EX-99.1 2 ex991-09302013supp.htm THIRD QUARTER 2013 SUPPLEMENTAL FINANCIAL REPORT Ex 99.1 - 09.30.2013 Supp
Exhibit 99.1


Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Table of Contents
 
Page
Corporate Data and Financial Highlights
 
1
Executive Summary
2
Financial Highlights
3
4
5
6
7
 
 
Portfolio Data
 
8
9-13
Information on Leases Commenced & Leases Executed
14
Stabilized Portfolio Capital Expenditures
15
Stabilized Portfolio Lease Expirations
16-18
Top Fifteen Tenants
19
2013 Operating Property Acquisitions
20
2013 Dispositions and Properties Held for Sale
21
 
 
Development
 
In-Process Redevelopment Projects and Other Land Holdings
22
In-Process and Future Development Pipeline
23
 
 
Debt and Capitalization Data
 
24
25-26
 
 
27-29
 
 
Definitions
30-31
 
 
Reconciliations
32-34

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 maturity, 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 in forward-looking statements, and you should not rely on 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 forward-looking statements, including, among others, risks associated with: investment in real estate assets, which are illiquid; trends in the real estate industry; significant competition, which may decrease the occupancy and rental rates of properties; the ability to successfully complete acquisitions and dispositions on announced terms; the ability to successfully operate acquired properties; the availability of cash for distribution and debt service and exposure of risk of default under debt obligations; adverse changes to, or implementations of, applicable laws, regulations or legislation; and the ability to successfully complete development and redevelopment projects on schedule and within budgeted amounts. These factors are not exhaustive. 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 annual report on Form 10-K for the year ended December 31, 2012, and it’s other filings with the Securities and Exchange Commission. All forward-looking statements are based on information that was available and speak only as of the date 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 required in connection with ongoing requirements under U.S. securities laws.

Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Company Background

Kilroy Realty Corporation (NYSE: KRC), a member of the S&P MidCap 400 Index, is a real estate investment trust active in premier office submarkets along the West Coast. The Company owns, develops, acquires and manages real estate assets primarily in the coastal regions of Los Angeles, Orange County, San Diego, the San Francisco Bay Area and greater Seattle. As of September 30, 2013, the Company’s stabilized portfolio consisted of 103 office buildings, which encompassed an aggregate of 12.5 million rentable square feet and was 92.2% occupied.
Board of Directors
 
Senior Management
 
Investor Relations
John Kilroy, Jr.
Chairman
 
John Kilroy, Jr.
President and CEO
 
12200 W. Olympic Blvd., Suite 200
Los Angeles, CA 90064
(310) 481-8400
Web: www.kilroyrealty.com
E-mail: investorrelations@kilroyrealty.com
Edward F. Brennan, Ph.D.
 
 
Jeffrey C. Hawken
Executive VP and COO
 
William P. Dickey
 
 
Eli Khouri
Executive VP and CIO
 
Scott S. Ingraham
 
 
Tyler H. Rose
Executive VP and CFO
 
Dale F. Kinsella
 
 
David Simon
Executive VP
 
 
 
 
Justin W. Smart
Executive VP, Development and Construction Services
 
 
 
 
John T. Fucci
Sr. VP, Asset Management
 
 
 
 
 
Heidi R. Roth
Sr. VP, CAO and Controller
 
 
 
 
 
Steve Scott
Sr. VP, San Diego
 
 
Equity Research Coverage
 
 
 
 
 
Bank of America Merrill Lynch
 
 
J.P. Morgan
 
James Feldman
(646) 855-5808
 
Anthony Paolone
(212) 622-6682
Cantor Fitzgerald & Company
 
 
KeyBanc Capital Markets
 
David Toti
(212) 915-1219
 
Craig Mailman
(917) 368-2316
Citigroup Investment Research
 
 
Morgan Stanley
 
Michael Bilerman
(212) 816-1383
 
Vance Edelson
(212) 761-0078
Cowen and Company
 
 
RBC Capital Markets
 
James Sullivan
(646) 562-1380
 
Richard Moore
(440) 715-2646
Deutsche Bank Securities, Inc.
 
 
Robert W. Baird & Co.
 
Vincent Chao
(212) 250-6799
 
David B. Rodgers
(216) 737-7341
Green Street Advisors
 
 
Stifel, Nicolaus & Company
 
Michael Knott
(949) 640-8780
 
John W. Guinee III
(443) 224-1307
ISI Group
 
 
UBS Investment Research
 
George Auerbach
(212) 446-9462
 
Ross T. Nussbaum
(212) 713-2484
JMP Securities
 
 
Wells Fargo
 
Mitch Germain
(212) 906-3546
 
Brendan Maiorana
(443) 263-6516
 
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
Third Quarter 2013 Supplemental Financial Report


Executive Summary
 
 
 
Quarterly Financial Highlights
 
Quarterly Operating Highlights
 
 
 
• FFO per share of $0.69, which includes the receipt of a net $0.05 per share cash payment related to the default of a prior tenant

• Net income available to common stockholders per share of $0.07

• Revenues from continuing operations of $115.7 million

• Same-store GAAP net operating income (“NOI”) increased 1.1%; Same-store cash NOI increased 1.8% (1)



 
• Quarter-end stabilized portfolio occupancy of 92.2% (1)

• 627,721 square feet of leases commenced during the quarter

• 509,851 square feet of leases executed during the quarter


 
 
 
 
 
 
 
 
 
Capital Markets Highlights
 
Strategic Highlights
 
 
 
• Raised $295.9 million of net proceeds through an underwritten public offering of 6,175,000 shares of common stock

• Raised $11.4 million of equity through the at-the-market stock offering program

• No outstanding balance on the line of credit and $197.2 million of unrestricted cash on hand

 
• Acquired The Heights in the Del Mar submarket of San Diego, CA for $126.4 million

• Currently under contract for the sale of 13 properties located in San Diego, CA in two separate transactions. These properties are held for sale as of September 30, 2013 and included in discontinued operations for all periods presented. The transactions are anticipated to close during the fourth quarter of 2013.

• In October, completed the sale of a property located in Anaheim, CA for $9.6 million. This property was held for sale as of September 30, 2013 and included in discontinued operations for all periods presented.

• In October, stabilized 331 Fairchild Drive development project in Mountain View, CA
 
 
 
________________________
Note: Definitions for commonly used terms in this Supplemental Financial Report are on pages 30 through 31 “Definitions Included in Supplemental.”
(1)
Excludes properties held for sale at September 30, 2013.

2
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Financial Highlights
(unaudited, $ in thousands, except per share amounts)
 
 
 
Three Months Ended
 
 
 
 
9/30/2013 (1)
 
6/30/2013 (2)(3)
 
3/31/2013
 
12/31/2012 (3)(4)
 
9/30/2012 (5)
 
INCOME ITEMS (Including Discontinued Operations):
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
127,803

 
$
124,478

 
$
117,497

 
$
115,763

 
$
111,375

 
 
Lease Termination Fees
 
872

 
23

 
15

 
350

 
261

 
 
Net Operating Income
 
88,651

 
88,418

 
82,445

 
82,724

 
77,603

 
 
Acquisition-related Costs
 
568

 
164

 
655

 
1,040

 
556

 
 
Capitalized Interest and Debt Costs
 
9,089

 
8,480

 
7,732

 
6,638

 
4,989

 
 
Net Income (Loss) Available to Common Stockholders
 
5,584

 
6,633

 
(903
)
 
185,838

 
(2,753
)
 
 
EBITDA
 
78,530

 
78,418

 
72,513

 
72,387

 
68,650

 
 
Funds From Operations (6)(7)
 
55,899

 
55,154

 
49,086

 
49,816

 
43,142

 
 
Funds Available for Distribution (6)(7)
 
23,899

 
29,465

 
28,103

 
29,523

 
32,366

 
 
Net Income (Loss) Available to Common Stockholders per common share - diluted
 
$
0.07

 
$
0.08

 
$
(0.02
)
 
$
2.45

 
$
(0.04
)
 
 
Funds From Operations per common share - diluted
 
$
0.69

 
$
0.69

 
$
0.62

 
$
0.63

 
$
0.57

 
 
Dividends per common share
 
$
0.35

 
$
0.35

 
$
0.35

 
$
0.35

 
$
0.35

 
RATIOS (Including Discontinued Operations):
 
 
 
 
 
 
 
 
 
 
 
 
Operating Margins
 
69.4
%
 
71.0
%
 
70.2
%
 
71.5
%
 
69.7
%
 
 
Interest Coverage Ratio
 
3.0x

 
3.0x

 
2.8x

 
3.0x

 
3.0x

 
 
Fixed Charge Coverage Ratio
 
2.7x

 
2.7x

 
2.5x

 
2.7x

 
2.6x

 
 
FFO Payout Ratio
 
52.6
%
 
49.2
%
 
55.0
%
 
53.9
%
 
62.1
%
 
 
FAD Payout Ratio
 
122.9
%
 
92.1
%
 
96.1
%
 
91.0
%
 
82.7
%
 
ASSETS:
 
 
 
 
 
 
 
 
 
 
 
 
Real Estate Held for Investment before Depreciation
 
$
5,048,531

 
$
5,096,910

 
$
5,016,590

 
$
4,757,394

 
$
4,399,353

 
 
Total Assets (8)
 
5,089,276

 
4,775,522

 
4,755,287

 
4,616,084

 
4,215,841

 
CAPITALIZATION:
 
 
 
 
 
 
 
 
 
 
 
 
Total Debt
 
$
2,153,758

 
$
2,157,828

 
$
2,158,386

 
$
2,044,419

 
$
1,847,439

 
 
Total Preferred Equity and Noncontrolling Interests
 
200,000

 
200,000

 
200,000

 
200,000

 
200,000

 
 
Total Common Equity and Noncontrolling Interests
 
4,192,553

 
4,109,993

 
4,044,034

 
3,635,812

 
3,426,541

 
 
Total Market Capitalization
 
6,546,311

 
6,467,821

 
6,402,420

 
5,880,231

 
5,473,980

 
 
Total Debt / Total Market Capitalization
 
32.9
%
 
33.3
%
 
33.7
%
 
34.7
%
 
33.7
%
 
 
Total Debt and Preferred / Total Market Capitalization
 
36.0
%
 
36.3
%
 
36.9
%
 
38.1
%
 
37.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
Note: Definitions for commonly used terms in this Supplemental Financial Report are on pages 30 through 31 “Definitions Included in Supplemental.”
(1)
Results for the three months ended September 30, 2013 include the receipt of a $3.7 million net cash payment related to the default of a prior tenant.
(2)
Results for the three months ended June 30, 2013 include the receipt of a $5.2 million cash payment related to a property damage settlement.
(3)
Net Income (Loss) Available to Common Stockholders includes a net gain on dispositions of discontinued operations of $0.4 million and $186.4 million for the three months ended June 30, 2013 and December 31, 2012, respectively.
(4)
Results for the three months ended December 31, 2012 include the receipt of a $0.9 million cash payment related to a 2009 tenant default.
(5)
Results for the three months ended September 30, 2012 include a non-cash charge of $2.1 million related to the original issuance costs of the Series A Preferred Units that were redeemed on August 15, 2012.
(6)
Please refer to page 7 for a reconciliation of GAAP Net Income (Loss) Available to Common Stockholders to Funds From Operations and Funds Available for Distribution.
(7)
Reported amounts are attributable to common stockholders and common unitholders.
(8)
Total assets as of September 30, 2013 and September 30, 2012 include “Real estate assets and other assets held for sale, net.”

