March 31, 2020, the Company and the Operating Partnership were determined to be the primary beneficiaries of these four VIEs since we had the ability to control the activities that most significantly impact each of the VIEs’ economic performance. As of March 31, 2020, the four VIEs’ total assets, liabilities and noncontrolling interests included on our consolidated balance sheet were approximately $686.2 million (of which $599.7 million related to real estate held for investment), approximately $43.9 million and approximately $191.9 million, respectively. Revenues, income and net assets generated by 100 First LLC and 303 Second LLC may only be used to settle their contractual obligations, which primarily consist of operating expenses, capital expenditures and required distributions.

At December 31, 2019, the consolidated financial statements of the Company included four VIEs in which we were deemed to be the primary beneficiary (in addition to the Operating Partnership): two of the consolidated property partnerships, 100 First LLC and 303 Second LLC, and two entities established during the fourth quarter of 2019 to facilitate a Section 1031 Exchange. At December 31, 2019, the Company and the Operating Partnership were determined to be the primary beneficiaries of these four VIEs since we had the ability to control the activities that most significantly impact each of the VIEs’ economic performance. At December 31, 2019, the impact of consolidating the VIEs increased the Company’s total assets, liabilities and noncontrolling interests on our consolidated balance sheet by approximately $676.7 million (of which $598.0 million related to real estate held for investment), approximately $40.1 million and approximately $189.6 million, respectively.
Accounting Pronouncements Adopted January 1, 2020

ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326)”

Effective January 1, 2020, we adopted Financial Accounting Standards Board (“FASB”) FASB Accounting Standards Update (“ASU”) No. 2016-13 (“ASU 2016-13”), which amends the accounting for credit losses for certain financial instruments. Under the new guidance, an entity recognizes its estimate of expected credit losses as an allowance, which the FASB believes will result in more timely recognition of such losses.  In November 2018, the FASB released ASU No. 2018-19 “Codification Improvements to Topic 326, Financial Instruments - Credit Losses.” This ASU clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20 “Financial Instruments – Credit Losses.” Instead, impairment of receivables arising from operating leases should be accounted for under Subtopic 842-30 “Leases – Lessor.” The adoption did not have a material impact on our consolidated financial statements or notes to our consolidated financial statements.
ASU No. 2018-13 “Fair Value Measurement (Topic 820)”
Effective January 1, 2020, we adopted FASB ASU No. 2018-13 (“ASU 2018-13”), which amends the disclosure requirements for fair value measurements. The amendments in ASU 2018-13 include new, modified and eliminated disclosure requirements and are the result of a broader disclosure project called FASB Concepts Statement, Conceptual Framework for Financial Reporting - Chapter 8: Notes to Financial Statements (the “Concepts Statement”), which the FASB finalized on August 28, 2018. The FASB used the guidance in the Concepts Statement to improve the effectiveness of Topic 820’s disclosure requirements. The adoption did not have a material impact on our consolidated financial statements or notes to our consolidated financial statements.
ASU No. 2018-15 “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)”
Effective January 1, 2020, we adopted FASB ASU No. 2018-15 (“ASU 2018-15”), which amends a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The adoption did not have a material impact on our consolidated financial statements or notes to our consolidated financial statements.
COVID-19 Pandemic

The global impact of the COVID-19 pandemic has been rapidly evolving and, as cases of the illness caused by the virus have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines and restrictions on travel. In addition, all the states where we own properties and/or have development projects (i.e., California and Washington), have reacted to the COVID-19 pandemic by instituting quarantines, restrictions on travel, “shelter in place” rules, restrictions on types of business that may continue to operate and/or restrictions on types of construction projects that may continue.


11

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




COVID-19 Lease Modification Accounting Relief

Due to the business disruptions and challenges severely affecting the global economy caused by the COVID-19 pandemic, many lessors may be required to provide rent deferrals and other lease concessions to lessees. While the lease modification guidance in Accounting Standards Codification (“ASC”) Topic 842 (“Topic 842”) addresses routine changes to lease terms resulting from negotiations between the lessee and the lessor, this guidance did not contemplate concessions being so rapidly executed to address the sudden liquidity constraints of some lessees arising from the COVID-19 pandemic and restrictions intended to prevent its spread.

