EX-99.1 2 exhibit991.htm EXHIBIT 99.1 Exhibit
Exhibit 99.1

q218supplementalcoverpagea01.jpg

Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Table of Contents
 
Page
Corporate Data and Financial Highlights
 
1
2
3
4
5
6
7
8-9
Portfolio Data
 
10
11-15
16
17
18-20
21
22
23
Development
 
24
25
Debt and Capitalization Data
 
26
27-28
29-31
32-35
This Supplemental Financial Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, among other things, information concerning lease expirations, debt maturities, potential investments, development and redevelopment activity, projected construction costs, dispositions and other forward-looking financial data. In some instances, forward-looking statements can be identified by the use of forward-looking terminology such as “expect,” “future,” “will,” “would,” “pursue,” or “project” and variations of such words and similar expressions that do not relate to historical matters. Forward-looking statements are based on Kilroy Realty Corporation’s current expectations, beliefs and assumptions, and are not guarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult to predict, many of which are outside of Kilroy Realty Corporation’s control. Accordingly, actual performance, results and events may vary materially from those indicated in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results or events. Numerous factors could cause actual future performance, results and events to differ materially from those indicated in the forward-looking statements, including, among others: global market and general economic conditions and their effect on our liquidity and financial conditions and those of our tenants; adverse economic or real estate conditions generally, and specifically, in the States of California and Washington; risks associated with our investment in real estate assets, which are illiquid, and with trends in the real estate industry; defaults on or non-renewal of leases by tenants; any significant downturn in tenants’ businesses; our ability to re-lease property at or above current market rates; costs to comply with government regulations, including environmental remediation; the availability of cash for distribution and debt service and exposure to risk of default under debt obligations; increases in interest rates and our ability to manage interest rate exposure; the availability of financing on attractive terms or at all, which may adversely impact our future interest expense and our ability to pursue development, redevelopment and acquisition opportunities and refinance existing debt; a decline in real estate asset valuations, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing, and which may result in write-offs or impairment charges; significant competition, which may decrease the occupancy and rental rates of properties; potential losses that may not be covered by insurance; the ability to successfully complete acquisitions and dispositions on announced terms; the ability to successfully operate acquired, developed and redeveloped properties; the ability to successfully complete development and redevelopment projects on schedule and within budgeted amounts; delays or refusals in obtaining all necessary zoning, land use and other required entitlements, governmental permits and authorizations for our development and redevelopment properties; increases in anticipated capital expenditures, tenant improvement and/or leasing costs; defaults on leases for land on which some of our properties are located; adverse changes to, or implementations of, applicable laws, regulations or legislation, as well as business and consumer reactions to such changes; risks associated with joint venture investments, including our lack of sole decision-making authority, our reliance on co-venturers' financial condition and disputes between us and our co-venturers; environmental uncertainties and risks related to natural disasters; and our ability to maintain our status as a REIT. These factors are not exhaustive and additional factors could adversely affect our business and financial performance. For a discussion of additional factors that could materially adversely affect Kilroy Realty Corporation’s business and financial performance, see the factors included under the caption “Risk Factors” in Kilroy Realty Corporation’s annual report on Form 10-K for the year ended December 31, 2017, and its other filings with the Securities and Exchange Commission. All forward-looking statements are based on currently available information and speak only as of the 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 we are required to do so in connection with our ongoing requirements under federal securities laws.

Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Company Background

Kilroy Realty Corporation (NYSE: KRC), a publicly traded real estate investment trust and member of the S&P MidCap 400 Index, is one of the West Coast’s premier landlords. The Company has over 70 years of experience developing, acquiring and managing office and mixed-use real estate assets. At June 30, 2018, the Company’s stabilized portfolio totaled approximately 13.9 million square feet of office space that was 94.0% occupied, located in the coastal regions of Los Angeles, Orange County, San Diego, the San Francisco Bay Area and Greater Seattle and 200 residential units located in the Hollywood submarket of Los Angeles. 
Board of Directors
 
Executive Management Team
 
Investor Relations
John Kilroy
Chairman
 
John Kilroy
President and CEO
 
12200 W. Olympic Blvd., Suite 200
Los Angeles, CA 90064
(310) 481-8400
Web: www.kilroyrealty.com
E-mail: investorrelations@kilroyrealty.com
Edward F. Brennan, PhD
Lead Independent
 
John T. Fucci
Executive VP, Asset Management
 
Jolie Hunt
 
 
Jeffrey C. Hawken
Executive VP and COO
 
Scott S. Ingraham
 
 
Tracy Murphy
Executive VP, Life Science
 
Gary R. Stevenson
 
 
Robert Paratte
Executive VP, Leasing and Business Development
 
Peter B. Stoneberg
 
 
Tyler H. Rose
Executive VP and CFO
 
 
 
 
Steve Rosetta
Executive VP and CIO
 
 
 
 
Heidi R. Roth
Executive VP and CAO
 
 
 
 
Justin W. Smart
Executive VP, Development and Construction Services
 
 
Equity Research Coverage
 
 
 
 
 
Bank of America Merrill Lynch
 
 
Green Street Advisors
 
James Feldman
(646) 855-5808
 
Daniel Ismail
(949) 640-8780
BMO Capital Markets Corp.
 
 
J.P. Morgan
 
John P. Kim
(212) 885-4115
 
Anthony Paolone
(212) 622-6682
BTIG
 
 
KeyBanc Capital Markets
 
Thomas Catherwood
(212) 738-6140
 
Craig Mailman
(917) 368-2316
Citigroup Investment Research
 
 
RBC Capital Markets
 
Michael Bilerman
(212) 816-1383
 
Mike Carroll
(440) 715-2649
D. A. Davidson
 
 
Robert W. Baird & Co.
 
Barry Oxford
(212) 240-9871
 
David B. Rodgers
(216) 737-7341
Evercore ISI
 
 
Stifel, Nicolaus & Company
 
Steve Sakwa
(212) 446-9462
 
John W. Guinee III
(443) 224-1307
Goldman Sachs & Co.
 
 
Wells Fargo
 
Andrew Rosivach
(212) 902-2796
 
Blaine Heck
(443) 263-6529
 
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
Second Quarter 2018 Supplemental Financial Report

Executive Summary
 
 
 
Quarterly Financial Highlights
 
Quarterly Operating Highlights
 
 
 
• Net income available to common stockholders per share of $0.27
 
• Stabilized portfolio was 94.0% occupied and 96.8% leased at quarter-end
 
 
 
• FFO per share of $0.86, including a $0.05 per share charge for provision for bad
 
• 850,241 square feet of leases commenced in the stabilized portfolio
debts, primarily related to a $0.07 per share charge for one tenant that the company
 
 
is in ongoing discussions with, partially offset by a $0.02 per share reversal of
 
• 1,315,067 square feet of leases executed in the stabilized portfolio
provision due to the assignment of a lease to a credit tenant
 
 
 
 
• GAAP rents increased approximately 30.2% from prior levels
• Revenues of $187.1 million
 
 
 
 
• Cash rents increased approximately 9.8% from prior levels
• Same Store GAAP NOI increased 1.7% compared to the prior year
 
 
 
 
• Executed a 12-year lease with GM Cruise, LLC for 375,000 square feet at 301, 333
• Same Store Cash NOI increased 5.1% compared to the prior year
 
and 345 Brannan Street in San Francisco. 301 and 333 Brannan Street are included
 
 
in our stabilized office portfolio and we expect to close on the acquisition of 345
 
 
Brannan Street later this year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital Markets Highlights
 
Strategic Highlights
 
 
 
• In May, completed a private placement of $50.0 million of eight-year, 4.30%
 
• In June, completed the acquisition of Kilroy Oyster Point, an approximately 39-acre
unsecured senior notes (“Series A Notes”) and $200.0 million of eight-year 4.35%
 
development site in South San Francisco, fully entitled for 2.5 million square feet of
unsecured senior notes (“Series B Notes”), both with delayed draw options. In July,
 
life science and office space, for a cash purchase price of approximately $308.2
drew the full amount of the Series A Notes. The Series B Notes are required to be
 
million
drawn by October 22, 2018
 
 
 
 
• In June, transferred 100 Hooper, a $270.0 million, 400,000 square foot development
• In May, issued all common stock remaining under the company’s 2014 $300.0
 
project located in San Francisco’s SOMA district from under construction to the
   million at-the-market (“ATM”) offering program at a weighted average price of
 
tenant improvement phase. The property’s 314,000 square feet of office space is
$73.01 per share before selling commissions, generating net proceeds of $98.7
 
fully leased to Adobe and the lease is expected to commence in the third quarter of
million
 
    2018. The remaining 86,000 square feet of production, distribution and repair
 
 
    (“PDR”) space is 39% leased
• In June, established a new $500.0 million ATM offering program and issued
 
 
common stock under the program at a weighted average price of $76.23 per
 
• In June, transferred The Exchange on 16th, a $570.0 million, 750,000 square foot
share before selling commissions, generating net proceeds of $26.3 million
 
development project located in San Francisco’s Mission Bay from under
 
 
construction to the tenant improvement phase. The office portion is fully leased to
• As of the date of this report, $290.0 million was outstanding on our unsecured
 
Dropbox, and the lease will commence in phases
revolving credit facility
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
Note: Definitions for commonly used terms in this Supplemental Financial Report are on pages 32-33 “Definitions Included in Supplemental.”

2
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Financial Highlights
(unaudited, $ in thousands, except per share amounts)
 
 
Three Months Ended
 
 
 
6/30/2018 (1)
 
3/31/2018
 
12/31/2017 (1)
 
9/30/2017 (1)
 
6/30/2017
 
INCOME ITEMS:
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
187,072

 
$
182,822

 
$
177,561

 
$
181,534

 
$
180,598

 
 
Lease Termination Fees, net
1,093

 
60

 
198

 
760

 
367

 
 
Net Operating Income (2)
129,465

 
132,709

 
127,522

 
129,495

 
128,795

 
 
Capitalized Interest and Debt Costs
15,811

 
13,582

 
13,436

 
12,180

 
10,758

 
 
Net Income Available to Common Stockholders
27,549

 
36,246

 
28,529

 
66,558

 
29,833

 
 
EBITDA, as adjusted (2) (3)
108,473

 
117,184

 
112,565

 
116,956

 
115,530

 
 
Funds From Operations (3) (4) (5) (6)
88,629

 
96,285

 
86,539

 
89,547

 
88,767

 
 
Net Income Available to Common Stockholders per common share – diluted (5)
$
0.27

 
$
0.36

 
$
0.28

 
$
0.67

 
$
0.30

 
 
Funds From Operations per common share – diluted (3) (5) (6)
$
0.86

 
$
0.94

 
$
0.85

 
$
0.88

 
$
0.87

 
LIQUIDITY ITEMS:
 
 
 
 
 
 
 
 
 
 
 
Funds Available for Distribution (4) (5) (7)
$
51,953

 
$
75,537

 
$
51,177

 
$
60,508

 
$
63,654

 
 
Dividends per common share (5)
$
0.455

 
$
0.425

 
$
0.425

 
$
0.425

 
$
0.425

 
RATIOS:
 
 
 
 
 
 
 
 
 
 
 
Net Operating Income Margins
69.2
%
 
72.6
%
 
71.8
%
 
71.3
%
 
71.3
%
 
 
Interest Coverage Ratio
3.9x

 
4.5x

 
4.2x

 
4.3x

 
4.2x

 
 
