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Section 1: 10-Q (10-Q)

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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 June 30, 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 July 24, 2020, 115,179,550 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 June 30, 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 June 30, 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 AND SIX MONTHS ENDED JUNE 30, 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)
 
June 30, 2020
 
December 31, 2019
ASSETS
 
 
 
REAL ESTATE ASSETS:
 
 
 
Land and improvements
$
1,546,209

 
$
1,466,166

Buildings and improvements
6,289,816

 
5,866,477

Undeveloped land and construction in progress
2,109,196

 
2,296,130

Total real estate assets held for investment
9,945,221

 
9,628,773

Accumulated depreciation and amortization
(1,684,837
)
 
(1,561,361
)
Total real estate assets held for investment, net
8,260,384

 
8,067,412

CASH AND CASH EQUIVALENTS (Note 4)
605,012

 
60,044

RESTRICTED CASH
16,300

 
16,300

MARKETABLE SECURITIES (Note 10)
23,175

 
27,098

CURRENT RECEIVABLES, NET
20,925

 
26,489

DEFERRED RENT RECEIVABLES, NET
358,914

 
337,937

DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET
209,637

 
212,805

RIGHT OF USE GROUND LEASE ASSETS (Note 9)
95,940

 
96,348

PREPAID EXPENSES AND OTHER ASSETS, NET (Note 2)
68,378

 
55,661

TOTAL ASSETS
$
9,658,665

 
$
8,900,094

LIABILITIES AND EQUITY
 
 
 
LIABILITIES:
 
 
 
Secured debt, net (Notes 3 and 10)
$
256,113

 
$
258,593

Unsecured debt, net (Notes 3, and 10)
3,399,105

 
3,049,185

Unsecured line of credit (Notes 3 and 10)

 
245,000

Accounts payable, accrued expenses and other liabilities
401,378

 
418,848

Ground lease liabilities (Note 9)
98,093

 
98,400

Accrued dividends and distributions (Note 15)
57,600

 
53,219

Deferred revenue and acquisition-related intangible liabilities, net
129,264

 
139,488

Rents received in advance and tenant security deposits
63,523

 
66,503

Total liabilities
4,405,076

 
4,329,236

COMMITMENTS AND CONTINGENCIES (Note 9)

 

EQUITY:
 
 
 
Stockholders’ Equity (Note 4):
 
 
 
Common stock, $.01 par value, 280,000,000 and 150,000,000 shares authorized, respectively, 115,176,538 and 106,016,287 shares issued and outstanding, respectively
1,152

 
1,060

Additional paid-in capital
5,084,362

 
4,350,917

Distributions in excess of earnings
(113,223
)
 
(58,467
)
Total stockholders’ equity
4,972,291

 
4,293,510

Noncontrolling Interests (Notes 1 and 5):
 
 
 
Common units of the Operating Partnership
83,502

 
81,917

Noncontrolling interests in consolidated property partnerships
197,796

 
195,431

Total noncontrolling interests
281,298

 
277,348

Total equity
5,253,589

 
4,570,858

TOTAL LIABILITIES AND EQUITY
$
9,658,665

 
$
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 June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
REVENUES
 
 
 
 
 
 
 
Rental income (Note 8)
$
218,356

 
$
197,629

 
$
436,989

 
$
397,011

Other property income
1,067

 
2,863

 
3,762

 
4,683

Total revenues
219,423

 
200,492

 
440,751

 
401,694

EXPENSES
 
 
 
 
 
 
 
Property expenses
37,829

 
38,536

 
76,812

 
76,685

Real estate taxes
21,854

 
17,926

 
44,056

 
36,565

Ground leases (Note 9)
2,330

 
2,114

 
4,647

 
4,086

General and administrative expenses (Notes 7 and 10)
38,597

 
19,857

 
57,607

 
43,198

Leasing costs
1,330

 
2,650

 
2,786

 
4,407

Depreciation and amortization
80,085

 
68,252

 
154,455

 
134,387

Total expenses
182,025

 
149,335

 
340,363

 
299,328

OTHER (EXPENSES) INCOME
 
 
 
 
 
 
 
Interest income and other net investment gain (loss) (Note 10)
2,838

 
616

 
(290
)
 
2,444

Interest expense (Note 3)
(15,884
)
 