In April 2020, the FASB staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. The Company has elected to apply such relief and will avail itself of the election to avoid performing a lease by lease analysis. The Lease Modification Q&A has no material impact on the Company’s consolidated financial statements as of and for the three months ended March 31, 2020, however, its future impact to the Company is dependent upon the extent of lease concessions granted to tenants as a result of the COVID-19 pandemic in future periods and the elections made by the Company at the time of entering into such concessions.

2.    Prepaid Expenses and Other Assets, Net

Prepaid expenses and other assets, net consisted of the following at March 31, 2020 and December 31, 2019:
 
March 31, 2020
 
December 31, 2019
 
(in thousands)
Furniture, fixtures and other long-lived assets, net
$
35,776

 
$
35,286

Prepaid expenses
31,783

 
18,724

Note receivable (1)

 
1,651

Total prepaid expenses and other assets, net
$
67,559

 
$
55,661


________________________
(1)
During the three months ended March 31, 2020, the balance of the note receivable was written-off and the note receivable was placed on non-accrual status. As of December 31, 2019 the note receivable is shown net of a valuation allowance of approximately $3.6 million.


12

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




3.    Secured and Unsecured Debt of the Operating Partnership

The Company generally guarantees all of the Operating Partnership’s unsecured debt obligations including the unsecured revolving credit facility, the unsecured term loan facility and all of the unsecured senior notes.

Unsecured Revolving Credit Facility and Term Loan Facility

The following table summarizes the balance and terms of our unsecured revolving credit facility as of March 31, 2020 and December 31, 2019:
 
March 31, 2020
 
December 31, 2019
 
(in thousands)
Outstanding borrowings
$
380,000

 
$
245,000

Remaining borrowing capacity 
370,000

 
505,000

Total borrowing capacity (1)
$
750,000

 
$
750,000

Interest rate (2)
1.85
%
 
2.76
%
Facility fee-annual rate (3)
0.200%
Maturity date
July 2022
________________________
(1)
We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $600.0 million under an accordion feature under the terms of the unsecured revolving credit facility and unsecured term loan facility.
(2)
Our unsecured revolving credit facility interest rate was calculated based on the contractual rate of LIBOR plus 1.000% as of March 31, 2020 and December 31, 2019.
(3)
Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs. As of March 31, 2020 and December 31, 2019, $3.1 million and $3.4 million of unamortized deferred financing costs, respectively, which are included in prepaid expenses and other assets, net on our consolidated balance sheets, remained to be amortized through the maturity date of our unsecured revolving credit facility.

The Company intends to borrow under the unsecured revolving credit facility from time to time for general corporate purposes, to finance development and redevelopment expenditures, to fund potential acquisitions, to potentially repay long-term debt and to supplement cash balances given uncertainties and volatility in market conditions.

The following table summarizes the balance and terms of our unsecured term loan facility as of March 31, 2020 and December 31, 2019:
 
March 31, 2020
 
December 31, 2019
 
(in thousands)
Outstanding borrowings
$
150,000

 
$
150,000

Remaining borrowing capacity

 

Total borrowing capacity (1)
$
150,000

 
$
150,000

Interest rate (2)
2.03
%
 
2.85
%
Undrawn facility fee-annual rate
0.200%
Maturity date
July 2022
________________________
(1)
As of March 31, 2020 and December 31, 2019, $0.6 million and $0.7 million of unamortized deferred financing costs, respectively, remained to be amortized through the maturity date of our unsecured term loan facility.
(2)
Our unsecured term loan facility interest rate was calculated based on the contractual rate of LIBOR plus 1.100% as of March 31, 2020 and December 31, 2019.

Debt Covenants and Restrictions

The unsecured revolving credit facility, the unsecured term loan facility, the unsecured senior notes, the Series A and B Notes due 2026 and Series A and B Notes due 2027 and 2029 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 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, 2020.