Fixed Charge Coverage Ratio
3.9x

 
4.5x

 
4.2x

 
4.2x

 
3.9x

 
 
FFO Payout Ratio (3) (6)
52.7
%
 
44.5
%
 
49.5
%
 
47.7
%
 
48.1
%
 
 
FAD Payout Ratio (7)
89.9
%
 
56.8
%
 
83.6
%
 
70.6
%
 
67.1
%
 
ASSETS:
 
 
 
 
 
 
 
 
 
 
 
Real Estate Held for Investment before Depreciation
$
8,138,413

 
$
7,645,666

 
$
7,417,777

 
$
7,239,856

 
$
7,276,227

 
 
Total Assets
7,384,784

 
6,965,932

 
6,802,838

 
6,838,299

 
6,995,367

 
CAPITALIZATION: (8)
 
 
 
 
 
 
 
 
 
 
 
Total Debt
$
2,807,627

 
$
2,563,517

 
$
2,364,395

 
$
2,449,025

 
$
2,579,552

 
 
Total Preferred Equity and Noncontrolling Interests in the Operating Partnership
—

 
—

 
—

 
—

 
100,000

 
 
Total Common Equity and Noncontrolling Interests in the Operating Partnership
7,762,978

 
7,160,602

 
7,517,070

 
7,144,676

 
7,547,195

 
 
Total Market Capitalization
10,570,605

 
9,724,119

 
9,881,465

 
9,593,701

 
10,226,747

 
 
Total Debt / Total Market Capitalization
26.6
%
 
26.4
%
 
23.9
%
 
25.5
%
 
25.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
______________________________________________________
Note: Definitions for commonly used terms in this Supplemental Financial Report are on pages 32-33 “Definitions Included in Supplemental.”
(1)
Net Income Available to Common Stockholders includes $5.6 million of provision for bad debts for the three months ended June 30, 2018, $37.3 million of gains on sales of depreciable operating properties and a $0.4 million gain on sale of land for the three months ended September 30, 2017, and a $5.3 million loss on early extinguishment of debt for the three months ended December 31, 2017.
(2)
Please refer to pages 34-35 for reconciliations of GAAP Net Income Available to Common Stockholders to Net Operating Income and EBITDA, as adjusted.
(3)
EBITDA, as adjusted, and Funds From Operations include $5.6 million of provision for bad debts and a $0.4 million gain on sale of land for the three months ended June 30, 2018 and September 30, 2017, respectively. The Company’s calculation of EBITDA, as adjusted, is the same as EBITDAre, as defined by NAREIT, as the Company does not have any unconsolidated joint ventures.
(4)
Please refer to page 8 for reconciliations of GAAP Net Income Available to Common Stockholders to Funds From Operations available to common stockholders and unitholders and Funds Available for Distribution to common stockholders and unitholders and page 9 for a reconciliation of GAAP Net Cash Provided by Operating Activities to Funds Available for Distribution to common stockholders and unitholders.
(5)
Reported amounts are attributable to common stockholders, common unitholders and restricted stock unit holders.
(6)
Funds From Operations for the three months ended December 31, 2017 includes a $5.3 million loss on early extinguishment of debt. Funds From Operations for the three months ended September 30, 2017 includes a $3.7 million or $0.04 per share non-cash charge related to the original issuance costs of Series H preferred stock that was redeemed on August 15, 2017.
(7)
Funds Available for Distribution for the three months ended December 31, 2017 includes a $5.0 million cash loss on early extinguishment of debt.
(8)
Please refer to page 26 for additional information regarding our capital structure.

3
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Net Income Available to Common Stockholders / FFO Guidance and Outlook
(unaudited, $ and shares/units in thousands, except per share amounts)

The Company is providing an updated guidance range of NAREIT-defined FFO per diluted share for its fiscal year 2018 of $3.47 to $3.57 per share with a midpoint of $3.52 per share.
 
 
 
Full Year 2018 Range at June 30, 2018
 
 
 
 
Low End
 
High End
 
 
Net income available to common stockholders per share - diluted
 
$
1.30

 
$
1.40

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - diluted (1)
 
101,000

 
101,000

 
 
 
 
 
 
 
 
 
Net income available to common stockholders
 
$
131,000

 
$
141,000

 
 
Adjustments:
 
 
 
 
 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
2,600

 
3,000

 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
14,500

 
15,500

 
 
Depreciation and amortization of real estate assets
 
237,000

 
237,000

 
 
Gains on sales of depreciable real estate
 
—

 
—

 
 
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships
 
(23,500
)
 
(24,500
)
 
 
Funds From Operations (2)
 
$
361,600

 
$
372,000

 
 
 
 
 
 
 
 
 
Weighted average common shares and units outstanding - diluted (3)
 
104,300

 
104,300

 
 
 
 
 
 
 
 
 
FFO per common share/unit - diluted (3)
 
$
3.47

 
$
3.57

 
 
 
 
 
 
 
 

Key 2018 assumptions include:
•
Dispositions of $250.0 to $750.0 million
•
Same store cash net operating income growth of 1 to 2% (2) 
•
Year-end occupancy of 94.0% to 95.0%
•
Net operating income margin of approximately 70.0% to 70.5% (2) 
•
Remaining development spending of approximately $250.0 to $300.0 million
________________________
(1)
Calculated based on estimated weighted average shares outstanding including participating share-based awards (i.e. nonvested stock and certain time based restricted stock units).
(2)
See pages 29-31 for Management Statements on Funds From Operations, Same Store Cash Net Operating Income and Net Operating Income and page 33 for the definition of Net Operating Income Margin.
(3)
Calculated based on estimated weighted average shares outstanding including participating share-based awards (i.e. nonvested stock and certain time based restricted stock units) and assuming the exchange of all estimated common limited partnership units outstanding. Reported amounts are attributable to common stockholders, common unitholders, and restricted stock unit holders.

The Company’s guidance estimates for the full year 2018, and the reconciliation of net income available to common stockholders per share - diluted and FFO per share and unit - diluted included within this report, reflect management’s views on current and future market conditions, including assumptions with respect to rental rates, occupancy levels, and the earnings impact of the events referenced in this report. Although these guidance estimates reflect the impact on the Company’s operating results of an assumed range of future disposition activity, these guidance estimates do not include any estimates of possible future gains or losses from possible future dispositions because the magnitude of gains or losses on sales of depreciable operating properties, if any, will depend on the sales price and depreciated cost basis of the disposed assets at the time of disposition, information that is not known at the time the Company provides guidance, and the timing of any gain recognition will depend on the closing of the dispositions, information that is also not known at the time the Company provides guidance and may occur after the relevant guidance period. We caution you not to place undue reliance on our assumed range of future disposition activity because any potential future disposition transactions will ultimately depend on the market conditions and other factors, including but not limited to the Company’s capital needs, the particular assets being sold and the Company’s ability to defer some or all of the taxable gain on the sales. These guidance estimates also do not include the impact on operating results from potential future acquisitions, possible capital markets activity, possible future impairment charges or any events outside of the Company’s control. There can be no assurance that the Company’s actual results will not differ materially from these estimates.

4
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Common Stock Data (NYSE: KRC)
 
 
 
Three Months Ended
 
 
 
6/30/2018
 
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High Price
$
77.34

 
$
74.27

 
$
76.18

 
$
75.69

 
$
77.09

 
 
Low Price
$
68.96

 
$
63.72

 
$
70.17

 
$
67.47

 
$
70.06

 
 
Closing Price
$
75.64

 
$
70.96

 
$
74.65

 
$
71.12

 
$
75.15

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends per share – annualized (1)
$
1.82

 
$
1.70

 
$
1.70

 
$
1.70

 
$
1.70

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Closing common shares (in 000’s) (2) (3)
100,560

 
98,840

 
98,620

 
98,382

 
98,351

 
 
Closing common partnership units (in 000’s) (2)
2,071

 
2,071

 
2,077

 
2,077

 
2,077

 
 
 
102,631

 
100,911

 
100,697


100,459

 
100,428

 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
In May 2018, the regular quarterly cash dividend was increased to an annualized rate of $1.82 per share, a 7.1% increase from the previous annualized dividend level of $1.70 per share.
(2)
As of the end of the period.
(3)
In the second quarter of 2018, the Company issued 1,719,195 common shares under its ATM offering programs at a weighted average price of $73.66 per share before selling commissions.







5
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Consolidated Balance Sheets
(unaudited, $ in thousands)
 
 
6/30/2018
 
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
 
 
ASSETS:

 
 
 
 
 
 
 
 
 
 
Land and improvements
$
1,127,100

 
$
1,127,100

 
$
1,076,172

 
$
1,076,172

 
$
1,108,971

 
 
Buildings and improvements
5,017,999

 
4,987,617

 
4,908,797

 
4,871,667

 
4,983,638

 
 
Undeveloped land and construction in progress
1,993,314

 
1,530,949

 
1,432,808

 
1,292,017

 
1,183,618

 
 
Total real estate assets held for investment
8,138,413

 
7,645,666

 
7,417,777

 
7,239,856

 
7,276,227

 
 
Accumulated depreciation and amortization
(1,361,811
)
 
(1,312,612
)
 
(1,264,162
)
 
(1,216,358
)
 
(1,234,079
)
 
 
Total real estate assets held for investment, net
6,776,602

 
6,333,054

 
6,153,615

 
6,023,498

 
6,042,148

 
 
Cash and cash equivalents
50,817

 
53,069

 
57,649

 
64,954

 
387,616

 
 
Restricted cash
—

 
—

 
9,149

 
179,276

 
8,249

 
 
Marketable securities
22,519

 
21,572

 
20,674

 
18,851

 
16,010

 
 
Current receivables, net
15,144

 
17,602

 
16,926

 
18,626

 
13,703

 
 
Deferred rent receivables, net
256,558

 
251,744

 
246,391

 
238,959

 
233,427

 
 
Deferred leasing costs and acquisition-related intangible assets, net
186,649

 
181,567

 
183,728

 
185,420

 
195,320

 
 
Prepaid expenses and other assets, net
76,495

 
107,324

 
114,706

 
108,715

 
98,894

 
 
TOTAL ASSETS
$
7,384,784

 
$
6,965,932

 
$
6,802,838

 
$
6,838,299

 
$
6,995,367

 
 
LIABILITIES AND EQUITY:
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Secured debt, net
$
338,189

 
$
339,501

 
$
340,800

 
$
465,828

 
$
467,758

 
 
Unsecured debt, net
2,156,521

 
2,155,794

 
2,006,263

 
1,909,381

 
2,097,083

 
 
Unsecured line of credit
295,000

 
50,000

 
—

 
60,000

 
—

 
 
Accounts payable, accrued expenses and other liabilities
278,508

 
223,973

 
249,637

 
271,405

 
219,483

 
 
Accrued dividends and distributions
47,348

 
43,512

 
43,448

 
43,324

 
44,105

 
 
Deferred revenue and acquisition-related intangible liabilities, net
146,741

 
149,563

 
145,890

 
145,556

 
148,729

 
 
Rents received in advance and tenant security deposits
58,604

 
56,117

 
56,484

 
46,925

 
55,738

 
 
Total liabilities
3,320,911

 
3,018,460

 
2,842,522

 
2,942,419

 
3,032,896

 
 
Equity:
 
 
 
 
 
 
 
 
 
 
 
Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
6.375% Series H Cumulative Redeemable Preferred stock
—