3
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Common Stock Data (NYSE: KRC)
 
 
 
Three Months Ended
 
 
 
9/30/2013
 
6/30/2013
 
3/31/2013
 
12/31/2012
 
9/30/2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High Price
$
55.80

 
$
59.58

 
$
53.99

 
$
47.52

 
$
49.88

 
 
Low Price
$
47.73

 
$
50.11

 
$
47.86

 
$
42.47

 
$
44.78

 
 
Closing Price
$
49.95

 
$
53.01

 
$
52.40

 
$
47.37

 
$
44.78

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends per share – annualized
$
1.40

 
$
1.40

 
$
1.40

 
$
1.40

 
$
1.40

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Closing common shares (in 000’s) (1)(2)(3)
82,113

 
75,711

 
75,350

 
74,927

 
74,693

 
 
Closing common partnership units (in 000’s) (1)
1,822

 
1,822

 
1,827

 
1,827

 
1,827

 
 
 
83,935

 
77,533

 
77,177

 
76,754

 
76,520

 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
As of the end of the period.
(2)
In September 2013, the Company completed an underwritten public offering of 6,175,000 shares of common stock at $50.00 per share.
(3)
In the third quarter quarter of 2013, the Company issued 226,430 common shares under its at-the-market stock offering program at a weighted average price of $51.12 per share before selling commissions.


4
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Consolidated Balance Sheets
(unaudited, $ in thousands)
 
 
9/30/2013
 
6/30/2013
 
3/31/2013
 
12/31/2012
 
9/30/2012
 
 
ASSETS:
 
 
 
 
 
 
 
 
 
 
 
Land and improvements
$
612,843

 
$
635,874

 
$
637,854

 
$
612,714

 
$
562,071

 
 
Buildings and improvements
3,527,729

 
3,652,102

 
3,631,057

 
3,335,026

 
3,169,224

 
 
Undeveloped land and construction in progress
907,959

 
808,934

 
747,679

 
809,654

 
668,058

 
 
Total real estate held for investment
5,048,531

 
5,096,910

 
5,016,590

 
4,757,394

 
4,399,353

 
 
Accumulated depreciation and amortization
(781,580
)
 
(815,961
)
 
(790,878
)
 
(756,515
)
 
(725,728
)
 
 
Total real estate held for investment, net
4,266,951

 
4,280,949

 
4,225,712

 
4,000,879

 
3,673,625

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate assets and other assets held for sale, net
239,411

 
—

 
—

 
—

 
166,019

 
 
Cash and cash equivalents
197,150

 
107,823

 
135,676

 
16,700

 
16,113

 
 
Restricted cash
17,931

 
19,241

 
19,465

 
247,544

 
5,884

 
 
Marketable securities
9,192

 
8,286

 
8,029

 
7,435

 
6,812

 
 
Current receivables, net
11,769

 
10,515

 
10,666

 
9,220

 
7,113

 
 
Deferred rent receivables, net
121,659

 
124,815

 
122,142

 
115,418

 
110,128

 
 
Deferred leasing costs and acquisition-related intangible assets, net
190,085

 
188,702

 
196,525

 
189,968

 
187,307

 
 
Deferred financing costs, net
17,809

 
19,115

 
20,501

 
18,971

 
18,442

 
 
Prepaid expenses and other assets, net
17,319

 
16,076

 
16,571

 
9,949

 
24,398

 
 
TOTAL ASSETS
$
5,089,276

 
$
4,775,522

 
$
4,755,287

 
$
4,616,084

 
$
4,215,841

 
 
LIABILITIES AND EQUITY:
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Secured debt
$
563,898

 
$
569,042

 
$
570,676

 
$
561,096

 
$
520,867

 
 
Exchangeable senior notes, net
167,236

 
166,119

 
165,022

 
163,944

 
162,885

 
 
Unsecured debt, net
1,431,048

 
1,430,964

 
1,430,880

 
1,130,895

 
1,130,814

 
 
Unsecured line of credit
—

 
—

 
—

 
185,000

 
27,000

 
 
Accounts payable, accrued expenses and other liabilities
210,111

 
184,821

 
171,694

 
154,734

 
127,472

 
 
Accrued distributions
31,479

 
29,236

 
29,106

 
28,924

 
28,845

 
 
Deferred revenue and acquisition-related intangible liabilities, net
102,991

 
117,301

 
118,118

 
117,904

 
120,407

 
 
Rents received in advance and tenant security deposits
41,668

 
39,660

 
37,251

 
37,654

 
31,728

 
 
Liabilities and deferred revenue of real estate assets held for sale
16,751

 
—

 
—

 
—

 
4,455

 
 
Total liabilities
2,565,182

 
2,537,143

 
2,522,747

 
2,380,151

 
2,154,473

 
 
Equity:
 
 
 
 
 
 
 
 
 
 
 
Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
6.875% Series G Cumulative Redeemable Preferred stock
96,155

 
96,155

 
96,155

 
96,155

 
96,155

 
 
6.375% Series H Cumulative Redeemable Preferred stock
96,256

 
96,256

 
96,256

 
96,256

 
96,256

 
 
Common stock
821

 
757

 
753

 
749

 
747

 
 
Additional paid-in capital
2,476,424

 
2,170,667

 
2,149,052

 
2,126,005

 
2,114,774

 
 
Distributions in excess of earnings
(201,048
)
 
(177,484
)
 
(157,211
)
 
(129,535
)
 
(288,765
)
 
 
Total stockholders’ equity
2,468,608

 
2,186,351

 
2,185,005

 
2,189,630

 
2,019,167

 
 
Noncontrolling Interests
 
 
 
 
 
 
 
 
 
 
 
Common units of the Operating Partnership
50,601

 
47,143

 
47,535

 
46,303

 
42,201

 
 
Noncontrolling interest in consolidated subsidiary
4,885

 
4,885

 
—

 
—

 
—

 
 
Total noncontrolling interests
55,486

 
52,028

 
47,535

 
46,303

 
42,201

 
 
Total equity
2,524,094

 
2,238,379

 
2,232,540

 
2,235,933

 
2,061,368

 
 
TOTAL LIABILITIES AND EQUITY
$
5,089,276

 
$
4,775,522

 
$
4,755,287

 
$
4,616,084

 
$
4,215,841

 
 
 
 
 
 
 
 
 
 
 
 
 


5
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Consolidated Statements of Operations
(unaudited, $ in thousands, except per share amounts)
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
 
2013
 
2012
 
2013
 
2012
 
 
REVENUES:
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
104,939

 
$
90,828

 
$
308,931

 
$
253,599

 
 
Tenant reimbursements
 
9,656

 
8,022

 
28,503

 
21,867

 
 
Other property income
 
1,102

 
135

 
7,062

 
961

 
 
Total revenues
 
115,697

 
98,985

 
344,496

 
276,427

 
 
EXPENSES:
 

 
 
 
 
 
 
 
 
Property expenses
 
25,123

 
21,016

 
71,728

 
55,531

 
 
Real estate taxes
 
10,295

 
8,746

 
29,707

 
23,668

 
 
Provision for bad debts
 
124

 
—

 
219

 
2

 
 
Ground leases
 
929

 
859

 
2,665

 
2,276

 
 
General and administrative expenses
 
10,226

 
8,727

 
29,750

 
26,745

 
 
Acquisition-related expenses
 
568

 
556

 
1,387

 
3,897

 
 
Depreciation and amortization
 
47,569

 
41,724

 
141,814

 
109,780

 
 
Total expenses
 
94,834

 
81,628

 
277,270

 
221,899

 
 
OTHER (EXPENSES) INCOME:
 
 
 
 
 
 
 
 
 
 
Interest income and other net investment gains
 
673

 
330

 
1,084

 
703

 
 
Interest expense
 
(18,853
)
 
(19,854
)
 
(58,021
)
 
(60,172
)
 
 
Total other (expenses) income
 
(18,180
)
 
(19,524
)
 
(56,937
)
 
(59,469
)
 
 
INCOME (LOSS) FROM CONTINUING OPERATIONS
 
2,683

 
(2,167
)
 
10,289

 
(4,941
)
 
 
DISCONTINUED OPERATIONS:
 
 
 
 
 
 
 
 
 
 
Income from discontinued operations (1)
 
6,344

 
4,689

 
10,806

 
15,603

 
 
Net gain on dispositions of discontinued operations
 
—

 
—

 
423

 
72,809

 
 
Total income from discontinued operations
 
6,344

 
4,689

 
11,229

 
88,412

 
 
NET INCOME
 
9,027

 
2,522

 
21,518

 
83,471

 
 
Net (income) loss attributable to noncontrolling common units of the Operating Partnership
 
(131
)
 
67

 
(266
)
 
(1,708
)
 
 
NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION
 
8,896

 
2,589

 
21,252

 
81,763

 
 
PREFERRED DISTRIBUTIONS AND DIVIDENDS:
 
 
 
 
 
 
 
 
 
 
Distributions on noncontrolling cumulative redeemable preferred units of the Operating Partnership
 
—

 
(747
)
 
—

 
(3,541
)
 
 
Preferred dividends
 
(3,312
)
 
(2,533
)
 
(9,938
)
 
(7,254
)
 
 
Original issuance costs of redeemed preferred stock
 
—

 
(2,062
)
 
—

 
(6,980
)
 
 
Total preferred distributions and dividends
 
(3,312
)
 
(5,342
)
 
(9,938
)
 
(17,775
)
 
 
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS
 
$
5,584

 
$
(2,753
)
 
$
11,314

 
$
63,988

 
 
Weighted average common shares outstanding - basic
 
76,769

 
71,889

 
75,751

 
67,975

 
 
Weighted average common shares outstanding - diluted
 
76,769

 
71,889

 
75,751

 
67,975

 
 
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS PER SHARE
 
 
 
 
 
 
 
 
 
 
Net income (loss) available to common stockholders per share - basic
 
$
0.07

 
$
(0.04
)
 
$
0.13

 
$
0.92

 
 
Net income (loss) available to common stockholders per share - diluted
 
$
0.07

 
$
(0.04
)
 
$
0.13

 
$
0.92

 
 
 
 
 
 
 
 
 
 
 
 
(1)
Income from discontinued operations for the three and nine months ended September 30, 2013 includes the receipt of a $3.7 million net cash settlement payment related to the default of a prior tenant at a property the Company sold in 2012.

