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

q418supplementalcoverpagea02.jpg

Kilroy Realty Corporation
Fourth 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
24
Development
 
25
26
Debt and Capitalization Data
 
27
28-29
30-32
33-36
This Supplemental Financial Report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, among other things, information concerning lease expirations, debt maturities, potential investments, development and redevelopment activity, projected construction costs, dispositions and other forward-looking financial data. In some instances, forward-looking statements can be identified by the use of forward-looking terminology such as “expect,” “future,” “will,” “would,” “pursue,” or “project” and variations of such words and similar expressions that do not relate to historical matters. Forward-looking statements are based on Kilroy Realty Corporation’s current expectations, beliefs and assumptions, and are not guarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult to predict, many of which are outside of Kilroy Realty Corporation’s control. Accordingly, actual performance, results and events may vary materially from those indicated or implied in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results or events. Numerous factors could cause actual future performance, results and events to differ materially from those indicated in the forward-looking statements, including, among others: global market and general economic conditions and their effect on our liquidity and financial conditions and those of our tenants; adverse economic or real estate conditions generally, and specifically, in the States of California and Washington; risks associated with our investment in real estate assets, which are illiquid, and with trends in the real estate industry; defaults on or non-renewal of leases by tenants; any significant downturn in tenants’ businesses; our ability to re-lease property at or above current market rates; costs to comply with government regulations, including environmental remediation; the availability of cash for distribution and debt service and exposure to risk of default under debt obligations; increases in interest rates and our ability to manage interest rate exposure; the availability of financing on attractive terms or at all, which may adversely impact our future interest expense and our ability to pursue development, redevelopment and acquisition opportunities and refinance existing debt; a decline in real estate asset valuations, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing, and which may result in write-offs or impairment charges; significant competition, which may decrease the occupancy and rental rates of properties; potential losses that may not be covered by insurance; the ability to successfully complete acquisitions and dispositions on announced terms; the ability to successfully operate acquired, developed and redeveloped properties; the ability to successfully complete development and redevelopment projects on schedule and within budgeted amounts; delays or refusals in obtaining all necessary zoning, land use and other required entitlements, governmental permits and authorizations for our development and redevelopment properties; increases in anticipated capital expenditures, tenant improvement and/or leasing costs; defaults on leases for land on which some of our properties are located; adverse changes to, or enactment or implementations of, tax laws or other applicable laws, regulations or legislation, as well as business and consumer reactions to such changes; risks associated with joint venture investments, including our lack of sole decision-making authority, our reliance on co-venturers' financial condition and disputes between us and our co-venturers; environmental uncertainties and risks related to natural disasters; 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 dates on which they are made. Kilroy Realty Corporation assumes no obligation to update any forward-looking statement made in this Supplemental Financial Report that becomes untrue because of subsequent events, new information or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws.

Kilroy Realty Corporation
Fourth 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 December 31, 2018, the Company’s stabilized portfolio totaled approximately 13.2 million square feet of office space that was 94.4% 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
Deutsche Bank Securities, Inc.
 
 
Scotiabank
 
Derek Johnston
(210) 250-5683
 
Nicholas Yulico
(212) 225-6904
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
Fourth Quarter 2018 Supplemental Financial Report

Executive Summary
 
 
 
Quarterly Financial Highlights
 
Quarterly Operating Highlights
 
 
 
• Net income available to common stockholders per share of $1.58 and FFO per share
 
• Stabilized portfolio was 94.4% occupied and 96.6% leased at quarter-end
of $0.78 included the following on a per share basis:
 
 
- Charge of $0.13 ($0.12 for FFO) related to the early redemption of the 6.625%
 
• 717,308 square feet of leases commenced in the stabilized portfolio
unsecured senior notes due June 2020
 
 
- Total gains on real estate sales of $1.53, comprised of a land gain of $0.12
 
• 767,917 square feet of leases executed in the stabilized portfolio
($0.11 for FFO) and operating property gains of $1.41 (gains on sales of
 
 
operating properties are not included in FFO)
 
- GAAP rents increased approximately 51.4% from prior levels
- Non-cash charge of $0.12 related to accrued potential future executive
 
 
retirement benefits
 
- Cash rents increased approximately 25.1% from prior levels
 
 
 
• Revenues of $190.8 million
 
 
 
 
 
• Same Store GAAP NOI increased 3.0% compared to the prior year
 
 
 
 
 
• Same Store Cash NOI decreased 0.9% compared to the prior year
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Capital Markets Highlights
 
Strategic Highlights
 
 
 
• In October, drew the entire $200.0 million of eight-year, 4.35% unsecured senior
 
• In October, commenced GAAP revenue recognition on all 312,000 square feet of
   notes privately offered in May 2018
 
   office space 100% leased to Adobe at 100 Hooper in San Francisco’s SOMA district
 
 
• In November, signed a long-term lease with Netflix for 100% of the 355,000 square
• In November, completed a public offering of $400.0 million of 10-year senior
 
feet of office space at the Hollywood mixed-use project in Los Angeles
   unsecured notes at 4.750% due December 2028
 
• In December, commenced construction on the residential component of the
 
 
   Hollywood mixed-used project in Los Angeles and the office component of the One
• In December, completed the early redemption of all $250.0 million of 6.625%
 
   Paseo mixed-use project in the Del Mar submarket of San Diego
   unsecured senior notes due June 2020 for a make whole cash redemption price of
 
- The residential component of the Hollywood development encompasses 193
   approximately $261.8 million
 
residential units and represents a total estimated investment of $195.0 million
 
 
- The office component of One Paseo encompasses 285,000 square feet and
• As of the date of this report, $15.0 million was outstanding on our unsecured
 
represents a total estimated investment of $205.0 million. It is approximately
revolving credit facility
 
42% pre-leased
 
 
• In November and December, completed three dispositions totaling approximately
 
 
772,000 rentable square feet for total gross proceeds of $373.0 million and total
 
 
gains on sales of $154.8 million in the Sunnyvale submarket of San Francisco,
 
 
Kirkland submarket of Seattle, and the 101 Corridor submarket of Los Angeles
 
 
• In December, acquired 345 Brannan Street, a 110,000 square foot office building
 
 
located in San Francisco’s SOMA district, for $146.0 million. The property is one
 
 
of three adjacent KRC buildings, all of which are 100% leased to GM Cruise
 
 
 
 
 
 
________________________
Note: Definitions for commonly used terms in this Supplemental Financial Report are on pages 33-34 “Definitions Included in Supplemental.”

2
Kilroy Realty Corporation
Fourth Quarter 2018 Supplemental Financial Report

Financial Highlights
(unaudited, $ in thousands, except per share amounts)
 
 
Three Months Ended
 
 
 
12/31/2018 (1)
 
9/30/2018
 
6/30/2018 (1)
 
3/31/2018
 
12/31/2017 (1)
 
INCOME ITEMS:
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
190,842

 
$
186,562

 
$
187,072

 
$
182,822

 
$
177,561

 
 
Lease Termination Fees, net
1,293

 
431

 
1,093

 
60

 
198

 
 
Net Operating Income (2)
137,636

 
131,020

 
129,465

 
132,709

 
127,522

 
 
Capitalized Interest and Debt Costs
19,519

 
19,156

 
15,811

 
13,582

 
13,436

 
 
Net Income Available to Common Stockholders
160,220

 
34,400

 
27,549

 
36,246

 
28,529

 
 
EBITDA, as adjusted (2) (3)
113,883

 
112,085

 
108,473

 
117,184

 
112,565

 
 
Funds From Operations (3) (4) (5) (6)
81,330

 
94,247

 
88,629

 
96,285

 
86,539

 
 
Net Income Available to Common Stockholders per common share – diluted (5)
$
1.58

 
$
0.33

 
$
0.27

 
$
0.36

 
$
0.28

 
 
Funds From Operations per common share – diluted (3) (5) (6)
$
0.78

 
$
0.90

 
$
0.86

 
$
0.94

 
$
0.85

 
LIQUIDITY ITEMS:
 
 
 
 
 
 
 
 
 
 
 
Funds Available for Distribution (4) (5) (7)
$
51,792

 
$
68,758

 
$
51,953

 
$
75,537

 
$
51,177

 
 
Dividends per common share (5)
$
0.455

 
$
0.455

 
$
0.455

 
$
0.425

 
$
0.425

 
RATIOS:
 
 
 
 
 
 
 
 
 
 
 
Net Operating Income Margins
72.1
%
 
70.2
%
 
69.2
%
 
72.6
%
 
71.8
%
 
 
Interest Coverage Ratio
3.7x

 
3.8x

 
3.9x

 
4.5x

 
4.2x

 
 
