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Section 1: 8-K (8-K)

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false0001025996 0001025996 2020-04-29 2020-04-29


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 29, 2020
 
KILROY REALTY CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
 
 
Maryland
001-12675
95-4598246
(State or other jurisdiction of
incorporation or organization)
(Commission File No.)
(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
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2.):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
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.













Item 2.02    Results of Operations and Financial Condition.

On April 29, 2020, Kilroy Realty Corporation issued a press release announcing its earnings for the quarter ended March 31, 2020 and distributed certain supplemental financial information. On April 29, 2020, Kilroy Realty Corporation also posted the supplemental information on its website located at www.kilroyrealty.com. The text of the supplemental information and the related press release are furnished herewith as Exhibits 99.1 and 99.2, respectively, and are incorporated by reference herein.

Exhibits 99.1 and 99.2 are being furnished pursuant to Item 2.02 and shall not be deemed “filed” for any purpose, including for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. The information in this Current Report on Form 8-K shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act regardless of any general incorporation language in such filing.

Item 7.01    Regulation FD Disclosure.

As discussed in Item 2.02 above, Kilroy Realty Corporation issued a press release announcing its earnings for the quarter ended March 31, 2020 and distributed certain supplemental information. On April 29, 2020, Kilroy Realty Corporation also posted the supplemental information on its website located at www.kilroyrealty.com.

The information being furnished pursuant to Item 7.01 shall not be deemed “filed” for any purpose, including for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section. The information in this Current Report on Form 8-K shall not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act regardless of any general incorporation language in such filing.

Item 9.01    Financial Statements and Exhibits.

(a)
 
Financial statements of businesses acquired: None.

 
 
 
(b)
 
Pro forma financial information: None.

 
 
 
(c)
 
Shell company transactions: None.

 
 
 
(d)
 
Exhibits:


The following exhibits are furnished with this Current Report on Form 8-K:
Exhibit No.
 
Description
99.1**
 
 
 
 
99.2**
 
 
 
 
104
 
Cover Page Interactive Data File (embedded within the Inline XBRL document)
_______________
**    Furnished herewith.






SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



 
 
 
Kilroy Realty Corporation
 
 
Date: April 29, 2020
 
 
 
 
 
 
 
 
 
 
 
By:
 
/s/ Merryl E. Werber
 
 
 
 
 
 
Merryl E. Werber
Senior Vice President,
Chief Accounting Officer and Controller
 
 
 
 
 
 
 
 





(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
Exhibit 99.1

403808772_q120supplementalcoverpagea02.jpg


Kilroy Realty Corporation
First Quarter 2020 Supplemental Financial Report


Table of Contents
 
Page
Corporate Data and Financial Highlights
 
1
2
3
4
5
6
7-8
9
Portfolio Data
 
10
11-15
16
17
18-20
21
22
Development
 
23
24
25
Debt and Capitalization Data
 
26
27-28
29-31
32-35
This Supplemental Financial Report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, among other things, information concerning lease expirations, debt maturities, potential investments, development and redevelopment activity, projected construction costs, dispositions and other forward-looking financial data. In some instances, forward-looking statements can be identified by the use of forward-looking terminology such as “expect,” “future,” “will,” “would,” “pursue,” or “project” and variations of such words and similar expressions that do not relate to historical matters. Forward-looking statements are based on Kilroy Realty Corporation’s current expectations, beliefs and assumptions, and are not guarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult to predict, many of which are outside of Kilroy Realty Corporation’s control. Accordingly, actual performance, results and events may vary materially from those indicated or implied in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results or events. Numerous factors could cause actual future performance, results and events to differ materially from those indicated in the forward-looking statements, including, among others: global market and general economic conditions and their effect on our liquidity and financial conditions and those of our tenants; adverse economic or real estate conditions generally, and specifically, in the States of California and Washington; risks associated with our investment in real estate assets, which are illiquid, and with trends in the real estate industry; defaults on or non-renewal of leases by tenants; any significant downturn in tenants’ businesses; our ability to re-lease property at or above current market rates; costs to comply with government regulations, including environmental remediation; the availability of cash for distribution and debt service and exposure to risk of default under debt obligations; increases in interest rates and our ability to manage interest rate exposure; the availability of financing on attractive terms or at all, which may adversely impact our future interest expense and our ability to pursue development, redevelopment and acquisition opportunities and refinance existing debt; a decline in real estate asset valuations, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing, and which may result in write-offs or impairment charges; significant competition, which may decrease the occupancy and rental rates of properties; potential losses that may not be covered by insurance; the ability to successfully complete acquisitions and dispositions on announced terms; the ability to successfully operate acquired, developed and redeveloped properties; the ability to successfully complete development and redevelopment projects on schedule and within budgeted amounts; delays or refusals in obtaining all necessary zoning, land use and other required entitlements, governmental permits and authorizations for our development and redevelopment properties; increases in anticipated capital expenditures, tenant improvement and/or leasing costs; defaults on leases for land on which some of our properties are located; adverse changes to, or enactment or implementations of, tax laws or other applicable laws, regulations or legislation, as well as business and consumer reactions to such changes; risks associated with joint venture investments, including our lack of sole decision-making authority, our reliance on co-venturers' financial condition and disputes between us and our co-venturers; environmental uncertainties and risks related to natural disasters; our ability to maintain our status as a REIT; and uncertainties regarding the impact of the COVID-19 pandemic, and restrictions intended to prevent its spread, on our business and the economy generally. These factors are not exhaustive and additional factors could adversely affect our business and financial performance. For a discussion of additional factors that could materially adversely affect Kilroy Realty Corporation’s business and financial performance, see the factors included under the caption “Risk Factors” in Kilroy Realty Corporation’s quarterly report on Form 10-Q for the period ending March 31, 2020 to be filed on April 30, 2020 and in its annual report on Form 10-K for the year ended December 31, 2019, and its other filings with the Securities and Exchange Commission. All forward-looking statements are based on currently available information and speak only as of the dates on which they are made. Kilroy Realty Corporation assumes no obligation to update any forward-looking statement made in this Supplemental Financial Report that becomes untrue because of subsequent events, new information or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws.