6
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Funds From Operations and Funds Available for Distribution
(unaudited, $ in thousands, except per share amounts)
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
 
2013
 
2012
 
2013
 
2012
 
 
FUNDS FROM OPERATIONS: (1)
 
 
 
 
 
 
 
 
 
 
Net income (loss) available to common stockholders
 
$
5,584

 
$
(2,753
)
 
$
11,314

 
$
63,988

 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to noncontrolling common units of the Operating Partnership
 
131

 
(67
)
 
266

 
1,708

 
 
Depreciation and amortization of real estate assets
 
50,184

 
45,962

 
148,982

 
122,754

 
 
Net gain on dispositions of discontinued operations
 
—

 
—

 
(423
)
 
(72,809
)
 
 
Funds From Operations (2)(3)
 
$
55,899

 
$
43,142

 
$
160,139

 
$
115,641

 
 
Weighted average common shares/units outstanding - basic (4)
 
79,806

 
74,850

 
78,795

 
70,830

 
 
Weighted average common shares/units outstanding - diluted (4)
 
81,527

 
76,185

 
80,586

 
71,953

 
 
FFO per common share/unit - basic (2)
 
$
0.70

 
$
0.58

 
$
2.03

 
$
1.63

 
 
FFO per common share/unit - diluted (2)
 
$
0.69

 
$
0.57

 
$
1.99

 
$
1.61

 
 
FUNDS AVAILABLE FOR DISTRIBUTION: (1)
 
 
 
 
 
 
 
 
 
 
Funds From Operations (2)
 
$
55,899

 
$
43,142

 
$
160,139

 
$
115,641

 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
Tenant improvements, leasing commissions and recurring capital expenditures (5)
 
(24,684
)
 
(6,394
)
 
(58,163
)
 
(26,581
)
 
 
Amortization of deferred revenue related to tenant-funded tenant improvements (3)(6)
 
(2,626
)
 
(2,386
)
 
(7,585
)
 
(6,851
)
 
 
Net effect of straight-line rents
 
(6,103
)
 
(6,052
)
 
(18,188
)
 
(16,627
)
 
 
Amortization of other deferred revenue, net (7)
 
225

 
602

 
2,011

 
1,146

 
 
Amortization of net below market rents (8)
 
(1,938
)
 
(2,027
)
 
(6,015
)
 
(4,616
)
 
 
Noncash amortization of exchangeable debt discount, net (9)
 
691

 
781

 
2,124

 
3,069

 
 
Amortization of deferred financing costs and net debt discounts/(premiums)
 
260

 
513

 
690

 
2,579

 
 
Noncash amortization of share-based compensation awards
 
2,175

 
2,125

 
6,454

 
5,544

 
 
Original issuance costs of redeemed preferred stock
 
—

 
2,062

 
—

 
6,980

 
 
Funds Available for Distribution (1)
 
$
23,899

 
$
32,366

 
$
81,467

 
$
80,284

 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
See pages 28 and 29 for Management Statements on Funds From Operation and Funds Available for Distribution.
(2)
Reported amounts are attributable to common shareholders and unitholders.
(3)
FFO includes amortization of deferred revenue related to tenant-funded tenant improvements of $2.6 million and $2.4 million for the three months ended September 30, 2013 and 2012, respectively, and $7.6 million and $6.9 million for the nine months ended September 30, 2013 and 2012, respectively. These amounts are adjusted out of FFO in our calculation of FAD.
(4)
Calculated based on weighted average shares outstanding including participating share-based awards (i.e. nonvested stock and time based restricted stock units), dilutive impact of stock options and contingently issuable shares and assuming the exchange of all common limited partnership units outstanding.
(5)
In the current year the Company renewed several large leases that were scheduled to expire in 2014 and 2015 as part of its effort to manage its lease expiration profile. The early renewals have resulted in increased capital costs, including higher lease commissions and tenant improvement costs. In addition, an existing tenant that had received a significant improvement allowance as part of a prior year’s lease elected to start the capital project in the current year.
(6)
Represents revenue recognized during the period as a result of the amortization of deferred revenue recorded for tenant-funded tenant improvements.
(7)
Represents amortization of deferred revenue related to cash received prior to or during the revenue recognition period in connection with tenants’ contractual lease obligations, net of such amounts received.
(8)
Represents the non-cash adjustment related to the acquisition of buildings with above and/or below market rents.
(9)
Represents the amortization of the noncash debt discounts on the Company’s exchangeable senior notes, net of amounts capitalized.

7
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Same Store Analysis (1) 
(unaudited, $ in thousands)
Same Store Analysis (GAAP Basis) (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
 
2013
 
2012
 
% Change
 
2013
 
2012
 
% Change
 
 
Total Same Store Portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of properties
 
84

 
84

 
 
 
84

 
84

 
 
 
 
Square Feet
 
9,938,826

 
9,938,826

 
 
 
9,938,826

 
9,938,826

 
 
 
 
Percent of Stabilized Portfolio
 
79.3
%
 
78.8
%
 
 
 
79.3
%
 
78.8
%
 
 
 
 
Average Occupancy
 
91.7
%
 
93.2
%
 
 
 
91.8
%
 
93.2
%
 
 
 
 
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
80,036

 
$
77,837

 
2.8
 %
 
$
237,518

 
$
233,353

 
1.8
 %
 
 
Tenant reimbursements
 
6,890

 
6,346

 
8.6
 %
 
20,552

 
18,992

 
8.2
 %
 
 
Other property income (3)
 
735

 
111

 
562.2
 %
 
6,376

 
703

 
807.0
 %
 
 
Total operating revenues
 
87,661

 
84,294

 
4.0
 %
 
264,446

 
253,048

 
4.5
 %
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property expenses
 
20,068

 
17,811

 
12.7
 %
 
56,159

 
50,464

 
11.3
 %
 
 
Real estate taxes
 
7,543

 
7,174

 
5.1
 %
 
22,056

 
20,924

 
5.4
 %
 
 
Provision for bad debts
 
129

 
—

 
—
 %
 
224

 
2

 
11,100.0
 %
 
 
Ground leases
 
396

 
417

 
(5.0
)%
 
1,231

 
1,252

 
(1.7
)%
 
 
Total operating expenses
 
28,136

 
25,402

 
10.8
 %
 
79,670

 
72,642

 
9.7
 %
 
 
GAAP Net Operating Income
 
$
59,525

 
$
58,892

 
1.1
 %
 
$
184,776

 
$
180,406

 
2.4
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Store Analysis (Cash Basis) (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
 
2013
 
2012
 
% Change
 
2013
 
2012
 
% Change
 
 
Total operating revenues
 
$
82,582

 
$
79,009

 
4.5
 %
 
$
250,907

 
$
234,396

 
7.0
 %
 
 
Total operating expenses
 
28,022

 
25,402

 
10.3
 %
 
79,494

 
72,640

 
9.4
 %
 
 
Cash Net Operating Income
 
$
54,560

 
$
53,607

 
1.8
 %
 
$
171,413

 
$
161,756

 
6.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Same store is defined as all properties owned and included in our stabilized portfolio as of January 1, 2012 and still owned and included in the stabilized portfolio as of September 30, 2013. Same store excludes properties held for sale at September 30, 2013. Additionally, amounts presented do not include the receipt of a $3.7 million net cash settlement payment related to the default of a prior tenant at a property the Company sold in 2012.
(2)
Please refer to page 32 for a reconciliation of the Same Store measures on this page to Net Income (Loss) Available to Common Stockholders.
(3)
Other property income for the nine months ended September 30, 2013 includes a $5.2 million cash receipt related to a property damage settlement.


8
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Stabilized Portfolio Occupancy Overview by Region
 
 
 
 
 
Portfolio Breakdown
 
 
 
Occupied at
 
Leased at
 
 
 
Buildings (1)
 
YTD NOI % (1)
 
SF % (1)
 
Total SF (1)
 
9/30/2013 (1)
 
6/30/2013
 
9/30/2013 (1)
 
 
Los Angeles and Ventura Counties
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
101 Corridor
4

 
1.7
%
 
2.4
%
 
295,712

 
93.3
%
 
90.7
%
 
94.1
%
 
 
El Segundo
5

 
8.5
%
 
8.7
%
 
1,090,525

 
99.6
%
 
97.8
%
 
99.6
%
 
 
Hollywood
1

 
2.0
%
 
2.6
%
 
321,883

 
82.9
%
 
79.9
%
 
86.3
%
 
 
Long Beach
6

 
5.0
%
 
6.8
%
 
850,822

 
96.4
%
 
96.0
%
 
96.7
%
 
 
West Los Angeles
10

 
6.6
%
 
6.7
%
 
838,731

 
85.7
%
 
85.0
%
 
86.1
%
 
 
Total Los Angeles and Ventura Counties
26

 
23.8
%
 
27.2
%
 
3,397,673

 
93.2
%
 
91.9
%
 
93.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Orange County
3

 
3.1
%
 
3.5
%
 
437,603

 
93.3
%
 
89.3
%
 
94.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
San Diego County
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Del Mar
17

 
16.5
%
 
13.9
%
 
1,742,852

 
92.8
%
 
88.7
%
 
93.8
%
 
 
I-15 Corridor
5

 
5.1
%
 
4.3
%
 
540,851

 
82.2
%
 
75.6
%
 
94.1
%
 
 
Mission Valley
4

 
1.3
%
 
2.3
%
 
285,409

 
93.5
%
 
77.0
%
 
95.5
%
 
 
Point Loma
1

 
1.0
%
 
0.8
%
 
103,900

 
100.0
%
 
100.0
%
 
100.0
%
 
 
Sorrento Mesa
16

 
8.6
%
 
10.4
%
 
1,303,583

 
89.7
%
 
95.3
%
 
92.8
%
 
 
University Towne Center
5

 
1.7
%
 
3.1
%
 
387,933

 
79.6
%
 
81.1
%
 
79.6
%
 
 
Total San Diego County
48

 
34.2
%
 
34.8
%
 
4,364,528

 
89.6
%
 
87.6
%
 
92.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
San Francisco Bay Area
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Menlo Park
7

 
3.5
%
 
3.0
%
 
374,139

 
85.0
%
 
83.4
%
 
86.2
%
 
 
San Francisco
5

 
15.9
%
 
13.6
%
 
1,708,868

 
93.6
%
 
92.8
%
 
94.6
%
 
 
San Rafael
1

 
0.8
%
 
1.0
%
 
130,237

 
98.1
%
 
98.1
%
 
98.1
%
 
 
Sunnyvale
1

 
0.5
%
 
0.6
%
 
75,810

 
100.0
%
 
100.0
%
 
100.0
%
 
 
Total San Francisco Bay Area
14

 
20.7
%
 
18.2
%
 
2,289,054

 
92.7
%
 
91.8
%
 
93.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Greater Seattle
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bellevue
2

 
7.5
%
 
7.2
%
 
905,225

 
89.9
%
 
90.8
%
 
92.0
%
 
 
Kirkland
4

 
2.3
%
 
2.2
%
 
279,924

 
97.3
%
 
99.3
%
 
97.3
%
 
 
Lake Union
5

 
7.4
%
 
5.9
%
 
740,385

 
100.0
%
 
99.7
%
 
100.0
%
 
 
Redmond
1

 
1.0
%
 
1.0
%
 
122,103

 
100.0
%
 
100.0
%
 
100.0
%
 
 
Total Greater Seattle
12

 
18.2
%
 
16.3
%
 
2,047,637

 
95.2
%
 
95.7
%
 
96.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL STABILIZED PORTFOLIO
103

 
100.0
%
 
100.0
%
 
12,536,495

 
92.2
%
 
90.7
%
 
93.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Occupancy
Quarter-to-Date
 
Year-to-Date
91.4%
 
90.9%
(1)
Excludes properties held for sale at September 30, 2013. See page 21, “2013 Dispositions and Properties Held for Sale.”

