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

q119supplementalcoverpage.jpg


Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


Table of Contents
 
Page
Corporate Data and Financial Highlights
 
1
2
3
4
5
6
7
8-9
10
Portfolio Data
 
11
12-16
17
18
19-21
22
23
Development
 
24
25
Debt and Capitalization Data
 
26
27-28
29-31
32-35
This Supplemental Financial Report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, among other things, information concerning lease expirations, debt maturities, potential investments, development and redevelopment activity, projected construction costs, dispositions and other forward-looking financial data. In some instances, forward-looking statements can be identified by the use of forward-looking terminology such as “expect,” “future,” “will,” “would,” “pursue,” or “project” and variations of such words and similar expressions that do not relate to historical matters. Forward-looking statements are based on Kilroy Realty Corporation’s current expectations, beliefs and assumptions, and are not guarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult to predict, many of which are outside of Kilroy Realty Corporation’s control. Accordingly, actual performance, results and events may vary materially from those indicated 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, 2018, and its other filings with the Securities and Exchange Commission. All forward-looking statements are based on currently available information and speak only as of the dates on which they are made. Kilroy Realty Corporation assumes no obligation to update any forward-looking statement made in this Supplemental Financial Report that becomes untrue because of subsequent events, new information or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws.


Kilroy Realty Corporation
First Quarter 2019 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 March 31, 2019, the Company’s stabilized portfolio totaled approximately 13.2 million square feet of office space that was 92.5% 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
 
Jeffrey C. Hawken
Executive VP and COO
 
Jolie Hunt
 
 
Tracy Murphy
Executive VP, Life Science
 
Scott S. Ingraham
 
 
Robert Paratte
Executive VP, Leasing and Business Development
 
Gary R. Stevenson
 
 
Tyler H. Rose
Executive VP and CFO
 
Peter B. Stoneberg
 
 
Steve Rosetta
Executive VP and CIO
 
 
 
 
Heidi R. Roth
Executive VP and Chief Administrative Officer
 
 
 
 
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
First Quarter 2019 Supplemental Financial Report


Executive Summary
 
 
 
Quarterly Financial Highlights
 
Quarterly Operating Highlights
 
 
 
• Net income available to common stockholders per share of $0.36
 
• Stabilized portfolio was 92.5% occupied and 96.2% leased at quarter-end
 
 
 
• FFO per share of $0.95
 
• 381,235 square feet of leases commenced in the stabilized portfolio
- FFO for the first quarter 2019 included a positive $0.03 per share impact related
 
 
     to the improved credit quality of a tenant for which the Company recorded a bad
 
• 203,370 square feet of leases executed in the stabilized portfolio
     debt reserve in 2018
 
 
- The adoption of the new lease accounting standard requires expensing of
 
- GAAP rents increased approximately 50.1% from prior levels
         internal leasing costs and third-party legal fees which had the impact of lowering
 
 
         first quarter FFO by $0.02 per share when compared to what the results would
 
- Cash rents increased approximately 34.1% from prior levels
         have been under the prior standard
 
 
 
 
 
• Revenues of $201.2 million
 
 
 
 
 
• Same Store GAAP NOI increased 3.2% compared to the prior year
 
 
 
 
 
• Same Store Cash NOI decreased 4.2% compared to the prior year
 
 
 
 
 
 
 
 
 
 
 
Capital Markets Highlights
 
Strategic Highlights
 
 
 
• In February, repaid at par a mortgage note for $74.3 million due June 2019
 
• In March, commenced construction on Phase I of Kilroy Oyster Point in South San


 
   Francisco and 9455 Towne Centre Drive in the University Towne Center submarket
• In March and April, executed 12-month forward equity sale agreements under the
 
   of San Diego
   ATM program for 1,201,204 shares at a weighted average sales price of $75.92

 
- Phase I of Kilroy Oyster Point encompasses approximately 630,000 square feet
 
 
         of office and lab space and represents a total estimated investment of $600.0
• As of the date of this report, the Company had not drawn down any portion of the
 
         million
   shares sold under the forward equity agreements, including the transaction executed

 
- 9455 Towne Centre Drive encompasses approximately 160,000 square feet of
   in August 2018
 
         office and lab space and represents a total estimated investment of $125.0 million
 
 
 
• As of the date of this report, $285.0 million was outstanding on our unsecured
 
• In March, transferred the $95.0 million retail component of One Paseo,
revolving credit facility
 
   encompassing 96,000 square feet in the Del Mar submarket of San Diego, from
 
 
   under construction to the tenant improvement phase. The retail component is
 
 
   currently 92% leased
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
Note: Definitions for commonly used terms in this Supplemental Financial Report are on pages 32-33 “Definitions Included in Supplemental.”