Fixed Charge Coverage Ratio
3.7x

 
3.8x

 
3.9x

 
4.5x

 
4.2x

 
 
FFO Payout Ratio (3) (6)
57.5
%
 
49.6
%
 
52.7
%
 
44.5
%
 
49.5
%
 
 
FAD Payout Ratio (7)
90.3
%
 
68.0
%
 
89.9
%
 
56.8
%
 
83.6
%
 
ASSETS:
 
 
 
 
 
 
 
 
 
 
 
Real Estate Held for Investment before Depreciation
$
8,426,632

 
$
8,329,580

 
$
8,138,413

 
$
7,645,666

 
$
7,417,777

 
 
Total Assets
7,765,707

 
7,562,236

 
7,384,784

 
6,965,932

 
6,802,838

 
CAPITALIZATION: (8)
 
 
 
 
 
 
 
 
 
 
 
Total Debt
$
2,955,811

 
$
2,891,725

 
$
2,807,627

 
$
2,563,517

 
$
2,364,395

 
 
Total Common Equity and Noncontrolling Interests in the Operating Partnership
6,462,321

 
7,367,745

 
7,762,978

 
7,160,602

 
7,517,070

 
 
Total Market Capitalization
9,418,132

 
10,259,470

 
10,570,605

 
9,724,119

 
9,881,465

 
 
Total Debt / Total Market Capitalization
31.4
%
 
28.2
%
 
26.6
%
 
26.4
%
 
23.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
______________________________________________________
Note: Definitions for commonly used terms in this Supplemental Financial Report are on pages 33-34 “Definitions Included in Supplemental.”
(1)
Net Income Available to Common Stockholders includes $142.9 million of gains on sales of depreciable operating properties, a $11.8 million gain on sale of land and a $12.6 million loss on early extinguishment of debt for the three months ended December 31, 2018, $5.6 million of provision for bad debts for the three months ended June 30, 2018 and a $5.3 million loss on early extinguishment of debt for the three months ended December 31, 2017.
(2)
Please refer to pages 35-36 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 a $11.8 million gain on sale of land and $5.6 million of provision for bad debts for the three months ended December 31, 2018 and June 30, 2018, 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, 2018 and 2017 include a $12.6 million and $5.3 million loss on early extinguishment of debt, respectively.
(7)
Funds Available for Distribution for the three months ended December 31, 2018 and 2017 include a $11.8 million and $5.0 million cash loss on early extinguishment of debt, respectively.
(8)
Please refer to page 27 for additional information regarding our capital structure.

3
Kilroy Realty Corporation
Fourth 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 initial guidance range of NAREIT-defined FFO per diluted share for its fiscal year 2019 of $3.58 to $3.78 per share with a midpoint of $3.68 per share.
 
 
 
Full Year 2019 Range
 
 
 
 
Low End
 
High End
 
 
Net income available to common stockholders per share - diluted
 
$
1.51

 
$
1.71

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - diluted (1)
 
106,000

 
106,000

 
 
 
 
 
 
 
 
 
Net income available to common stockholders
 
$
160,000

 
$
181,000

 
 
Adjustments:
 
 
 
 
 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
3,400

 
3,800

 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
20,000

 
23,000

 
 
Depreciation and amortization of real estate assets
 
232,500

 
232,500

 
 
Gains on sales of depreciable real estate
 
—

 
—

 
 
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships
 
(29,500
)
 
(32,500
)
 
 
Funds From Operations (2)
 
$
386,400

 
$
407,800

 
 
 
 
 
 
 
 
 
Weighted average common shares and units outstanding - diluted (3)
 
108,000

 
108,000

 
 
 
 
 
 
 
 
 
FFO per common share/unit - diluted (3)
 
$
3.58

 
$
3.78

 
 
 
 
 
 
 
 

Key 2019 assumptions include:
•
Dispositions of approximately $150.0 million to $350.0 million
•
Flat same store cash net operating income (2) 
•
Year-end occupancy of 94.0% to 95.0%
•
Total development spending of approximately $500.0 million to $600.0 million
________________________
(1)
Calculated based on estimated weighted average shares outstanding including non-participating share-based awards.
(2)
See pages 30-32 for Management Statements on Funds From Operations and Same Store Cash Net Operating Income.
(3)
Calculated based on weighted average shares outstanding including participating and non-participating share-based awards, dilutive impact of stock options, contingently issuable shares, and shares issuable under forward equity sale agreements and assuming the exchange of all common limited partnership units outstanding. Reported amounts are attributable to common stockholders, common unitholders and restricted stock unitholders.

The Company’s guidance estimates for the full year 2019, 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
Fourth Quarter 2018 Supplemental Financial Report

Common Stock Data (NYSE: KRC)
 
 
 
Three Months Ended
 
 
 
12/31/2018
 
9/30/2018
 
6/30/2018
 
3/31/2018
 
12/31/2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High Price
$
72.34

 
$
76.67

 
$
77.34

 
$
74.27

 
$
76.18

 
 
Low Price
$
59.46

 
$
69.67

 
$
68.96

 
$
63.72

 
$
70.17

 
 
Closing Price
$
62.88

 
$
71.69

 
$
75.64

 
$
70.96

 
$
74.65

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends per share – annualized
$
1.82

 
$
1.82

 
$
1.82

 
$
1.70

 
$
1.70

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Closing common shares (in 000’s) (1)
100,747

 
100,747

 
100,560

 
98,840

 
98,620

 
 
Closing common partnership units (in 000’s) (1)
2,025

 
2,025

 
2,071

 
2,071

 
2,077

 
 
 
102,772

 
102,772

 
102,631

 
100,911

 
100,697

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







5
Kilroy Realty Corporation
Fourth Quarter 2018 Supplemental Financial Report

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

 
 
 
 
 
 
 
 
 
 
Land and improvements
$
1,160,138

 
$
1,127,100

 
$
1,127,100

 
$
1,127,100

 
$
1,076,172

 
 
Buildings and improvements
5,207,984

 
5,056,050

 
5,017,999

 
4,987,617

 
4,908,797

 
 
Undeveloped land and construction in progress
2,058,510

 
2,146,430

 
1,993,314

 
1,530,949

 
1,432,808

 
 
Total real estate assets held for investment
8,426,632

 
8,329,580

 
8,138,413

 
7,645,666

 
7,417,777

 
 
Accumulated depreciation and amortization
(1,391,368
)
 
(1,411,529
)
 
(1,361,811
)
 
(1,312,612
)
 
(1,264,162
)
 
 
Total real estate assets held for investment, net
7,035,264

 
6,918,051

 
6,776,602

 
6,333,054

 
6,153,615

 
 
Cash and cash equivalents
51,604

 
86,517

 
50,817

 
53,069

 
57,649

 
 
Restricted cash
119,430

 
—

 
—

 
—

 
9,149

 
 
Marketable securities
21,779

 
23,353

 
22,519

 
21,572

 
20,674

 
 
Current receivables, net
20,176

 
17,519

 
15,144

 
17,602

 
16,926

 
 
Deferred rent receivables, net
267,007

 
261,003

 
256,558

 
251,744

 
246,391

 
 
Deferred leasing costs and acquisition-related intangible assets, net
197,574

 
183,118

 
186,649

 
181,567

 
183,728

 
 
Prepaid expenses and other assets, net
52,873

 
72,675

 
76,495

 
107,324

 
114,706

 
 
TOTAL ASSETS
$
7,765,707

 
$
7,562,236

 
$
7,384,784

 
$
6,965,932

 
$
6,802,838

 
 
LIABILITIES AND EQUITY:
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Secured debt, net
$
335,531

 
$
336,866

 
$
338,189

 
$
339,501

 
$
340,800

 
 
Unsecured debt, net
2,552,070

 
2,207,049

 
2,156,521

 
2,155,794

 
2,006,263

 
 
Unsecured line of credit
45,000

 
330,000

 
295,000

 
50,000

 
—

 
 
Accounts payable, accrued expenses and other liabilities
374,415

 
360,674

 
278,508

 
223,973

 
249,637

 
 
Accrued dividends and distributions
47,559

 
47,411

 
47,348

 
43,512

 
43,448

 
 
Deferred revenue and acquisition-related intangible liabilities, net
149,646

 
149,059

 
146,741

 
149,563

 
145,890

 
 
Rents received in advance and tenant security deposits
60,225

 
56,258

 
58,604

 
56,117

 
56,484

 
 
Total liabilities
3,564,446

 
3,487,317

 
3,320,911

 
3,018,460

 
2,842,522

 
 
Equity:
 
 
 
 
 
 
 
 
 
 
 
Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
Common stock
1,007

 
1,007

 
1,006

 
988

 
986

 
 
Additional paid-in capital
3,976,953

 
3,965,405

 
3,951,289

 
3,816,385

 
3,822,492

 
 
Distributions in excess of earnings
(48,053
)
 
(161,654
)
 
(149,368
)
 
(130,514
)
 
(122,685
)
 
 
Total stockholders’ equity
3,929,907

 
3,804,758

 
3,802,927

 
3,686,859

 
3,700,793

 
 
Noncontrolling Interests
 
 
 
 
 
 
 
 
 
 
 
Common units of the Operating Partnership
78,991

 
76,486

 
78,223

 
77,240

 
77,948

 
 
Noncontrolling interests in consolidated property partnerships
192,363

 
193,675

 
182,723

 
183,373

 
181,575

 
 
Total noncontrolling interests
271,354

 
270,161

 
260,946

 
260,613

 
259,523

 
 
Total equity
4,201,261

 
4,074,919

 
4,063,873

 
3,947,472

 
3,960,316

 
 
TOTAL LIABILITIES AND EQUITY
$
7,765,707

 
$
7,562,236

 
$
7,384,784

 
$
6,965,932

 
$
6,802,838

 
 
 
 
 
 
 
 
 
 
 
 
 

6
Kilroy Realty Corporation
Fourth Quarter 2018 Supplemental Financial Report

Consolidated Statements of Operations
(unaudited, $ and shares in thousands, except per share amounts)
 
 
 
Three Months Ended December 31,
 
Year Ended December 31,
 
 
 
 
2018
 
2017
 
2018
 
2017
 
 
REVENUES
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
166,957

 
$
158,369

 
$
656,631

 
$
633,896

 
 
Tenant reimbursements
 
20,511

 
18,331

 
80,982

 
76,559

 
 
Other property income
 
3,374

 
861

 
9,685

 
8,546

 
 
Total revenues
 
190,842

 
177,561

 
747,298

 
719,001

 
 
EXPENSES
 
 
 
 
 
 
 
 
 
 
Property expenses
 
34,386

 
32,356

 
133,787

 
129,971

 
 
Real estate taxes
 
18,399

 
15,571

 
70,820

 
66,449

 
 
Provision for bad debts
 
(1,029
)
 
526

 
5,685

 
3,269

 
 
Ground leases
 
1,450

 
1,586

 
6,176

 
6,337

 
 
General and administrative expenses
 
33,872

 
16,831

 
90,471

 
60,581

 
 
Depreciation and amortization
 
64,860

 
60,149

 
254,281

 
245,886

 
 
Total expenses
 
151,938

 
127,019

 
561,220

 
512,493

 
 
OTHER (EXPENSES) INCOME
 
 
 
 
 
 
 
 
 
 
Interest income and other net investment (loss) gain
 
(1,706
)
 
1,874

 
(559
)
 
5,503

 
 
Interest expense
 
(12,436
)
 
(14,564
)
 
(49,721
)
 
(66,040
)
 
 
Loss on early extinguishment of debt
 
(12,623
)
 
(5,312
)
 
(12,623
)
 
(5,312
)
 
 
Gain on sales of land
 
11,825

 
—

 
11,825

 
449

 
 
Gains on sales of depreciable operating properties
 
142,926

 
—

 
142,926

 
39,507

 
 
Total other (expenses) income
 
127,986

 
(18,002
)
 
91,848

 
(25,893
)
 
 
NET INCOME
 
166,890

 
32,540

 
277,926

 
180,615

 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
(3,185
)
 
(590
)
 
(5,193
)
 
(3,223
)
 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
(3,485
)
 
(3,421
)
 
(14,318
)
 
(12,780
)
 
 
Total income attributable to noncontrolling interests
 
(6,670
)
 
(4,011
)
 
(19,511
)
 
(16,003
)
 
 
NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION
 
160,220

 
28,529

 
258,415

 
164,612

 
 
Preferred dividends
 
—

 
—

 
—

 
(5,774
)
 
 
Original issuance costs of redeemed preferred stock
 
—

 
—

 
—

 
(7,589
)
 
 
Total preferred dividends
 
—

 
—

 
—

 
(13,363
)
 
 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
 
$
160,220

 
$
28,529

 
$
258,415

 
$
151,249

 
 
Weighted average common shares outstanding – basic
 
100,747

 
98,424

 
99,972

 
98,114

 
 
Weighted average common shares outstanding – diluted
 
101,380

 
99,128

 
100,482

 
98,727

 
 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS PER SHARE
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders per share – basic
 
$
1.59

 
$
0.28

 
$
2.56

 
$
1.52

 
 
Net income available to common stockholders per share – diluted
 
$
1.58

 
$
0.28

 
$
2.55

 
$
1.51

 
 
 
 
 
 
 
 
 
 
 
 

7
Kilroy Realty Corporation
Fourth Quarter 2018 Supplemental Financial Report

Funds From Operations and Funds Available for Distribution
(unaudited, $ in thousands, except per share amounts)
 
 
 
Three Months Ended December 31,
 
Year Ended December 31,
 
 
 
 
2018
 
2017
 
2018
 
2017
 
 
FUNDS FROM OPERATIONS: (1)
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders
 
$
160,220

 
$
28,529

 
$
258,415

 
$
151,249

 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
3,185

 
590

 
5,193

 
3,223

 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
3,485

 
3,421

 
14,318

 
12,780

 
 
Depreciation and amortization of real estate assets
 
63,640

 
59,987

 
249,882

 
241,862

 
 
Gains on sales of depreciable real estate
 
(142,926
)
 
—

 
(142,926
)
 
(39,507
)
 
 
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships
 
(6,274
)
 
(5,988
)
 
(24,391
)
 
(22,820
)
 
 
Funds From Operations (1)(2)
 
$
81,330

 
$
86,539

 
$
360,491

 
$
346,787

 
 
Weighted average common shares/units outstanding – basic (3)
 
103,892

 
101,707

 
103,167

 
101,443

 
 
Weighted average common shares/units outstanding – diluted (4)
 
104,524

 
102,411

 
103,677

 
102,056

 
 
FFO per common share/unit – basic (1)
 
$
0.78

 
$
0.85

 
$
3.49

 
$
3.42

 
 
FFO per common share/unit – diluted (1)
 
$
0.78

 
$
0.85

 
$
3.48

 
$
3.40

 
 
FUNDS AVAILABLE FOR DISTRIBUTION: (1)
 
 
 
 
 
 
 
 
 
 
Funds From Operations (1)(2)
 
$
81,330

 
$
86,539

 
$
360,491

 
$
346,787

 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
Recurring tenant improvements, leasing commissions and capital expenditures
 
(35,474
)
 
(32,742
)
 
(110,540
)
 
(91,287
)
 
 
Amortization of deferred revenue related to tenant-funded tenant improvements (2)(5)
 
(4,749
)
 
(4,373
)
 
(18,429
)
 
(16,767
)
 
 
Net effect of straight-line rents
 
(12,199
)
 
(7,432
)
 
(26,811
)
 
(31,523
)
 
 
Amortization of net below market rents (6)
 
(2,101
)
 
(2,502
)
 
(9,748
)
 
(8,528
)
 
 
Amortization of deferred financing costs and net debt discount/premium
 
1,068

 
634

 
1,884

 
1,895

 
 
Non-cash executive compensation expense (7)
 
21,133

 
5,429

 
40,034

 
19,046

 
 
Original issuance costs of redeemed preferred stock
 
—

 
—

 
—

 
7,589

 
 
Other lease related adjustments, net (8)
 
(1,494
)
 
2,376

 
2,507

 
1,778

 
 
Adjustments attributable to noncontrolling interests in consolidated property partnerships
 
4,278

 
3,248

 
8,652

 
6,495

 
 
Funds Available for Distribution (1) (9)
 
$
51,792

 
$
51,177

 
$
248,040

 
$
235,485

 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
See page 32 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 $4.7 million and $4.4 million for the three months ended December 31, 2018 and 2017, respectively, and $18.4 million and $16.8 million for the twelve months ended December 31, 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, dilutive impact of stock options, contingently issuable shares, and shares issuable under forward equity sale agreements and assuming the exchange of all common limited partnership units outstanding.
(5)
Represents revenue recognized during the period as a result of the amortization of deferred revenue recorded for tenant-funded tenant improvements.
(6)
Represents the non-cash adjustment related to the acquisition of buildings with above and/or below market rents.
(7)
Includes non-cash amortization of share-based compensation and accrued potential future executive retirement benefits.
(8)
Includes other cash and non-cash adjustments attributable to lease-related GAAP revenue recognition timing differences.
(9)
For the three months and years ended December 31, 2018 and 2017, Funds Available for Distribution included a $11.8 million and $5.0 million cash loss on early extinguishment of debt, respectively.