9
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Stabilized Portfolio Occupancy Overview by Region, continued
 
 
 
 
Submarket
 
Square Feet
 
Occupied
 
Los Angeles and Ventura, California
 
 
 
 
 
 
 
 
23925 Park Sorrento
 
101 Corridor
 
11,789

 
100.0
%
 
 
23975 Park Sorrento
 
101 Corridor
 
100,592

 
94.3
%
 
 
24025 Park Sorrento
 
101 Corridor
 
102,264

 
90.3
%
 
 
2829 Townsgate Road
 
101 Corridor
 
81,067

 
94.7
%
 
 
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. Sepulveda Boulevard
 
El Segundo
 
241,607

 
99.1
%
 
 
999 N. Sepulveda Boulevard
 
El Segundo
 
128,592

 
98.2
%
 
 
6255 W. Sunset Blvd.
 
Hollywood
 
321,883

 
82.9
%
 
 
3750 Kilroy Airport Way
 
Long Beach
 
10,457

 
86.1
%
 
 
3760 Kilroy Airport Way
 
Long Beach
 
165,278

 
100.0
%
 
 
3780 Kilroy Airport Way
 
Long Beach
 
219,745

 
92.2
%
 
 
3800 Kilroy Airport Way
 
Long Beach
 
192,476

 
98.5
%
 
 
3840 Kilroy Airport Way
 
Long Beach
 
136,026

 
100.0
%
 
 
3900 Kilroy Airport Way
 
Long Beach
 
126,840

 
93.0
%
 
 
12100 W. Olympic Boulevard
 
West Los Angeles
 
150,167

 
94.4
%
 
 
12200 W. Olympic Boulevard
 
West Los Angeles
 
150,302

 
95.3
%
 
 
12233 W. Olympic Boulevard
 
West Los Angeles
 
151,029

 
93.4
%
 
 
12312 W. Olympic Boulevard
 
West Los Angeles
 
78,000

 
0.0
%
 
 
1633 26th Street
 
West Los Angeles
 
44,915

 
100.0
%
 
 
2100/2110 Colorado Avenue
 
West Los Angeles
 
102,864

 
100.0
%
 
 
3130 Wilshire Boulevard
 
West Los Angeles
 
88,339

 
93.8
%
 
 
501 Santa Monica Boulevard
 
West Los Angeles
 
73,115

 
84.3
%
 
 
Total Los Angeles and Ventura Counties
 
 
 
3,397,673

 
93.2
%
 
 
 
 
 
  
 
 
 
 
Orange County, California
 
 
 
 
 
 
 
 
2211 Michelson Drive
 
Irvine
 
271,556

 
92.6
%
 
 
111 Pacifica
 
Irvine Spectrum
 
67,496

 
86.4
%
 
 
999 Town & Country
 
Orange
 
98,551

 
100.0
%
 
 
Total Orange County
 
 
 
437,603

 
93.3
%
 
 
 
 
 
 
 
 
 
 
.

10
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Stabilized Portfolio Occupancy Overview by Region, continued
  
 
 
 
Submarket
 
Square Feet
 
Occupied
 
San Diego, California
 
 
 
 
 
 
 
 
12225 El Camino Real
 
Del Mar
 
58,401

 
100.0
%
 
 
12235 El Camino Real
 
Del Mar
 
54,673

 
81.0
%
 
 
12340 El Camino Real
 
Del Mar
 
87,405

 
86.9
%
 
 
12390 El Camino Real
 
Del Mar
 
72,332

 
100.0
%
 
 
12348 High Bluff Drive
 
Del Mar
 
38,710

 
41.7
%
 
 
12400 High Bluff Drive
 
Del Mar
 
208,464

 
100.0
%
 
 
3579 Valley Center Drive
 
Del Mar
 
51,167

 
92.7
%
 
 
3611 Valley Center Drive
 
Del Mar
 
130,349

 
85.5
%
 
 
3661 Valley Center Drive
 
Del Mar
 
129,752

 
72.5
%
 
 
3721 Valley Center Drive
 
Del Mar
 
114,780

 
79.9
%
 
 
3811 Valley Center Drive
 
Del Mar
 
112,067

 
100.0
%
 
 
7525 Torrey Santa Fe
 
Del Mar
 
103,979

 
100.0
%
 
 
7535 Torrey Santa Fe
 
Del Mar
 
130,243

 
100.0
%
 
 
7545 Torrey Santa Fe
 
Del Mar
 
130,354

 
100.0
%
 
 
7555 Torrey Santa Fe
 
Del Mar
 
101,236

 
100.0
%
 
 
12780 El Camino Real
 
Del Mar
 
140,591

 
100.0
%
 
 
12790 El Camino Real
 
Del Mar
 
78,349

 
100.0
%
 
 
13280 Evening Creek Drive South
 
I-15 Corridor
 
41,197

 
25.9
%
 
 
13290 Evening Creek Drive South
 
I-15 Corridor
 
61,176

 
0.0
%
 
 
13480 Evening Creek Drive North
 
I-15 Corridor
 
149,817

 
100.0
%
 
 
13500 Evening Creek Drive North
 
I-15 Corridor
 
147,533

 
100.0
%
 
 
13520 Evening Creek Drive North
 
I-15 Corridor
 
141,128

 
96.6
%
 
 
2355 Northside Drive
 
Mission Valley
 
53,610

 
87.4
%
 
 
2365 Northside Drive
 
Mission Valley
 
91,260

 
97.8
%
 
 
2375 Northside Drive
 
Mission Valley
 
51,516

 
91.9
%
 
 
2385 Northside Drive
 
Mission Valley
 
89,023

 
93.5
%
 

11
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Stabilized Portfolio Occupancy Overview by Region, continued
 
 
 
 
Submarket
 
Square Feet
 
Occupied
 
San Diego, California (Continued)
 
 
 
 
 
 
 
 
2305 Historic Decatur Road
 
Point Loma
 
103,900

 
100.0
%
 
 
4921 Directors Place
 
Sorrento Mesa
 
56,136

 
100.0
%
 
 
4939 Directors Place
 
Sorrento Mesa
 
60,662

 
100.0
%
 
 
4955 Directors Place
 
Sorrento Mesa
 
76,246

 
100.0
%
 
 
10770 Wateridge Circle
 
Sorrento Mesa
 
174,310

 
97.5
%
 
 
6260 Sequence Drive
 
Sorrento Mesa
 
130,536

 
0.0
%
 
 
6290 Sequence Drive
 
Sorrento Mesa
 
90,000

 
100.0
%
 
 
6310 Sequence Drive
 
Sorrento Mesa
 
62,415

 
100.0
%
 
 
6340 Sequence Drive
 
Sorrento Mesa
 
66,400

 
100.0
%
 
 
6350 Sequence Drive
 
Sorrento Mesa
 
132,600

 
100.0
%
 
 
10390 Pacific Center Court
 
Sorrento Mesa
 
68,400

 
100.0
%
 
 
10394 Pacific Center Court
 
Sorrento Mesa
 
59,630

 
100.0
%
 
 
10398 Pacific Center Court
 
Sorrento Mesa
 
43,645

 
100.0
%
 
 
10421 Pacific Center Court
 
Sorrento Mesa
 
75,899

 
100.0
%
 
 
10445 Pacific Center Court
 
Sorrento Mesa
 
48,709

 
100.0
%
 
 
10455 Pacific Center Court
 
Sorrento Mesa
 
90,000

 
100.0
%
 
 
5717 Pacific Center Boulevard
 
Sorrento Mesa
 
67,995

 
100.0
%
 
 
4690 Executive Drive
 
University Towne Center
 
47,212

 
88.3
%
 
 
6200 Greenwich Drive
 
University Towne Center
 
73,507

 
0.0
%
 
 
6220 Greenwich Drive
 
University Towne Center
 
141,214

 
100.0
%
 
 
9785 Towne Center Drive
 
University Towne Center
 
75,534

 
100.0
%
 
 
9791 Towne Center Drive
 
University Towne Center
 
50,466

 
100.0
%
 
 
Total San Diego County
 
 
 
4,364,528

 
89.6
%
 
 
 
 
 
 
 
 
 
 

12
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Stabilized Portfolio Occupancy Overview by Region, continued
 
 
 
 
Submarket
 
Square Feet
 
Occupancy
 
San Francisco Bay Area, California
 
 
 
 
 
 
 
 
4100 Bohannon Drive
 
Menlo Park
 
46,614

 
100.0
%
 
 
4200 Bohannon Drive
 
Menlo Park
 
46,255

 
85.5
%
 
 
4300 Bohannon Drive
 
Menlo Park
 
62,920

 
48.4
%
 
 
4400 Bohannon Drive
 
Menlo Park
 
46,255

 
91.8
%
 
 
4500 Bohannon Drive
 
Menlo Park
 
62,920

 
100.0
%
 
 
4600 Bohannon Drive
 
Menlo Park
 
46,255

 
71.2
%
 
 
4700 Bohannon Drive
 
Menlo Park
 
62,920

 
100.0
%
 
 
303 Second Street
 
San Francisco
 
740,047

 
88.9
%
 
 
100 First Street
 
San Francisco
 
466,490

 
96.7
%
 
 
250 Brannan Street
 
San Francisco
 
95,008

 
100.0
%
 
 
201 Third Street
 
San Francisco
 
332,893

 
96.6
%
 
 
301 Brannan Street
 
San Francisco
 
74,430

 
100.0
%
 
 
4040 Civic Center
 
San Rafael
 
130,237

 
98.1
%
 
 
599 Mathilda
 
Sunnyvale
 
75,810

 
100.0
%
 
 
Total San Francisco Bay Area
 
 
 
2,289,054

 
92.7
%
 
 
 
 
 
 
 
 
 
 
Greater Seattle, Washington
 
 
 
 
 
 
 
 
601 108th Avenue NE
 
Bellevue
 
488,470

 
93.9
%
 
 
10900 NE 4th Street
 
Bellevue
 
416,755

 
85.3
%
 
 
10220 NE Points Drive
 
Kirkland
 
49,851

 
96.3
%
 
 
10230 NE Points Drive
 
Kirkland
 
98,982

 
94.2
%
 
 
10210 NE Points Drive
 
Kirkland
 
84,641

 
100.0
%
 
 
3933 Lake Washington Blvd NE
 
Kirkland
 
46,450

 
100.0
%
 
 
837 N. 34th Street
 
Lake Union
 
111,580

 
100.0
%
 
 
701 N. 34th Street
 
Lake Union
 
138,995

 
100.0
%
 
 
801 N. 34th Street
 
Lake Union
 
169,412

 
100.0
%
 
 
320 Westlake Terry Ave. N.
 
Lake Union
 
184,643

 
100.0
%
 
 
321 Terry Ave. N.
 
Lake Union
 
135,755

 
100.0
%
 
 
15050 NE 36th Street
 
Redmond
 
122,103

 
100.0
%
 
 
  Total Greater Seattle, Washington
 
 
 
2,047,637

 
95.2
%
 
 
 
 
 
 
 
 
 
 
 
TOTAL
 
 
 
12,536,495

 
92.2
%
 
 
 
 
 
 
 
 
 
 

13
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Information on Leases Commenced (1) 
 
 
 
1st & 2nd Generation
 
2nd Generation
 
 
 
# of Leases  (2)
 
Square Feet (2)
 
TI/LC
Per Sq.Ft. 
 
Changes in
Rents
 
Changes in
Cash Rents
 
Retention
Rates
 
Weighted
Average Lease
Term (Mo.)
 
 
 
New
 
Renewal
 
New
 
Renewal
 
 
 
 
 
 
 
Quarter-to-Date
34

 
27

 
358,367

 
269,354

 
$
45.76

 
24.8
%
 
5.2
%
 
58.3
%
 
84

 
 
Year-to-Date
76

 
66

 
736,934

 
855,596

 
36.53

 
19.7
%
 
8.9
%
 
52.1
%
 
72

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Information on Leases Executed (1) 
 
 
 
1st & 2nd Generation
 
2nd Generation
 
 
 
# of Leases (3)
 
Square Feet (3)
 
TI/LC
Per Sq.Ft.
 
Changes in
Rents
 
Changes in
Cash Rents
 
Weighted
Average Lease
Term (Mo.)
 