Kilroy Realty Corporation
First Quarter 2020 Supplemental Financial Report


Company Background

Kilroy Realty Corporation (NYSE: KRC), a publicly traded real estate investment trust and member of the S&P MidCap 400 Index, is one of the West Coast’s premier landlords. The Company has over seven decades of experience developing, acquiring and managing office and mixed-use real estate assets. At March 31, 2020, the Company’s stabilized portfolio totaled approximately 14.3 million square feet of primarily office and life science space that was 93.5% occupied and 97.3% leased located in the coastal regions of Los Angeles, San Diego, the San Francisco Bay Area and Greater Seattle and 200 residential units located in the Hollywood submarket of Los Angeles. 
Board of Directors
 
Executive Management Team
 
Investor Relations
John Kilroy
Chairman
 
John Kilroy
President and CEO
 
12200 W. Olympic Blvd., Suite 200
Los Angeles, CA 90064
(310) 481-8400
Web: www.kilroyrealty.com
Edward F. Brennan, PhD
Lead Independent
 
Jeffrey C. Hawken
Executive VP and COO
 
Jolie Hunt
 
 
Robert Paratte
Executive VP, Leasing and Business Development
 
Scott S. Ingraham
 
 
Tyler H. Rose
Executive VP and CFO
 
Gary R. Stevenson
 
 
Heidi R. Roth
Executive VP and Chief Administrative Officer
 
Peter B. Stoneberg
 
 
Justin W. Smart
Executive VP, Development and Construction Services
 
Equity Research Coverage
 
 
 
 
 
BofA Securities
 
 
J.P. Morgan
 
James Feldman
(646) 855-5808
 
Anthony Paolone
(212) 622-6682
BMO Capital Markets Corp.
 
 
KeyBanc Capital Markets
 
John P. Kim
(212) 885-4115
 
Craig Mailman
(917) 368-2316
BTIG
 
 
Mizuho Securities USA LLC
 
Thomas Catherwood
(212) 738-6140
 
Omotayo Okusanya
(646) 949-9672
Citigroup Investment Research
 
 
RBC Capital Markets
 
Michael Bilerman
(212) 816-1383
 
Mike Carroll
(440) 715-2649
Deutsche Bank Securities, Inc.
 
 
Robert W. Baird & Co.
 
Derek Johnston
(210) 250-5683
 
David B. Rodgers
(216) 737-7341
Evercore ISI
 
 
Scotiabank
 
Steve Sakwa
(212) 446-9462
 
Nicholas Yulico
(212) 225-6904
Goldman Sachs & Co. LLC
 
 
Stifel, Nicolaus & Company
 
Richard Skidmore
(801) 741-5459
 
John W. Guinee III
(443) 224-1307
Green Street Advisors
 
 
Wells Fargo
 
Daniel Ismail
(949) 640-8780
 
Blaine Heck
(443) 263-6529
Jefferies LLC
 
 
 
 
Peter Abramowitz
(212) 336-7241
 
 
 
 
Kilroy Realty Corporation is followed by the analysts listed above. Please note that any opinions, estimates or forecasts regarding Kilroy Realty Corporation’s performance made by these analysts are theirs alone and do not represent opinions, forecasts or predictions of Kilroy Realty Corporation or its management. Kilroy Realty Corporation does not by its reference above or distribution imply its endorsement of or concurrence with such information, conclusions or recommendations.

1

Kilroy Realty Corporation
First Quarter 2020 Supplemental Financial Report


Executive Summary
 
 
 
Quarterly Financial Highlights
 
Quarterly Operating Highlights
 
 
 
• Net income available to common stockholders per share of $0.37
 
• Stabilized portfolio was 93.5% occupied and 97.3% leased at quarter-end
 
 
 
• FFO per share of $1.00
 
• 137,993 square feet of leases commenced in the stabilized portfolio
 
 
 
• The per share amounts above include a reduction in revenue of approximately $0.06 per
 
• 221,728 square feet of leases executed in the stabilized portfolio
   share related to the cumulative impact of transitioning one co-working tenant and two
 
 
   retail tenants to a cash basis of reporting as a result of the COVID-19 pandemic
 
- GAAP rents increased approximately 57.5% from prior levels
 
 
 
• Revenues of $221.3 million, net of a $6.5 million reduction of revenue as noted above
 
- Cash rents increased approximately 45.3% from prior levels
 
 
 