 
—

 
—

 
—

 
96,256

 
 
Common stock
1,006

 
988

 
986

 
984

 
984

 
 
Additional paid-in capital
3,951,289

 
3,816,385

 
3,822,492

 
3,797,546

 
3,792,028

 
 
Distributions in excess of earnings
(149,368
)
 
(130,514
)
 
(122,685
)
 
(108,667
)
 
(132,799
)
 
 
Total stockholders’ equity
3,802,927

 
3,686,859

 
3,700,793

 
3,689,863

 
3,756,469

 
 
Noncontrolling Interests
 
 
 
 
 
 
 
 
 
 
 
Common units of the Operating Partnership
78,223

 
77,240

 
77,948

 
77,911

 
77,296

 
 
Noncontrolling interests in consolidated property partnerships
182,723

 
183,373

 
181,575

 
128,106

 
128,706

 
 
Total noncontrolling interests
260,946

 
260,613

 
259,523

 
206,017

 
206,002

 
 
Total equity
4,063,873

 
3,947,472

 
3,960,316

 
3,895,880

 
3,962,471

 
 
TOTAL LIABILITIES AND EQUITY
$
7,384,784

 
$
6,965,932

 
$
6,802,838

 
$
6,838,299

 
$
6,995,367

 
 
 
 
 
 
 
 
 
 
 
 
 

6
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Consolidated Statements of Operations
(unaudited, $ and shares in thousands, except per share amounts)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
 
2018
 
2017
 
2018
 
2017
 
 
REVENUES
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
164,515

 
$
158,925

 
$
327,386

 
$
315,573

 
 
Tenant reimbursements
 
19,567

 
19,267

 
38,717

 
38,563

 
 
Other property income
 
2,990

 
2,406

 
3,791

 
5,770

 
 
Total revenues
 
187,072

 
180,598

 
369,894

 
359,906

 
 
EXPENSES
 
 
 
 
 
 
 
 
 
 
Property expenses
 
32,567

 
33,304

 
64,238

 
64,545

 
 
Real estate taxes
 
17,813

 
16,543

 
34,959

 
34,507

 
 
Provision for bad debts
 
5,641

 
409

 
5,376

 
1,707

 
 
Ground leases
 
1,586

 
1,547

 
3,147

 
3,189

 
 
General and administrative expenses
 
21,763

 
14,303

 
37,322

 
29,236

 
 
Depreciation and amortization
 
64,006

 
62,251

 
126,721

 
123,170

 
 
Total expenses
 
143,376

 
128,357

 
271,763

 
256,354

 
 
OTHER (EXPENSES) INCOME
 
 
 
 
 
 
 
 
 
 
Interest income and other net investment gain/loss
 
771

 
1,038

 
805

 
2,103

 
 
Interest expense
 
(12,712
)
 
(17,973
)
 
(26,210
)
 
(35,325
)
 
 
Total other (expenses) income
 
(11,941
)
 
(16,935
)
 
(25,405
)
 
(33,222
)
 
 
INCOME FROM OPERATIONS BEFORE GAINS ON SALES OF REAL ESTATE
 
31,755

 
35,306

 
72,726

 
70,330

 
 
Gains on sales of depreciable operating properties
 
—

 
—

 
—

 
2,257

 
 
NET INCOME
 
31,755

 
35,306

 
72,726

 
72,587

 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
(566
)
 
(616
)
 
(1,317
)
 
(1,239
)
 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
(3,640
)
 
(3,242
)
 
(7,614
)
 
(6,375
)
 
 
Total income attributable to noncontrolling interests
 
(4,206
)
 
(3,858
)
 
(8,931
)
 
(7,614
)
 
 
NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION
 
27,549

 
31,448

 
63,795

 
64,973

 
 
Preferred dividends
 
—

 
(1,615
)
 
—

 
(4,966
)
 
 
Original issuance costs of redeemed preferred stock
 
—

 
—

 
—

 
(3,845
)
 
 
Total preferred dividends
 
—

 
(1,615
)
 
—

 
(8,811
)
 
 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
 
$
27,549

 
$
29,833

 
$
63,795

 
$
56,162

 
 
Weighted average common shares outstanding – basic
 
99,692

 
98,275

 
99,221

 
97,834

 
 
Weighted average common shares outstanding – diluted
 
100,151

 
98,827

 
99,688

 
98,427

 
 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS PER SHARE
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders per share – basic
 
$
0.27

 
$
0.30

 
$
0.63

 
$
0.56

 
 
Net income available to common stockholders per share – diluted
 
$
0.27

 
$
0.30

 
$
0.63

 
$
0.56

 
 
 
 
 
 
 
 
 
 
 
 


7
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Funds From Operations and Funds Available for Distribution
(unaudited, $ in thousands, except per share amounts)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
 
2018
 
2017
 
2018
 
2017
 
 
FUNDS FROM OPERATIONS: (1)
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders
 
$
27,549

 
$
29,833

 
$
63,795

 
$
56,162

 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
566

 
616

 
1,317

 
1,239

 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
3,640

 
3,242

 
7,614

 
6,375

 
 
Depreciation and amortization of real estate assets
 
62,956

 
61,000

 
124,633

 
120,734

 
 
Gains on sales of depreciable real estate
 
—

 
—

 
—

 
(2,257
)
 
 
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships
 
(6,082
)
 
(5,924
)
 
(12,445
)
 
(11,552
)
 
 
Funds From Operations (1)(2)
 
$
88,629

 
$
88,767

 
$
184,914

 
$
170,701

 
 
Weighted average common shares/units outstanding – basic (3)
 
102,879

 
101,551

 
102,457

 
101,219

 
 
Weighted average common shares/units outstanding – diluted (4)
 
103,338

 
102,103

 
102,924

 
101,812

 
 
FFO per common share/unit – basic (1)
 
$
0.86

 
$
0.87

 
$
1.80

 
$
1.69

 
 
FFO per common share/unit – diluted (1)
 
$
0.86

 
$
0.87

 
$
1.80

 
$
1.68

 
 
FUNDS AVAILABLE FOR DISTRIBUTION: (1)
 
 
 
 
 
 
 
 
 
 
Funds From Operations (1)(2)
 
$
88,629

 
$
88,767

 
$
184,914

 
$
170,701

 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
Recurring tenant improvements, leasing commissions and capital expenditures
 
(34,854
)
 
(17,967
)
 
(48,848
)
 
(35,856
)
 
 
Amortization of deferred revenue related to tenant-funded tenant improvements (2)(5)
 
(4,588
)
 
(4,548
)
 
(8,869
)
 
(8,243
)
 
 
Net effect of straight-line rents
 
(4,814
)
 
(7,568
)
 
(10,167
)
 
(14,451
)
 
 
Amortization of net below market rents (6)
 
(2,938
)
 
(1,191
)
 
(5,481
)
 
(3,603
)
 
 
Amortization of deferred financing costs and net debt discount/premium
 
267

 
406

 
582

 
823

 
 
Non-cash amortization of share-based compensation awards
 
8,669

 
4,832

 
12,267

 
8,966

 
 
Original issuance costs of redeemed preferred stock
 
—

 
—

 
—

 
3,845

 
 
Other lease related adjustments, net (7)
 
(733
)
 
(301
)
 
554

 
(393
)
 
 
Adjustments attributable to noncontrolling interests in consolidated property partnerships
 
2,315

 
1,224

 
2,538

 
2,011

 
 
Funds Available for Distribution (1)
 
$
51,953

 
$
63,654

 
$
127,490

 
$
123,800

 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
See page 31 for Management Statements on Funds From Operations and Funds Available for Distribution. Reported per common share/unit amounts are attributable to common stockholders, common unitholders and restricted stock unit holders.
(2)
FFO available to common stockholders and unitholders includes amortization of deferred revenue related to tenant-funded tenant improvements of $4.6 million and $4.5 million for the three months ended June 30, 2018 and 2017, respectively, and $8.9 million and $8.2 million for the six months ended June 30, 2018 and 2017, respectively. These amounts are adjusted out of FFO in our calculation of FAD.
(3)
Calculated based on weighted average shares outstanding including participating share-based awards and assuming the exchange of all common limited partnership units outstanding.
(4)
Calculated based on weighted average shares outstanding including participating and non-participating share-based awards (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)
Represents revenue recognized during the period as a result of the amortization of deferred revenue recorded for tenant-funded tenant improvements.
(6)
Represents the non-cash adjustment related to the acquisition of buildings with above and/or below market rents.
(7)
Includes other non-cash adjustments attributable to lease-related GAAP revenue recognition timing differences.


8
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Reconciliation of GAAP Net Cash Provided by Operating Activities to Funds Available for Distribution
(unaudited, $ in thousands)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
 
2018
 
2017
 
2018
 
2017
 
 
GAAP Net Cash Provided by Operating Activities 
 
$
94,734

 
$
82,041

 
$
188,843

 
$
178,416

 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
Recurring tenant improvements, leasing commissions and capital expenditures
 
(34,854
)
 
(17,967
)
 
(48,848
)
 
(35,856
)
 
 
Preferred dividends
 
—

 
(1,615
)
 
—

 
(4,966
)
 
 
Depreciation of non-real estate furniture, fixtures and equipment
 
(1,050
)
 
(1,251
)
 
(2,088
)
 
(2,436
)
 
 
Provision for uncollectible tenant receivables
 
(5,248
)
 
(50
)
 
(4,977
)
 
(620
)
 
 
Net changes in operating assets and liabilities (1)
 
4,358

 
9,069

 
10,464

 
2,089

 
 
Noncontrolling interests in consolidated property partnerships’ share of FFO and FAD
 
(3,767
)
 
(4,700
)
 
(9,907
)
 
(9,541
)
 
 
Cash adjustments related to investing and financing activities
 
(2,220
)
 
(1,873
)
 
(5,997
)
 
(3,286
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Funds Available for Distribution(2)
 
$
51,953

 
$
63,654

 
$
127,490

 
$
123,800

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


9
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Same Store Analysis (1) 
(unaudited, $ in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
 
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
 
 
Total Same Store Portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of properties
 
98

 
98

 
 
 
98

 
98

 
 
 
 
Square Feet
 
13,370,620

 
13,370,620

 
 
 
13,370,620

 
13,370,620

 
 
 
 
Percent of Stabilized Portfolio
 
96.3
%
 
92.9
%
 
 
 
96.3
%
 
92.9
%
 
 
 
 
Average Occupancy
 
94.7
%
 
94.9
%
 
 
 
94.8
%
 
95.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
156,507

 
$
149,891

 
4.4
%
 
$
311,862

 
$
297,796

 
4.7
 %
 
 
Tenant reimbursements
 
19,160

 
18,717

 
2.4
%
 
38,129

 
37,582

 
1.5
 %
 
 
Other property income
 
2,987

 
1,414

 
111.2
%
 
3,788

 
4,697

 
(19.4
)%
 
 
Total operating revenues
 
178,654

 
170,022

 
5.1
%
 
353,779

 
340,075

 
4.0
 %
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property expenses
 
31,262

 
31,193

 
0.2
%
 
61,612

 
60,855

 
1.2
 %
 
 
Real estate taxes
 
16,523

 
15,246

 
8.4
%
 
32,594

 
31,936

 
2.1
 %
 
 
Provision for bad debts
 
5,641

 
451

 
1,150.8
%
 
5,351

 
1,631

 
228.1
 %
 
 
Ground leases
 
1,586

 
1,547

 
2.5
%
 
3,147

 
3,189

 
(1.3
)%
 
 
Total operating expenses
 
55,012

 
48,437

 
13.6
%
 
102,704

 
97,611

 
5.2
 %
 
 
GAAP Net Operating Income
 
$
123,642

 
$
121,585

 
1.7
%
 
$
251,075

 
$
242,464

 
3.6
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Store Analysis (Cash Basis) (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
 
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
 
 
Total operating revenues
 
$
167,074

 
$
159,897

 
4.5
%
 
$
332,895

 
$
320,284

 
3.9
 %
 
 
Total operating expenses
 
49,371

 
47,933

 
3.0
%
 
97,352

 
95,887

 
1.5
 %
 
 
Cash Net Operating Income
 
$
117,703

 
$
111,964

 
5.1
%
 
$
235,543

 
$
224,397

 
5.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Same Store is defined as all properties owned and included in our stabilized portfolio as of January 1, 2017 and still owned and included in the stabilized portfolio as of June 30, 2018. Same Store includes 100% of consolidated property partnerships as well as the residential tower at Columbia Square.
(2)
Please refer to page 34 for a reconciliation of GAAP Net Income Available to Common Stockholders to Same Store GAAP Net Operating Income and Same Store Cash Net Operating Income.