13

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)





Debt Maturities

The following table summarizes the stated debt maturities and scheduled amortization payments as of March 31, 2020:
Year
(in thousands) 
Remaining 2020
$
3,871

2021
5,342

2022
535,554

2023
305,775

2024
431,006

2025
406,245

Thereafter
2,025,443

Total aggregate principal value (1)
$
3,713,236

________________________ 
(1)
Includes gross principal balance of outstanding debt before the effect of the following at March 31, 2020: $19.5 million of unamortized deferred financing costs for the unsecured term loan facility, unsecured senior notes and secured debt and $6.2 million of unamortized discounts for the unsecured senior notes.

Capitalized Interest and Loan Fees

The following table sets forth gross interest expense, including debt discount/premium and deferred financing cost amortization, net of capitalized interest, for the three months ended March 31, 2020 and 2019. The interest expense capitalized was recorded as a cost of development and increased the carrying value of undeveloped land and construction in progress.
 
Three Months Ended March 31,
 
2020
 
2019
 
(in thousands)
Gross interest expense
$
35,862

 
$
30,680

Capitalized interest and deferred financing costs
(21,418
)
 
(19,437
)
Interest expense
$
14,444

 
$
11,243



14

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




4.    Stockholders’ Equity of the Company

Forward Equity Offering and Settlement

On February 18, 2020, the Company entered into forward equity sale agreements with certain financial institutions acting as forward purchasers in connection with an offering of 5,750,000 shares of common stock at an initial gross offering price of $494.5 million, or $86.00 per share, before underwriting discounts, commissions and offering expenses. The forward purchasers borrowed and sold an aggregate of 5,750,000 shares of common stock in the offering. The Company did not receive any proceeds from the sale of its shares of common stock by the forward purchasers at the time of the offering.

On March 25, 2020, the Company physically settled these forward equity sale agreements. Upon settlement, the Company issued 5,750,000 shares of common stock for net proceeds of $474.9 million and contributed the net proceeds to the Operating Partnership in exchange for an equal number of units in the Operating Partnership.

At-The-Market Stock Offering Program

Under our at-the-market stock offering program, which commenced in June 2018, we may offer and sell shares of our common stock having an aggregate gross sales price up to $500.0 million from time to time in “at-the-market” offerings. In connection with our at-the-market program, the Company may enter into forward equity sale agreements with certain financial institutions acting as forward purchasers whereby, at our discretion, the forward purchasers may borrow and sell shares of our common stock under our at-the-market program. The use of a forward equity sale agreement allows the Company to lock in a share price on the sale of shares of our common stock at the time the agreement is executed but defer settling the forward equity sale agreements and receiving the proceeds from the sale of shares until a later date.

During the year ended December 31, 2019, the Company executed various 12-month forward equity sale agreements under our at-the-market program with financial institutions acting as forward purchasers to sell an aggregate of 3,147,110 shares of common stock at a weighted average sales price of $80.08 per share before commissions and offering expenses. The Company did not receive any proceeds from the sale of its shares of common stock by the forward purchases at the time of sale.

During the three months ended March 31, 2020, the Company physically settled all forward equity sale agreements entered into in 2019. Upon settlement, the Company issued 3,147,110 shares of common stock for net proceeds of $247.3 million and contributed the net proceeds to the Operating Partnership in exchange for an equal number of units in the Operating Partnership. We did not enter into any forward equity sale agreements under our at-the-market program during the three months ended March 31, 2020.

Since commencement of our current at-the-market program, we have completed sales of 3,594,576 shares of common stock through March 31, 2020. As of March 31, 2020, we may offer and sell shares of our common stock having an aggregate gross sales price up to approximately $214.2 million under our current at-the-market program.

The Company did not complete any direct sales of common stock under the program during the three months ended March 31, 2020. The following table sets forth information regarding settlements of forward equity sale agreements under our at-the-market offering program for the three months ended March 31, 2020:

 
Three Months Ended March 31, 2020
 
(in millions, except share and per share data)
Shares of common stock settled during the period
3,147,110

Weighted average price per share of common stock
$
80.08

Aggregate gross proceeds
$
252.0

Aggregate net proceeds after selling commissions
$
247.3



The proceeds from sales will be used to fund development expenditures and general corporate purposes. Actual future sales will depend upon a variety of factors, including but not limited to, market conditions, the trading price of the Company’s common stock and our capital needs. We have no obligation to sell the remaining shares available for sale under this program.