2

Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


Financial Highlights
(unaudited, $ in thousands, except per share amounts)
 
 
Three Months Ended
 
 
 
3/31/2019 (1)
 
12/31/2018 (2)
 
9/30/2018
 
6/30/2018 (2)
 
3/31/2018
 
INCOME ITEMS:
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
201,202

 
$
190,842

 
$
186,562

 
$
187,072

 
$
182,822

 
 
Lease Termination Fees, net
1,888

 
1,293

 
431

 
1,093

 
60

 
 
Net Operating Income (3)
142,442

 
137,636

 
131,020

 
129,465

 
132,709

 
 
Capitalized Interest and Debt Costs
19,437

 
19,519

 
19,156

 
15,811

 
13,582

 
 
Net Income Available to Common Stockholders
36,903

 
160,220

 
34,400

 
27,549

 
36,246

 
 
EBITDA, as adjusted (3) (4)
119,172

 
113,883

 
112,085

 
108,473

 
117,184

 
 
Funds From Operations (4) (5) (6) (7)
99,812

 
81,330

 
94,247

 
88,629

 
96,285

 
 
Net Income Available to Common Stockholders per common share – diluted (6)
$
0.36

 
$
1.58

 
$
0.33

 
$
0.27

 
$
0.36

 
 
Funds From Operations per common share – diluted (4) (6) (7)
$
0.95

 
$
0.78

 
$
0.90

 
$
0.86

 
$
0.94

 
LIQUIDITY ITEMS:
 
 
 
 
 
 
 
 
 
 
 
Funds Available for Distribution (5) (6) (8)
$
65,934

 
$
51,792

 
$
68,758

 
$
51,953

 
$
75,537

 
 
Dividends per common share (6)
$
0.455

 
$
0.455

 
$
0.455

 
$
0.455

 
$
0.425

 
RATIOS:
 
 
 
 
 
 
 
 
 
 
 
Net Operating Income Margins
70.8
%
 
72.1
%
 
70.2
%
 
69.2
%
 
72.6
%
 
 
Fixed Charge Coverage Ratio
4.0x

 
3.7x

 
3.8x

 
3.9x

 
4.5x

 
 
FFO Payout Ratio (4) (7)
46.9
%
 
57.5
%
 
49.6
%
 
52.7
%
 
44.5
%
 
 
FAD Payout Ratio (8)
71.1
%
 
90.3
%
 
68.0
%
 
89.9
%
 
56.8
%
 
ASSETS:
 
 
 
 
 
 
 
 
 
 
 
Real Estate Held for Investment before Depreciation
$
8,616,167

 
$
8,426,632

 
$
8,329,580

 
$
8,138,413

 
$
7,645,666

 
 
Total Assets
7,883,987

 
7,765,707

 
7,562,236

 
7,384,784

 
6,965,932

 
CAPITALIZATION: (9)
 
 
 
 
 
 
 
 
 
 
 
Total Debt
$
3,020,882

 
$
2,955,811

 
$
2,891,725

 
$
2,807,627

 
$
2,563,517

 
 
Total Common Equity and Noncontrolling Interests in the Operating Partnership
7,823,144

 
6,462,321

 
7,367,745

 
7,762,978

 
7,160,602

 
 
Total Market Capitalization
10,844,026

 
9,418,132

 
10,259,470

 
10,570,605

 
9,724,119

 
 
Total Debt / Total Market Capitalization
27.9
%
 
31.4
%
 
28.2
%
 
26.6
%
 
26.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
______________________________________________________
Note: Definitions for commonly used terms in this Supplemental Financial Report are on pages 32-33 “Definitions Included in Supplemental.”
(1)
The Company adopted ASC 842 “Leases” effective January 1, 2019. Please refer to page 10 for a description of the impact of the adoption on our consolidated statements of operations.
(2)
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 and $5.6 million of provision for bad debts for the three months ended June 30, 2018.
(3)
Please refer to page 10 for the calculation of Net Operating Income and pages 34-35 for reconciliations of GAAP Net Income Available to Common Stockholders to Net Operating Income and EBITDA, as adjusted.
(4)
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.
(5)
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.
(6)
Reported amounts are attributable to common stockholders, common unitholders and restricted stock unit holders.
(7)
Funds From Operations for the three months ended December 31, 2018 includes a $12.6 million loss on early extinguishment of debt.
(8)
Funds Available for Distribution for the three months ended December 31, 2018 includes a $11.8 million cash loss on early extinguishment of debt.
(9)
Please refer to page 26 for additional information regarding our capital structure.

3

Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


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

The Company is providing an updated guidance range of NAREIT-defined FFO per diluted share for its fiscal year 2019 of $3.64 to $3.78 per share with a midpoint of $3.71 per share.
 
 
 
Full Year 2019 Range
 
 
 
 
Low End
 
High End
 
 
Net income available to common stockholders per share - diluted
 
$
1.49

 
$
1.63

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - diluted (1)
 
105,700

 
105,700

 
 
 
 
 
 
 
 
 
Net income available to common stockholders
 
$
157,000

 
$
172,000

 
 
Adjustments:
 
 
 
 
 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
3,200

 
3,600

 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
17,000

 
20,000

 
 
Depreciation and amortization of real estate assets
 
241,000

 
241,000

 
 
Gains on sales of depreciable real estate
 

 

 
 
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships
 
(26,500
)
 
(29,500
)
 
 
Funds From Operations (2)
 
$
391,700

 
$
407,100

 
 
 
 
 
 
 
 
 
Weighted average common shares and units outstanding - diluted (3)
 
107,700

 
107,700

 
 
 
 
 
 
 
 
 
FFO per common share/unit - diluted (3)
 
$
3.64

 
$
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 remaining development spending of approximately $400.0 million to $500.0 million
________________________
(1)
Calculated based on estimated weighted average shares outstanding including non-participating share-based awards.
(2)
See pages 30-31 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
First Quarter 2019 Supplemental Financial Report


Common Stock Data (NYSE: KRC)
 
 
 
Three Months Ended
 
 
 