8
Kilroy Realty Corporation
Fourth 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 December 31,
 
Twelve Months Ended December 31,
 
 
 
 
2018
 
2017
 
2018
 
2017
 
 
GAAP Net Cash Provided by Operating Activities 
 
$
92,828

 
$
70,470

 
$
410,043

 
$
347,012

 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
Recurring tenant improvements, leasing commissions and capital expenditures
 
(35,474
)
 
(32,742
)
 
(110,540
)
 
(91,287
)
 
 
Loss on early extinguishment of debt
 
(11,823
)
 
(5,312
)
 
(11,823
)
 
(5,312
)
 
 
Net gain on sale of land
 
11,825

 
—

 
11,825

 
449

 
 
Preferred dividends
 
—

 
—

 
—

 
(5,774
)
 
 
Depreciation of non-real estate furniture, fixtures and equipment
 
(1,221
)
 
(162
)
 
(4,400
)
 
(4,024
)
 
 
Provision for uncollectible tenant receivables
 
(487
)
 
(220
)
 
(5,520
)
 
(1,517
)
 
 
Net changes in operating assets and liabilities (1)
 
(2,254
)
 
23,566

 
(17,310
)
 
20,566

 
 
Noncontrolling interests in consolidated property partnerships’ share of FFO and FAD
 
(1,996
)
 
(2,740
)
 
(15,739
)
 
(16,325
)
 
 
Cash adjustments related to investing and financing activities
 
394

 
(1,683
)
 
(8,496
)
 
(8,303
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Funds Available for Distribution(2)
 
$
51,792

 
$
51,177

 
$
248,040

 
$
235,485

 
 
 
 
 
 
 
 
 
 
 
 
_______________________
(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 32 for a Management Statement on Funds Available for Distribution.


9
Kilroy Realty Corporation
Fourth Quarter 2018 Supplemental Financial Report

Same Store Analysis (1) 
(unaudited, $ in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended December 31,
 
Year Ended December 31,
 
 
 
 
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
 
 
Total Same Store Portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of properties
 
87

 
87

 
 
 
87

 
87

 
 
 
 
Square Feet
 
12,611,661

 
12,611,661

 
 
 
12,611,661

 
12,611,661

 
 
 
 
Percent of Stabilized Portfolio
 
95.3
%
 
91.9
%
 
 
 
95.3
%
 
91.9
%
 
 
 
 
Average Occupancy
 
94.2
%
 
94.1
%
 
 
 
94.1
%
 
94.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
148,797

 
$
146,421

 
1.6
 %
 
$
596,479

 
$
577,084

 
3.4
 %
 
 
Tenant reimbursements
 
18,371

 
16,926

 
8.5
 %
 
73,094

 
69,659

 
4.9
 %
 
 
Other property income
 
3,159

 
844

 
274.3
 %
 
9,243

 
7,221

 
28.0
 %
 
 
Total operating revenues
 
170,327

 
164,191

 
3.7
 %
 
678,816

 
653,964

 
3.8
 %
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property expenses
 
31,005

 
29,776

 
4.1
 %
 
121,663

 
117,816

 
3.3
 %
 
 
Real estate taxes
 
15,610

 
13,895

 
12.3
 %
 
62,648

 
58,554

 
7.0
 %
 
 
Provision for bad debts
 
283

 
480

 
(41.0
)%
 
5,742

 
2,962

 
93.9
 %
 
 
Ground leases
 
1,450

 
1,586

 
(8.6
)%
 
6,176

 
6,337

 
(2.5
)%
 
 
Total operating expenses
 
48,348

 
45,737

 
5.7
 %
 
196,229

 
185,669

 
5.7
 %
 
 
GAAP Net Operating Income
 
$
121,979

 
$
118,454

 
3.0
 %
 
$
482,587

 
$
468,295

 
3.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Store Analysis (Cash Basis) (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended December 31,
 
Year Ended December 31,
 
 
 
 
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
 
 
Total operating revenues
 
$
158,669

 
$
156,802

 
1.2
 %
 
$
636,440

 
$
615,501

 
3.4
 %
 
 
Total operating expenses
 
48,067

 
45,233

 
6.3
 %
 
190,486

 
182,555

 
4.3
 %
 
 
Cash Net Operating Income
 
$
110,602

 
$
111,569

 
(0.9
)%
 
$
445,954

 
$
432,946

 
3.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(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 December 31, 2018. Same Store includes 100% of consolidated property partnerships as well as the residential tower at Columbia Square.
(2)
Please refer to page 35 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
Fourth 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
 
12/31/2018
 
9/30/2018 (1)
 
12/31/2018
 
 
Greater Los Angeles
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
101 Corridor
 
1
 
0.2
%
 
0.5
%
 
84,098

 
80.5
%
 
90.7
%
 
80.5
%
 
 
El Segundo
 
5
 
5.5
%
 
8.2
%
 
1,093,050

 
99.5
%
 
99.3
%
 
99.5
%
 
 
Hollywood
 
6
 
6.4
%
 
6.1
%
 
806,557

 
99.0
%
 
97.3
%
 
99.0
%
 
 
Long Beach
 
7
 
3.3
%
 
7.2
%
 
949,942

 
92.1
%
 
91.3
%
 
95.9
%
 
 
West Hollywood
 
4
 
2.0
%
 
1.4
%
 
178,699

 
95.9
%
 
95.4
%
 
95.9
%
 
 
West Los Angeles
 
10
 
7.3
%
 
6.4
%
 
844,151

 
90.3
%
 
91.5
%
 
94.4
%
 
 
Total Greater Los Angeles
 
33
 
24.7
%
 
29.8
%
 
3,956,497

 
95.1
%
 
94.7
%
 
96.9
%
 
 
Total Orange County
 
1
 
1.3
%
 
2.1
%
 
271,556

 
89.6
%
 
89.6
%
 
92.6
%
 
 
San Diego County
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Del Mar
 
14
 
9.6
%
 
10.2
%
 
1,349,747

 
93.1
%
 
99.6
%
 
93.6
%
 
 
I-15 Corridor
 
5
 
2.5
%
 
4.1
%
 
540,892

 
77.5
%
 
74.4
%
 
82.5
%
 
 
Point Loma
 
1
 
0.5
%
 
0.8
%
 
107,456

 
100.0
%
 
100.0
%
 
100.0
%
 
 
University Towne Center
 
1

 
0.2
%
 
0.4
%
 
47,846

 
91.4
%
 
91.4
%
 
91.4
%
 
 
Total San Diego County
 
21
 
12.8
%
 
15.5
%
 
2,045,941

 
89.3
%
 
92.6
%
 
90.9
%
 
 
San Francisco Bay Area
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Menlo Park
 
7
 
3.2
%
 
2.9
%
 
378,358

 
99.1
%
 
95.7
%
 
100.0
%
 
 
Mountain View
 
4
 
5.3
%
 
4.0
%
 
542,235

 
100.0
%
 
100.0
%
 
100.0
%
 
 
Palo Alto
 
2
 
1.8
%
 
1.3
%
 
165,585

 
100.0
%
 
100.0
%
 
100.0
%
 
 
Redwood City
 
2
 
4.3
%
 
2.6
%
 
347,269

 
99.1
%
 
99.1
%
 
100.0
%
 
 
San Francisco
 
9
 
26.6
%
 
22.1
%
 
2,918,132

 
94.9
%
 
90.0
%
 
98.5
%
 
 
South San Francisco
 
3
 
1.1
%
 
1.1
%
 
145,530

 
78.5
%
 
78.5
%
 
78.5
%
 
 
Sunnyvale
 
4
 
5.7
%
 
5.0
%
 
663,460

 
100.0
%
 
100.0
%
 
100.0
%
 
 
Total San Francisco Bay Area
 
31
 
48.0
%
 
39.0
%
 
5,160,569

 
96.4
%
 
93.8
%
 
98.5
%
 
 
Greater Seattle
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bellevue
 
2
 
6.1
%
 
6.9
%
 
917,027

 
89.5
%
 
86.5
%
 
97.5
%
 
 
Lake Union
 
6
 
7.1
%
 
6.7
%
 
880,990

 
97.8
%
 
94.4
%
 
97.8
%
 
 
Total Greater Seattle
 
8
 
13.2
%
 
13.6
%
 
1,798,017

 
93.6
%
 
91.5
%
 
97.7
%
 
 
TOTAL STABILIZED OFFICE PORTFOLIO
 
94
 
100.0
%
 
100.0
%
 
13,232,580

 
94.4
%
 
93.5
%
 
96.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total No. of Units
 
Average Residential Occupancy
 
 
 
 
RESIDENTIAL PROPERTY
 
 
 
Submarket
 
Buildings
 
 
Quarter-to-Date
 
Year-to-Date
 
 
 
 
Greater Los Angeles
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1550 N. El Centro Avenue
 
 
 
Hollywood
 
1

 
200

 
69.2
%
 
79.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Office Occupancy
Quarter-to-Date
 
Year-to-Date
94.2%
 
94.1%
________________________
(1)
Represents occupancy for properties in the stabilized portfolio as of the date presented, including properties sold subsequent to the date presented.