10
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Stabilized Portfolio Occupancy Overview by Region

 
 
 
 
 
Portfolio Breakdown
 
 
 
Occupied at
 
Leased at
 
 
STABILIZED OFFICE PORTFOLIO
 
Buildings
 
YTD NOI %
 
SF %
 
Total SF
 
6/30/2018
 
3/31/2018
 
6/30/2018
 
 
Greater Los Angeles
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
101 Corridor
 
4
 
0.8
%
 
2.2
%
 
309,438

 
89.5
%
 
91.2
%
 
90.3
%
 
 
El Segundo
 
5
 
5.1
%
 
7.9
%
 
1,093,050

 
99.3
%
 
98.0
%
 
99.3
%
 
 
Hollywood
 
6
 
5.6
%
 
5.8
%
 
806,557

 
97.8
%
 
93.7
%
 
97.8
%
 
 
Long Beach
 
7
 
3.2
%
 
6.8
%
 
949,910

 
90.8
%
 
93.1
%
 
94.3
%
 
 
West Hollywood
 
4
 
1.8
%
 
1.3
%
 
178,699

 
91.3
%
 
98.0
%
 
91.3
%
 
 
West Los Angeles
 
10
 
7.0
%
 
6.1
%
 
844,079

 
90.9
%
 
89.8
%
 
90.9
%
 
 
Total Greater Los Angeles
 
36
 
23.5
%
 
30.1
%
 
4,181,733

 
94.3
%
 
93.9
%
 
95.2
%
 
 
Total Orange County
 
1
 
1.2
%
 
2.0
%
 
271,556

 
89.6
%
 
89.6
%
 
89.6
%
 
 
San Diego County
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Del Mar
 
14
 
9.2
%
 
9.8
%
 
1,351,044

 
99.6
%
 
98.6
%
 
100.0
%
 
 
I-15 Corridor
 
5
 
3.4
%
 
3.9
%
 
541,991

 
96.3
%
 
96.6
%
 
97.6
%
 
 
Point Loma
 
1
 
0.4
%
 
0.8
%
 
103,900

 
100.0
%
 
100.0
%
 
100.0
%
 
 
University Towne Center
 
1

 
0.2
%
 
0.3
%
 
47,846

 
91.4
%
 
91.4
%
 
91.4
%
 
 
Total San Diego County
 
21
 
13.2
%
 
14.8
%
 
2,044,781

 
98.5
%
 
98.0
%
 
99.2
%
 
 
San Francisco Bay Area
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Menlo Park
 
7
 
3.0
%
 
2.7
%
 
378,358

 
95.7
%
 
95.3
%
 
98.0
%
 
 
Mountain View
 
4
 
5.1
%
 
3.9
%
 
542,235

 
100.0
%
 
100.0
%
 
100.0
%
 
 
Palo Alto
 
2
 
2.8
%
 
1.2
%
 
165,585

 
100.0
%
 
100.0
%
 
100.0
%
 
 
Redwood City
 
2
 
4.1
%
 
2.5
%
 
347,269

 
99.1
%
 
99.1
%
 
100.0
%
 
 
San Francisco
 
8
 
25.6
%
 
20.2
%
 
2,808,102

 
90.0
%
 
92.6
%
 
97.9
%
 
 
South San Francisco
 
3
 
1.0
%
 
1.0
%
 
145,530

 
78.5
%
 
78.5
%
 
78.5
%
 
 
Sunnyvale
 
8
 
7.0
%
 
6.7
%
 
930,221

 
100.0
%
 
100.0
%
 
100.0
%
 
 
Total San Francisco Bay Area
 
34
 
48.6
%
 
38.2
%
 
5,317,300

 
93.8
%
 
95.1
%
 
98.2
%
 
 
Greater Seattle
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bellevue
 
2
 
5.5
%
 
6.5
%
 
905,225

 
84.7
%
 
83.9
%
 
94.9
%
 
 
Kirkland
 
4
 
1.5
%
 
2.0
%
 
279,924

 
98.8
%
 
100.0
%
 
98.8
%
 
 
Lake Union
 
6
 
6.5
%
 
6.4
%
 
880,990

 
93.5
%
 
93.5
%
 
94.4
%
 
 
Total Greater Seattle
 
12
 
13.5
%
 
14.9
%
 
2,066,139

 
90.4
%
 
90.2
%
 
95.2
%
 
 
TOTAL STABILIZED OFFICE PORTFOLIO
 
104
 
100.0
%
 
100.0
%
 
13,881,509

 
94.0
%
 
94.3
%
 
96.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total No. of Units
 
Occupied at
 
 
 
 
RESIDENTIAL PROPERTY
 
 
 
Submarket
 
Buildings
 
 
6/30/2018
 
3/31/2018
 
 
 
 
Greater Los Angeles
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1550 N. El Centro Avenue
 
 
 
Hollywood
 
1

 
200

 
81.0
%
 
84.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Office Occupancy
Quarter-to-Date
 
Year-to-Date
94.6%
 
94.7%
Average Residential Occupancy
Quarter-to-Date
 
Year-to-Date
83.6%
 
83.3%

11
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Stabilized Office Portfolio Occupancy Overview by Region, continued
 
 
 
Submarket
 
Square Feet
 
Occupied
 
Greater Los Angeles, California
 
 
 
 
 
 
 
 
23925 Park Sorrento
 
101 Corridor
 
11,873

 
100.0
%
 
 
23975 Park Sorrento
 
101 Corridor
 
104,797

 
88.8
%
 
 
24025 Park Sorrento
 
101 Corridor
 
108,670

 
95.8
%
 
 
2829 Townsgate Road
 
101 Corridor
 
84,098

 
80.5
%
 
 
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
 
244,136

 
99.5
%
 
 
999 N. Sepulveda Boulevard
 
El Segundo
 
128,588

 
95.0
%
 
 
1500 N. El Centro Avenue
 
Hollywood
 
104,504

 
100.0
%
 
 
1525 N. Gower Street
 
Hollywood
 
9,610

 
100.0
%
 
 
1575 N. Gower Street
 
Hollywood
 
251,245

 
100.0
%
 
 
6115 W. Sunset Boulevard
 
Hollywood
 
26,105

 
75.2
%
 
 
6121 W. Sunset Boulevard
 
Hollywood
 
91,173

 
100.0
%
 
 
6255 W. Sunset Boulevard
 
Hollywood
 
323,920

 
96.5
%
 
 
3750 Kilroy Airport Way
 
Long Beach
 
10,457

 
100.0
%
 
 
3760 Kilroy Airport Way
 
Long Beach
 
165,278

 
81.5
%
 
 
3780 Kilroy Airport Way
 
Long Beach
 
219,745

 
81.9
%
 
 
3800 Kilroy Airport Way
 
Long Beach
 
192,476

 
96.1
%
 
 
3840 Kilroy Airport Way
 
Long Beach
 
136,026

 
100.0
%
 
 
3880 Kilroy Airport Way
 
Long Beach
 
96,035

 
100.0
%
 
 
3900 Kilroy Airport Way
 
Long Beach
 
129,893

 
92.9
%
 
 
8560 W. Sunset Boulevard
 
West Hollywood
 
71,875

 
89.8
%
 
 
8570 W. Sunset Boulevard
 
West Hollywood
 
43,603

 
97.0
%
 
 
8580 W. Sunset Boulevard
 
West Hollywood
 
7,126

 
100.0
%
 
 
8590 W. Sunset Boulevard
 
West Hollywood
 
56,095

 
87.6
%
 
 
12100 W. Olympic Boulevard
 
West Los Angeles
 
152,048

 
100.0
%
 
 
12200 W. Olympic Boulevard
 
West Los Angeles
 
150,832

 
91.9
%
 
 
12233 W. Olympic Boulevard
 
West Los Angeles
 
151,029

 
98.9
%
 
 
12312 W. Olympic Boulevard
 
West Los Angeles
 
76,644

 
100.0
%
 
 
1633 26th Street
 
West Los Angeles
 
43,857

 
0.0
%
 
 
2100/2110 Colorado Avenue
 
West Los Angeles
 
102,864

 
100.0
%
 
 
3130 Wilshire Boulevard
 
West Los Angeles
 
90,002

 
90.4
%
 
 
501 Santa Monica Boulevard
 
West Los Angeles
 
76,803

 
86.6
%
 
 
Total Greater Los Angeles
 
 
 
4,181,733

 
94.3
%
 
 
 
 
 
 
 
 
 
 

12
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Stabilized Office Portfolio Occupancy Overview by Region, continued
 
 
 
Submarket
 
Square Feet
 
Occupied
 
Orange County, California
 
 
 
 
 
 
 
 
2211 Michelson Drive
 
Irvine
 
271,556

 
89.6
%
 
 
Total Orange County
 
 
 
271,556

 
89.6
%
 
 
 
 
 
 
 
 
 
 
San Diego, California
 
 
 
 
 
 
 
 
12225 El Camino Real
 
Del Mar
 
58,401

 
100.0
%
 
 
12235 El Camino Real
 
Del Mar
 
53,751

 
88.9
%
 
 
12340 El Camino Real
 
Del Mar
 
88,377

 
100.0
%
 
 
12390 El Camino Real
 
Del Mar
 
72,332

 
100.0
%
 
 
12348 High Bluff Drive
 
Del Mar
 
38,806

 
100.0
%
 
 
12780 El Camino Real
 
Del Mar
 
140,591

 
100.0
%
 
 
12790 El Camino Real
 
Del Mar
 
78,836

 
100.0
%
 
 
12770 El Camino Real
 
Del Mar
 
73,032

 
100.0
%
 
 
12400 High Bluff Drive
 
Del Mar
 
209,220

 
100.0
%
 
 
3579 Valley Centre Drive
 
Del Mar
 
52,418

 
100.0
%
 
 
3611 Valley Centre Drive
 
Del Mar
 
129,656

 
100.0
%
 
 
3661 Valley Centre Drive
 
Del Mar
 
128,364

 
100.0
%
 
 
3721 Valley Centre Drive
 
Del Mar
 
115,193

 
100.0
%
 
 
3811 Valley Centre Drive
 
Del Mar
 
112,067

 
100.0
%
 
 
13280 Evening Creek Drive South
 
I-15 Corridor
 
41,196

 
100.0
%
 
 
13290 Evening Creek Drive South
 
I-15 Corridor
 
61,180

 
100.0
%
 
 
13480 Evening Creek Drive North
 
I-15 Corridor
 
149,817

 
100.0
%
 
 
13500 Evening Creek Drive North
 
I-15 Corridor
 
148,669

 
95.2
%
 
 
13520 Evening Creek Drive North
 
I-15 Corridor
 
141,129

 
90.8
%
 
 
2305 Historic Decatur Road
 
Point Loma
 
103,900

 
100.0
%
 
 
4690 Executive Drive
 
University Towne Center
 
47,846

 
91.4
%
 
 
Total San Diego County
 
 
 