3/31/2019
 
12/31/2018
 
9/30/2018
 
6/30/2018
 
3/31/2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High Price
$
76.50

 
$
72.34

 
$
76.67

 
$
77.34

 
$
74.27

 
 
Low Price
$
61.44

 
$
59.46

 
$
69.67

 
$
68.96

 
$
63.72

 
 
Closing Price
$
75.96

 
$
62.88

 
$
71.69

 
$
75.64

 
$
70.96

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends per share – annualized
$
1.82

 
$
1.82

 
$
1.82

 
$
1.82

 
$
1.70

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Closing common shares (in 000’s) (1)
100,967

 
100,747

 
100,747

 
100,560

 
98,840

 
 
Closing common partnership units (in 000’s) (1)
2,023

 
2,025

 
2,025

 
2,071

 
2,071

 
 
 
102,990

 
102,772

 
102,772

 
102,631

 
100,911

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







5

Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


Consolidated Balance Sheets
(unaudited, $ in thousands)
 
 
3/31/2019
 
12/31/2018
 
9/30/2018
 
6/30/2018
 
3/31/2018
 
 
ASSETS:

 
 
 
 
 
 
 
 
 
 
Land and improvements
$
1,184,496

 
$
1,160,138

 
$
1,127,100

 
$
1,127,100

 
$
1,127,100

 
 
Buildings and improvements
5,300,313

 
5,207,984

 
5,056,050

 
5,017,999

 
4,987,617

 
 
Undeveloped land and construction in progress
2,131,358

 
2,058,510

 
2,146,430

 
1,993,314

 
1,530,949

 
 
Total real estate assets held for investment
8,616,167

 
8,426,632

 
8,329,580

 
8,138,413

 
7,645,666

 
 
Accumulated depreciation and amortization
(1,441,506
)
 
(1,391,368
)
 
(1,411,529
)
 
(1,361,811
)
 
(1,312,612
)
 
 
Total real estate assets held for investment, net
7,174,661

 
7,035,264

 
6,918,051

 
6,776,602

 
6,333,054

 
 
Cash and cash equivalents
49,693

 
51,604

 
86,517

 
50,817

 
53,069

 
 
Restricted cash
6,300

 
119,430

 

 

 

 
 
Marketable securities
24,098

 
21,779

 
23,353

 
22,519

 
21,572

 
 
Current receivables, net
28,016

 
20,176

 
17,519

 
15,144

 
17,602

 
 
Deferred rent receivables, net
280,756

 
267,007

 
261,003

 
256,558

 
251,744

 
 
Deferred leasing costs and acquisition-related intangible assets, net
187,309

 
197,574

 
183,118

 
186,649

 
181,567

 
 
Right of use ground lease assets (1)
82,794

 

 

 

 

 
 
Prepaid expenses and other assets, net
50,360

 
52,873

 
72,675

 
76,495

 
107,324

 
 
TOTAL ASSETS
$
7,883,987

 
$
7,765,707

 
$
7,562,236

 
$
7,384,784

 
$
6,965,932

 
 
LIABILITIES AND EQUITY:
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Secured debt, net
$
259,878

 
$
335,531

 
$
336,866

 
$
338,189

 
$
339,501

 
 
Unsecured debt, net
2,552,883

 
2,552,070

 
2,207,049

 
2,156,521

 
2,155,794

 
 
Unsecured line of credit
185,000

 
45,000

 
330,000

 
295,000

 
50,000

 
 
Accounts payable, accrued expenses and other liabilities
373,691

 
374,415

 
360,674

 
278,508

 
223,973

 
 
Ground lease liabilities (1)
87,247

 

 

 

 

 
 
Accrued dividends and distributions
47,676

 
47,559

 
47,411

 
47,348

 
43,512

 
 
Deferred revenue and acquisition-related intangible liabilities, net
138,973

 
149,646

 
149,059

 
146,741

 
149,563

 
 
Rents received in advance and tenant security deposits
55,457

 
60,225

 
56,258

 
58,604

 
56,117

 
 
Total liabilities
3,700,805

 
3,564,446

 
3,487,317

 
3,320,911

 
3,018,460

 
 
Equity:
 
 
 
 
 
 
 
 
 
 
 
Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
Common stock
1,010

 
1,007

 
1,007

 
1,006

 
988

 
 
Additional paid-in capital
3,976,204

 
3,976,953

 
3,965,405

 
3,951,289

 
3,816,385

 
 
Distributions in excess of earnings
(62,690
)
 
(48,053
)
 
(161,654
)
 
(149,368
)
 
(130,514
)
 
 
Total stockholders’ equity
3,914,524

 
3,929,907

 
3,804,758

 
3,802,927

 
3,686,859

 
 
Noncontrolling Interests
 
 
 
 
 
 
 
 
 
 
 
Common units of the Operating Partnership
78,413

 
78,991

 
76,486

 
78,223

 
77,240

 
 
Noncontrolling interests in consolidated property partnerships
190,245

 
192,363

 
193,675

 
182,723

 
183,373

 
 
Total noncontrolling interests
268,658

 
271,354

 
270,161

 
260,946

 
260,613

 
 
Total equity
4,183,182

 
4,201,261

 
4,074,919

 
4,063,873

 
3,947,472

 
 
TOTAL LIABILITIES AND EQUITY
$
7,883,987

 
$
7,765,707

 
$
7,562,236

 
$
7,384,784

 
$
6,965,932

 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Effective January 1, 2019, the Company adopted ASC 842 “Leases,” which requires right of use assets and liabilities for leases in which the Company is the lessee to be presented on the Company’s consolidated balance sheets.