(11,727
)
 
(30,328
)
 
(22,970
)
Gains on sales of depreciable operating properties

 
7,169

 

 
7,169

      Total other (expenses) income
(13,046
)
 
(3,942
)
 
(30,618
)
 
(13,357
)
NET INCOME
24,352

 
47,215

 
69,770

 
89,009

Net income attributable to noncontrolling common units of the Operating Partnership
(367
)
 
(871
)
 
(1,072
)
 
(1,571
)
Net income attributable to noncontrolling interests in consolidated property partnerships
(4,367
)
 
(4,150
)
 
(9,263
)
 
(8,341
)
Total income attributable to noncontrolling interests
(4,734
)
 
(5,021
)
 
(10,335
)
 
(9,912
)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
$
19,618

 
$
42,194

 
$
59,435

 
$
79,097

Net income available to common stockholders per share – basic (Note 11)
$
0.17

 
$
0.41

 
$
0.53

 
$
0.77

Net income available to common stockholders per share – diluted (Note 11)
$
0.17

 
$
0.41

 
$
0.52

 
$
0.77

Weighted average common shares outstanding – basic (Note 11)
115,084,897

 
100,972,355

 
110,980,066

 
100,937,069

Weighted average common shares outstanding – diluted (Note 11)
115,539,725

 
101,809,541

 
111,464,647

 
101,618,953
























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

Net income
 
 
 
 
 
 
19,618

 
19,618

 
4,734

 
24,352

Issuance of common stock

 

 
(45
)
 
 
 
(45
)
 
 
 
(45
)
Issuance of share-based compensation awards
 
 
 
 
805

 
 
 
805

 
 
 
805

Non-cash amortization of share-based compensation (Note 7)
 
 
 
 
13,576

 
 
 
13,576

 
 
 
13,576

Settlement of restricted stock units for shares of common stock
33,581

 

 

 
 
 

 
 
 

Repurchase of common stock, stock options and restricted stock units
(11,668
)
 

 
(735
)
 
 
 
(735
)
 
 
 
(735
)
Exchange of common units of the Operating Partnership
86,701

 
1

 
3,761

 
 
 
3,762

 
(3,762
)
 

Distributions to noncontrolling interests in consolidated property partnerships
 
 
 
 
 
 
 
 

 
(4,281
)
 
(4,281
)
Adjustment for noncontrolling interest
 
 
 
 
(181
)
 
 
 
(181
)
 
181

 

Dividends declared per common share and common unit ($0.485 per share/unit)
 
 
 
 
 
 
(56,659
)
 
(56,659
)
 
(939
)
 
(57,598
)
BALANCE AS OF JUNE 30, 2020
115,176,538

 
$
1,152

 
$
5,084,362

 
$
(113,223
)
 
$
4,972,291

 
$
281,298

 
$
5,253,589

 
 
 
 
 
 
 
 
 
 
 
 
 
 


3


 
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

Net income
 
 
 
 
 
 
42,194

 
42,194

 
5,021

 
47,215

Issuance of share-based compensation awards
 
 
 
 
820

 
 
 
820

 
 
 
820

Non-cash amortization of share-based compensation
 
 
 
 
8,732

 
 
 
8,732

 
 
 
8,732

Exercise of stock options
1,500

 

 
64

 
 
 
64

 
 
 
64

Settlement of restricted stock units for shares of common stock
16,270

 

 

 
 
 

 
 
 

Repurchase and cancellation of common stock, stock options, and restricted stock units
(12,759
)
 

 
(793
)
 
 
 
(793
)
 
 
 
(793
)
Distributions to noncontrolling interests in consolidated property partnerships
 
 
 
 
 
 
 
 

 
(1,487
)
 
(1,487
)
Adjustment for noncontrolling interest
 
 
 
 
(160
)
 
 
 
(160
)
 
160

 

Dividends declared per common share and common unit ($0.485 per share/unit)
 
 
 
 
 
 
(49,849
)
 
(49,849
)
 
(981
)
 
(50,830
)
BALANCE AS OF JUNE 30, 2019
100,972,035

 
$
1,010

 
$
3,984,867

 
$
(70,345
)
 
$
3,915,532

 
$
271,371

 
$
4,186,903

























See accompanying notes to consolidated financial statements.