2,044,781

 
98.5
%
 
 
 
 
 
 
 
 
 
 











13
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report


Stabilized Office Portfolio Occupancy Overview by Region, continued
 
 
 
Submarket
 
Square Feet
 
Occupied
 
San Francisco Bay Area, California
 
 
 
 
 
 
 
 
4100 Bohannon Drive
 
Menlo Park
 
47,379

 
100.0
%
 
 
4200 Bohannon Drive
 
Menlo Park
 
45,451

 
71.5
%
 
 
4300 Bohannon Drive
 
Menlo Park
 
63,079

 
100.0
%
 
 
4400 Bohannon Drive
 
Menlo Park
 
48,146

 
100.0
%
 
 
4500 Bohannon Drive
 
Menlo Park
 
63,078

 
100.0
%
 
 
4600 Bohannon Drive
 
Menlo Park
 
48,147

 
93.0
%
 
 
4700 Bohannon Drive
 
Menlo Park
 
63,078

 
100.0
%
 
 
1290-1300 Terra Bella Avenue
 
Mountain View
 
114,175

 
100.0
%
 
 
331 Fairchild Drive
 
Mountain View
 
87,147

 
100.0
%
 
 
680 E. Middlefield Road
 
Mountain View
 
170,090

 
100.0
%
 
 
690 E. Middlefield Road
 
Mountain View
 
170,823

 
100.0
%
 
 
1701 Page Mill Road
 
Palo Alto
 
128,688

 
100.0
%
 
 
3150 Porter Drive
 
Palo Alto
 
36,897

 
100.0
%
 
 
900 Jefferson Avenue
 
Redwood City
 
228,505

 
100.0
%
 
 
900 Middlefield Road
 
Redwood City
 
118,764

 
97.3
%
 
 
100 First Street
 
San Francisco
 
467,095

 
58.9
%
 
 
303 Second Street
 
San Francisco
 
740,047

 
89.8
%
 
 
201 Third Street
 
San Francisco
 
346,538

 
98.8
%
 
 
360 Third Street
 
San Francisco
 
429,796

 
99.6
%
 
 
250 Brannan Street
 
San Francisco
 
100,850

 
100.0
%
 
 
301 Brannan Street
 
San Francisco
 
82,834

 
100.0
%
 
 
333 Brannan Street
 
San Francisco
 
185,602

 
100.0
%
 
 
350 Mission Street
 
San Francisco
 
455,340

 
98.1
%
 
 
345 Oyster Point Boulevard
 
South San Francisco
 
40,410

 
100.0
%
 
 
347 Oyster Point Boulevard
 
South San Francisco
 
39,780

 
100.0
%
 
 
349 Oyster Point Boulevard
 
South San Francisco
 
65,340

 
52.2
%
 
 
1310 Chesapeake Terrace
 
Sunnyvale
 
76,244

 
100.0
%
 
 
1315 Chesapeake Terrace
 
Sunnyvale
 
55,635

 
100.0
%
 
 
1320-1324 Chesapeake Terrace
 
Sunnyvale
 
79,720

 
100.0
%
 
 
1325-1327 Chesapeake Terrace
 
Sunnyvale
 
55,383

 
100.0
%
 
 
505 Mathilda Avenue
 
Sunnyvale
 
212,322

 
100.0
%
 
 
555 Mathilda Avenue
 
Sunnyvale
 
212,322

 
100.0
%
 
 
605 Mathilda Avenue
 
Sunnyvale
 
162,785

 
100.0
%
 
 
599 Mathilda Avenue
 
Sunnyvale
 
75,810

 
100.0
%
 
 
Total San Francisco Bay Area
 
 
 
5,317,300

 
93.8
%
 
 
 
 
 
 
 
 
 
 

14
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Stabilized Office Portfolio Occupancy Overview by Region, continued
 
 
 
Submarket
 
Square Feet
 
Occupied
 
Greater Seattle, Washington
 
 
 
 
 
 
 
 
601 108th Avenue NE
 
Bellevue
 
488,470

 
99.6
%
 
 
10900 NE 4th Street
 
Bellevue
 
416,755

 
67.2
%
 
 
10210 NE Points Drive
 
Kirkland
 
84,641

 
100.0
%
 
 
10220 NE Points Drive
 
Kirkland
 
49,851

 
100.0
%
 
 
10230 NE Points Drive
 
Kirkland
 
98,982

 
96.7
%
 
 
3933 Lake Washington Blvd NE
 
Kirkland
 
46,450

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

 
76.2
%
 
 
701 N. 34th Street
 
Lake Union
 
138,994

 
77.9
%
 
 
801 N. 34th Street
 
Lake Union
 
169,412

 
100.0
%
 
 
320 Westlake Avenue North
 
Lake Union
 
184,644

 
100.0
%
 
 
321 Terry Avenue North
 
Lake Union
 
135,755

 
100.0
%
 
 
401 Terry Avenue North
 
Lake Union
 
140,605

 
100.0
%
 
 
Total Greater Seattle
 
 
 
2,066,139

 
90.4
%
 
 
 
 
 
 
 
 
 
 
 
TOTAL
 
 
 
13,881,509

 
94.0
%
 
 
 
 
 
 
 
 
 
 


15
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Information on Leases Commenced (1) 
 
 
 
1st & 2nd Generation
 
2nd Generation
 
 
 
# of Leases  (2)
 
Square Feet (2)
 
Retention
Rates
 
TI/LC
Per Sq.Ft. 
 
TI/LC
Per Sq.Ft. /Year
 
Changes in
GAAP Rents
 
Changes in
Cash Rents
 
Weighted
Average Lease
Term (Mo.)
 
 
 
New
 
Renewal
 
New
 
Renewal
 
 
 
 
 
 
 
 
Quarter to Date
26

 
16

 
279,976

 
570,265

 
62.9
%
 
$
52.29

 
$
6.97

 
30.7
%
 
16.9
%
 
90

 
 
Year to Date
43

 
31

 
399,369

 
691,941

 
54.8
%
 
50.52

 
7.22

 
30.4
%
 
16.0
%
 
84

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Information on Leases Executed (1) 
 
 
 
1st & 2nd Generation
 
2nd Generation
 
 
 
# of Leases (3)
 
Square Feet (3)
 
TI/LC
Per Sq.Ft.
 
TI/LC
Per Sq.Ft. /Year
 
Changes in
GAAP Rents
 
Changes in
Cash Rents
 
Weighted
Average Lease
Term (Mo.)
 
 
 
New
 
Renewal
 
New
 
Renewal
 
 
 
 
 
 
 
Quarter to Date (4) (5)
25

 
16

 
744,802

 
570,265

 
$
52.82

 
$
6.15

 
30.2
%
 
9.8
%
 
103

 
 
Year to Date (5) (6)
45

 
31

 
924,498

 
691,941

 
52.06

 
6.37

 
29.9
%
 
10.2
%
 
98
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Includes 100% of consolidated property partnerships.
(2)
Represents leasing activity for leases that commenced at properties in the stabilized portfolio during the three and six months ended June 30, 2018, including first and second generation space, net of month-to-month leases.
(3)
Represents leasing activity for leases signed at properties in the stabilized portfolio during the three and six months ended June 30, 2018, including first and second generation space, net of month-to-month leases. Excludes leasing on new construction.
(4)
During the three months ended June 30, 2018, 22 new leases totaling 711,948 square feet were signed but not commenced as of June 30, 2018.
(5)
Excludes a 110,000 square foot lease executed at 345 Brannan Street in San Francisco, which the Company is committed to acquire by the end of 2018.
(6)
During the six months ended June 30, 2018, 29 new leases totaling 834,787 square feet were signed but not commenced as of June 30, 2018.
 

16
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Stabilized Portfolio Capital Expenditures
($ in thousands)
 
 
Total 2018
 
Q2 2018
 
Q1 2018
 
 
1st Generation (Nonrecurring) Capital Expenditures: (1)
 
 
 
 
 
 
 
Capital Improvements
$
2,256

 
$
1,235

 
$
1,021

 
 
 
 
 
 
 
 
 
 
Tenant Improvements & Leasing Commissions (2)
5,984

 
4,866

 
1,118

 
 
 
 
 
 
 
 
 
 
Total
$
8,240


$
6,101

 
$
2,139

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total 2018
 
Q2 2018
 
Q1 2018
 
 
2nd Generation (Recurring) Capital Expenditures: (1)
 
 
 
 
 
 
 
Capital Improvements
$
8,346

 
$
5,671

 
$
2,675

 
 
 
 
 
 
 
 
 
 
Tenant Improvements & Leasing Commissions (2)
40,502

 
29,183

 
11,319

 
 
 
 
 
 
 
 
 
 
Total
$
48,848

 
$
34,854

 
$
13,994

 
 
 
 
 
 
 
 
 
________________________
(1)
Includes 100% of capital expenditures of consolidated property partnerships.
(2)
Represents costs incurred for leasing activity during the period shown. Amounts exclude tenant-funded tenant improvements.


17
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Stabilized Portfolio Lease Expiration Summary Schedule
($ 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 (1)
 
% of Total
Annualized
Base Rent
 
Annualized Rent
per Sq. Ft.
 
 
Remaining 2018 (2)
 
39

 
571,075

 
4.5
%
 
$
25,544

 
4.4
%
 
$
44.73

 
 
2019 (2)
 
102

 
1,482,803

 
11.6
%
 
61,047

 
10.6
%
 
41.17

 
 
2020
 
107

 
1,699,452

 
13.3
%
 
68,889

 
12.0
%
 
40.54

 
 
2021
 
91

 
932,442

 
7.3
%
 
40,075

 
7.0
%
 
42.98

 
 
2022
 
60

 
613,078

 
4.8
%
 
25,890

 
4.5
%
 
42.23

 
 
2023
 
75

 
1,287,910

 
10.1
%
 
67,068

 
11.6
%
 
52.08

 
 
2024
 
37

 
997,776

 
7.8
%
 
42,308

 
7.3
%
 
42.40

 
 
2025
 
22

 
393,112

 
3.1
%
 
18,521

 
3.2
%
 
47.11

 
 
2026
 
21

 
1,258,346

 
9.9
%
 
49,676

 
8.6
%
 
39.48

 
 
2027
 
18

 
1,054,531

 
8.3
%
 
43,591

 
7.6
%
 
41.34

 
 
2028 and beyond
 
32

 
2,473,858

 
19.3
%
 
133,427

 
23.2
%
 
53.93

 
 
Total (3)
 
604

 
12,764,383

 
100.0
%
 
$
576,036

 
100.0
%
 
$
45.13

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Includes 100% of annualized base rent of consolidated property partnerships.
(2)
Adjusting for leasing transactions executed as of June 30, 2018 but not yet commenced, the remaining 2018 and 2019 expirations would be reduced by 191,833 square feet and 590,820 square feet, respectively.
(3)
For leases that have been renewed early with existing tenants, the expiration date and annualized base rent information presented takes into consideration the renewed lease terms. Excludes leases not commenced as of June 30, 2018, space leased under month-to-month leases, storage leases, vacant space and future lease renewal options not executed as of June 30, 2018.