6

Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


Consolidated Statements of Operations
(unaudited, $ and shares in thousands, except per share amounts)
 
 
 
Three Months Ended, March 31
 
 
 
 
2019
 
2018
 
 
REVENUES
 
 
 
 
 
 
Rental income (1)
 
$
199,382

 
$
162,871

 
 
Tenant reimbursements (1)
 

 
19,150

 
 
Other property income (1)
 
1,820

 
801

 
 
Total revenues
 
201,202

 
182,822

 
 
EXPENSES
 
 
 
 
 
 
Property expenses (1)
 
38,149

 
31,671

 
 
Real estate taxes (1)
 
18,639

 
17,146

 
 
Provision for bad debts (1)
 

 
(265
)
 
 
Ground leases (1)
 
1,972

 
1,561

 
 
General and administrative expenses
 
23,341

 
15,559

 
 
Leasing costs (1)
 
1,757

 

 
 
Depreciation and amortization
 
66,135

 
62,715

 
 
Total expenses
 
149,993

 
128,387

 
 
OTHER (EXPENSES) INCOME
 
 
 
 
 
 
Interest income and other net investment gain
 
1,828

 
34

 
 
Interest expense
 
(11,243
)
 
(13,498
)
 
 
Total other (expenses) income
 
(9,415
)
 
(13,464
)
 
 
NET INCOME
 
41,794

 
40,971

 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
(700
)
 
(751
)
 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
(4,191
)
 
(3,974
)
 
 
Total income attributable to noncontrolling interests
 
(4,891
)
 
(4,725
)
 
 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
 
$
36,903

 
$
36,246

 
 
Weighted average common shares outstanding – basic
 
100,901

 
98,744

 
 
Weighted average common shares outstanding – diluted
 
101,443

 
99,214

 
 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS PER SHARE
 
 
 
 
 
 
Net income available to common stockholders per share – basic
 
$
0.36

 
$
0.36

 
 
Net income available to common stockholders per share – diluted
 
$
0.36

 
$
0.36

 
 
 
 
 
 
 
 
________________________
(1)
Effective January 1, 2019, the Company adopted ASC 842 “Leases.” Please refer to page 10 for a description of the changes made to our 2019 consolidated statement of operations upon adoption of ASC 842 “Leases.” In accordance with the adoption of the new standard under the modified retrospective method, previously reported periods are not restated for the impact of the standard.

7

Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


Funds From Operations and Funds Available for Distribution
(unaudited, $ in thousands, except per share amounts)
 
 
 
Three Months Ended, March 31
 
 
 
 
2019
 
2018
 
 
FUNDS FROM OPERATIONS: (1)
 
 
 
 
 
 
Net income available to common stockholders
 
$
36,903

 
$
36,246

 
 
Adjustments:
 
 
 
 
 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
700

 
751

 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
4,191

 
3,974

 
 
Depreciation and amortization of real estate assets
 
64,971

 
61,677

 
 
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships
 
(6,953
)
 
(6,363
)
 
 
Funds From Operations (1)(2)
 
$
99,812

 
$
96,285

 
 
Weighted average common shares/units outstanding – basic (3)
 
104,062

 
102,030

 
 
Weighted average common shares/units outstanding – diluted (4)
 
104,603

 
102,499

 
 
FFO per common share/unit – basic (1)
 
$
0.96

 
$
0.94

 
 
FFO per common share/unit – diluted (1)
 
$
0.95

 
$
0.94

 
 
FUNDS AVAILABLE FOR DISTRIBUTION: (1)
 
 
 
 
 
 
Funds From Operations (1)(2)
 
$
99,812

 
$
96,285

 
 
Adjustments:
 
 
 
 
 
 
Recurring tenant improvements, leasing commissions and capital expenditures
 
(21,583
)
 
(13,994
)
 
 
Amortization of deferred revenue related to tenant-funded tenant improvements (2)(5)
 
(3,817
)
 
(4,281
)
 
 
Net effect of straight-line rents
 
(16,511
)
 
(5,353
)
 
 
Amortization of net below market rents (6)
 
(2,094
)
 
(2,543
)
 
 
Amortization of deferred financing costs and net debt discount/premium
 
135

 
315

 
 
Non-cash executive compensation expense (7)
 
7,584

 
3,598

 
 
Other lease related adjustments, net and leasing costs (8)
 
35

 
1,287

 
 
Adjustments attributable to noncontrolling interests in consolidated property partnerships
 
2,373

 
223

 
 
Funds Available for Distribution (1)
 
$
65,934

 
$
75,537

 
 
 
 
 
 
 
 
________________________
(1)
See page 31 for Management Statements on Funds From Operations and Funds Available for Distribution. Reported per common share/unit amounts are attributable to common stockholders, common unitholders and restricted stock unit holders.
(2)
FFO available to common stockholders and unitholders includes amortization of deferred revenue related to tenant-funded tenant improvements of $3.8 million and $4.3 million for the three months ended March 31, 2019 and 2018, 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 matters including GAAP revenue recognition timing differences and leasing costs.