• Same Store GAAP NOI decreased 0.2% compared to the prior year
 
• As of the date of this report, across all property types, collected approximately 96% of
 
 
   our April 2020 contractual rent billings, including from all of our top 15 tenants and
• Same Store Cash NOI increased 14.9% compared to the prior year
 
   excluding a rent relief program with certain retail tenants. Adjusted for the retail rent
 
 
   relief program, collected 93% of contractual rent billings
• Due to the uncertainty resulting from the COVID-19 pandemic, the Company is
 
 
   withdrawing its previous full year 2020 guidance
 
 
 
 
 
 
 
 
 
 
 
Capital Markets Highlights
 
Strategic Highlights
 
 
 
• In February, completed a public offering of 5,750,000 shares of common stock priced at
 
• In January, transferred 333 Dexter, a 635,000 square foot development project located in
   $86.00 per share structured as a 12-month forward sale. In March, fully physically settled
 
   the South Lake Union submarket of Seattle from the under construction phase to the
   these shares for net proceeds of approximately $474.9 million
 
   tenant improvement phase. The project is 100% leased to a Fortune 50 public company
 
 
 
• In March, fully physically settled 3,147,110 shares of common stock in connection with
 
• In January, transferred Netflix // On Vine, a 355,000 square foot development project
   forward transactions under the ATM program for net proceeds of approximately $247.3
 
   located in the Hollywood submarket of Los Angeles, from the under construction phase
   million
 
   to the tenant improvement phase. This project is 100% leased to Netflix, Inc.
 
 
 
• In April, completed a private placement of $350.0 million aggregate principal amount of
 
• In February, completed construction on 225 residential units, the second of three phases
   ten-year, 4.27% unsecured senior notes due 2031
 
   of the residential development at our One Paseo mixed-use project in the Del Mar
 
 
   submarket of San Diego. Together, Phases I and II were 44% leased and are in lease-up
• As of the date of this report, approximately $1.0 billion of unrestricted cash on hand and
 
 
   $370.0 million of availability under the unsecured revolving credit facility
 
• In March, completed and added The Exchange on 16th, a $585.0 million, 750,000 square
 
 
   foot development project located in San Francisco’s Mission Bay district, to the stabilized
 
 
   portfolio. The office component of the project is 100% leased to Dropbox
 
 
 
 
 
• In March, added One Paseo Retail, a 96,000 square foot retail development project
 
 
   located in San Diego’s Del Mar submarket, to the stabilized portfolio
 
 
 
 
 
• In March, transferred One Paseo Office, a 285,000 square foot development project
 
 
   located in the Del Mar submarket of San Diego from the under construction phase to
 
 
   the tenant improvement phase
 
 
 
________________________
Note: Definitions for commonly used terms in this Supplemental Financial Report are on pages 32-33 “Definitions Included in Supplemental.”

2

Kilroy Realty Corporation
First Quarter 2020 Supplemental Financial Report


Financial Highlights
(unaudited, $ in thousands, except per share amounts)
 
 
Three Months Ended
 
 
 
3/31/2020 (1)
 
12/31/2019 (1)
 
9/30/2019
 
6/30/2019 (1)
 
3/31/2019
 
INCOME ITEMS:
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
221,328

 
$
220,235

 
$
215,525

 
$
200,492

 
$
201,202

 
 
Lease Termination Fees, net
60

 

 

 
1,824

 
1,888

 
 
Net Operating Income (2)
157,826

 
154,679

 
152,170

 
141,916

 
142,442

 
 
Capitalized Interest and Debt Costs
21,418

 
20,339

 
20,585

 
20,880

 
19,437

 
 
Net Income Available to Common Stockholders
39,817

 
72,500

 
43,846

 
42,194

 
36,903

 
 
EBITDA, as adjusted (2) (3)
134,232

 
131,734

 
129,163

 
120,025

 
119,172

 
 
Funds From Operations (3) (4)
110,173

 
109,518

 
109,243

 
99,905

 
99,812

 
 
Net Income Available to Common Stockholders per common share – diluted (5)
$
0.37

 
$
0.67

 
$
0.41

 
$
0.41

 
$
0.36

 
 
Funds From Operations per common share – diluted (3) (4)
$
1.00

 
$
1.00

 
$
1.01

 
$
0.95

 
$
0.95

 
LIQUIDITY ITEMS:
 
 
 
 
 
 
 
 
 
 
 
Funds Available for Distribution (4)
$
84,899

 
$
65,443

 
$
65,078

 
$
52,369

 
$
65,934

 
 
Dividends per common share (5)
$
0.485

 
$
0.485

 
$
0.485

 
$
0.485

 
$
0.455

 
RATIOS:
 
 
 
 
 
 
 
 
 
 
 
Net Operating Income Margins
71.3
%
 
70.2
%
 
70.6
%
 
70.8
%
 
70.8
%
 
 
Fixed Charge Coverage Ratio
3.9x

 
4.0x

 
4.2x

 
3.9x

 
4.0x

 
 
FFO Payout Ratio
51.5
%
 
47.8
%
 
48.0
%
 
50.0
%
 
46.9
%
 
 
FAD Payout Ratio
66.9
%
 
80.1
%
 
80.5
%
 
95.4
%
 
71.1
%
 
ASSETS:
 