18
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
Greater Los Angeles
 
24

 
86,092

 
0.7
%
 
$
3,734

 
0.6
%
 
$
43.37

 
 
 
Orange County
 
1

 
1,090

 
—
%
 
31

 
—
%
 
28.44

 
 
 
San Diego
 
7

 
382,240

 
3.0
%
 
17,024

 
3.0
%
 
44.54

 
 
 
San Francisco Bay Area
 
4

 
72,041

 
0.6
%
 
3,940

 
0.7
%
 
54.69

 
 
 
Greater Seattle
 
3

 
29,612

 
0.2
%
 
815

 
0.1
%
 
27.52

 
 
 
Total
 
39

 
571,075

 
4.5
%
 
$
25,544

 
4.4
%
 
$
44.73

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019
 
Greater Los Angeles
 
45

 
324,890

 
2.6
%
 
$
10,745

 
1.8
%
 
$
33.07

 
 
 
Orange County
 
6

 
77,875

 
0.6
%
 
3,234

 
0.6
%
 
41.53

 
 
 
San Diego
 
15

 
195,661

 
1.5
%
 
7,209

 
1.3
%
 
36.84

 
 
 
San Francisco Bay Area
 
20

 
689,340

 
5.4
%
 
33,367

 
5.8
%
 
48.40

 
 
 
Greater Seattle
 
16

 
195,037

 
1.5
%
 
6,492

 
1.1
%
 
33.29

 
 
 
Total
 
102

 
1,482,803

 
11.6
%
 
$
61,047

 
10.6
%
 
$
41.17

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2020
 
Greater Los Angeles
 
58

 
578,275

 
4.5
%
 
$
22,066

 
3.8
%
 
$
38.16

 
 
 
Orange County
 
5

 
38,526

 
0.3
%
 
1,238

 
0.2
%
 
32.13

 
 
 
San Diego
 
16

 
340,826

 
2.7
%
 
13,188

 
2.3
%
 
38.69

 
 
 
San Francisco Bay Area
 
23

 
623,471

 
4.9
%
 
28,521

 
5.0
%
 
45.75

 
 
 
Greater Seattle
 
5

 
118,354

 
0.9
%
 
3,876

 
0.7
%
 
32.75

 
 
 
Total
 
107

 
1,699,452

 
13.3
%
 
$
68,889

 
12.0
%
 
$
40.54

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2021
 
Greater Los Angeles
 
53

 
360,162

 
2.8
%
 
$
14,003

 
2.4
%
 
$
38.88

 
 
 
Orange County
 
6

 
75,296

 
0.6
%
 
2,652

 
0.5
%
 
35.22

 
 
 
San Diego
 
10

 
175,264

 
1.4
%
 
7,394

 
1.3
%
 
42.19

 
 
 
San Francisco Bay Area
 
12

 
266,788

 
2.1
%
 
14,336

 
2.5
%
 
53.74

 
 
 
Greater Seattle
 
10

 
54,932

 
0.4
%
 
1,690

 
0.3
%
 
30.77

 
 
 
Total
 
91

 
932,442

 
7.3
%
 
$
40,075

 
7.0
%
 
$
42.98

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2022
 
Greater Los Angeles
 
37

 
324,456

 
2.5
%
 
$
14,131

 
2.5
%
 
$
43.55

 
 
 
Orange County
 
2

 
6,898

 
0.1
%
 
269

 
—
%
 
39.00

 
 
 
San Diego
 
4

 
40,566

 
0.3
%
 
1,300

 
0.2
%
 
32.05

 
 
 
San Francisco Bay Area
 
7

 
122,134

 
1.0
%
 
6,290

 
1.1
%
 
51.50

 
 
 
Greater Seattle
 
10

 
119,024

 
0.9
%
 
3,900

 
0.7
%
 
32.77

 
 
 
Total
 
60

 
613,078

 
4.8
%
 
$
25,890

 
4.5
%
 
$
42.23

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2023
and
Beyond
 
Greater Los Angeles
 
77

 
2,108,169

 
16.5
%
 
$
93,751

 
16.3
%
 
$
44.47

 
 
 
Orange County
 
3

 
40,154

 
0.3
%
 
1,538

 
0.3
%
 
38.30

 
 
 
San Diego
 
27

 
847,316

 
6.6
%
 
38,243

 
6.6
%
 
45.13

 
 
 
San Francisco Bay Area
 
59

 
3,160,067

 
24.8
%
 
171,107

 
29.6
%
 
54.15

 
 
 
Greater Seattle
 
39

 
1,309,827

 
10.3
%
 
49,952

 
8.7
%
 
38.14

 
 
 
Total
 
205

 
7,465,533

 
58.5
%
 
$
354,591

 
61.5
%
 
$
47.50

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Includes 100% of annualized base rent of consolidated property partnerships.

19
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Stabilized Portfolio Quarterly Lease Expirations for 2018 and 2019
($ in thousands, except for annualized rent per sq. ft.)
 
 
 
# of Expiring
Leases
 
Total Square
Feet
 
% of Total
Leased Sq. Ft.
 
Annualized
Base Rent (1)
 
% of Total
Annualized
Base Rent
 
Annualized Rent
per Sq. Ft.
 
 
2018:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q3 2018
 
20

 
324,900

 
2.5
%
 
$
15,680

 
2.7
%
 
$
48.26

 
 
Q4 2018
 
19

 
246,175

 
2.0
%
 
9,864

 
1.7
%
 
40.07

 
 
Total 2018 (2)
 
39

 
571,075

 
4.5
%
 
$
25,544

 
4.4
%
 
$
44.73

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q1 2019
 
26

 
578,935

 
4.5
%
 
$
23,716

 
4.1
%
 
$
40.96

 
 
Q2 2019
 
22

 
216,703

 
1.7
%
 
8,238

 
1.4
%
 
38.02

 
 
Q3 2019
 
27

 
439,462

 
3.4
%
 
18,367

 
3.2
%
 
41.79

 
 
Q4 2019
 
27

 
247,703

 
2.0
%
 
10,726

 
1.9
%
 
43.30

 
 
Total 2019 (2)
 
102

 
1,482,803

 
11.6
%
 
$
61,047

 
10.6
%
 
$
41.17

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Includes 100% of annualized base rent of consolidated property partnerships.
(2)
Adjusting for leasing transactions executed as of June 30, 2018 but not yet commenced, the remaining 2018 and 2019 expirations would be reduced by 191,833 square feet and 590,820 square feet, respectively.


20
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Top Fifteen Tenants (1) 
($ in thousands)  
 
Tenant Name
 
Region
 
Annualized Base Rental Revenue (2)
 
Rentable
Square Feet
 
Percentage of
Total Annualized Base Rental Revenue
 
Percentage of
Total Rentable
Square Feet
 
 
LinkedIn Corporation
 
San Francisco Bay Area
 
$
28,344

 
663,239

 
4.9
%
 
4.8
%
 
 
salesforce.com, inc.
 
San Francisco Bay Area / Greater Seattle
 
23,836

 
456,867

 
4.1
%
 
3.3
%
 
 
DIRECTV, LLC
 
Greater Los Angeles
 
23,152

 
684,411

 
4.0
%
 
4.9
%
 
 
Box, Inc.
 
San Francisco Bay Area
 
22,441

 
371,792

 
3.9
%
 
2.7
%
 
 
Riot Games, Inc.
 
Greater Los Angeles
 
15,511

 
251,509

 
2.7
%
 
1.8
%
 
 
Synopsys, Inc.
 
San Francisco Bay Area
 
15,492

 
340,913

 
2.7
%
 
2.5
%
 
 
Dropbox, Inc.
 
San Francisco Bay Area
 
13,960

 
264,888

 
2.4
%
 
1.9
%
 
 
Viacom International, Inc.
 
Greater Los Angeles
 
13,718

 
211,343

 
2.4
%
 
1.5
%
 
 
Bridgepoint Education, Inc.
 
San Diego County
 
13,129

 
273,292

 
2.3
%
 
2.0
%
 
 
AppDynamics, Inc.
 
San Francisco Bay Area
 
10,792

 
147,288

 
1.9
%
 
1.1
%
 
 
Concur Technologies
 
Greater Seattle
 
10,643

 
288,322

 
1.9
%
 
2.1
%
 
 
Capital One, N.A.
 
San Francisco Bay Area
 
9,170

 
117,993

 
1.6
%
 
0.9
%
 
 
AMN Healthcare, Inc.
 
San Diego County
 
9,001

 
176,075

 
1.6
%
 
1.3
%
 
 
Stanford University School of Medicine
 
San Francisco Bay Area
 
8,461

 
128,688

 
1.5
%
 
0.9
%
 
 
Adobe Systems, Inc.
 
San Francisco Bay Area / Greater Seattle
 
7,586

 
204,757

 
1.3
%
 
1.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Top Fifteen Tenants
 
 
 
$
225,236

 
4,581,377

 
39.2
%
 
33.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
The information presented is as of June 30, 2018.
(2)
Includes 100% of annualized base rental revenues of consolidated property partnerships.



21
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

2018 Operating Property Acquisitions
($ in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
COMPLETED OPERATING PROPERTY ACQUISITIONS
 
Submarket
 
Month of
Acquisition
 
Number of Buildings
 
Rentable Square Feet
 
Purchase
Price (1)
 
 
1st Quarter
 
 
 
 
 
 
 
 
 
 
 
 
345, 347 & 349 Oyster Point Boulevard, South San Francisco, CA
 
South San Francisco
 
January
 
3
 
145,530

 
$
111.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2nd Quarter
 
 
 
 
 
 
 
 
 
 
 
 
None
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL
 
 
 
 
 
3
 
145,530

 
$
111.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________ 
(1)
Excludes acquisition-related costs.

22
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Consolidated Ventures (Noncontrolling Property Partnerships)

 
 
 
 
 
 
 
 
 
 
 
 
Property (1)
 
Venture Partner
 
Submarket
 
Rentable Square Feet
 
KRC Ownership %
 
 
100 First Street, San Francisco, CA
 
Norges Bank Real Estate Management
 
San Francisco
 
467,095
 
56%
 
 
303 Second Street, San Francisco, CA
 
Norges Bank Real Estate Management
 
San Francisco
 
740,047
 
56%
 
 
900 Jefferson Avenue and 900 Middlefield Road, Redwood City, CA (2)
 
Local developer
 
Redwood City
 
347,269
 
93%
 
 
 
 
 
 
 
 
 
 
 
 
____________________
(1)
For breakout of Net Operating Income by partnership, refer to page 34, Reconciliation of Net Income Available to Common Stockholders to Same Store Net Operating Income.
(2)
Reflects the KRC ownership percentage at time of agreement. Actual percentage may vary depending on cash flows or promote structure.