11
Kilroy Realty Corporation
Fourth Quarter 2018 Supplemental Financial Report

Stabilized Office Portfolio Occupancy Overview by Region, continued
 
 
 
Submarket
 
Square Feet
 
Occupied
 
Greater Los Angeles, California
 
 
 
 
 
 
 
 
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. Pacific Coast Highway
 
El Segundo
 
244,136

 
99.5
%
 
 
999 N. Pacific Coast Highway
 
El Segundo
 
128,588

 
96.9
%
 
 
1500 N. El Centro Avenue
 
Hollywood
 
104,504

 
100.0
%
 
 
1525 N. Gower Street
 
Hollywood
 
9,610

 
100.0
%
 
 
1575 N. Gower Street
 
Hollywood
 
251,245

 
100.0
%
 
 
6115 W. Sunset Boulevard
 
Hollywood
 
26,105

 
100.0
%
 
 
6121 W. Sunset Boulevard
 
Hollywood
 
91,173

 
100.0
%
 
 
6255 W. Sunset Boulevard
 
Hollywood
 
323,920

 
97.6
%
 
 
3750 Kilroy Airport Way
 
Long Beach
 
10,457

 
100.0
%
 
 
3760 Kilroy Airport Way
 
Long Beach
 
165,278

 
94.0
%
 
 
3780 Kilroy Airport Way
 
Long Beach
 
219,777

 
78.9
%
 
 
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

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

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

 
99.2
%
 
 
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

 
94.3
%
 
 
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
 
90,074

 
96.0
%
 
 
501 Santa Monica Boulevard
 
West Los Angeles
 
76,803

 
82.7
%
 
 
Total Greater Los Angeles
 
 
 
3,956,497

 
95.1
%
 
 
 
 
 
 
 
 
 
 

12
Kilroy Realty Corporation
Fourth 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
 
89,272

 
45.8
%
 
 
12390 El Camino Real
 
Del Mar
 
70,140

 
44.9
%
 
 
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
 
154,157

 
94.4
%
 
 
13500 Evening Creek Drive North
 
I-15 Corridor
 
137,658

 
24.2
%
 
 
13520 Evening Creek Drive North
 
I-15 Corridor
 
146,701

 
94.2
%
 
 
2305 Historic Decatur Road
 
Point Loma
 
107,456

 
100.0
%
 
 
4690 Executive Drive
 
University Towne Center
 
47,846

 
91.4
%
 
 
Total San Diego County
 
 
 
2,045,941

 
89.3
%
 
 
 
 
 
 
 
 
 
 












13
Kilroy Realty Corporation
Fourth 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

 
100.0
%
 
 
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

 
97.5
%
 
 
303 Second Street
 
San Francisco
 
740,047

 
91.3
%
 
 
201 Third Street
 
San Francisco
 
346,538

 
98.8
%
 
 
360 Third Street
 
San Francisco
 
429,796

 
84.5
%
 
 
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
%
 
 
345 Brannan Street
 
San Francisco
 
110,030

 
99.7
%
 
 
350 Mission Street
 
San Francisco
 
455,340

 
99.7
%
 
 
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
%
 
 
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
 
76,031

 
100.0
%
 
 
Total San Francisco Bay Area
 
 
 
5,160,569

 
96.4
%
 
 
 
 
 
 
 
 
 
 

14
Kilroy Realty Corporation
Fourth 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

 
89.7
%
 
 
10900 NE 4th Street
 
Bellevue
 
428,557

 
89.1
%
 
 
837 N. 34th Street
 
Lake Union
 
111,580

 
83.0
%
 
 
701 N. 34th Street
 
Lake Union
 
138,994

 
100.0
%
 
 
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
 
 
 
1,798,017

 
93.6
%
 
 
 
 
 
 
 
 
 
 
 
TOTAL
 
 
 
13,232,580

 
94.4
%
 
 
 
 
 
 
 
 
 
 


15
Kilroy Realty Corporation
Fourth 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
22

 
18

 
402,202

 
315,106

 
49.7
%
 
$
45.39

 
$
7.67

 
39.8
%
 
21.8
%
 
71

 
 
Year to Date
79

 
58

 
1,033,085

 
1,161,596

 
49.1
%
 
47.09

 
7.24

 
25.4
%
 
10.7
%
 
78

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




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)
23

 
18

 
452,811

 
315,106

 
$
63.38

 
$
8.36

 
51.4
%
 
25.1
%
 
91

 
 
Year to Date (5)
89

 
58

 
1,667,447

 
1,161,596

 
56.90

 
7.11

 
36.0
%
 
14.8
%
 
96
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(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 twelve months ended December 31, 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 twelve months ended December 31, 2018, including first and second generation space, net of month-to-month leases. Excludes leasing on new construction.
(4)
During the three months ended December 31, 2018, 19 new leases totaling 410,548 square feet were signed but not commenced as of December 31, 2018.
(5)
During the twelve months ended December 31, 2018, 38 new leases totaling 1,138,133 square feet were signed but not commenced as of December 31, 2018.
 

16
Kilroy Realty Corporation
Fourth Quarter 2018 Supplemental Financial Report

Stabilized Portfolio Capital Expenditures
($ in thousands)
 
 
Total 2018
 
Q4 2018
 
Q3 2018
 
Q2 2018
 
Q1 2018
 
 
1st Generation (Nonrecurring) Capital Expenditures: (1)
 
 
 
 
 
 
 
 
 
 
 
Capital Improvements
$
11,689

 
$
4,934

 
$
4,499

 
$
1,235

 
$
1,021

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tenant Improvements & Leasing Commissions (2)
32,385

 
18,017

 
8,384

 
4,866

 
1,118

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
44,074


$
22,951

 
$
12,883

 
$
6,101

 
$
2,139

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total 2018
 
Q4 2018
 
Q3 2018
 
Q2 2018
 
Q1 2018
 
 
2nd Generation (Recurring) Capital Expenditures: (1)
 
 
 
 
 
 
 
 
 
 
 
Capital Improvements
$
27,434

 
$
11,237

 
$
7,851

 
$
5,671

 
$
2,675

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tenant Improvements & Leasing Commissions (2)
83,106

 
24,237

 
18,367

 
29,183

 
11,319

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
$
110,540

 
$
35,474

 
$
26,218

 
$
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
Fourth 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.
 
 
2019 (2)
 
98

 
1,410,267

 
11.5
%
 
$
63,201

 
11.0
%
 
$
44.81

 
 
2020
 
96

 
1,445,161

 
11.8
%
 
58,889

 
10.2
%
 
40.75

 
 
2021
 
83

 
862,910

 
7.0
%
 
37,914

 
6.6
%
 
43.94

 
 
2022
 
52

 
639,915

 
5.2
%
 
27,523

 
4.7
%
 
43.01

 
 
2023
 
71

 
1,271,112

 
10.4
%
 
66,383

 
11.5
%
 
52.22

 
 
2024
 
44

 
897,244

 
7.3
%
 
42,339

 
7.3
%
 
47.19

 
 
2025
 
24

 
409,532

 
3.3
%
 
20,104

 
3.5
%
 
49.09

 
 
2026
 
25

 
1,365,016

 
11.1
%
 
56,863

 
9.9
%
 
41.66

 
 
2027
 
19

 
1,134,864

 
9.3
%
 
47,434

 
8.2
%
 
41.80

 
 
2028
 
16

 
816,535

 
6.7
%
 
53,663

 
9.3
%
 
65.72

 
 
2029 and beyond
 
22

 
2,016,209

 
16.4
%
 
102,170

 
17.8
%
 
50.67

 
 
Total (3)
 
550

 
12,268,765

 
100.0
%
 
$
576,483

 
100.0
%
 
$
46.99

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Includes 100% of annualized base rent of consolidated property partnerships.
(2)
Adjusting for leasing transactions executed as of December 31, 2018 but not yet commenced, the 2019 expirations would be reduced by 929,141 square feet.
(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 December 31, 2018, space leased under month-to-month leases, storage leases, vacant space and future lease renewal options not executed as of December 31, 2018.