4


KILROY REALTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
 
 
Six Months Ended June 30,
 
2020
 
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
69,770

 
$
89,009

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization of real estate assets and leasing costs
148,419

 
131,982

Depreciation of non-real estate furniture, fixtures and equipment
6,036

 
2,405

Revenue reversals (recoveries) for doubtful accounts (Note 8)
12,381

 
(3,091
)
Non-cash amortization of share-based compensation awards
18,311

 
14,082

Non-cash amortization of deferred financing costs and debt discounts and premiums
1,076

 
717

Non-cash amortization of net below market rents
(4,500
)
 
(4,415
)
Gain on sale of depreciable operating properties

 
(7,169
)
Non-cash amortization of deferred revenue related to tenant-funded tenant improvements
(8,793
)
 
(8,181
)
Straight-line rents
(33,514
)
 
(29,937
)
Amortization of right of use ground lease assets
408

 
291

Net change in other operating assets
13,991

 
(15,540
)
Net change in other operating liabilities
437

 
(4,493
)
Net cash provided by operating activities
224,022

 
165,660

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Expenditures for development properties and undeveloped land
(293,711
)
 
(372,750
)
Expenditures for operating properties and other capital assets
(80,630
)
 
(61,557
)
Net proceeds received from dispositions

 
17,271

Net cash used in investing activities
(374,341
)
 
(417,036
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net proceeds from issuance of common stock (Note 4)
721,749

 

Proceeds from the issuance of unsecured debt (Note 3)
350,000

 

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

 
425,000

Repayments on unsecured revolving credit facility (Note 3)
(435,000
)
 
(95,000
)
Principal payments and repayments of secured debt (Note 3)
(2,543
)
 
(75,384
)
Financing costs
(2,283
)
 
(1,335
)
Repurchase of common stock and restricted stock units
(10,534
)
 
(12,618
)
Proceeds from exercise of stock options

 
64

Distributions to noncontrolling interests in consolidated property partnerships
(6,915
)
 
(7,812
)
Dividends and distributions paid to common stockholders and common unitholders
(109,187
)
 
(93,858
)
Net cash provided by financing activities
695,287

 
139,057

Net increase (decrease) in cash and cash equivalents and restricted cash
544,968

 
(112,319
)
Cash and cash equivalents and restricted cash, beginning of period
76,344

 
171,034

Cash and cash equivalents and restricted cash, end of period
$
621,312

 
$
58,715
















See accompanying notes to consolidated financial statements.

5





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

KILROY REALTY, L.P.
CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except unit data)
 
 
June 30, 2020
 
December 31, 2019
ASSETS 
 
 
 
REAL ESTATE ASSETS:
 
 
 
Land and improvements
$
1,546,209

 
$
1,466,166

Buildings and improvements
6,289,816

 
5,866,477

Undeveloped land and construction in progress
2,109,196

 
2,296,130

Total real estate assets held for investment
9,945,221

 
9,628,773

Accumulated depreciation and amortization
(1,684,837
)
 
(1,561,361
)
Total real estate assets held for investment, net
8,260,384

 
8,067,412

CASH AND CASH EQUIVALENTS (Note 4)
605,012

 
60,044

RESTRICTED CASH
16,300

 
16,300

MARKETABLE SECURITIES (Note 10)
23,175

 
27,098

CURRENT RECEIVABLES, NET
20,925

 
26,489

DEFERRED RENT RECEIVABLES, NET
358,914

 
337,937

DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET
209,637

 
212,805

RIGHT OF USE GROUND LEASE ASSETS (Note 9)
95,940

 
96,348

PREPAID EXPENSES AND OTHER ASSETS, NET (Note 2)
68,378

 
55,661

TOTAL ASSETS
$
9,658,665

 
$
8,900,094

LIABILITIES AND CAPITAL
 
 
 
LIABILITIES:
 
 
 
Secured debt, net (Notes 3 and 10)
$
256,113

 
$
258,593

Unsecured debt, net (Notes 3, 10)
3,399,105

 
3,049,185

Unsecured line of credit (Notes 3 and 10)