 
 
New
 
Renewal
 
New
 
Renewal
 
 
 
 
 
 
Quarter to Date (4)
36

 
27

 
240,497

 
269,354

 
$
32.84

 
21.4
%
 
6.7
%
 
69

 
 
Year to Date (5)
89

 
60

 
675,753

 
793,902

 
26.59

 
18.1
%
 
9.8
%
 
60

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Includes leases commenced and executed for properties held for sale at September 30, 2013.
(2)
Represents leasing activity for leases that commenced during the three and nine months ended September 30, 2013, including first and second generation space, net of month-to-month leases.
(3)
Represents leasing activity for leases signed during the three and nine months ended September 30, 2013, including first and second generation space, net of month-to-month leases.
(4)
During the three months ended September 30, 2013, 17 new leases totaling 134,000 square feet were signed but not commenced as of September 30, 2013.
(5)
During the nine months ended September 30, 2013, 26 new leases totaling 331,000 square feet were signed but not commenced as of September 30, 2013.




14
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Stabilized Portfolio Capital Expenditures (1) 
($ in thousands)
 
 
 
Q1 2013
 
Q2 2013
 
Q3 2013
 
Total 2013
 
 
1st Generation (Nonrecurring) Capital Expenditures:
 
 
 
 
 
 
 
 
 
 
Capital Improvements
 
$
6,983

 
$
12,580

 
$
8,816

 
$
28,379

 
 
 
 
 
 
 
 
 
 
 
 
 
Tenant Improvements & Leasing Commissions (2)
 
1,229

 
2,084

 
9

 
3,322

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
$
8,212

 
$
14,664

 
$
8,825

 
$
31,701

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q1 2013
 
Q2 2013
 
Q3 2013
 
Total 2013
 
 
2nd Generation (Recurring) Capital Expenditures:
 
 
 
 
 
 
 
 
 
 
Capital Improvements
 
$
1,773

 
$
2,169

 
$
2,599

 
$
6,541

 
 
 
 
 
 
 
 
 
 
 
 
 
Tenant Improvements & Leasing Commissions (2)
 
12,677

 
16,860

 
22,085

 
51,622

 
 
 
 
 
 
 
 
 
 
 
 
 
Total (3)
 
$
14,450

 
$
19,029

 
$
24,684

 
$
58,163

 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Reported amounts include expenditures for the properties held for sale as of September 30, 2013.
(2)
Represents costs incurred for leasing activity during the periods shown. Amounts exclude tenant-funded tenant improvements.
(3)
In the current year the Company renewed several large leases that were scheduled to expire in 2014 and 2015 as part of its effort to manage its lease expiration profile. The early renewals have resulted in increased capital costs, including higher lease commissions and tenant improvement costs. In addition, an existing tenant that had received a significant improvement allowance as part of a prior year’s lease elected to start the capital project in the current year.


15
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Stabilized Portfolio Lease Expiration Summary Schedule (1) 
($ in thousands, except for annualized rent per sq. ft.)
 
Year of Expiration
 
# of Expiring
Leases
 
Total Square
Feet
 
% of Total
Leased Sq. Ft.
 
Annualized
Base Rent
 
% of Total
Annualized
Base Rent
 
Annualized Rent
per Sq. Ft.
 
 
2013
 
15

 
44,269

 
0.4
%
 
$
1,690

 
0.5
%
 
$
38.17

 
 
2014
 
106

 
1,142,743

 
10.1
%
 
32,193

 
8.6
%
 
28.17

 
 
2015
 
107

 
1,710,566

 
15.1
%
 
50,029

 
13.4
%
 
29.25

 
 
2016
 
82

 
841,732

 
7.4
%
 
23,143

 
6.2
%
 
27.49

 
 
2017
 
88

 
1,692,186

 
15.0
%
 
55,074

 
14.8
%
 
32.55

 
 
2018
 
53

 
1,521,971

 
13.5
%
 
62,368

 
16.8
%
 
40.98

 
 
2019
 
40

 
1,167,205

 
10.3
%
 
42,501

 
11.4
%
 
36.41

 
 
2020
 
32

 
1,312,859

 
11.6
%
 
38,545

 
10.4
%
 
29.36

 
 
2021
 
11

 
338,060

 
3.0
%
 
13,041

 
3.5
%
 
38.58

 
 
2022
 
11

 
258,519

 
2.3
%
 
8,753

 
2.3
%
 
33.86

 
 
2023 and beyond
 
21

 
1,276,994

 
11.3
%
 
44,950

 
12.1
%
 
35.20

 
 
Total (2)
 
566

 
11,307,104

 
100.0
%
 
$
372,287

 
100.0
%
 
$
32.93

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Excludes lease expirations for properties held for sale at September 30, 2013.
(2)
The information presented for all lease expiration activity reflects leasing activity through September 30, 2013 for our stabilized portfolio. For leases that have been renewed early or space that has been re-leased to a new tenant, the expiration date and annualized base rent information presented takes into consideration the renewed or re-leased lease terms. Excludes space leased under month-to-month leases, vacant space, and lease renewal options not executed as of September 30, 2013.


16
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Stabilized Portfolio Lease Expiration Schedule by Region
($ in thousands, except for annualized rent per sq. ft.)
 
Year
 
Region
 
# of
Expirations
 
Total
Square Feet
 
% of Total
Leased Sq. Ft.
 
Annualized
Base Rent
 
% of Total
Annualized
Base Rent
 
Annualized Rent
per Sq. Ft.
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
Los Angeles
 
14

 
39,793

 
0.4
%
 
$
1,598

 
0.5
%
 
$
40.16

 
 
2013
 
Orange County
 
1

 
4,476

 
 
 
92

 
 
 
20.55

 
 
 
 
Total
 
15

 
44,269

 
0.4
%
 
$
1,690

 
0.5
%
 
$
38.17

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Los Angeles
 
61

 
372,534

 
3.3
%
 
$
11,630

 
3.1
%
 
$
31.22

 
 
 
 
Orange County
 
7

 
33,206

 
0.3
%
 
894

 
0.3
%
 
26.92

 
 
2014
 
San Diego
 
14

 
472,164

 
4.1
%
 
10,486

 
2.8
%
 
22.21

 
 
 
 
San Francisco Bay Area
 
14

 
167,048

 
1.5
%
 
6,120

 
1.6
%
 
36.64

 
 
 
 
Greater Seattle
 
10

 
97,791

 
0.9
%
 
3,063

 
0.8
%
 
31.32

 
 
 
 
Total
 
106

 
1,142,743

 
10.1
%
 
$
32,193

 
8.6
%
 
$
28.17

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Los Angeles
 
46

 
425,597

 
3.8
%
 
$
12,980

 
3.5
%
 
$
30.50

 
 
 
 
Orange County
 
7

 
37,630

 
0.3
%
 
1,033

 
0.3
%
 
27.45

 
 
2015
 
San Diego
 
23

 
459,312

 
4.0
%
 
11,625

 
3.0
%
 
25.31

 
 
 
 
San Francisco Bay Area
 
15

 
360,226

 
3.2
%
 
12,897

 
3.5
%
 
35.80

 
 
 
 
Greater Seattle
 
16

 
427,801

 
3.8
%
 
11,494

 
3.1
%
 
26.87

 
 
 
 
Total
 
107

 
1,710,566

 
15.1
%
 
$
50,029

 
13.4
%
 
$
29.25

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Los Angeles
 
41

 
264,142

 
2.3
%
 
$
8,810

 
2.4
%
 
$
33.35

 
 
 
 
Orange County
 
6

 
38,169

 
0.3
%
 
1,192

 
0.3
%
 
31.23

 
 
2016
 
San Diego
 
18

 
335,545

 
3.0
%
 
6,912

 
1.9
%
 
20.60

 
 

 
San Francisco Bay Area
 
6

 
70,454

 
0.6
%
 
3,052

 
0.8
%
 
43.32

 
 

 
Greater Seattle
 
11

 
133,422

 
1.2
%
 
3,177

 
0.8
%
 
23.81

 
 

 
Total
 
82

 
841,732

 
7.4
%
 
$
23,143

 
6.2
%
 
$
27.49

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Los Angeles
 
39

 
396,060

 
3.5
%
 
$
12,413

 
3.3
%
 
$
31.34

 
 
 
 
Orange County
 
10

 
86,675

 
0.8
%
 
3,198

 
0.9
%
 
36.90

 
 
2017
 
San Diego
 
14

 
691,154

 
6.1
%
 
21,999

 
5.9
%
 
31.83

 
 

 
San Francisco Bay Area
 
13

 
206,825

 
1.8
%
 
8,525

 
2.3
%
 
41.22

 
 

 
Greater Seattle
 
12

 
311,472

 
2.8
%
 
8,939

 
2.4
%
 
28.70

 
 

 
Total
 
88

 
1,692,186

 
15.0
%
 
$
55,074

 
14.8
%
 
$
32.55

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
Los Angeles
 
54

 
1,502,013

 
13.3
%
 
$
51,367

 
13.8
%
 
$
34.20

 
 
2018
 
Orange County
 
8

 
200,818

 
1.8
%
 
6,995

 
1.9
%
 
34.83

 
 
and
 
San Diego
 
32

 
1,935,502

 
17.2
%
 
69,434

 
18.7
%
 
35.87

 
 
Beyond
 
San Francisco Bay Area
 
35

 
1,271,654

 
11.2
%
 
52,963

 
14.2
%
 
41.65

 
 
 
 
Greater Seattle
 
39

 
965,621

 
8.5
%
 
29,399

 
7.9
%
 
30.45

 
 
 
 
Total
 
168

 
5,875,608

 
52.0
%
 
$
210,158

 
56.5
%
 
$
35.77

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

17
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Stabilized Portfolio Quarterly Lease Expirations for 2013 and 2014
($ in thousands, except for annualized rent per sq. ft.)
 
 
 
# of Expiring
Leases
 
Total Square
Feet
 
% of Total
Leased Sq. Ft.
 
Annualized
Base Rent
 
% of Total
Annualized
Base Rent
 
Annualized Rent
per Sq. Ft.
 
 
2013:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q4 2013
 
15

 
44,269

 
0.4
%
 
$
1,690

 
0.5
%
 
$
38.17

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Total 2013
 
15

 
44,269

 
0.4
%
 
1,690

 
0.5
%
 
38.17

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2014:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q1 2014
 
24

 
360,880

 
3.2
%
 
8,339

 
2.2
%
 
23.11

 
 
Q2 2014
 
17

 
154,260

 
1.4
%
 
4,315

 
1.2
%
 
27.97

 
 
Q3 2014
 
27

 
334,835

 
3.0
%
 
9,267

 
2.5
%
 
27.68

 
 
Q4 2014
 
38

 
292,768

 
2.5
%
 
10,272

 
2.7
%
 
35.09

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total 2014
 
106

 
1,142,743

 
10.1
%
 
$
32,193

 
8.6
%
 
$
28.17

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


18
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Top Fifteen Tenants (1)(2)
($ in thousands)  
 
Tenant Name
 
Annualized Base Rental Revenue
 
Rentable
Square Feet
 
Percentage of
Total Annualized Base Rental Revenue
 
Percentage of
Total Rentable
Square Feet
 
 
DIRECTV, LLC
 
$
23,683

 
663,262

 
6.4
%
 
5.3
%
 
 
Bridgepoint Education, Inc.
 
15,066

 
322,994

 
4.1
%
 
2.6
%
 
 
Intuit, Inc.
 
13,489

 
465,812

 
3.6
%
 
3.7
%
 
 
Delta Dental of California
 
10,960

 
217,629

 
2.9
%
 
1.7
%
 
 
AMN Healthcare, Inc.
 