15

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




5.    Noncontrolling Interests on the Company’s Consolidated Financial Statements

Common Units of the Operating Partnership

The Company owned an approximate 98.3%, 98.1%, and 98.0% common general partnership interest in the Operating Partnership as of March 31, 2020, December 31, 2019 and March 31, 2019, respectively. The remaining approximate 1.7%, 1.9%, and 2.0% common limited partnership interest as of March 31, 2020, December 31, 2019 and March 31, 2019, respectively, was owned by non-affiliated investors and certain of our executive officers and directors in the form of noncontrolling common units. There were 2,021,287, 2,023,287 and 2,023,287 common units outstanding held by these investors, executive officers and directors as of March 31, 2020, December 31, 2019 and March 31, 2019, respectively.

The noncontrolling common units may be redeemed by unitholders for cash. Except under certain circumstances, we, at our option, may satisfy the cash redemption obligation with shares of the Company’s common stock on a one-for-one basis. If satisfied in cash, the value for each noncontrolling common unit upon redemption is the amount equal to the average of the closing quoted price per share of the Company’s common stock, par value $.01 per share, as reported on the NYSE for the ten trading days immediately preceding the applicable redemption date. The aggregate value upon redemption of the then-outstanding noncontrolling common units was $114.9 million and $167.7 million as of March 31, 2020 and December 31, 2019, respectively. This redemption value does not necessarily represent the amount that would be distributed with respect to each noncontrolling common unit in the event of our termination or liquidation. In the event of our termination or liquidation, it is expected in most cases that each common unit would be entitled to a liquidating distribution equal to the liquidating distribution payable in respect of each share of the Company’s common stock.

6.    Partners’ Capital of the Operating Partnership

Common Units Outstanding

The following table sets forth the number of common units held by the Company and the number of common units held by non-affiliated investors and certain of our executive officers and directors in the form of noncontrolling common units as well as the ownership interest held on each respective date:

 
March 31, 2020
 
December 31, 2019
 
March 31, 2019
Company owned common units in the Operating Partnership
115,067,924

 
106,016,287

 
100,967,024

Company owned general partnership interest
98.3
%
 
98.1
%
 
98.0
%
Noncontrolling common units of the Operating Partnership
2,021,287

 
2,023,287

 
2,023,287

Ownership interest of noncontrolling interest
1.7
%
 
1.9
%
 
2.0
%


For further discussion of the noncontrolling common units as of March 31, 2020 and December 31, 2019, refer to Note 5.

7.    Share-Based Compensation

Stockholder Approved Share-Based Incentive Compensation Plan

As of March 31, 2020, we maintained one share-based incentive compensation plan, the Kilroy Realty 2006 Incentive Award Plan, as amended (the “2006 Plan”). The Company has a currently effective registration statement registering 9.2 million shares of our common stock for possible issuance under our 2006 Plan. As of March 31, 2020, approximately 22,000 shares were available for grant under the 2006 Plan. The calculation of shares available for grant is presented after taking into account a reserve for a sufficient number of shares to cover the vesting and payment of 2006 Plan awards that were outstanding on that date, including performance-based vesting awards at (i) levels actually achieved for the performance conditions (as defined below) for which the performance period has been completed and (ii) at maximum levels for the other performance and market conditions (as defined below) for awards still in a performance period.


16

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




2020 Share-Based Compensation Grants

In January 2020, the Executive Compensation Committee of the Company’s Board of Directors awarded 263,626 restricted stock units (“RSUs”) to certain officers of the Company under the 2006 Plan, which included 154,267 RSUs (at the target level of performance) that are subject to market and/or performance-based vesting requirements (the “2020 Performance-Based RSUs”) and 109,359 RSUs that are subject to time-based vesting requirements (the “2020 Time-Based RSUs”).

2020 Performance-Based RSU Grant

The 2020 Performance-Based RSUs are scheduled to vest at the end