 
 
 
 
 
 
 
 
 
 
Real Estate Held for Investment before Depreciation
$
9,822,116

 
$
9,628,773

 
$
8,977,843

 
$
8,824,558

 
$
8,616,167

 
 
Total Assets
9,735,147

 
8,900,094

 
8,623,815

 
8,094,721

 
7,883,987

 
CAPITALIZATION: (6)
 
 
 
 
 
 
 
 
 
 
 
Total Debt
$
3,713,236

 
$
3,579,502

 
$
3,334,967

 
$
3,210,427

 
$
3,020,882

 
 
Total Common Equity and Noncontrolling Interests in the Operating Partnership
7,458,583

 
9,064,520

 
8,414,862

 
7,602,085

 
7,823,144

 
 
Total Market Capitalization
11,171,819

 
12,644,022

 
11,749,829

 
10,812,512

 
10,844,026

 
 
Total Debt / Total Market Capitalization
33.2
%
 
28.3
%
 
28.4
%
 
29.7
%
 
27.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
______________________________________________________
Note: Definitions for commonly used terms in this Supplemental Financial Report are on pages 32-33 “Definitions Included in Supplemental.”

(1)
Net Income Available to Common Stockholders includes a reduction in revenue of $6.5 million related to the cumulative impact of transitioning one co-working tenant and two retail tenants to a cash basis of reporting as a result of the COVID-19 pandemic for the three months ended March 31, 2020 and $29.6 million and $7.2 million of gains on sale of depreciable operating properties for the three months ended December 31, 2019 and June 30, 2019, respectively.
(2)
Please refer to pages 34-35 for reconciliations of GAAP Net Income Available to Common Stockholders to Net Operating Income and EBITDA, as adjusted. The Company’s calculation of EBITDA, as adjusted, is the same as EBITDAre, as defined by NAREIT, as the Company does not have any unconsolidated joint ventures.
(3)
EBITDA, as adjusted, and Funds From Operations include a reduction in revenue of $6.5 million related to the cumulative impact of transitioning one co-working tenant and two retail tenants to a cash basis of reporting as a result of the COVID-19 pandemic for the three months ended March 31, 2020.
(4)
Please refer to page 7 for reconciliations of GAAP Net Income Available to Common Stockholders to Funds From Operations available to common stockholders and unitholders and Funds Available for Distribution to common stockholders and unitholders and page 8 for a reconciliation of GAAP Net Cash Provided by Operating Activities to Funds Available for Distribution to common stockholders and unitholders.
(5)
Reported amounts are attributable to common stockholders, common unitholders and restricted stock unit holders.
(6)
Please refer to page 26 for additional information regarding our capital structure.

3

Kilroy Realty Corporation
First Quarter 2020 Supplemental Financial Report


Common Stock Data (NYSE: KRC)
 
 
 
Three Months Ended
 
 
 
3/31/2020
 
12/31/2019
 
9/30/2019
 
6/30/2019
 
3/31/2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High Price
$
88.28

 
$
84.50

 
$
80.06

 
$
78.36

 
$
76.50

 
 
Low Price
$
49.01

 
$
76.35

 
$
74.25

 
$
72.87

 
$
61.44

 
 
Closing Price
$
63.70

 
$
83.90

 
$
77.89

 
$
73.81

 
$
75.96

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends per share – annualized
$
1.94

 
$
1.94

 
$
1.94

 
$
1.94

 
$
1.82

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Closing common shares (in 000’s) (1)
115,068

 
106,016

 
106,012

 
100,972

 
100,967

 
 
Closing common partnership units (in 000’s) (1)
2,021

 
2,023

 
2,023

 
2,023

 
2,023

 
 
 
117,089

 
108,039

 
108,035

 
102,995

 
102,990

 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
As of the end of the period.








4

Kilroy Realty Corporation
First Quarter 2020 Supplemental Financial Report


Consolidated Balance Sheets
(unaudited, $ in thousands)
 
 
3/31/2020
 
12/31/2019
 
9/30/2019
 
6/30/2019
 
3/31/2019
 
 
ASSETS:

 
 
 
 
 
 
 
 
 
 
Land and improvements
$
1,506,357

 
$
1,466,166

 
$
1,315,448

 
$
1,284,582

 
$
1,184,496

 
 
Buildings and improvements
5,997,523

 
5,866,477

 
5,770,226

 
5,712,448

 
5,300,313

 
 
Undeveloped land and construction in progress
2,318,236

 
2,296,130

 
1,892,169

 
1,827,528

 
2,131,358

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

 
9,628,773

 
8,977,843

 
8,824,558

 
8,616,167

 
 
Accumulated depreciation and amortization
(1,622,369
)
 
(1,561,361
)
 
(1,505,785
)
 
(1,480,766
)
 
(1,441,506
)
 
 
Total real estate assets held for investment, net
8,199,747

 
8,067,412

 
7,472,058

 
7,343,792

 
7,174,661

 
 
Real estate assets and other assets held for sale, net

 

 
77,751

 

 

 
 
Cash and cash equivalents
762,134

 
60,044

 
297,620

 
52,415

 
49,693

 
 
Restricted cash
16,300

 
16,300

 
6,300

 
6,300

 
6,300

 
 