8

Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


Reconciliation of GAAP Net Cash Provided by Operating Activities to Funds Available for Distribution
(unaudited, $ in thousands)
 
 
 
Three Months Ended March 31,
 
 
 
 
2019
 
2018
 
 
GAAP Net Cash Provided by Operating Activities 
 
$
99,790

 
$
94,109

 
 
Adjustments:
 
 
 
 
 
 
Recurring tenant improvements, leasing commissions and capital expenditures
 
(21,583
)
 
(13,994
)
 
 
Depreciation of non-real estate furniture, fixtures and equipment
 
(1,164
)
 
(1,038
)
 
 
Net changes in operating assets and liabilities (1)
 
(5,962
)
 
6,377

 
 
Noncontrolling interests in consolidated property partnerships share of FFO and FAD
 
(4,580
)
 
(6,140
)
 
 
Cash adjustments related to investing and financing activities
 
(567
)
 
(3,777
)
 
 
 
 
 
 
 
 
 
Funds Available for Distribution(2)
 
$
65,934

 
$
75,537

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


9

Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


Net Operating Income (1) 
(unaudited, $ in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended, March 31
 
 
 
 
2019 (2)
 
2018 As Reported
 
2018 As Adjusted (3)
 
% Change
2019 vs. 2018 As Adjusted
 
 
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
171,882

 
$
162,871

 
$
161,945

 
6.1
 %
 
 
Tenant reimbursements
 
27,500

 
19,150

 
22,675

 
21.3
 %
 
 
Other property income
 
1,820

 
801

 
1,992

 
(8.6
)%
 
 
Total operating revenues
 
201,202

 
182,822

 
186,612

 
7.8
 %
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
 
 
Property expenses
 
38,149

 
31,671

 
35,196

 
8.4
 %
 
 
Real estate taxes
 
18,639

 
17,146

 
16,684

 
11.7
 %
 
 
Provision for bad debts
 

 
(265
)
 

 
 %
 
 
Ground leases
 
1,972

 
1,561

 
2,023

 
(2.5
)%
 
 
Total operating expenses
 
58,760

 
50,113

 
53,903

 
9.0
 %
 
 
Net Operating Income
 
$
142,442

 
$
132,709

 
$
132,709

 
7.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Please refer to page 29 for Management Statements on Net Operating Income and page 34 for a reconciliation of GAAP Net Income Available to Common Stockholders to Net Operating Income.
(2)
Effective January 1, 2019, the Company adopted ASC 842 “Leases,” which required the following changes for all periods beginning and subsequent to January 1, 2019. In accordance with the adoption of the new standard under the modified retrospective method, previously reported periods are not restated for the impact of the standard.
- All lease related revenue required to be reported as a single component within rental income. For the three months ended March 31, 2019, rental income includes $27.5 million of tenant reimbursements and $3.3 million of lease termination fees. For this analysis, tenant reimbursements have been broken out from rental income for comparison purposes.
- Rental income to be presented net of provision for bad debts. For the three months ended March 31, 2019, rental income includes a recovery of provision for bad debts of $3.5 million.
- All property expenses paid directly by the Company and reimbursed by the tenant to be presented on a gross basis. For the three months ended March 31, 2019, rental income and property expenses both include $3.0 million of additional tenant reimbursements and the related property expenses, which were previously shown net in property expenses in prior periods. This change has no impact to net income, Net Operating Income or Funds From Operations.
- Non-tenant parking income to be presented in other property income instead of rental income since recognized under ASC 606 “Revenue from Contracts with Customers” and outside the scope of ASC 842 “Leases.”
- Real estate taxes for properties where the Company is a lessee under ground leases to be presented in ground leases instead of real estate taxes. For the three months ended March 31, 2019, ground leases includes $0.5 million of property taxes for properties where the Company is a lessee.
(3)
The components of Net Operating Income for the three months ended March 31, 2018 have been presented as if we adopted ASC 842 “Leases” effective January 1, 2018 for comparison purposes. For this analysis, tenant reimbursements have been broken out from rental income for comparison purposes. For the three months ended March 31, 2018 as adjusted, rental income includes $0.4 million of lease termination fees.


10

Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


Same Store Analysis (1) 
(unaudited, $ in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended, March 31
 
 
 
 
2019
 
2018
 
2018 As Adjusted (2)
 
% Change
2019 vs. 2018 As Adjusted
 
 
Total Same Store Portfolio
 
 
 
 
 
 
 
 
 
 
Office Portfolio
 
 
 
 
 
 
 
 
 
 
Number of properties
 
90

 
90

 
90

 
 
 
 
Square Feet
 
12,980,793

 
12,980,793

 
12,980,793

 
 
 
 
Percent of Stabilized Portfolio
 
98.1
%
 
93.6
%
 
93.6
%
 
 
 
 
Average Occupancy
 
93.2
%
 
94.9
%
 
94.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Revenues: (3) (4)
 
 
 
 
 
 
 
 
 
 
Rental income  (5)
 
$
160,300

 
$
155,886

 
$
154,949

 
3.5
 %
 
 
Tenant reimbursements
 
23,959

 
17,578

 
21,006

 
14.1
 %
 
 
Other property income
 
1,752

 
768

 
1,990

 
(12.0
)%
 
 
Total operating revenues
 
186,011

 
174,232

 
177,945

 
4.5
 %
 
 
Operating Expenses: (4)
 
 
 
 
 
 
 
 
 
 
Property expenses
 
36,511

 
30,164

 
33,592

 
8.7
 %
 
 
Real estate taxes
 
16,630

 
15,989

 
15,528

 
7.1
 %
 
 
Provision for bad debts
 

 
(285
)
 