8,341

 
175,672

 
2.2
%
 
1.4
%
 
 
Group Health Cooperative
 
6,372

 
183,422

 
1.7
%
 
1.5
%
 
 
Microsoft Corporation
 
6,256

 
215,997

 
1.7
%
 
1.7
%
 
 
Fish & Richardson P.C.
 
6,071

 
139,538

 
1.6
%
 
1.1
%
 
 
Splunk, Inc.
 
5,413

 
95,008

 
1.5
%
 
0.8
%
 
 
Wells Fargo (3)
 
5,302

 
127,014

 
1.4
%
 
1.0
%
 
 
Scripps Health
 
5,199

 
112,067

 
1.4
%
 
0.9
%
 
 
BP Biofuels
 
5,158

 
136,908

 
1.4
%
 
1.1
%
 
 
Lucile Salter Packard Children's Hospital at Stanford
 
5,111

 
137,807

 
1.4
%
 
1.1
%
 
 
Adobe Systems, Inc.
 
4,989

 
189,131

 
1.3
%
 
1.5
%
 
 
Epson America, Inc.
 
4,915

 
136,026

 
1.3
%
 
1.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Top Fifteen Tenants
 
$
126,325

 
3,318,287

 
33.9
%
 
26.5
%
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
The information presented is as of September 30, 2013.
(2)
Excludes tenants from properties held for sale at September 30, 2013.
(3)
The Company has entered into leases with various affiliates of the tenant.



19
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


2013 Operating Property Acquisitions
($ in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property
 
Submarket
 
Month of
Acquisition
 
Number of Buildings
 
Rentable
Square Feet
 
Purchase
Price
 
 
1st Quarter
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
320 Westlake Ave. N. and 321 Terry Ave. N., Seattle, WA
 
Lake Union
 
January
 
2

 
320,398

 
$
170.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2nd Quarter
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
None
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3rd Quarter
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
12780 and 12790 El Camino Real, San Diego, CA
 
Del Mar
 
September
 
2

 
218,940

 
126.4

(1) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL
 
 
 
 
 
4

 
539,338

 
$
296.4

 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
The $126.4 million purchase price includes $9.4 million for 4.2 acres of undeveloped land the Company acquired in connection with this acquisition. For more information about the undeveloped land please refer to the Heights of Del Mar project on page 23 “In-Process and Future Development Pipeline.”


20
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


2013 Dispositions and Properties Held for Sale
($ in millions)
 
 
 
 
COMPLETED DISPOSITIONS
 
 
 
 
 
 
 
 
 
 
 
 
Property
 
Submarket
 
Month of
Disposition
 
No. of Buildings
 
Rentable
Square Feet
 
Sales
Price (1)
 
 
1st Quarter
 
 
 
 
 
 
 
 
 
 
 
 
None
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2nd Quarter
 
 
 
 
 
 
 
 
 
 
 
 
26541 Agoura Road, Calabasas, CA
 
101 Corridor
 
June
 
1

 
90,156

 
$
14.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3rd Quarter
 
 
 
 
 
 
 
 
 
 
 
 
None
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL DISPOSITIONS
 
 
 
 
 
1

 
90,156

 
$
14.7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Represents gross sales price before the impact of commissions and closing costs.

 
 
 
PROPERTIES HELD FOR SALE AS OF SEPTEMBER 30, 2013
 
 
 
 
 
 
 
 
Property
 
Submarket
 
No. of
Buildings
 
Rentable
Square Feet
 
 
San Diego Properties, San Diego, CA (1)
 
I-15 Corridor/Sorrento Mesa
 
13

 
1,099,395

 
 
8101 Kaiser Boulevard, Anaheim, CA (2)
 
Anaheim
 
1

 
59,790

 
 
 
 
 
 
 
 
 
 
 
TOTAL PROPERTIES HELD FOR SALE
 
 
 
14

 
1,159,185

 
 
 
 
 
 
 
 
 
 
________________________
(1)
The San Diego Properties included the following: 4910 Directors Place, 10020 Pacific Mesa Boulevard, 6055 Lusk Avenue, 5010 and 5005 Wateridge Vista Drive, 15435 and 15445 Innovation Drive, and 15051, 15073, 15231, 15253, 15333 and 15378 Avenue of Science.
(2)
The Company disposed of this property on October 2, 2013. The sales price was $9.6 million before the impact of commissions and closing costs.


21
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


In-Process Redevelopment Projects and Other Land Holdings
($ in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Estimated Construction Period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
In-Process Redevelopment Projects
 
Location
 
Start Date
 
Compl. Date
 
Estimated Stabilization
Date
 
Estimated Rentable
Square Feet
 
Existing Investment (1)
 
Estimated Redevelopment Costs
 
Total Estimated Investment
 
Total Costs as of 9/30/2013 (2)
 
% Leased
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PROJECTS IN LEASE-UP:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3880 Kilroy Airport Way (3)
 
Long Beach
 
3Q 2011
 
4Q 2012
 
4Q 2013
 
98,000

 
$
6.3

 
$
13.8

 
$
20.1

 
$
16.5

 
50%
360 Third Street (4)(5)
 
 San Francisco
 
4Q 2011
 
1Q 2013
 
1Q 2014
 
410,000

 
88.5

 
97.3

 
185.8

 
146.5

 
85%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL IN-PROCESS REDEVELOPMENT PROJECTS:
 
 
 
 
 
508,000

 
$
94.8

 
$
111.1

 
$
205.9

 
$
163.0

 
78%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Land Holdings
 
Gross Site
 
Estimated Rentable
 
Total Costs as of
 
 
 
 
 
 
 
 
 
 
 
 
Project
 
Acreage
 
Square Feet
 
9/30/2013 (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
IRVINE, CALIFORNIA
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
17150 Von Karman
 
8.5
 
N/A
 
$
8.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Represents the depreciated carrying value at the commencement of redevelopment for the space being redeveloped.
(2)
Represents cash paid and costs incurred as of September 30, 2013. Includes existing investment at the commencement of redevelopment.
(3)
This property was 50% leased prior to any redevelopment activity, which occurred in two phases. Redevelopment on the first half was completed during the second quarter of 2012 and the tenant has taken occupancy of this space. Redevelopment on the second half was completed in the fourth quarter of 2012.
(4)
As of March 31, 2013, the building improvements were substantially complete. As of September 30, 2013, the building occupancy was 78%.
(5)
During the fourth quarter of 2012, the Company exercised its option to acquire the land underlying the current ground lease for $27.5 million. The transaction is expected to close in 4Q 2013.

22
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


In-Process and Future Development Pipeline
($ in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Location
 
Estimated Construction Period
 
Estimated Stabilization Date
 
Estimated Rentable Square Feet
 
Total Estimated Investment
 
Total Costs as of 9/30/2013 (1)
 
% Leased
 
 
 
 
 
Start Date
 
Compl. Date
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UNDER CONSTRUCTION:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
San Francisco Bay Area
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
690 E. Middlefield Road
 
Mountain View
 
2Q 2012
 
1Q 2015
 
1Q 2015
 
341,000

 
$
197.6

 
$
139.5

 
100%
 
 
331 Fairchild Drive (2)
 
Mountain View
 
4Q 2012
 
4Q 2013
 
4Q 2013
 
88,000

 
45.2

 
41.4

 
100%
 
 
350 Mission Street (3)
 
San Francisco
 
4Q 2012
 
1Q 2015
 
4Q 2015
 
400,000

 
254.4

 
82.9

 
100%
 
 
555 N. Mathilda Avenue
 
Sunnyvale
 
4Q 2012
 
3Q 2014
 
3Q 2014
 
587,000

 
314.5

 
193.6

 
100%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Los Angeles
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Columbia Square - Historical Buildings (4)
 
Hollywood
 
2Q 2013
 
3Q 2014
 
3Q 2015
 
100,000

 
50.0

 
27.5

 
—%
 
 
SUBTOTAL:
 
 
 
 
 
 
 
 
 
1,516,000

 
$
861.7

 
$
484.9

 
93%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FUTURE DEVELOPMENT PIPELINE:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Los Angeles
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Columbia Square Phase II (4) 
 
Hollywood
 
4Q 2013
 
2Q 2016
 
2Q 2017
 
575,000

 
$ 330 - 340

 
$
57.7

 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
San Diego
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
9455 Towne Centre Drive (5)
 
San Diego
 
TBD
 
TBD
 
TBD
 
150,000

 
TBD

 
$
3.8

 
N/A
 
 
Carlsbad Oaks - Lots 4, 5, 7 & 8
 
Carlsbad
 
TBD
 
TBD
 
TBD
 
288,000

 
TBD

 
18.4

 
N/A
 
 
The Heights at Del Mar (6)
 
Del Mar
 
TBD
 
TBD
 
TBD
 
75,000 - 90,000

 
TBD

 
9.4

 
N/A
 
 
One Paseo (7)
 
Del Mar
 
TBD
 
TBD
 
TBD
 
500,000

 
TBD

 
144.2

 
N/A
 
 
Pacific Corporate Center - Lot 8
 
Sorrento Mesa
 
TBD
 
TBD
 
TBD
 
170,000

 
TBD

 
12.0

 
N/A
 
 
Rancho Bernardo Corporate Center
 
I-15 Corridor
 
TBD
 
TBD
 
TBD
 
320,000 - 1,000,000

 
TBD

 
27.2

 
N/A
 
 
Santa Fe Summit - Phase II and III
 
56 Corridor
 
TBD
 
TBD
 
TBD
 
600,000

 
TBD

 
77.5

 
N/A
 
 
Sorrento Gateway - Lot 2
 
Sorrento Mesa
 
TBD
 
TBD
 
TBD
 
80,000

 
TBD

 
12.1

 
N/A
 
 
SUBTOTAL:
 
 
 
 
 
 
 
 
 
2,183,000 - 2,878,000

 
TBD

 
$
304.6

 
N/A
 
 
 
 
 
 
 
 
 
 
 
 

 


 


 
 
 
 
San Francisco Bay Area
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
333 Brannan Street
 
San Francisco
 
4Q 2013
 
1Q 2015
 
1Q 2016
 
170,000

 
$ 95 - 100

 
$
21.9

 
N/A
 
 
Crossing 900 (8)
 
Redwood City
 
4Q 2013
 
3Q 2015
 
3Q 2016
 
300,000

 
175 - 180

 
14.4

 
N/A
 
 
SUBTOTAL:
 
 
 
 
 
 
 
 
 
470,000

 
$ 270 - 280

 
$
36.3

 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Represents cash paid and costs incurred as of September 30, 2013.
(2)
In October 2013, this project was substantially complete and the tenant took possession of the building.
(3)
Estimated rentable square feet and total estimated investment reflects existing entitlements for 27-story office tower. The Company is currently pursuing entitlements to increase this project to a 30-story office tower, which would increase the estimated rentable square feet and total estimated investment.
(4)
The Company has commenced redevelopment of the historical buildings encompassing approximately 100,000 rentable square feet and is planning to develop a mixed-use project on the undeveloped land encompassing approximately 575,000 rentable square feet, which will include office, multi-family and retail components.
(5)
The Company is planning to demolish the existing 2-story 45,195 rentable square foot office building and is currently pursuing entitlements to build a new 5-story 150,000 rentable square foot building.
(6)
This undeveloped land was acquired by the Company during the third quarter of 2013 and added to the Company’s future development and redevelopment pipeline upon acquisition.
(7)
Estimated rentable square feet reflects existing office entitlements. The Company is currently pursuing mixed-use entitlements for this project, which would increase the estimated rentable square feet.
(8)
In October 2013, the Company acquired a 2.0 acre undeveloped land parcel for $17.0 million, completing the final phase of the land assemblage for this project.