23
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

In-Process Development
($ in millions)
 
 
 
Location
 
Construction Start Date
 
Estimated Stabilization Date (2)
 
Estimated Rentable Square Feet
 
Total Estimated Investment
 
Total Cash Costs Incurred as of
6/30/2018 (3)
 
Office % Leased
 
Total Project % Leased
 
 
TENANT IMPROVEMENT (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
San Francisco Bay Area
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100 Hooper (4)
 
SOMA
 
4Q 2016
 
2Q 2019
 
400,000

 
$
270.0

 
$
214.7

 
100%
 
87%
 
 
The Exchange on 16th (5)
 
Mission Bay
 
2Q 2015
 
2Q 2019 - 3Q 2020
 
750,000

 
570.0

 
409.1

 
100%
 
99%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL:
 
 
 
 
 
 
 
1,150,000

 
$
840.0

 
$
623.8

 
100%
 
95%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UNDER CONSTRUCTION
 
Location
 
Construction Start Date
 
Estimated Stabilization Date (2)
 
Estimated Rentable Square Feet
 
Total Estimated Investment
 
Total Cash Costs Incurred as of
6/30/2018 (3)
 
Office % Leased
 
Retail
% Leased
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Greater Seattle
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
333 Dexter
 
South Lake Union
 
2Q 2017
 
3Q 2020
 
650,000

 
$
380.0

 
$
137.1

 
—%
 
—%
 
 
Mixed-Use
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Greater Los Angeles
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Academy on Vine - Phase I (Office and Retail) (6)
 
Hollywood
 
1Q 2018
 
1Q 2021
 
306,000 Office
24,000 Retail

 
260.0

 
73.0

 
—%
 
—%
 
 
San Diego County
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One Paseo - Phases I and II (Retail and Residential) (7)
 
Del Mar
 
4Q 2016
 
1Q 2019 - 3Q 2020
 
96,000 Retail
608 Resi Units

 
465.0

 
267.9

 
N/A
 
70%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL:
 
 
 
 
 
 
 
 
 
$
1,105.0

 
$
478.0

 
—%
 
50%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Represents projects that have reached cold shell condition and are ready for tenant improvements, which may require additional major base building construction before being placed in service.
(2)
For office and retail, represents the earlier of anticipated 95% occupancy date or one year from substantial completion of base building components. For residential, represents when construction is complete and the project is available for occupancy. For multi-phase projects, interest and carry cost capitalization may cease and recommence driven by various factors, including tenant improvement construction and other tenant related timing or project scope.
(3)
Represents costs incurred as of June 30, 2018, excluding accrued liabilities recorded in accordance with GAAP.
(4)
The office component of this project, which consists of approximately 314,000 rentable square feet, is 100% leased to Adobe, Inc. and the lease is expected to commence in the third quarter of 2018. The remaining space will be completed in phases through the stabilization date.
(5)
The Company signed a 15-year lease for 100% of the office space with Dropbox, Inc. The lease with Dropbox, Inc. will commence in phases beginning in the fourth quarter of 2018 through the fourth quarter of 2019. The estimated stabilization dates for Phase I, Phase II, and Phase III are the second quarter of 2019, the fourth quarter of 2019, and the third quarter of 2020, respectively.
(6)
Development for this project will occur in phases. Phase I includes the project’s overall infrastructure and site work, 306,000 square feet of office space and 24,000 square feet of retail space.
(7)
Development for this project will occur in phases. Phases I & II includes the project’s overall infrastructure and site work, 608 residential units and approximately 96,000 square feet of retail space.


24
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Future Development Pipeline
($ in millions)
 
FUTURE DEVELOPMENT PIPELINE:
 
Location
 
Approx. Developable Square Feet / Resi Units (1)
 
Total Cash Costs Incurred as of 6/30/2018 (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
Greater Los Angeles
 
 
 
 
 
 
 
 
 
 
Academy on Vine - Phase II (Residential)
 
Hollywood
 
200 Resi Units
 
$
32.2

 
 
San Diego County
 
 
 
 
 
 
 
 
 
 
One Paseo - Phase III (Office)
 
Del Mar
 
270,000
 
66.5

 
 
2100 Kettner
 
Little Italy
 
175,000
 
22.3

 
 
9455 Towne Centre Drive
 
University Towne Center
 
150,000
 
15.2

 
 
Santa Fe Summit – Phases II and III
 
56 Corridor
 
600,000
 
79.0

 
 
San Francisco Bay Area
 
 
 
 
 
 
 
 
 
 
Kilroy Oyster Point (3)
 
South San Francisco
 
2,500,000
 
319.4

 
 
Flower Mart
 
SOMA
 
TBD
 
213.6

 
 
TOTAL:
 
 
 
 
 
 
 
$
748.2

 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
The developable square feet and scope of projects could change materially from estimated data provided due to one or more of the following: any significant changes in the economy, market conditions, our markets, tenant requirements and demands, construction costs, new supply, regulatory and entitlement processes or project design.
(2)
Represents costs incurred as of June 30, 2018, excluding accrued liabilities recorded in accordance with GAAP.
(3)
The Company acquired a 39-acre site located in South San Francisco that is fully entitled for approximately 2.5 million square feet of life science and office space in the second quarter of 2018 for a cash purchase price of $308.2 million. In addition to the purchase price, total costs as of June 30, 2018 include transaction costs and development spending.


25
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Capital Structure
As of June 30, 2018
($ in thousands)
 
 
 
 
 
 
 
 
 
 
 
Shares/Units
June 30, 2018
 
Aggregate Principal
Amount or
$ Value Equivalent
 
% of Total
Market
Capitalization
 
 
DEBT: (1) (2)
 
 
 
 
 
 
 
 
Unsecured Line of Credit
 
 
 
$
295,000

 
2.8
%
 
 
Unsecured Term Loan Facility
 
 
 
150,000

 
1.4
%
 
 
Unsecured Senior Notes due 2020
 
 
 
250,000

 
2.4
%
 
 
Unsecured Senior Notes due 2023
 
 
 
300,000

 
2.8
%
 
 
Unsecured Senior Notes due 2024
 
 
 
425,000

 
4.0
%
 
 
Unsecured Senior Notes due 2025
 
 
 
400,000

 
3.8
%
 
 
Unsecured Senior Notes due 2029
 
 
 
400,000

 
3.8
%
 
 
Unsecured Senior Notes Series A & B due 2027 & 2029
 
 
 
250,000

 
2.4
%
 
 
Secured Debt
 
 
 
337,627

 
3.2
%
 
 
Total Debt
 
 
 
$
2,807,627

 
26.6
%
 
 
EQUITY AND NONCONTROLLING INTEREST IN THE OPERATING PARTNERSHIP: (3)
 
 
 
 
 
 
 
 
Common limited partnership units outstanding (4)
 
2,070,690
 
$
156,627

 
1.5
%
 
 
Shares of common stock outstanding (3)
 
100,559,903
 
7,606,351

 
71.9
%
 
 
Total Equity and Noncontrolling Interests in the Operating Partnership
 
 
 
$
7,762,978

 
73.4
%
 
 
TOTAL MARKET CAPITALIZATION
 
 
 
$
10,570,605

 
100.0
%
 
 
 
 
 
 
 
 
 
 
________________________
(1)
In May, the Company completed a private placement of $50.0 million of eight-year, 4.30% unsecured senior notes (“Series A Notes due 2026”) and $200.0 million of eight-year, 4.35% unsecured senior notes (“Series B Notes due 2026”) with delayed draw options. The table above does not reflect any amounts pertaining to these notes since there were no amounts drawn or outstanding as of June 30, 2018. In July, the Company drew the full amount of the Series A Notes due 2026. The Series B Notes due 2026 are required to be drawn by October 22, 2018.
(2)
Represents the gross aggregate principal amount due at maturity before the effect of unamortized deferred financing costs and premiums and discounts.
(3)
Value based on closing share price of $75.64 as of June 30, 2018.
(4)
Includes common units of the Operating Partnership not owned by the Company; does not include noncontrolling interests in consolidated property partnerships.




26
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Debt Analysis
As of June 30, 2018
 
 
 
 
 
 
 
 
 
 
TOTAL DEBT COMPOSITION (1)
 
 
 
 
Percent of
Total Debt
 
Weighted Average
 
 
 
 
Interest Rate
 
Years to Maturity
 
 
Secured vs. Unsecured Debt
 
 
 
 
 
 
 
 
Unsecured Debt
 
88.0%
 
4.0%
 
6.5
 
 
Secured Debt
 
12.0%
 
4.4%
 
6.9
 
 
Floating vs. Fixed-Rate Debt
 
 
 
 
 
 
 
 
Floating-Rate Debt
 
15.8%
 
3.1%
 
4.1
 
 
Fixed-Rate Debt
 
84.2%
 
4.2%
 
7.0
 
 
 
 
 
 
 
 
 
 
 
Stated Interest Rate
 
 
 
4.1%
 
6.6
 
 
 
 
 
 
 
 
 
 
 
GAAP Effective Rate
 
 
 
4.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP Effective Rate Including Debt Issuance Costs
 
 
 
4.2%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
KEY DEBT COVENANTS (1)
 
 
 
Covenant
 
Actual Performance
as of June 30, 2018
 
 
Unsecured Credit and Term Loan Facility and Private Placement Notes (as defined in the Credit Agreements):
 
 
 
 
 
 
Total debt to total asset value
 
less than 60%
 
28%
 
 
Fixed charge coverage ratio
 
greater than 1.5x
 
3.7x
 
 
Unsecured debt ratio
 
greater than 1.67x
 
3.24x
 
 
Unencumbered asset pool debt service coverage
 
greater than 1.75x
 
5.14x
 
 
 
 
 
 
 
 
 
Unsecured Senior Notes due 2020, 2023, 2024, 2025 and 2029 (as defined in the Indentures): 
 
 
 
 
 
 
Total debt to total asset value
 
less than 60%
 
34%
 
 
Interest coverage
 
greater than 1.5x
 
8.4x
 
 
Secured debt to total asset value
 
less than 40%
 
4%
 
 
Unencumbered asset pool value to unsecured debt
 
greater than 150%
 
303%
 
 
 
 
 
 
 
 
________________________
(1)
In May, the Company completed a private placement of $50.0 million of eight-year, 4.30% unsecured senior notes (“Series A Notes due 2026”) and $200.0 million of eight-year, 4.35% unsecured senior notes (“Series B Notes due 2026”) with delayed draw options. The tables above do not reflect any amounts pertaining to these notes since there were no amounts drawn or outstanding as of June 30, 2018. In July, the Company drew the full amount of the Series A Notes due 2026. The Series B Notes due 2026 are required to be drawn by October 22, 2018

27
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Debt Analysis
($ in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DEBT MATURITY SCHEDULE
 
Floating/
Fixed Rate
 
Stated
Rate
 
GAAP Effective Rate (1)
 
Maturity
Date
 
2018
 
2019
 
2020
 
2021
 
2022
 
After 2022
 
Total (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured Debt: (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating
 
3.10%
 
3.10%
 
7/31/2022
 
 
 
 
 
 
 
 
 
$
295,000

 
 
 
$
295,000

 
 
Floating
 
3.17%
 
3.17%
 
7/31/2022
 
 
 
 
 
 
 
 
 
150,000

 

 
150,000

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

 
 
 
 
 
 
 
250,000

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

 
300,000

 
 
Fixed
 
3.45%
 
3.47%
 
12/15/2024
 
 
 
 
 
 
 
 
 
 
 