Marketable securities
19,984

 
27,098

 
26,188

 
25,203

 
24,098

 
 
Current receivables, net
16,534

 
26,489

 
34,116

 
27,563

 
28,016

 
 
Deferred rent receivables, net
352,352

 
337,937

 
314,812

 
297,358

 
280,756

 
 
Deferred leasing costs and acquisition-related intangible assets, net
204,392

 
212,805

 
202,063

 
203,451

 
187,309

 
 
Right of use ground lease assets
96,145

 
96,348

 
83,200

 
82,647

 
82,794

 
 
Prepaid expenses and other assets, net
67,559

 
55,661

 
109,707

 
55,992

 
50,360

 
 
TOTAL ASSETS
$
9,735,147

 
$
8,900,094

 
$
8,623,815

 
$
8,094,721

 
$
7,883,987

 
 
LIABILITIES AND EQUITY:
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Secured debt, net
$
257,359

 
$
258,593

 
$
259,027

 
$
259,455

 
$
259,878

 
 
Unsecured debt, net
3,050,103

 
3,049,185

 
3,048,209

 
2,553,651

 
2,552,883

 
 
Unsecured line of credit
380,000

 
245,000

 

 
375,000

 
185,000

 
 
Accounts payable, accrued expenses and other liabilities
417,547

 
418,848

 
439,081

 
385,567

 
373,691

 
 
Ground lease liabilities
98,247

 
98,400

 
87,617

 
87,082

 
87,247

 
 
Accrued dividends and distributions
57,620

 
53,219

 
53,205

 
50,800

 
47,676

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

 
139,488

 
134,828

 
136,266

 
138,973

 
 
Rents received in advance and tenant security deposits
65,913

 
66,503

 
57,428

 
59,997

 
55,457

 
 
Liabilities and deferred revenue of real estate assets held for sale

 

 
4,911

 

 

 
 
Total liabilities
4,457,632

 
4,329,236

 
4,084,306


3,907,818


3,700,805

 
 
Equity:
 
 
 
 
 
 
 
 
 
 
 
Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
Common stock
1,151

 
1,060

 
1,060

 
1,010

 
1,010

 
 
Additional paid-in capital
5,067,181

 
4,350,917

 
4,342,296

 
3,984,867

 
3,976,204

 
 
Distributions in excess of earnings
(76,182
)
 
(58,467
)
 
(78,707
)
 
(70,345
)
 
(62,690
)
 
 
Total stockholders’ equity
4,992,150

 
4,293,510

 
4,264,649

 
3,915,532

 
3,914,524

 
 
Noncontrolling Interests
 
 
 
 
 
 
 
 
 
 
 
Common units of the Operating Partnership
87,655

 
81,917

 
81,393

 
78,463

 
78,413

 
 
Noncontrolling interests in consolidated property partnerships
197,710

 
195,431

 
193,467

 
192,908

 
190,245

 
 
Total noncontrolling interests
285,365

 
277,348

 
274,860

 
271,371

 
268,658

 
 
Total equity
5,277,515

 
4,570,858

 
4,539,509

 
4,186,903

 
4,183,182

 
 
TOTAL LIABILITIES AND EQUITY
$
9,735,147

 
$
8,900,094

 
$
8,623,815

 
$
8,094,721

 
$
7,883,987

 
 
 
 
 
 
 
 
 
 
 
 
 


5

Kilroy Realty Corporation
First Quarter 2020 Supplemental Financial Report


Consolidated Statements of Operations
(unaudited, $ and shares in thousands, except per share amounts)
 
 
 
Three Months Ended March 31,
 
 
 
 
2020
 
2019
 
 
REVENUES
 
 
 
 
 
 
Rental income (1)
 
$
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
 
2,317

 
1,972

 
 
General and administrative expenses
 
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
 
(3,128
)
 
1,828

 
 
Interest expense
 
(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

 
 
Weighted average common shares outstanding – basic
 
106,875

 
100,901

 
 
Weighted average common shares outstanding – diluted
 
107,390

 
101,443

 
 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS PER SHARE
 
 
 
 
 
 
Net income available to common stockholders per share – basic
 
$
0.37

 
$
0.36

 
 
Net income available to common stockholders per share – diluted
 
$
0.37

 
$
0.36

 
 
 
 
 
 
 
 
________________________
(1)
Rental income is presented net of reductions in revenue related to the creditworthiness of tenants. For the three months ended March 31, 2020, rental income includes a reduction in revenue of $6.5 million related to the cumulative impact of transitioning one co-working tenant and two retail tenants to a cash basis of reporting as a result of the COVID-19 pandemic.