23
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Capital Structure
As of September 30, 2013
($ in thousands)
 
 
 
 
 
 
 
 
 
 
 
Shares/Units
September 30, 2013
 
Aggregate Principal
Amount or
$ Value Equivalent
 
% of Total
Market
Capitalization
 
 
DEBT:
 
 
 
 
 
 
 
 
Unsecured Revolving Credit Facility
 
 
 
$
—

 
—
%
 
 
Unsecured Term Loan Facility
 
 
 
150,000

 
2.3
%
 
 
Unsecured Exchangeable Senior Notes due 2014 (1)
 
 
 
172,500

 
2.6
%
 
 
Unsecured Senior Notes due 2014 (1)
 
 
 
83,000

 
1.2
%
 
 
Unsecured Senior Notes due 2015 (1)
 
 
 
325,000

 
5.0
%
 
 
Unsecured Senior Notes due 2018 (1)
 
 
 
325,000

 
5.0
%
 
 
Unsecured Senior Notes due 2020 (1)
 
 
 
250,000

 
3.8
%
 
 
Unsecured Senior Notes due 2023 (1)
 
 
 
300,000

 
4.6
%
 
 
Secured Debt (1)
 
 
 
548,258

 
8.4
%
 
 
Total Debt
 
 
 
$
2,153,758

 
32.9
%
 
 
EQUITY AND NONCONTROLLING INTERESTS:
 
 
 
 
 
 
 
 
6.875% Series G Cumulative Redeemable Preferred stock (2)
 
4,000,000
 
100,000

 
1.5
%
 
 
6.375% Series H Cumulative Redeemable Preferred stock (2)
 
4,000,000
 
100,000

 
1.5
%
 
 
Common limited partnership units outstanding (3)
 
1,821,503
 
90,984

 
1.4
%
 
 
Common shares outstanding (3)
 
82,113,491
 
4,101,569

 
62.7
%
 
 
Total Equity and Noncontrolling Interests
 
 
 
$
4,392,553

 
67.1
%
 
 
TOTAL MARKET CAPITALIZATION
 
 
 
$
6,546,311

 
100.0
%
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Represents gross aggregate principal amount due at maturity before the effect of net unamortized premiums as of September 30, 2013.
(2)
Value based on $25.00 per share liquidation preference.
(3)
Value based on closing share price of $49.95 as of September 30, 2013.



24
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Debt Analysis
As of September 30, 2013 ($ in millions)
 
 
 
 
 
 
 
 
 
 
TOTAL DEBT COMPOSITION
 
 
 
 
Percent of
 
Weighted Average
 
 
 
Total Debt
 
Interest Rate
 
Maturity
 
 
Secured vs. Unsecured Debt
 
 
 
 
 
 
 
 
Unsecured Debt
 
74.5
%
 
4.7
%
 
4.6

 
 
Secured Debt
 
25.5
%
 
5.2
%
 
5.5

 
 
Floating vs. Fixed-Rate Debt
 
 
 
 
 
 
 
 
Floating-Rate Debt
 
7.0
%
 
1.9
%
 
2.5

 
 
Fixed-Rate Debt
 
93.0
%
 
5.0
%
 
5.0

 
 
 
 
 
 
 
 
 
 
 
Stated Rate
 
 
 
4.8
%
 
4.8

 
 
 
 
 
 
 
 
 
 
 
GAAP Effective Rate
 
 
 
4.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP Effective Rate Including Debt Issuance Costs
 
 
 
5.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
KEY DEBT COVENANTS
 
 
 
Covenant
 
Actual Performance
as of September 30, 2013
 
 
Unsecured Credit Facility and Term Loan Facility
(as defined in the Credit Agreements):
 
 
 
 
 
 
Total debt to total asset value
 
less than 60%
 
35%
 
 
Fixed charge coverage ratio
 
greater than 1.5x
 
2.4x
 
 
Unsecured debt ratio
 
greater than 1.67x
 
2.55x
 
 
Unencumbered asset pool debt service coverage
 
greater than 2.0x
 
3.4x
 
 
 
 
 
 
 
 
 
Unsecured Senior Notes due 2015, 2018, 2020 and 2023
(as defined in the Indentures):
 
 
 
 
 
 
Total debt to total asset value
 
less than 60%
 
39%
 
 
Interest coverage
 
greater than 1.5x
 
4.1x
 
 
Secured debt to total asset value
 
less than 40%
 
10%
 
 
Unencumbered asset pool value to unsecured debt
 
greater than 150%
 
271%
 
 
 
 
 
 
 
 

25
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Debt Analysis
($ in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DEBT MATURITY SCHEDULE
 
Floating/
Fixed Rate
 
Stated
Rate
 
GAAP Effective Rate
 
Maturity
Date
 
2013
 
2014
 
2015
 
2016
 
2017
 
After 2017
 
Total (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating (2)
 
1.93%
 
1.93%
 
3/29/2016
 
 
 
 
 
 
 
$
150,000

 
 
 
 
 
$
150,000

 
 
Fixed
 
4.25%
 
7.13%
 
11/15/2014
 
 
 
172,500

 
 
 
 
 
 
 
 
 
172,500

 
 
Fixed
 
6.45%
 
6.45%
 
8/4/2014
 
 
 
83,000

 
 
 
 
 
 
 
 
 
83,000

 
 
Fixed
 
5.00%
 
5.01%
 
11/3/2015
 
 
 
 
 
325,000

 
 
 
 
 
 
 
325,000

 
 
Fixed
 
4.80%
 
4.83%
 
7/15/2018
 
 
 
 
 
 
 
 
 
 
 
325,000

 
325,000

 
 
Fixed
 
6.63%
 
6.74%
 
6/1/2020
 
 
 
 
 
 
 
 
 
 
 
250,000

 
250,000

 
 
Fixed
 
3.80%
 
3.80%
 
1/15/2023
 
 
 
 
 
 
 
 
 
 
 
300,000

 
300,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
—

 
255,500

 
325,000

 
150,000

 
—

 
875,000

 
1,605,500

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed (3)
 
4.94%
 
4.00%
 
4/15/2015
 
270

 
1,116

 
26,206

 
 
 
 
 
 
 
27,592

 
 
Fixed (3)
 
5.09%
 
3.50%
 
8/7/2015
 
 
 
 
 
34,000

 
 
 
 
 
 
 
34,000

 
 
Fixed (3)
 
5.23%
 
3.50%
 
1/1/2016
 
209

 
861

 
908

 
50,969

 
 
 
 
 
52,947

 
 
Fixed (3)
 
5.57%
 
3.25%
 
2/11/2016
 
148

 
609

 
645

 
38,694

 
 
 
 
 
40,096

 
 
Fixed
 
6.51%
 
6.51%
 
2/1/2017
 
244

 
1,016

 
1,084

 
1,157

 
64,406

 
 
 
67,907

 
 
Fixed
 
7.15%
 
7.15%
 
5/1/2017
 
574

 
2,404

 
2,581

 
2,772

 
1,215

 
 
 
9,546

 
 
Fixed
 
4.27%
 
4.27%
 
2/1/2018
 
572

 
2,350

 
2,452

 
2,559

 
2,671

 
123,085

 
133,689

 
 
Fixed (3)
 
6.05%
 
3.50%
 
6/1/2019
 
347

 
1,441

 
1,531

 
1,626

 
1,727

 
76,314

 
82,986

 
 
Fixed
 
4.48%
 
4.48%
 
7/1/2027
 
 
 
 
 
646

 
1,600

 
1,673

 
93,081

 
97,000

 
 
Fixed
 
Various
 
Various
 
Various
 
23

 
49

 
51

 
54

 
56

 
2,262

 
2,495

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,387

 
9,846

 
70,104

 
99,431

 
71,748

 
294,742

 
548,258

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
4.82%
 
4.83%
 
 
 
$
2,387

 
$
265,346

 
$
395,104

 
$
249,431

 
$
71,748

 
$
1,169,742

 
$
2,153,758

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Amounts presented reflect the gross principal balances before the effect of any unamortized discounts/premiums as of September 30, 2013. The aggregate net unamortized premiums totaled approximately $8.4 million as of September 30, 2013.
(2)
Interest for this loan is calculated at an annual rate of LIBOR plus 1.750% at September 30, 2013.
(3)
Represents secured debt assumed in connection with an operating property acquisition.


26
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Management Statements on Non-GAAP Supplemental Measures
 
Included in this section are management’s statements regarding certain non-GAAP financial measures provided in this supplemental financial report and, with respect to Funds From Operations (“FFO”), in the Company’s earnings release on October 28, 2013 and the reasons why management believes that these measures provide useful information to investors about the Company’s financial condition and results of operations.

Net Operating Income:

Management believes that Net Operating Income (“NOI”) is a useful supplemental measure of the Company’s operating performance. The Company defines NOI as operating revenues (rental income, tenant reimbursements and other property income) less property and related expenses (property expenses, real estate taxes, provision for bad debts and ground leases). Other real estate investment trusts (“REITs”) may use different methodologies for calculating NOI, and accordingly, the Company’s NOI may not be comparable to other REITs.

Because NOI excludes general and administrative expenses, interest expense, depreciation and amortization, acquisition-related expenses, other nonproperty income and losses, and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating commercial real estate and the impact to operations from trends in occupancy rates, rental rates, and operating costs, providing a perspective on operations not immediately apparent from net income. The Company uses NOI to evaluate its operating performance on a segment basis since NOI allows the Company to evaluate the impact that factors such as occupancy levels, lease structure, rental rates, and tenant base, which vary by segment type, have on the Company’s results, margins and returns. In addition, management believes that NOI provides useful information to the investment community about the Company’s financial and operating performance when compared to other REITs since NOI is generally recognized as a standard measure of performance in the real estate industry.

However, NOI should not be viewed as an alternative measure of the Company’s financial performance since it does not reflect general and administrative expenses, acquisition-related expenses, interest expense, depreciation and amortization costs, other nonproperty income and losses, the level of capital expenditures and leasing costs necessary to maintain the operating performance of the Company’s properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact the Company’s results from operations.

Same Store Net Operating Income:

Management believes that Same Store NOI is a useful supplemental measure of the Company’s operating performance. Same Store NOI represents the NOI for all of the properties that were owned and included in our stabilized portfolio for two comparable reporting periods. Because Same Store NOI excludes the change in NOI from developed, redeveloped, acquired and disposed of and held for sale properties that were operational for two comparable periods, it highlights operating trends such as occupancy levels, rental rates and operating costs on properties. Other REITs may use different methodologies for calculating Same Store NOI, and accordingly, the Company’s Same Store NOI may not be comparable to other REITs.

However, Same Store NOI should not be viewed as an alternative measure of the Company’s financial performance since it does not reflect the operations of the Company’s entire portfolio, nor does it reflect the impact of general and administrative expenses, acquisition-related expenses, interest expense, depreciation and amortization costs, other nonproperty income and losses, the level of capital expenditures and leasing costs necessary to maintain the operating performance of the Company’s properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact the Company’s results from operations.