425,000

 
425,000

 
 
Fixed
 
4.38%
 
4.44%
 
10/1/2025
 
 
 
 
 
 
 
 
 
 
 
400,000

 
400,000

 
 
Fixed
 
3.35%
 
3.35%
 
2/17/2027
 
 
 
 
 
 
 
 
 
 
 
175,000

 
175,000

 
 
Fixed
 
3.45%
 
3.45%
 
2/17/2029
 
 
 
 
 
 
 
 
 
 
 
75,000

 
75,000

 
 
Fixed
 
4.25%
 
4.35%
 
8/15/2029
 
 
 
 
 
 
 
 
 
 
 
400,000

 
400,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total unsecured debt
 
4.03%
 
4.07%
 
 
 
—

 
—

 
250,000

 
—

 
445,000

 
1,775,000

 
2,470,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed (4)
 
6.05%
 
3.50%
 
6/1/2019
 
932

 
74,479

 
 
 
 
 
 
 
 
 
75,411

 
 
Fixed
 
3.57%
 
3.57%
 
12/1/2026
 

 

 
3,224

 
3,341

 
3,462

 
159,973

 
170,000

 
 
Fixed
 
4.48%
 
4.48%
 
7/1/2027
 
884

 
1,830

 
1,913

 
2,001

 
2,092

 
83,496

 
92,216

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total secured debt
 
4.37%
 
3.80%
 
 
 
1,816

 
76,309

 
5,137

 
5,342

 
5,554

 
243,469

 
337,627

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
4.07%
 
4.04%
 
 
 
$
1,816

 
$
76,309

 
$
255,137

 
$
5,342

 
$
450,554

 
$
2,018,469

 
$
2,807,627

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of discounts/premiums, excluding deferred financing costs.
(2)
Represents the gross aggregate principal amount due at maturity before the effect of unamortized deferred financing costs and premiums and discounts.
(3)
In May, the Company completed a private placement of $50.0 million of eight-year, 4.30% unsecured senior notes (“Series A Notes due 2026”) and $200.0 million of eight-year, 4.35% unsecured senior notes (“Series B Notes due 2026”) with delayed draw options. The table above does not reflect any amounts pertaining to these notes since there were no amounts drawn or outstanding as of June 30, 2018. In July, the Company drew the full amount of the Series A Notes due 2026. The Series B Notes due 2026 are required to be drawn by October 22, 2018.
(4)
Represents secured debt assumed in connection with an operating property acquisition.





28
Kilroy Realty Corporation
Second Quarter 2018 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 available to common stockholders and common unitholders (“FFO”), in the Company’s earnings release on July 25, 2018 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 consolidated operating revenues (rental income, tenant reimbursements and other property income) less consolidated 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, 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 consolidated 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 portfolio basis since NOI allows the Company to evaluate the impact that factors such as occupancy levels, lease structure, rental rates, and tenant base 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 consolidated NOI for all of the properties that were owned and included in the Company's 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, 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, 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.



29
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Management Statements on Non-GAAP Supplemental Measures, continued
 
Same Store Cash Net Operating Income:

Management believes that Same Store Cash NOI is a useful supplemental measure of the Company’s operating performance. Same Store Cash NOI represents the consolidated NOI for all of the properties that were owned and included in the Company’s stabilized portfolio for two comparable reporting periods, adjusted for the net effect of straight-line rents, amortization of deferred revenue related to tenant-funded tenant improvements, amortization of above and below market lease intangibles, and bad debt expense. Because Same Store Cash NOI excludes the change in NOI from developed, redeveloped, acquired and disposed of and held for sale properties, it highlights operating trends on a cash basis such as occupancy levels, rental rates and operating costs on properties. Other REITs may use different methodologies for calculating Same Store Cash NOI, and accordingly, our Same Store Cash NOI may not be comparable to other REITs.

However, Same Store Cash 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.

EBITDA, as adjusted:

Management believes that consolidated earnings before interest expense, depreciation and amortization, gain/loss on early extinguishment of debt, gains and losses on depreciable real estate, net income attributable to noncontrolling interests, preferred dividends and distributions, original issuance costs of redeemed preferred stock and preferred units, and impairment losses (“EBITDA, as adjusted”) is a useful supplemental measure of the Company’s operating performance. When considered with other GAAP measures and FFO, management believes EBITDA, as adjusted, gives the investment community a more complete understanding of the Company’s consolidated 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 adjusted, as it is used in several of the Company’s financial covenants for both its secured and unsecured debt. However, EBITDA, as adjusted, 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, as adjusted, and, accordingly, the Company’s EBITDA, as adjusted, may not be comparable to other REITs. The Company’s calculation of EBITDA, as adjusted, is the same as EBITDAre, as defined by NAREIT, as the Company does not have any unconsolidated joint ventures.
 




30
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Management Statements on Non-GAAP Supplemental Measures, continued
 
Funds From Operations:

The Company calculates Funds From Operations available to common stockholders and common unitholders (“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. We also add back net income attributable to noncontrolling common units of the Operating Partnership because we report FFO attributable to common stockholders and common unitholders.

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.

Funds Available for Distribution:

Management believes that Funds Available for Distribution available to common stockholders and common unitholders (“FAD”) is a useful supplemental measure of the Company’s liquidity. The Company computes FAD by adding to FFO the non-cash amortization of deferred financing costs, debt discounts and premiums and share-based compensation awards and amortization of above (below) market rents for acquisition properties, 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, adjusting for other lease related items and after adjustment for amounts attributable to noncontrolling interests in consolidated property partnerships. 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 non-cash 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.


31
Kilroy Realty Corporation
Second Quarter 2018 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 to 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 the cessation of major base building construction activities for office and retail properties and upon substantial completion for residential properties.

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 FAD.

First Generation Capital Expenditures:

Capital expenditures for newly acquired space, newly developed, redeveloped, or repositioned space. These costs are not subtracted in our calculation of FAD.

Fixed Charge Coverage Ratio:

Calculated as EBITDA, as adjusted, divided by gross interest expense (excluding amortization of deferred debt costs and debt discounts/premiums) and current year accrued preferred dividends.

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 FFO attributable to common stockholders and unitholders.


32
Kilroy Realty Corporation
Second Quarter 2018 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, as adjusted, divided by gross interest expense (excluding amortization of deferred debt costs and debt discounts/premiums).

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.

Net Operating Income Margins:

Calculated as Net Operating Income divided by total revenues.

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 for two comparable reporting periods, i.e., owned and included in our stabilized portfolio as of January 1, 2017 and still owned and included in the stabilized portfolio as of June 30, 2018. It does not include undeveloped land, development and redevelopment properties currently committed for construction, under construction, or in the tenant improvement phase and properties held-for-sale. 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.

Tenant Improvement Phase:

Represents projects that have reached cold shell condition and are ready for tenant improvements, which may require additional major base building construction before being placed in service.


33
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Reconciliation of Net Income Available to Common Stockholders to Same Store Net Operating Income
(unaudited, $ in thousands)
 
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
 
2018
 
2017
 
2018
 
2017
 
 
Net Income Available to Common Stockholders
 
$
27,549

 
$
29,833

 
$
63,795

 
$
56,162

 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
566

 
616

 
1,317

 
1,239

 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
3,640

 
3,242

 
7,614

 
6,375

 
 
Total preferred dividends
 
—

 
1,615

 
—

 
8,811

 
 
Net Income
 
31,755

 
35,306

 
72,726

 
72,587

 
 
Adjustments:
 


 


 

 


 
 
General and administrative expenses
 
21,763

 
14,303

 
37,322

 
29,236

 
 
Depreciation and amortization
 
64,006

 
62,251

 
126,721

 
123,170

 
 
Interest income and other net investment gain/loss
 
(771
)
 
(1,038
)
 
(805
)
 
(2,103
)
 
 
Interest expense
 
12,712

 
17,973

 
26,210

 
35,325

 
 
Gains on sales of depreciable operating properties
 
—

 
—

 
—

 
(2,257
)
 
 
Net Operating Income, as defined (1)
 
129,465

 
128,795

 
262,174

 
255,958

 
 
Wholly-Owned Properties
 
111,671

 
110,437

 
226,081

 
219,395

 
 
Consolidated property partnerships: (2)
 
 
 
 
 
 
 
 
 
 
100 First Street (3)
 
4,507

 
4,371

 
9,255

 
8,598

 
 
303 Second Street (3)
 
7,551

 
8,327

 
15,328

 
16,530

 
 
Crossing/900 (4)
 
5,736

 
5,660

 
11,510

 
11,435

 
 
Net Operating Income, as defined (1)
 
129,465

 
128,795

 
262,174

 
255,958

 
 
Non-Same Store GAAP Net Operating Income (5)
 
(5,823
)
 
(7,210
)
 
(11,099
)
 
(13,494
)
 
 
Same Store GAAP Net Operating Income
 
123,642

 
121,585

 
251,075

 
242,464

 
 
GAAP to Cash Adjustments:
 


 
 
 
 
 
 
 
 
GAAP Operating Revenues Adjustments, net (6)
 
(11,580
)
 
(10,125
)
 
(20,884
)
 
(19,791
)
 
 
GAAP Operating Expenses Adjustments, net (7)
 
5,641

 
504

 
5,352

 
1,724

 
 
Same Store Cash Net Operating Income
 
$
117,703

 
$
111,964

 
$
235,543

 
$
224,397

 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Please refer to pages 29-30 for Management Statements on Net Operating Income, Same Store Net Operating Income and Same Store Cash Net Operating Income.
(2)
Reflects GAAP Net Operating Income for all periods presented.
(3)
For all periods presented, an unrelated third party entity owned approximately 44% common equity interests in two properties located at 100 First Street and 303 Second Street in San Francisco, CA.
(4)
For all periods presented, an unrelated third party entity owned an approximate 7% common equity interest in two properties located at 900 Jefferson Avenue and 900 Middlefield Road in Redwood City, CA.
(5)
Includes the results of one development project added to the stabilized portfolio in the first quarter of 2017, three office properties we acquired in the first quarter of 2018, ten office properties disposed of during the third quarter of 2017, one office property disposed of during the first quarter of 2017 and expenses for certain of our in-process, near-term and future development projects.
(6)
Includes the net effect of straight-line rents, amortization of deferred revenue related to tenant-funded tenant improvements and amortization of above and below market lease intangibles.
(7)
Includes the amortization of above and below market lease intangibles for ground leases and the provision for bad debts.

34
Kilroy Realty Corporation
Second Quarter 2018 Supplemental Financial Report

Reconciliation of Net Income Available to Common Stockholders to EBITDA, as Adjusted
(unaudited, $ in thousands)
 
 
 
Three Months Ended June 30,
 
 
 
 
2018
 
2017
 
 
Net Income Available to Common Stockholders
 
$
27,549

 
$
29,833

 
 
Interest expense
 
12,712

 
17,973

 
 
Depreciation and amortization
 
64,006

 
62,251

 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
566

 
616

 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
3,640

 
3,242

 
 
Preferred dividends
 
—

 
1,615

 
 
EBITDA, as adjusted (1)
 
$
108,473

 
$
115,530

 
 
 
 
 
 
 
 
________________________
(1)
Please refer to page 30 for a Management Statement on EBITDA, as adjusted. The Company’s calculation of EBITDA, as adjusted, is the same as EBITDAre, as defined by NAREIT, as the Company does not have any unconsolidated joint ventures.


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