 
245,000

Accounts payable, accrued expenses and other liabilities
401,378

 
418,848

Ground lease liabilities (Note 9)
98,093

 
98,400

Accrued distributions (Note 15)
57,600

 
53,219

Deferred revenue and acquisition-related intangible liabilities, net
129,264

 
139,488

Rents received in advance and tenant security deposits
63,523

 
66,503

Total liabilities
4,405,076

 
4,329,236

COMMITMENTS AND CONTINGENCIES (Note 9)

 

CAPITAL:
 
 
 
Common units, 115,176,538 and 106,016,287 held by the general partner and 1,934,586 and 2,023,287
held by common limited partners issued and outstanding, respectively (Note 6)
5,049,844


4,369,758

Noncontrolling interests in consolidated property partnerships and subsidiaries (Note 1)
203,745


201,100

Total capital
5,253,589


4,570,858

TOTAL LIABILITIES AND CAPITAL
$
9,658,665


$
8,900,094













See accompanying notes to consolidated financial statements.

6


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

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
REVENUES
 
 
 
 
 
 
 
Rental income (Note 8)
$
218,356

 
$
197,629

 
$
436,989

 
$
397,011

Other property income
1,067

 
2,863

 
3,762

 
4,683

Total revenues
219,423

 
200,492

 
440,751

 
401,694

EXPENSES
 
 
 
 
 
 
 
Property expenses
37,829

 
38,536

 
76,812

 
76,685

Real estate taxes
21,854

 
17,926

 
44,056

 
36,565

Ground leases (Note 9)
2,330

 
2,114

 
4,647

 
4,086

General and administrative expenses (Notes 7 and 10)
38,597

 
19,857

 
57,607

 
43,198

Leasing costs
1,330

 
2,650

 
2,786

 
4,407

Depreciation and amortization
80,085

 
68,252

 
154,455

 
134,387

Total expenses
182,025

 
149,335

 
340,363

 
299,328

OTHER (EXPENSES) INCOME
 
 
 
 
 
 
 
Interest income and other net investment gain (loss) (Note 10)
2,838

 
616

 
(290
)
 
2,444

Interest expense (Note 3)
(15,884
)
 
(11,727
)
 
(30,328
)
 
(22,970
)
Gains on sales of depreciable operating properties

 
7,169

 

 
7,169

Total other (expenses) income
(13,046
)
 
(3,942
)
 
(30,618
)
 
(13,357
)
NET INCOME
24,352

 
47,215

 
69,770

 
89,009

Net income attributable to noncontrolling interests in consolidated property partnerships and subsidiaries
(4,514
)
 
(4,314
)
 
(9,543
)
 
(8,600
)
NET INCOME AVAILABLE TO COMMON UNITHOLDERS
$
19,838

 
$
42,901

 
$
60,227

 
$
80,409

Net income available to common unitholders per unit – basic (Note 12)
$
0.16

 
$
0.41

 
$
0.52

 
$
0.77

Net income available to common unitholders per unit – diluted (Note 12)
$
0.16

 
$
0.41

 
$
0.52

 
$
0.77

Weighted average common units outstanding – basic (Note 12)
117,098,562

 
102,995,642

 
112,997,795

 
102,960,599

Weighted average common units outstanding – diluted (Note 12)
117,553,390

 
103,832,828

 
113,482,376

 
103,642,483


























See accompanying notes to consolidated financial statements.

7


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

Net income
 
 
19,838

 
4,514

 
24,352

Issuance of common units

 
(45
)
 
 
 
(45
)
Issuance of share-based compensation awards
 
 
805

 
 
 
805

Non-cash amortization of share-based compensation (Note 7)
 
 
13,576

 
 
 
13,576

Settlement of restricted stock units
33,581

 

 
 
 

Repurchase of common units, stock options and restricted stock units
(11,668
)
 
(735
)
 
 
 
(735
)
Distributions to noncontrolling interests in consolidated property partnerships
 
 
 
 
(4,281
)
 
(4,281
)
Distributions declared per common unit ($0.485 per unit)
 
 
(57,598
)
 
 
 
(57,598
)
BALANCE AS OF JUNE 30, 2020
117,111,124

 
$
5,049,844

 
$
203,745

 
$
5,253,589

 
 
 
 
 
 
 
 



 
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

Net income
 
 
42,901

 
4,314

 
47,215

Issuance of share-based compensation awards
 
 
820

 
 
 
820

Non-cash amortization of share-based compensation