 
 %
 
 
Ground leases
 
1,972

 
1,561

 
2,022

 
(2.5
)%
 
 
Total operating expenses
 
55,113

 
47,429

 
51,142

 
7.8
 %
 
 
GAAP Net Operating Income
 
$
130,898

 
$
126,803

 
$
126,803

 
3.2
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Store Analysis (Cash Basis) (6)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended, March 31
 
 
 
 
2019
 
2018
 
2018 As Adjusted (2)
 
% Change
2019 vs. 2018 As Adjusted
 
 
Total operating revenues
 
$
166,305

 
$
163,723

 
$
167,151

 
(0.5
)%
 
 
Total operating expenses
 
55,131

 
47,713

 
51,141

 
7.8
 %
 
 
Cash Net Operating Income
 
$
111,174

 
$
116,010

 
$
116,010

 
(4.2
)%
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Same Store is defined as all properties owned and included in our stabilized portfolio as of January 1, 2018 and still owned and included in the stabilized portfolio as of March 31, 2019. Same Store includes 100% of consolidated property partnerships as well as the residential tower at Columbia Square.
(2)
The components of Net Operating Income for the three months ended March 31, 2018 have been presented as if we adopted ASC 842 “Leases” effective January 1, 2018 for comparison purposes.
(3)
For this analysis, tenant reimbursements have been broken out from rental income.
(4)
Please refer to page 10 for our Net Operating Income and a description of the changes made and their impact on our consolidated statements of operations effective January 1, 2019 upon adoption of ASC 842 “Leases.” For our same store portfolio, the gross-up presentation of property expenses paid directly by the Company and reimbursed by the tenant increased tenant reimbursements and property expenses by $2.8 million for the three months ended March 31, 2019. The impact of all other changes from the adoption of ASC 842 was the same for our consolidated portfolio and our same store portfolio.
(5)
For the three months ended March 31, 2019, rental income includes lease termination fees of $1.5 million. For the three months ended March 31, 2018 as adjusted, rental income includes lease termination fees of $0.4 million.
(6)
Please refer to page 34 for a reconciliation of GAAP Net Income Available to Common Stockholders to Same Store GAAP Net Operating Income and Same Store Cash Net Operating Income.

11

Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


Stabilized Portfolio Occupancy Overview by Region

 
 
 
 
 
Portfolio Breakdown
 
 
 
Occupied at
 
Leased at
 
 
STABILIZED OFFICE PORTFOLIO
 
Buildings
 
YTD NOI %
 
SF %
 
Total SF
 
3/31/2019
 
12/31/2018 (1)
 
3/31/2019
 
 
Greater Los Angeles
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
101 Corridor
 
1
 
0.2
%
 
0.6
%
 
84,098

 
80.5
%
 
80.5
%
 
80.5
%
 
 
El Segundo
 
5
 
5.2
%
 
8.2
%
 
1,093,050

 
98.3
%
 
99.5
%
 
98.3
%
 
 
Hollywood
 
6
 
7.2
%
 
6.1
%
 
806,557

 
99.2
%
 
99.0
%
 
99.2
%
 
 
Long Beach
 
7
 
3.2
%
 
7.2
%
 
949,942

 
93.0
%
 
92.1
%
 
96.2
%
 
 
West Hollywood
 
4
 
1.3
%
 
1.4
%
 
178,699

 
95.1
%
 
95.9
%
 
95.1
%
 
 
West Los Angeles
 
10
 
6.1
%
 
6.4
%
 
844,151

 
93.3
%
 
90.3
%
 
94.8
%
 
 
Total Greater Los Angeles
 
33
 
23.2
%
 
29.9
%
 
3,956,497

 
95.6
%
 
95.1
%
 
96.7
%
 
 
Total Orange County
 
1
 
1.3
%
 
2.1
%
 
271,556

 
90.3
%
 
89.6
%
 
93.7
%
 
 
San Diego County
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Del Mar
 
14
 
8.7
%
 
10.2
%
 
1,349,747

 
92.7
%
 
93.1
%
 
93.1
%
 
 
I-15 Corridor
 
5
 
1.4
%
 
4.1
%
 
540,892

 
81.8
%
 
77.5
%
 
82.9
%
 
 
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
 
10.8
%
 
15.5
%
 
2,045,941

 
90.2
%
 
89.3
%
 
90.7
%
 
 
San Francisco Bay Area
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Menlo Park
 
7
 
3.3
%
 
2.9
%
 
378,358

 
99.1
%
 
99.1
%
 
100.0
%
 
 
Mountain View
 
4
 
5.1
%
 
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
 
4.2
%
 
2.6
%
 
347,269

 
99.1
%
 
99.1
%
 
100.0
%
 
 
San Francisco
 
9
 
30.1
%
 
22.0
%
 
2,918,152

 
88.0
%
 
94.9
%
 
97.0
%
 
 
South San Francisco
 
3
 
1.2
%
 
1.1
%
 
145,530

 
78.5
%
 
78.5
%
 
78.5
%
 
 
Sunnyvale
 
4
 
5.9
%
 
5.0
%
 
663,460

 
100.0
%
 
100.0
%
 
100.0
%
 
 
Total San Francisco Bay Area
 
31
 
51.6
%
 
38.9
%
 
5,160,589

 
92.5
%
 
96.4
%
 
97.7
%
 
 
Greater Seattle
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bellevue
 
2
 
6.1
%
 
6.9
%
 
917,027

 
93.8
%
 
89.5
%
 
97.5
%
 
 
Lake Union
 
6
 
7.0
%
 
6.7
%
 
884,763

 
83.7
%
 
97.8
%
 
97.8
%
 
 
Total Greater Seattle
 
8
 
13.1
%
 
13.6
%
 
1,801,790

 
88.8
%
 
93.6
%
 
97.7
%
 
 
TOTAL STABILIZED OFFICE PORTFOLIO
 
94
 
100.0
%
 
100.0
%
 
13,236,373

 
92.5
%
 
94.4
%
 
96.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total No. of Units
 
Average Residential Occupancy
 
 
 