18
Kilroy Realty Corporation
Fourth 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.
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019
 
Greater Los Angeles
 
52

 
279,163

 
2.3
%
 
$
9,533

 
1.7
%
 
$
34.15

 
 
 
Orange County
 
5

 
74,181

 
0.6
%
 
3,137

 
0.5
%
 
42.29

 
 
 
San Diego
 
16

 
174,063

 
1.4
%
 
6,648

 
1.2
%
 
38.19

 
 
 
San Francisco Bay Area
 
16

 
721,554

 
5.9
%
 
38,313

 
6.6
%
 
53.10

 
 
 
Greater Seattle
 
9

 
161,306

 
1.3
%
 
5,570

 
1.0
%
 
34.53

 
 
 
Total
 
98

 
1,410,267

 
11.5
%
 
$
63,201

 
11.0
%
 
$
44.81

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2020
 
Greater Los Angeles
 
49

 
457,339

 
3.8
%
 
$
18,372

 
3.2
%
 
$
40.17

 
 
 
Orange County
 
5

 
38,526

 
0.3
%
 
1,238

 
0.2
%
 
32.13

 
 
 
San Diego
 
16

 
263,513

 
2.1
%
 
10,455

 
1.8
%
 
39.68

 
 
 
San Francisco Bay Area
 
21

 
566,361

 
4.6
%
 
26,263

 
4.6
%
 
46.37

 
 
 
Greater Seattle
 
5

 
119,422

 
1.0
%
 
2,561

 
0.4
%
 
21.44

 
 
 
Total
 
96

 
1,445,161

 
11.8
%
 
$
58,889

 
10.2
%
 
$
40.75

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2021
 
Greater Los Angeles
 
47

 
313,760

 
2.5
%
 
$
12,538

 
2.2
%
 
$
39.96

 
 
 
Orange County
 
5

 
72,299

 
0.6
%
 
2,556

 
0.4
%
 
35.35

 
 
 
San Diego
 
11

 
181,801

 
1.5
%
 
7,583

 
1.3
%
 
41.71

 
 
 
San Francisco Bay Area
 
12

 
266,788

 
2.2
%
 
14,336

 
2.5
%
 
53.74

 
 
 
Greater Seattle
 
8

 
28,262

 
0.2
%
 
901

 
0.2
%
 
31.88

 
 
 
Total
 
83

 
862,910

 
7.0
%
 
$
37,914

 
6.6
%
 
$
43.94

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2022
 
Greater Los Angeles
 
32

 
285,849

 
2.2
%
 
$
12,944

 
2.2
%
 
$
45.28

 
 
 
Orange County
 
2

 
6,898

 
0.1
%
 
269

 
—
%
 
39.00

 
 
 
San Diego
 
6

 
193,840

 
1.6
%
 
6,646

 
1.2
%
 
34.29

 
 
 
San Francisco Bay Area
 
6

 
83,868

 
0.7
%
 
5,141

 
0.9
%
 
61.30

 
 
 
Greater Seattle
 
6

 
69,460

 
0.6
%
 
2,523

 
0.4
%
 
36.32

 
 
 
Total
 
52

 
639,915

 
5.2
%
 
$
27,523

 
4.7
%
 
$
43.01

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2023
 
Greater Los Angeles
 
32

 
368,453

 
3.1
%
 
$
18,416

 
3.2
%
 
$
49.98

 
 
 
Orange County
 
2

 
16,454

 
0.1
%
 
661

 
0.1
%
 
40.17

 
 
 
San Diego
 
11

 
225,060

 
1.8
%
 
9,140

 
1.6
%
 
40.61

 
 
 
San Francisco Bay Area
 
20

 
569,849

 
4.7
%
 
35,049

 
6.1
%
 
61.51

 
 
 
Greater Seattle
 
6

 
91,296

 
0.7
%
 
3,117

 
0.5
%
 
34.14

 
 
 
Total
 
71

 
1,271,112

 
10.4
%
 
$
66,383

 
11.5
%
 
$
52.22

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2024
and
Beyond
 
Greater Los Angeles
 
51

 
1,919,974

 
15.7
%
 
$
83,369

 
14.5
%
 
$
43.42

 
 
 
Orange County
 
3

 
30,391

 
0.2
%
 
1,130

 
0.2
%
 
37.18

 
 
 
San Diego
 
21

 
765,026

 
6.2
%
 
35,130

 
6.1
%
 
45.92

 
 
 
San Francisco Bay Area
 
45

 
2,720,891

 
22.2
%
 
155,556

 
27.0
%
 
57.17

 
 
 
Greater Seattle
 
30

 
1,203,118

 
9.8
%
 
47,388

 
8.2
%
 
39.39

 
 
 
Total
 
150

 
6,639,400

 
54.1
%
 
$
322,573

 
56.0
%
 
$
48.58

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

19
Kilroy Realty Corporation
Fourth Quarter 2018 Supplemental Financial Report

Stabilized Portfolio Quarterly Lease Expirations for 2019 and 2020
($ 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.
 
 
2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q1 2019
 
28

 
588,171

 
4.8
%
 
$
24,284

 
4.2
%
 
$
41.29

 
 
Q2 2019
 
20

 
211,549

 
1.7
%
 
7,787

 
1.4
%
 
36.81

 
 
Q3 2019
 
28

 
445,973

 
3.6
%
 
24,181

 
4.2
%
 
54.22

 
 
Q4 2019
 
22

 
164,574

 
1.4
%
 
6,949

 
1.2
%
 
42.22

 
 
Total 2019 (2)
 
98

 
1,410,267

 
11.5
%
 
$
63,201

 
11.0
%
 
$
44.81

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2020:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q1 2020
 
28

 
385,130

 
3.1
%
 
$
15,439

 
2.7
%
 
$
40.09

 
 
Q2 2020
 
21

 
242,244

 
2.0
%
 
10,016

 
1.7
%
 
41.35

 
 
Q3 2020
 
20

 
321,975

 
2.6
%
 
11,149

 
1.9
%
 
34.63

 
 
Q4 2020
 
27

 
495,812

 
4.1
%
 
22,285

 
3.9
%
 
44.95

 
 
Total 2020
 
96

 
1,445,161

 
11.8
%
 
$
58,889

 
10.2
%
 
$
40.75

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Includes 100% of annualized base rent of consolidated property partnerships.
(2)
Adjusting for leasing transactions executed as of December 31, 2018 but not yet commenced, the 2019 expirations would be reduced by 929,141 square feet.


20
Kilroy Realty Corporation
Fourth 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 / Microsoft Corporation
 
San Francisco Bay Area / Greater Seattle
 
$
34,096

 
788,915

 
5.9
%
 
6.0
%
 
 
Adobe Systems, Inc.
 
San Francisco Bay Area / Greater Seattle
 
26,751

 
407,656

 
4.6
%
 
3.1
%
 
 
salesforce.com, inc.
 
San Francisco Bay Area
 
23,449

 
444,273

 
4.1
%
 
3.4
%
 
 
DIRECTV, LLC
 
Greater Los Angeles
 
23,152

 
684,411

 
4.0
%
 
5.2
%
 
 
Box, Inc.
 
San Francisco Bay Area
 
22,441

 
371,792

 
3.9
%
 
2.8
%
 
 
Dropbox, Inc.
 
San Francisco Bay Area
 
22,234

 
374,618

 
3.9
%
 
2.8
%
 
 
Okta, Inc.
 
San Francisco Bay Area
 
17,129

 
207,066

 
3.0
%
 
1.6
%
 
 
Riot Games, Inc.
 
Greater Los Angeles
 
15,514

 
251,509

 
2.7
%
 
1.9
%
 
 
Synopsys, Inc.
 
San Francisco Bay Area
 
15,492

 
340,913

 
2.7
%
 
2.6
%
 
 
Viacom International, Inc.
 
Greater Los Angeles
 
13,718

 
211,343

 
2.4
%
 
1.6
%
 
 
Cisco Systems, Inc.
 
San Francisco Bay Area
 
10,792

 
147,288

 
1.9
%
 
1.1
%
 
 
Concur Technologies
 
Greater Seattle
 
10,643

 
288,322

 
1.9
%
 
2.2
%
 
 
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
%
 
1.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Top Fifteen Tenants
 
 
 
$
262,043

 
4,940,862

 
45.7
%
 
37.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
The information presented is as of December 31, 2018.
(2)
Includes 100% of annualized base rental revenues of consolidated property partnerships.