6

Kilroy Realty Corporation
First Quarter 2020 Supplemental Financial Report


Funds From Operations and Funds Available for Distribution
(unaudited, $ in thousands, except per share amounts)
 
 
 
Three Months Ended March 31,
 
 
 
 
2020
 
2019
 
 
FUNDS FROM OPERATIONS: (1)
 
 
 
 
 
 
Net income available to common stockholders
 
$
39,817

 
$
36,903

 
 
Adjustments:
 
 
 
 
 
 
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

 
 
Depreciation and amortization of real estate assets
 
72,438

 
64,971

 
 
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships
 
(7,683
)
 
(6,953
)
 
 
Funds From Operations (1)(2)
 
$
110,173

 
$
99,812

 
 
Weighted average common shares/units outstanding – basic (3)
 
110,031

 
104,062

 
 
Weighted average common shares/units outstanding – diluted (4)
 
110,546

 
104,603

 
 
FFO per common share/unit – basic (1)
 
$
1.00

 
$
0.96

 
 
FFO per common share/unit – diluted (1)
 
$
1.00

 
$
0.95

 
 
FUNDS AVAILABLE FOR DISTRIBUTION: (1)
 
 
 
 
 
 
Funds From Operations (1)(2)
 
$
110,173

 
$
99,812

 
 
Adjustments:
 
 
 
 
 
 
Recurring tenant improvements, leasing commissions and capital expenditures
 
(17,063
)
 
(21,583
)
 
 
Amortization of deferred revenue related to tenant-funded tenant improvements (2)(5)
 
(5,002
)
 
(3,817
)
 
 
Net effect of straight-line rents
 
(14,415
)
 
(16,511
)
 
 
Amortization of net below market rents (6)
 
(2,586
)
 
(2,094
)
 
 
Amortization of deferred financing costs and net debt discount/premium
 
505

 
135

 
 
Non-cash executive compensation expense (7)
 
7,159

 
7,584

 
 
Lease related adjustments, leasing costs and other (8)
 
3,461

 
35

 
 
Adjustments attributable to noncontrolling interests in consolidated property partnerships
 
2,667

 
2,373

 
 
Funds Available for Distribution (1)
 
$
84,899

 
$
65,934

 
 
 
 
 
 
 
 
________________________
(1)
See page 31 for Management Statements on Funds From Operations and Funds Available for Distribution. Reported per common share/unit amounts are attributable to common stockholders, common unitholders and restricted stock unit holders.
(2)
FFO available to common stockholders and unitholders includes amortization of deferred revenue related to tenant-funded tenant improvements of $5.0 million and $3.8 million for the three months ended March 31, 2020 and 2019, respectively. These amounts are adjusted out of FFO in our calculation of FAD.
(3)
Calculated based on weighted average shares outstanding including participating share-based awards and assuming the exchange of all common limited partnership units outstanding.
(4)
Calculated based on weighted average shares outstanding including participating and non-participating share-based awards, dilutive impact of stock options, and contingently issuable shares and assuming the exchange of all common limited partnership units outstanding.
(5)
Represents revenue recognized during the period as a result of the amortization of deferred revenue recorded for tenant-funded tenant improvements.
(6)
Represents the non-cash adjustment related to the acquisition of buildings with above and/or below market rents.
(7)
Includes non-cash amortization of share-based compensation and accrued potential future executive retirement benefits.
(8)
Includes other cash and non-cash adjustments attributable to lease-related matters including GAAP revenue recognition timing differences, leasing costs and other.


7

Kilroy Realty Corporation
First Quarter 2020 Supplemental Financial Report


Reconciliation of GAAP Net Cash Provided by Operating Activities to Funds Available for Distribution
(unaudited, $ in thousands)
 
 
 
Three Months Ended March 31,
 
 
 
 
2020
 
2019
 
 
GAAP Net Cash Provided by Operating Activities 
 
$
122,940

 
$
99,790

 
 
Adjustments:
 
 
 
 
 
 
Recurring tenant improvements, leasing commissions and capital expenditures
 
(17,063
)
 
(21,583
)
 
 
Depreciation of non-real estate furniture, fixtures and equipment
 
(1,932
)
 
(1,164
)
 
 
Net changes in operating assets and liabilities (1)
 
(13,582
)
 
(5,962
)
 
 
Noncontrolling interests in consolidated property partnerships share of FFO and FAD
 
(5,016
)
 
(4,580
)
 
 
Cash adjustments related to investing and financing activities
 
(448
)
 
(567
)
 
 
 
 
 
 
 
 
 
Funds Available for Distribution(2)
 
$
84,899

 
$
65,934

 
 
 
 
 
 
 
 
_______________________
(1)
Primarily includes changes in the following assets and liabilities: marketable securities; current receivables; prepaid expenses and other assets; accounts payable, accrued expenses and other liabilities; and rents received in advance and tenant security deposits. 
(2)
Please refer to page 31 for a Management Statement on Funds Available for Distribution.


8

Kilroy Realty Corporation
First Quarter 2020 Supplemental Financial Report


Net Operating Income (1) 
(unaudited, $ in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
 
 
 
2020
 
2019
 
% Change
 
 
Operating Revenues:
 
 
 
 
 
 
 
 
Rental income (2)
 
$
187,015

 
$
171,882

 
8.8
%
 
 
Tenant reimbursements (2)
 
31,618

 
27,500

 
15.0
%
 
 
Other property income
 
2,695

 
1,820

 
48.1
%
 
 
Total operating revenues
 
221,328

 
201,202

 
10.0
%
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
Property expenses
 
38,983

 
38,149

 
2.2
%
 
 
Real estate taxes
 
22,202

 
18,639

 
19.1
%
 
 
Ground leases
 
2,317

 
1,972

 
17.5
%
 
 
Total operating expenses
 
63,502

 
58,760

 
8.1
%
 
 
Net Operating Income
 
$
157,826

 
$
142,442

 
10.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Please refer to page 29 for Management Statements on Net Operating Income and page 34 for a reconciliation of GAAP Net Income Available to Common Stockholders to Net Operating Income.
(2)
Revenue from tenant reimbursements is included in rental income on our consolidated statements of operations.