 
RESIDENTIAL PROPERTY
 
 
 
Submarket
 
Buildings
 
 
Quarter-to-Date
 
 
 
 
Greater Los Angeles
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1550 N. El Centro Avenue
 
 
 
Hollywood
 
1

 
200

 
72.8%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average Office Occupancy
Quarter-to-Date
93.1%
________________________
(1)
Represents occupancy for properties in the stabilized portfolio as of the date presented, including properties sold subsequent to the date presented.

12

Kilroy Realty Corporation
First Quarter 2019 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

 
94.0
%
 
 
999 N. Pacific Coast Highway
 
El Segundo
 
128,588

 
97.0
%
 
 
1500 N. El Centro Avenue
 
Hollywood
 
104,504

 
100.0
%
 
 
1525 N. Gower Street
 
Hollywood
 
9,610

 
100.0
%
 
 
1575 N. Gower Street
 
Hollywood
 
251,245

 
100.0
%
 
 
6115 W. Sunset Boulevard
 
Hollywood
 
26,105

 
100.0
%
 
 
6121 W. Sunset Boulevard
 
Hollywood
 
91,173

 
100.0
%
 
 
6255 W. Sunset Boulevard
 
Hollywood
 
323,920

 
97.9
%
 
 
3750 Kilroy Airport Way
 
Long Beach
 
10,457

 
100.0
%
 
 
3760 Kilroy Airport Way
 
Long Beach
 
165,278

 
92.5
%
 
 
3780 Kilroy Airport Way
 
Long Beach
 
219,777

 
84.1
%
 
 
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

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

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

 
86.8
%
 
 
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

 
97.6
%
 
 
12312 W. Olympic Boulevard
 
West Los Angeles
 
76,644

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

 
50.3
%
 
 
2100/2110 Colorado Avenue
 
West Los Angeles
 
102,864

 
100.0
%
 
 
3130 Wilshire Boulevard
 
West Los Angeles
 
90,074

 
94.3
%
 
 
501 Santa Monica Boulevard
 
West Los Angeles
 
76,803

 
82.2
%
 
 
Total Greater Los Angeles
 
 
 
3,956,497

 
95.6
%
 
 
 
 
 
 
 
 
 
 

13

Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


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

 
90.3
%
 
 
Total Orange County
 
 
 
271,556

 
90.3
%
 
 
 
 
 
 
 
 
 
 
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

 
39.4
%
 
 
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

 
100.0
%
 
 
13500 Evening Creek Drive North
 
I-15 Corridor
 
137,658

 
37.3
%
 
 
13520 Evening Creek Drive North
 
I-15 Corridor
 
146,701

 
91.9
%
 
 
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

 
90.2
%
 
 
 
 
 
 
 
 
 
 












14

Kilroy Realty Corporation
First Quarter 2019 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

 
75.3
%
 
 
201 Third Street
 
San Francisco
 
346,538

 
98.9
%
 
 
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

 
0.0
%
 
 
333 Brannan Street
 
San Francisco
 
185,602

 
100.0
%
 
 
345 Brannan Street
 
San Francisco
 
110,050

 
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
 
 
 
5,160,589

 
92.5
%
 
 
 
 
 
 
 
 
 
 

15

Kilroy Realty Corporation
First Quarter 2019 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

 
98.4
%
 
 
837 N. 34th Street
 
Lake Union
 
112,487

 
83.0
%
 
 
701 N. 34th Street
 
Lake Union
 
141,860

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

 
100.0
%
 
 
320 Westlake Avenue North
 
Lake Union
 
184,644

 
32.1
%
 
 
321 Terry Avenue North
 
Lake Union
 
135,755

 
100.0
%
 
 
401 Terry Avenue North
 
Lake Union
 
140,605

 
100.0
%
 
 
Total Greater Seattle
 
 
 
1,801,790

 
88.8
%
 
 
 
 
 
 
 
 
 
 
 
TOTAL
 
 
 
13,236,373

 
92.5
%
 
 
 
 
 
 
 
 
 
 


16

Kilroy Realty Corporation
First Quarter 2019 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. (3)
 
TI/LC
Per Sq.Ft. /Year (3)
 
Changes in
GAAP Rents
 
Changes in
Cash Rents
 
Weighted
Average Lease
Term (Mo.)
 
 
 
New
 
Renewal
 
New
 
Renewal
 
 
 
 
 
 
 
 
Quarter to Date
12

 
16

 
222,613

 
158,622

 
23.1
%
 
$
30.01

 
$
5.14

 
28.1
%
 
11.1
%
 
70

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Information on Leases Executed (1) 
 
 
 
1st & 2nd Generation
 
2nd Generation
 
 
 
# of Leases (4)
 
Square Feet (4)
 
TI/LC
Per Sq.Ft. (3)
 
TI/LC
Per Sq.Ft. /Year (3)
 
Changes in
GAAP Rents
 
Changes in
Cash Rents
 
Weighted
Average Lease
Term (Mo.)
 