21
Kilroy Realty Corporation
Fourth 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3rd Quarter
 
 
 
 
 
 
 
 
 
 
 
 
None
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4th Quarter
 
 
 
 
 
 
 
 
 
 
 
 
345 Brannan Street, San Francisco, CA (2)
 
San Francisco
 
December
 
1
 
110,030

 
146.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL
 
 
 
 
 
4
 
255,560

 
$
257.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________ 
(1)
Excludes acquisition-related costs.
(2)
In May 2018, the Company executed a 12-year lease with GM Cruise, LLC for 100% of the space at this property.

22
Kilroy Realty Corporation
Fourth Quarter 2018 Supplemental Financial Report

2018 Dispositions
($ in millions)

 
 
 
 
COMPLETED DISPOSITIONS
 
 
 
 
 
 
 
 
 
 
 
 
Property
 
Submarket
 
Month of
Disposition
 
No. of Buildings
 
Rentable
Square Feet
 
Sales
Price (1)
 
 
1st Quarter
 
 
 
 
 
 
 
 
 
 
 
 
None
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2nd Quarter
 
 
 
 
 
 
 
 
 
 
 
 
None
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3rd Quarter
 
 
 
 
 
 
 
 
 
 
 
 
None
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4th Quarter
 
 
 
 
 
 
 
 
 
 
 
 
1310-1327 Chesapeake Terrace, Sunnyvale, CA
 
Sunnyvale
 
November
 
4
 
266,982
 
$
160.3

 
 
Plaza Yarrow Bay Properties (2)
 
Kirkland
 
November
 
4
 
279,924
 
134.5

 
 
23925, 23975 & 24025 Park Sorrento, Calabasas, CA
 
101 Corridor
 
December
 
3
 
225,340
 
78.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL DISPOSITIONS
 
 
 
 
 
11
 
772,246
 
$
373.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
____________________
(1)
Represents gross sales price before the impact of commissions and closing costs.
(2)
The Plaza Yarrow Bay Properties include the following properties: 10210, 10220 and 10230 NE Points Drive, 3933 Lake Washington Boulevard NE and a parcel of land in Kirkland, Washington.

23
Kilroy Realty Corporation
Fourth 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 35, 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.

24
Kilroy Realty Corporation
Fourth 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
12/31/2018 (3)
 
Office % Leased
 
Office % Occupied
 
Total Project % Leased
 
 
TENANT IMPROVEMENT (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
San Francisco Bay Area
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100 Hooper (4)
 
SOMA
 
4Q 2016
 
2Q 2019
 
400,000

 
$
270.0

 
$
251.0

 
100%
 
100%
 
86%
 
 
The Exchange on 16th (5)
 
Mission Bay
 
2Q 2015
 
3Q 2019 -
3Q 2020
 
750,000

 
585.0

 
454.6

 
100%
 
—%
 
99%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL:
 
 
 
 
 
 
 
1,150,000

 
$
855.0

 
$
705.6

 
100%
 
30%
 
95%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UNDER CONSTRUCTION
 
Location
 
Construction Start Date
 
Estimated Stabilization Date (2)
 
Estimated Rentable Square Feet
 
Total Estimated Investment
 
Total Cash Costs Incurred as of
12/31/2018 (3)
 
Office % Leased
 
Retail
% Leased
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Greater Seattle
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
333 Dexter
 
South Lake Union
 
2Q 2017
 
3Q 2020
 
650,000

 
$
380.0

 
$
165.7

 
—%
 
N/A
 
 
Mixed-Use
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Greater Los Angeles
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hollywood development - Office (6)
 
Hollywood
 
1Q 2018
 
1Q 2021
 
355,000

 
300.0

 
109.8

 
100%
 
N/A
 
 
Hollywood development - Residential
 
Hollywood
 
4Q 2018
 
4Q 2020
 
193 Resi Units

 
195.0

 
46.3

 
N/A
 
N/A
 
 
San Diego County
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One Paseo - Retail and Residential
 
Del Mar
 
4Q 2016
 
1Q 2019 -
3Q 2020
 
96,000 Retail
608 Resi Units

 
470.0

 
341.0

 
N/A
 
91%
 
 
      One Paseo - Office
 
Del Mar
 
4Q 2018
 
2Q 2021
 
285,000

 
205.0

 
84.4

 
42%
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL:
 
 
 
 
 
 
 
 
 
$
1,550.0

 
$
747.2

 
37%
 
91%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(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 December 31, 2018, excluding accrued liabilities recorded in accordance with GAAP.
(4)
The office component of this project, which consists of approximately 312,000 rentable square feet, is 100% leased to Adobe Systems, Inc. and the lease commenced in October 2018. The remaining PDR space of approximately 88,000 rentable square feet is currently 38% leased and 18% occupied.
(5)
The Company has an executed 15-year lease for 100% of the office space with Dropbox, Inc., which commenced 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 third quarter of 2019, the fourth quarter of 2019, and the third quarter of 2020, respectively.
(6)
In the fourth quarter, the Company signed a 12-year lease for 100% of the office space with Netflix, Inc.

25
Kilroy Realty Corporation
Fourth Quarter 2018 Supplemental Financial Report

Future Development Pipeline
($ in millions)
 
FUTURE DEVELOPMENT PIPELINE:
 
Location
 
Approx. Developable
Square Feet (1)
 
Total Cash Costs Incurred as of 12/31/2018 (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
San Diego County
 
 
 
 
 
 
 
 
 
 
2100 Kettner
 
Little Italy
 
175,000
 
$
24.1

 
 
9455 Towne Centre Drive
 
University Towne Center
 
150,000
 
16.3

 
 
Santa Fe Summit – Phases II and III
 
56 Corridor
 
600,000
 
78.2

 
 
San Francisco Bay Area
 
 
 
 
 
 
 
 
 
 
Kilroy Oyster Point
 
South San Francisco
 
2,500,000
 
337.7

 
 
Flower Mart
 
SOMA
 
TBD
 
222.5

 
 
TOTAL:
 
 
 
 
 
 
 
$
678.8

 
 
 
 
 
 
 
 
 
 
 
 
________________________
(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 December 31, 2018, excluding accrued liabilities recorded in accordance with GAAP.



26
Kilroy Realty Corporation
Fourth Quarter 2018 Supplemental Financial Report

Capital Structure
As of December 31, 2018
($ in thousands)
 
 
 
 
 
 
 
 
 
 
 
Shares/Units
December 31, 2018
 
Aggregate Principal
Amount or
$ Value Equivalent
 
% of Total
Market
Capitalization
 
 
DEBT: (1)
 
 
 
 
 
 
 
 
Unsecured Line of Credit
 
 
 
$
45,000

 
0.5
%
 
 
Unsecured Term Loan Facility
 
 
 
150,000

 
1.6
%
 
 
Unsecured Senior Notes due 2023
 
 
 
300,000

 
3.2
%
 
 
Unsecured Senior Notes due 2024
 
 
 
425,000

 
4.5
%
 
 
Unsecured Senior Notes due 2025
 
 
 
400,000

 
4.3
%
 
 
Unsecured Senior Notes Series A & B due 2026
 
 
 
250,000

 
2.6
%
 
 
Unsecured Senior Notes due 2028
 
 
 
400,000

 
4.3
%
 
 
Unsecured Senior Notes due 2029
 
 
 
400,000

 
4.3
%
 
 
Unsecured Senior Notes Series A & B due 2027 & 2029
 
 
 
250,000

 
2.6
%
 
 
Secured Debt
 
 
 
335,811

 
3.5
%
 
 
Total Debt
 
 
 
$
2,955,811

 
31.4
%
 
 
EQUITY AND NONCONTROLLING INTEREST IN THE OPERATING PARTNERSHIP: (2)
 
 
 
 
 
 
 
 
Common limited partnership units outstanding (3)
 
2,025,287
 
$
127,350

 
1.3
%
 
 
Shares of common stock outstanding (4)
 
100,746,988
 
6,334,971

 
67.3
%
 
 
Total Equity and Noncontrolling Interests in the Operating Partnership
 
 
 
$
6,462,321

 
68.6
%
 
 
TOTAL MARKET CAPITALIZATION
 
 
 
$
9,418,132

 
100.0
%
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Represents the gross aggregate principal amount due at maturity before the effect of unamortized deferred financing costs and premiums and discounts.
(2)
Value based on closing share price of $62.88 as of December 31, 2018.
(3)
Includes common units of the Operating Partnership not owned by the Company; does not include noncontrolling interests in consolidated property partnerships.
(4)
In August, the Company completed a public offering of 5,000,000 shares of common stock priced at $72.10 per share structured as a 12-month forward sale. Shares of common stock outstanding do not include any amounts related to this public offering as the Company has not sold any shares under the forward structure as of the date of this report.