9

Kilroy Realty Corporation
First Quarter 2020 Supplemental Financial Report


Same Store Analysis (1) 
(unaudited, $ in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
 
 
 
2020
 
2019
 
% Change
 
 
Total Same Store Portfolio
 
 
 
 
 
 
 
 
Office Portfolio
 
 
 
 
 
 
 
 
Number of properties
 
92

 
92

 
 
 
 
Square Feet
 
12,931,083

 
12,931,083

 
 
 
 
Percent of Stabilized Portfolio
 
90.3
%
 
97.7
%
 
 
 
 
Average Occupancy
 
93.7
%
 
93.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Revenues:
 
 
 
 
 
 
 
 
Rental income  (2)(3)
 
$
162,951

 
$
163,462

 
(0.3
)%
 
 
Tenant reimbursements (2)
 
23,463

 
24,979

 
(6.1
)%
 
 
Other property income
 
2,179

 
1,711

 
27.4
 %
 
 
Total operating revenues
 
188,593

 
190,152

 
(0.8
)%
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
Property expenses
 
34,757

 
36,295

 
(4.2
)%
 
 
Real estate taxes
 
17,246

 
17,110

 
0.8
 %
 
 
Ground leases
 
2,109

 
1,972

 
6.9
 %
 
 
Total operating expenses
 
54,112

 
55,377

 
(2.3
)%
 
 
GAAP Net Operating Income
 
$
134,481

 
$
134,775

 
(0.2
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Store Analysis (Cash Basis) (4)
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
 
 
 
2020
 
2019
 
% Change
 
 
Total operating revenues
 
$
183,226

 
$
167,722

 
9.2
 %
 
 
Total operating expenses
 
54,129

 
55,381

 
(2.3
)%
 
 
Cash Net Operating Income
 
$
129,097

 
$
112,341

 
14.9
 %
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Same Store is defined as all properties owned and included in our stabilized portfolio as of January 1, 2019 and still owned and included in the stabilized portfolio as of March 31, 2020. Same Store includes 100% of consolidated property partnerships as well as the residential tower at Columbia Square.
(2)
Revenue from tenant reimbursements is included in rental income on our consolidated statements of operations.
(3)
Rental income is presented net of reductions in revenue related to the creditworthiness of tenants. For the three months ended March 31, 2020, rental income includes a reduction in revenue of $5.9 million related to the cumulative impact of transitioning one co-working tenant and one retail tenant to a cash basis of reporting as a result of the COVID-19 pandemic. For the three months ended March 31, 2019, rental income includes a recovery of provision for bad debts of $3.1 million.
(4)
Please refer to page 34 for a reconciliation of GAAP Net Income Available to Common Stockholders to Same Store GAAP Net Operating Income and Same Store Cash Net Operating Income.

10

Kilroy Realty Corporation
First Quarter 2020 Supplemental Financial Report


Stabilized Portfolio Occupancy Overview by Region
 
 
 
 
 
Portfolio Breakdown
 
 
 
Occupied at
 
Leased at
 
 
STABILIZED OFFICE PORTFOLIO (1)
 
Buildings
 
YTD NOI %
 
SF %
 
Total SF
 
3/31/2020
 
12/31/2019 (2)
 
3/31/2020
 
 
Greater Los Angeles
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Culver City
 
19
 
1.7
%
 
1.1
%
 
151,908

 
100.0
%
 
100.0
%
 
100.0
%
 
 
El Segundo
 
5
 
4.6
%
 
7.6
%
 
1,093,050

 
97.5
%
 
97.6
%
 
97.8
%
 
 
Hollywood
 
6
 
5.6
%
 
5.6
%
 
806,557

 
98.7
%
 
98.7
%
 
99.2
%
 
 
Long Beach
 
7
 
2.8
%
 
6.7
%
 
952,766

 
92.7
%
 
93.2
%
 
96.9
%
 
 
West Hollywood
 
4
 
1.7
%
 
1.2
%
 
178,699

 
90.5
%
 
95.4
%
 
94.0
%
 
 
West Los Angeles
 
10
 
5.6
%
 
5.9
%
 
844,151

 
86.1
%
 
90.0
%
 
88.0
%
 
 
Total Greater Los Angeles
 
51
 
22.0
%
 
28.1
%
 
4,027,131

 
94.0
%
 
95.2
%
 
95.7
%
 
 
San Diego County
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Del Mar
 
15
 
7.7
%
 
10.1
%
 
1,448,547

 
89.6
%
 
92.2
%
 
95.1
%
 
 
I-15 Corridor
 
5
 
1.3
%
 
3.8
%
 
540,892

 
82.5
%
 
81.3
%
 
96.4
%
 
 
Point Loma
 
1
 
0.4
%
 
0.8
%
 
107,456

 
100.0
%
 
100.0
%
 
100.0
%
 
 
University Towne Center
 
1

 
0.1
%
 
0.3
%
 
47,846

 
91.4
%
 
91.4
%
 
91.4
%
 
 
Total San Diego County
 
22
 
9.5
%
 
15.0
%
 
2,144,741

 
88.3
%
 
89.7
%
 
95.6
%
 
 
San Francisco Bay Area
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Menlo Park
 