27
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Management Statements on Non-GAAP Supplemental Measures, continued
 
EBITDA:

Management believes that earnings before interest expense, depreciation and amortization, gain/loss on early extinguishment of debt, net gains and losses on disposition of discontinued operations, net income attributable to noncontrolling interests, preferred dividends and distributions, original issuance costs of redeemed preferred stock and preferred units, and impairment losses (“EBITDA”) is a useful supplemental measure of the Company’s operating performance. When considered with other GAAP measures and FFO, management believes EBITDA gives the investment community a more complete understanding of the Company’s operating results, including the impact of general and administrative expenses and acquisition-related expenses, before the impact of investing and financing transactions and facilitates comparisons with competitors. Management also believes it is appropriate to present EBITDA as it is used in several of the Company’s financial covenants for both its secured and unsecured debt. However, EBITDA should not be viewed as an alternative measure of the Company’s operating performance since it excludes financing costs as well as depreciation and amortization costs which are significant economic costs that could materially impact the Company’s results of operations and liquidity. Other REITs may use different methodologies for calculating EBITDA and, accordingly, the Company’s EBITDA may not be comparable to other REITs.

Funds From Operations:

The Company calculates FFO in accordance with the White Paper on FFO approved by the Board of Governors of NAREIT. The White Paper defines FFO as net income or loss calculated in accordance with GAAP, excluding extraordinary items, as defined by GAAP, gains and losses from sales of depreciable real estate and impairment write-downs associated with depreciable real estate, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets) and after adjustment for unconsolidated partnerships and joint ventures. Our calculation of FFO includes the amortization of deferred revenue related to tenant-funded tenant improvements and excludes the depreciation of the related tenant improvement assets.

Management believes that FFO is a useful supplemental measure of the Company’s operating performance. The exclusion from FFO of gains and losses from the sale of operating real estate assets allows investors and analysts to readily identify the operating results of the assets that form the core of the Company’s activity and assists in comparing those operating results between periods. Also, because FFO is generally recognized as the industry standard for reporting the operations of REITs, it facilitates comparisons of operating performance to other REITs. However, other REITs may use different methodologies to calculate FFO, and accordingly, the Company’s FFO may not be comparable to all other REITs.

Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies using historical cost accounting alone to be insufficient. Because FFO excludes depreciation and amortization of real estate assets, management believes that FFO along with the required GAAP presentations provides a more complete measurement of the Company’s performance relative to its competitors and a more appropriate basis on which to make decisions involving operating, financing and investing activities than the required GAAP presentations alone would provide.

However, FFO should not be viewed as an alternative measure of the Company’s operating performance since it does not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of the Company’s properties, which are significant economic costs and could materially impact the Company’s results from operations.


28
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Management Statements on Non-GAAP Supplemental Measures, continued
 
Funds Available for Distribution:

Management believes that Funds Available for Distribution (“FAD”) is a useful supplemental measure of the Company’s liquidity. The Company computes FAD by adding to FFO the noncash amortization of deferred financing costs, debt discounts and premiums, share-based compensation awards and original issuance costs on redeemed preferred stock and preferred units, amortization of above (below) market rents for acquisition properties and contractual cash rents received in advance of revenue recognition, then subtracting recurring tenant improvements, leasing commissions and capital expenditures, and eliminating the net effect of straight-line rents, amortization of deferred revenue related to tenant improvements and cash received prior to revenue recognition. FAD provides an additional perspective on the Company’s ability to fund cash needs and make distributions to stockholders by adjusting FFO for the impact of certain cash and noncash items, as well as adjusting FFO for recurring capital expenditures and leasing costs. Management also believes that FAD provides useful information to the investment community about the Company’s financial position as compared to other REITs since FAD is a liquidity measure used by other REITs. However, other REITs may use different methodologies for calculating FAD and, accordingly, the Company’s FAD may not be comparable to other REITs.

29
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Definitions Included in Supplemental
Annualized Base Rent:

Includes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization of deferred revenue related tenant-funded tenant improvements, amortization of above/below market rents, amortization for lease incentives due under existing leases, and expense reimbursement revenue. Additionally, the underlying leases contain various expense structures including full service gross, modified gross and triple net. Amounts represent percentage of total portfolio annualized contractual base rental revenue.

Change in GAAP/ Cash Rents (Leases Commenced):

Calculated as the change between GAAP/cash rents for new/renewed leases and the expiring GAAP/cash rents for the same space. Excludes leases for which the space was vacant longer than one year, or vacant when the property was acquired by the Company.

Change in GAAP/Cash Rents (Leases Executed):

Calculated as the change between GAAP/cash rents for signed leases and the expiring GAAP/cash rents for the same space. Excludes leases for which the space was vacant longer than one year, or vacant when the property was acquired by the Company.

Estimated Stabilization Date (Development):

Management’s estimation of the earlier of stabilized occupancy (95%) or one year from the date of substantial completion.

FAD Payout Ratio:

Calculated as current-quarter dividends accrued to common stockholders and common unitholders (excluding dividend equivalents accrued to restricted stock unitholders) divided by Funds Available for Distribution.

First Generation Capital Expenditures:

Capital expenditures for newly acquired space, newly developed or redeveloped space, or change in use. These costs are not subtracted in our calculation of Funds Available for Distribution.

Fixed Charge Coverage Ratio:

Calculated as EBITDA divided by interest expense (excluding amortization of deferred debt costs and debt discounts/premiums), current year accrued preferred dividends and distributions on Cumulative Redeemable Preferred units.

FFO Payout Ratio:

Calculated as current-quarter dividends accrued to common stockholders and common unitholders (excluding dividend equivalents accrued to restricted stock unitholders) divided by Funds From Operations.

30
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Definitions Included in Supplemental, continued
GAAP Effective Rate:

The rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of any discounts/premiums, excluding debt issuance costs.

Interest Coverage Ratio:

Calculated as EBITDA divided by interest expense (excluding amortization of deferred debt costs and debt discounts/premiums).

Lease-up Properties:

Properties recently redeveloped that have not reached 95% occupancy and are within one year following cessation of major construction activities.

Net Effect of Straight-Line Rents:

Represents the straight-line rent income recognized during the period offset by cash received during the period that was applied to deferred rents receivable balances for terminated leases and the provision for bad debts recorded for deferred rent receivable balances.

Operating Margins:

Calculated as Net Operating Income divided by total revenues, including discontinued operations.

Retention Rates (Leases Commenced):

Calculated as the percentage of space either renewed or expanded into by existing tenants or subtenants at lease expiration.

Same Store Portfolio:

Our same store portfolio includes all of our properties owned and included in our stabilized portfolio as of January 1, 2012 and still owned and included in the stabilized portfolio as of September 30, 2013. It does not include undeveloped land, development and redevelopment properties currently under construction or committed for construction, “lease-up” properties and properties held-for-sale. We define lease-up properties as properties recently developed or redeveloped that have not yet reached 95% occupancy and are within one year following cessation of major construction activities. We define redevelopment properties as those projects for which we expect to spend significant development and construction costs on existing or acquired buildings pursuant to a formal plan, the intended result of which is a higher economic return on the property.

Stated Interest Rate:

The rate at which interest expense is recorded per the respective loan documents, excluding the impact of the amortization of any debt discounts/premiums.

31
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Reconciliation of Same Store Net Operating Income to Net Income (Loss) Available to Common Stockholders
(unaudited, $ in thousands)
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
 
2013
 
2012
 
2013
 
2012
 
 
Same Store Cash Net Operating Income
 
$
54,560

 
$
53,607

 
$
171,413

 
$
161,756

 
 
Cash to GAAP Adjustments:
 
 
 
 
 
 
 
 
 
 
GAAP Operating Revenues Adjustments, net
 
5,079

 
5,285

 
13,539

 
18,652

 
 
GAAP Operating Expenses Adjustments, net
 
(114
)
 
—

 
(176
)
 
(2
)
 
 
Same Store GAAP Net Operating Income
 
59,525

 
58,892

 
184,776

 
180,406

 
 
Non-Same Store GAAP Net Operating Income
 
19,701

 
9,472

 
55,401

 
14,544

 
 
Net Operating Income excluding discontinued operations
 
79,226

 
68,364

 
240,177

 
194,950

 
 
Net Operating Income from discontinued operations
 
9,425

 
9,239

 
19,337

 
29,473

 
 
Net Operating Income, as defined (1)
 
88,651

 
77,603

 
259,514

 
224,423

 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
 
(10,226
)
 
(8,727
)
 
(29,750
)
 
(26,745
)
 
 
Acquisition-related expenses
 
(568
)
 
(556
)
 
(1,387
)
 
(3,897
)
 
 
Depreciation and amortization (including discontinued operations)
 
(50,650
)
 
(46,274
)
 
(150,345
)
 
(123,650
)
 
 
Interest income and other net investment gains
 
673

 
330

 
1,084

 
703

 
 
Interest expense
 
(18,853
)
 
(19,854
)
 
(58,021
)
 
(60,172
)
 
 
Net gain on dispositions of discontinued operations
 
—

 
—

 
423

 
72,809

 
 
Net Income
 
9,027

 
2,522

 
21,518

 
83,471

 
 
Net (income) loss attributable to noncontrolling common units of the Operating Partnership
 
(131
)
 
67

 
(266
)
 
(1,708
)
 
 
Preferred distributions and dividends
 
(3,312
)
 
(5,342
)
 
(9,938
)
 
(17,775
)
 
 
Net Income (Loss) Available to Common Stockholders
 
$
5,584

 
$
(2,753
)
 
$
11,314

 
$
63,988

 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Please refer to page 27 for Management Statements on Net Operating Income and Same Store Net Operating Income.

32
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Reconciliation of Net Income (Loss) Available to Common Stockholders to EBITDA
(unaudited, $ in thousands)
 
 
 
Three Months Ended September 30,
 
 
 
 
2013
 
2012
 
 
Net Income (Loss) Available to Common Stockholders
 
$
5,584

 
$
(2,753
)
 
 
Interest expense
 
18,853

 
19,854

 
 
Depreciation and amortization (including discontinued operations)
 
50,650

 
46,274

 
 
Net income (loss) attributable to noncontrolling common units of the Operating Partnership
 
131

 
(67
)
 
 
Preferred distributions and dividends
 
3,312

 
5,342

 
 
 
 
 
 
 
 
 
EBITDA (1)
 
$
78,530

 
$
68,650

 
 
 
 
 
 
 
 
________________________
(1)
Please refer to page 28 for a Management Statement on EBITDA.

33
Kilroy Realty Corporation
Third Quarter 2013 Supplemental Financial Report


Reconciliation of Funds Available for Distribution to GAAP Net Cash Provided by Operating Activities
(unaudited, $ in thousands)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
 
2013
 
2012
 
2013
 
2012
 
 
Funds Available for Distribution (1)
$
23,899

 
$
32,366

 
$
81,467

 
$
80,284

 
 
Adjustments:
 
 
 
 
 
 
 
 
 
Tenant improvements, leasing commissions and recurring capital expenditures
24,684

 
6,394

 
58,163

 
26,581

 
 
Depreciation for furniture, fixtures and equipment
466

 
312

 
1,363

 
896

 
 
Preferred distributions and dividends
3,312

 
3,280

 
9,938

 
10,795

 
 
Provision for uncollectible tenant receivables
101

 
(194
)
 
196

 
(192
)
 
 
Net changes in operating assets and liabilities and other adjustments (2)
26,844

 
26,536

 
35,183

 
28,963

 
 
 
 
 
 
 
 
 
 
 
 
GAAP Net Cash Provided by Operating Activities
$
79,306

 
$
68,694

 
$
186,310

 
$
147,327


 
 
 
 
 
 
 
 
 
 
________________________
(1)
Please refer to page 29 for a Management Statement on Funds Available for Distribution.
(2)
Primarily includes changes in the following assets and liabilities: marketable securities; current receivables; other deferred leasing costs; prepaid expenses and other assets; accounts payable, accrued expenses and other liabilities; rents received in advance and tenant security deposits and insurance proceeds received for property damage. 

34