27
Kilroy Realty Corporation
Fourth Quarter 2018 Supplemental Financial Report

Debt Analysis
As of December 31, 2018
 
 
 
 
 
 
 
 
 
 
TOTAL DEBT COMPOSITION
 
 
 
 
Percent of
Total Debt
 
Weighted Average
 
 
 
 
Interest Rate
 
Years to Maturity
 
 
Secured vs. Unsecured Debt
 
 
 
 
 
 
 
 
Unsecured Debt
 
88.6%
 
4.0%
 
7.4
 
 
Secured Debt
 
11.4%
 
4.4%
 
6.4
 
 
Floating vs. Fixed-Rate Debt
 
 
 
 
 
 
 
 
Floating-Rate Debt
 
6.6%
 
3.5%
 
3.6
 
 
Fixed-Rate Debt
 
93.4%
 
4.1%
 
7.6
 
 
 
 
 
 
 
 
 
 
 
Stated Interest Rate
 
 
 
4.1%
 
7.3
 
 
 
 
 
 
 
 
 
 
 
GAAP Effective Rate
 
 
 
4.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP Effective Rate Including Debt Issuance Costs
 
 
 
4.2%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
KEY DEBT COVENANTS
 
 
 
Covenant
 
Actual Performance
as of December 31, 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
 
3.4x
 
 
Unsecured debt ratio
 
greater than 1.67x
 
3.06x
 
 
Unencumbered asset pool debt service coverage
 
greater than 1.75x
 
4.43x
 
 
 
 
 
 
 
 
 
Unsecured Senior Notes due 2023, 2024, 2025, 2028 and 2029 (as defined in the Indentures): 
 
 
 
 
 
 
Total debt to total asset value
 
less than 60%
 
34%
 
 
Interest coverage
 
greater than 1.5x
 
9.6x
 
 
Secured debt to total asset value
 
less than 40%
 
4%
 
 
Unencumbered asset pool value to unsecured debt
 
greater than 150%
 
299%
 
 
 
 
 
 
 
 

28
Kilroy Realty Corporation
Fourth Quarter 2018 Supplemental Financial Report

Debt Analysis
($ in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DEBT MATURITY SCHEDULE
 
Floating/
Fixed Rate
 
Stated
Rate
 
GAAP Effective Rate (1)
 
Maturity
Date
 
2019
 
2020
 
2021
 
2022
 
2023
 
After 2023
 
Total (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating
 
3.48%
 
3.48%
 
7/31/2022
 
 
 
 
 
 
 
$
45,000

 
 
 
 
 
$
45,000

 
 
Floating
 
3.49%
 
3.49%
 
7/31/2022
 
 
 
 
 
 
 
150,000

 
 
 

 
150,000

 
 
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
 
4.30%
 
4.30%
 
7/18/2026
 
 
 
 
 
 
 
 
 
 
 
50,000

 
50,000

 
 
Fixed
 
4.35%
 
4.35%
 
10/18/2026
 
 
 
 
 
 
 
 
 
 
 
200,000

 
200,000

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

 
175,000

 
 
Fixed
 
4.75%
 
4.80%
 
12/15/2028
 
 
 
 
 
 
 
 
 
 
 
400,000

 
400,000

 
 
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%
 
 
 
—

 
—

 
—

 
195,000

 
300,000

 
2,125,000

 
2,620,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed (3)
 
6.05%
 
3.50%
 
6/1/2019
 
74,479

 
 
 
 
 
 
 
 
 
 
 
74,479

 
 
Fixed
 
3.57%
 
3.57%
 
12/1/2026
 

 
3,224

 
3,341

 
3,462

 
3,587

 
156,386

 
170,000

 
 
Fixed
 
4.48%
 
4.48%
 
7/1/2027
 
1,830

 
1,913

 
2,001

 
2,092

 
2,188

 
81,308

 
91,332

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total secured debt
 
4.37%
 
3.80%
 
 
 
76,309

 
5,137

 
5,342

 
5,554

 
5,775

 
237,694

 
335,811

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
4.07%
 
4.04%
 
 
 
$
76,309

 
$
5,137

 
$
5,342

 
$
200,554

 
$
305,775

 
$
2,362,694

 
$
2,955,811

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(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)
Represents secured debt assumed in connection with an operating property acquisition. The Company intends to repay this mortgage note at par on February 11, 2019.





29
Kilroy Realty Corporation
Fourth 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 February 4, 2019 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.



30
Kilroy Realty Corporation
Fourth 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.
 




31
Kilroy Realty Corporation
Fourth 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, amortization of above (below) market rents for acquisition properties and non-cash executive compensation expense 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.


32
Kilroy Realty Corporation
Fourth 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.


33
Kilroy Realty Corporation
Fourth 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 December 31, 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.


34
Kilroy Realty Corporation
Fourth 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 December 31,
 
Year Ended December 31,
 
 
 
 
2018
 
2017
 
2018
 
2017
 
 
Net Income Available to Common Stockholders
 
$
160,220

 
$
28,529

 
$
258,415

 
$
151,249

 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
3,185

 
590

 
5,193

 
3,223

 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
3,485

 
3,421

 
14,318

 
12,780

 
 
Total preferred dividends
 
—

 
—

 
—

 
13,363

 
 
Net Income
 
166,890

 
32,540

 
277,926

 
180,615

 
 
Adjustments:
 


 


 

 


 
 
General and administrative expenses
 
33,872

 
16,831

 
90,471

 
60,581

 
 
Depreciation and amortization
 
64,860

 
60,149

 
254,281

 
245,886

 
 
Interest income and other net investment loss (gain)
 
1,706

 
(1,874
)
 
559

 
(5,503
)
 
 
Interest expense
 
12,436

 
14,564

 
49,721

 
66,040

 
 
Loss on early extinguishment of debt
 
12,623

 
5,312

 
12,623

 
5,312

 
 
Gain on sales of land
 
(11,825
)
 
—

 
(11,825
)
 
(449
)
 
 
Gains on sales of depreciable operating properties
 
(142,926
)
 
—

 
(142,926
)
 
(39,507
)
 
 
Net Operating Income, as defined (1)
 
137,636

 
127,522

 
530,830

 
512,975

 
 
Wholly-Owned Properties
 
119,984

 
109,761

 
460,669

 
441,204

 
 
Consolidated property partnerships: (2)
 
 
 
 
 
 
 
 
 
 
100 First Street (3)
 
3,696

 
4,577

 
15,306

 
17,616

 
 
303 Second Street (3)
 
8,312

 
7,515

 
31,943

 
31,222

 
 
Crossing/900 (4)
 
5,644

 
5,669

 
22,912

 
22,933

 
 
Net Operating Income, as defined (1)
 
137,636

 
127,522

 
530,830

 
512,975

 
 
Non-Same Store GAAP Net Operating Income (5)
 
(15,657
)
 
(9,068
)
 
(48,243
)
 
(44,680
)
 
 
Same Store GAAP Net Operating Income
 
121,979

 
118,454

 
482,587

 
468,295

 
 
GAAP to Cash Adjustments:
 


 
 
 
 
 
 
 
 
GAAP Operating Revenues Adjustments, net (6)
 
(11,658
)
 
(7,389
)
 
(42,376
)
 
(38,463
)
 
 
GAAP Operating Expenses Adjustments, net (7)
 
281

 
504

 
5,743

 
3,114

 
 
Same Store Cash Net Operating Income
 
$
110,602

 
$
111,569

 
$
445,954

 
$
432,946

 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Please refer to pages 30-31 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, one office property we acquired in the fourth quarter of 2018, eleven properties disposed of during the fourth 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 our in-process 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.

35
Kilroy Realty Corporation
Fourth Quarter 2018 Supplemental Financial Report

Reconciliation of Net Income Available to Common Stockholders to EBITDA, as Adjusted
(unaudited, $ in thousands)
 
 
 
Three Months Ended December 31,
 
 
 
 
2018
 
2017
 
 
Net Income Available to Common Stockholders
 
$
160,220

 
$
28,529

 
 
Interest expense
 
12,436

 
14,564

 
 
Depreciation and amortization
 
64,860

 
60,149

 
 
Loss on early extinguishment of debt
 
12,623

 
5,312

 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
3,185

 
590

 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
3,485

 
3,421

 
 
Gains on sales of depreciable operating properties
 
(142,926
)
 
—

 
 
EBITDA, as adjusted (1)
 
$
113,883

 
$
112,565

 
 
 
 
 
 
 
 
________________________
(1)
Please refer to page 31 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.


36