7
 
2.7
%
 
2.6
%
 
378,358

 
79.2
%
 
87.1
%
 
80.2
%
 
 
Mountain View
 
4
 
4.0
%
 
3.8
%
 
542,235

 
100.0
%
 
100.0
%
 
100.0
%
 
 
Palo Alto
 
2
 
1.4
%
 
1.2
%
 
165,585

 
100.0
%
 
100.0
%
 
100.0
%
 
 
Redwood City
 
2
 
3.4
%
 
2.4
%
 
347,269

 
100.0
%
 
100.0
%
 
100.0
%
 
 
San Francisco
 
11
 
39.2
%
 
28.7
%
 
4,107,473

 
93.0
%
 
93.1
%
 
99.1
%
 
 
South San Francisco
 
3
 
1.3
%
 
1.0
%
 
145,530

 
100.0
%
 
100.0
%
 
100.0
%
 
 
Sunnyvale
 
4
 
4.8
%
 
4.6
%
 
663,460

 
100.0
%
 
100.0
%
 
100.0
%
 
 
Total San Francisco Bay Area
 
33
 
56.8
%
 
44.3
%
 
6,349,910

 
94.3
%
 
95.0
%
 
98.2
%
 
 
Greater Seattle
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bellevue
 
2
 
5.4
%
 
6.4
%
 
917,027

 
91.1
%
 
96.9
%
 
98.7
%
 
 
Lake Union
 
6
 
6.3
%
 
6.2
%
 
884,763

 
100.0
%
 
98.6
%
 
100.0
%
 
 
Total Greater Seattle
 
8
 
11.7
%
 
12.6
%
 
1,801,790

 
95.5
%
 
97.7
%
 
99.3
%
 
 
TOTAL STABILIZED OFFICE PORTFOLIO
 
114
 
100.0
%
 
100.0
%
 
14,323,572

 
93.5
%
 
94.6
%
 
97.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total No. of Units
 
Average Residential Occupancy
 
 
 
 
STABILIZED RESIDENTIAL PROPERTY
 
 
 
Submarket
 
Buildings
 
 
Quarter-to-Date
 
 
 
 
Greater Los Angeles
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1550 N. El Centro Avenue
 
 
 
Hollywood
 
1

 
200

 
93.5%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Office Occupancy
Quarter-to-Date
93.7%
________________________
(1)
Includes stabilized retail space.
(2)
Represents occupancy for properties in the stabilized portfolio as of the date presented, including properties sold subsequent to the date presented.

11

Kilroy Realty Corporation
First Quarter 2020 Supplemental Financial Report


Stabilized Office Portfolio Occupancy Overview by Region, continued
 
 
 
Submarket
 
Square Feet
 
Occupied
 
Greater Los Angeles, California
 
 
 
 
 
 
 
 
3101-3243 La Cienega Boulevard
 
Culver City
 
151,908

 
100.0
%
 
 
2240 E. Imperial Highway
 
El Segundo
 
122,870

 
100.0
%
 
 
2250 E. Imperial Highway
 
El Segundo
 
298,728

 
100.0
%
 
 
2260 E. Imperial Highway
 
El Segundo
 
298,728

 
100.0
%
 
 
909 N. Pacific Coast Highway
 
El Segundo
 
244,136

 
92.3
%
 
 
999 N. Pacific Coast Highway
 
El Segundo
 
128,588

 
93.4
%
 
 
1500 N. El Centro Avenue
 
Hollywood
 
104,504

 
100.0
%
 
 
1525 N. Gower Street
 
Hollywood
 
9,610

 
100.0
%
 
 
1575 N. Gower Street
 
Hollywood
 
251,245

 
100.0
%
 
 
6115 W. Sunset Boulevard
 
Hollywood
 
26,105

 
100.0
%
 
 
6121 W. Sunset Boulevard
 
Hollywood
 
91,173

 
100.0
%
 
 
6255 W. Sunset Boulevard
 
Hollywood
 
323,920

 
96.8
%
 
 
3750 Kilroy Airport Way
 
Long Beach
 
10,718

 
100.0
%
 
 
3760 Kilroy Airport Way
 
Long Beach
 
165,278

 
92.5
%
 
 
3780 Kilroy Airport Way
 
Long Beach
 
221,452

 
79.4
%
 
 
3800 Kilroy Airport Way
 
Long Beach
 
192,476

 
100.0
%
 
 
3840 Kilroy Airport Way
 
Long Beach
 
136,026

 
100.0
%
 
 
3880 Kilroy Airport Way
 
Long Beach
 
96,923

 
100.0
%
 
 
3900 Kilroy Airport Way
 
Long Beach
 
129,893

 
91.4
%
 
 
8560 W. Sunset Boulevard
 
West Hollywood
 
71,875

 
100.0
%
 
 
8570 W. Sunset Boulevard
 
West Hollywood
 
43,603

 
95.8
%
 
 
8580 W. Sunset Boulevard
 
West Hollywood
 
7,126

 
0.0
%
 
 
8590 W. Sunset Boulevard