 
 
New
 
Renewal
 
New
 
Renewal
 
 
 
 
 
 
 
Quarter to Date (5)
10

 
16

 
44,748

 
158,622

 
$
29.46

 
$
5.20

 
50.1
%
 
34.1
%
 
68

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Includes 100% of consolidated property partnerships.
(2)
Represents leasing activity for leases that commenced at properties in the stabilized portfolio during the three months ended March 31, 2019, including first and second generation space, net of month-to-month leases.
(3)
Includes tenant improvement costs and third-party leasing commissions. Amounts exclude tenant-funded tenant improvements and indirect leasing costs required to be expensed under ASC 842 “Leases” effective January 1, 2019.
(4)
Represents leasing activity for leases signed at properties in the stabilized portfolio during the three months ended March 31, 2019, including first and second generation space, net of month-to-month leases. Excludes leasing on new construction.
(5)
During the three months ended March 31, 2019, nine new leases totaling 37,258 square feet were signed but not commenced as of March 31, 2019.

 

17

Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


Stabilized Portfolio Capital Expenditures
($ in thousands)
 
 
Q1 2019
 
 
1st Generation (Nonrecurring) Capital Expenditures: (1)
 
 
 
Capital Improvements
$
1,767

 
 
 
 
 
 
Tenant Improvements & Leasing Commissions (2)
3,997

 
 
 
 
 
 
Total
$
5,764

 
 
 
 
 
 
 
 
 
 
 
Q1 2019
 
 
2nd Generation (Recurring) Capital Expenditures: (1)
 
 
 
Capital Improvements
$
4,002

 
 
 
 
 
 
Tenant Improvements & Leasing Commissions (2)
17,581

 
 
 
 
 
 
Total
$
21,583

 
 
 
 
 
________________________
(1)
Includes 100% of capital expenditures of consolidated property partnerships.
(2)
Includes tenant improvement costs and third-party leasing commissions. Amounts exclude tenant-funded tenant improvements.


18

Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


Stabilized Portfolio Lease Expiration Summary Schedule
($ in thousands, except for annualized rent per sq. ft.)
 
Year of Expiration
 
# of Expiring
Leases
 
Total Square
Feet
 
% of Total
Leased Sq. Ft.
 
Annualized
Base Rent (1)
 
% of Total
Annualized
Base Rent
 
Annualized Rent
per Sq. Ft.
 
 
Remaining 2019 (2)
 
69

 
855,656

 
7.2
%
 
$
42,896

 
7.6
%
 
$
50.13

 
 
2020
 
95

 
1,349,815

 
11.2
%
 
56,795

 
10.1
%
 
42.08

 
 
2021
 
85

 
916,833

 
7.6
%
 
39,589

 
6.9
%
 
43.18

 
 
2022
 
52

 
637,258

 
5.4
%
 
27,392

 
4.7
%
 
42.98

 
 
2023
 
72

 
1,272,018

 
10.7
%
 
66,431

 
11.6
%
 
52.22

 
 
2024
 
49

 
950,595

 
7.9
%
 
45,087

 
7.9
%
 
47.43

 
 
2025
 
29

 
533,220

 
4.4
%
 
26,246

 
4.6
%
 
49.22

 
 
2026
 
24

 
1,364,256

 
11.4
%
 
56,587

 
9.9
%
 
41.48

 
 
2027
 
23

 
1,217,266

 
10.2
%
 
50,429

 
8.9
%
 
41.43

 
 
2028
 
16

 
816,535

 
6.8
%
 
53,662

 
9.4
%
 
65.72

 
 
2029 and beyond
 
25

 
2,071,913

 
17.2
%
 
103,695

 
18.4
%
 
50.05

 
 
Total (3)
 
539

 
11,985,365

 
100.0
%
 
$
568,809

 
100.0
%
 
$
47.46

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Includes 100% of annualized base rent of consolidated property partnerships.
(2)
Adjusting for leasing transactions executed as of March 31, 2019 but not yet commenced, the 2019 expirations would be reduced by 549,078 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 March 31, 2019, space leased under month-to-month leases, storage leases, vacant space and future lease renewal options not executed as of March 31, 2019.


19

Kilroy Realty Corporation
First Quarter 2019 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
 
38

 
178,406

 
1.5
%
 
$
6,848

 
1.2
%
 
$
38.38

 
 
 
Orange County
 
4

 
72,897

 
0.6
%
 
3,102

 
0.5
%
 
42.55

 
 
 
San Diego
 
9

 
55,141

 
0.5
%
 
2,141

 
0.4
%
 
38.83

 
 
 
San Francisco Bay Area
 
12

 
522,791

 
4.4
%
 
29,925

 
5.3
%
 
57.24

 
 
 
Greater Seattle
 
6

 
26,421

 
0.2
%
 
880

 
0.2
%
 
33.31

 
 
 
Total
 
69

 
855,656

 
7.2
%
 
$
42,896

 
7.6
%
 
$
50.13

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2020
 
Greater Los Angeles
 
52

 
464,321

 
3.9
%
 
$
18,621

 
3.3
%
 
$
40.10

 
 
 
Orange County
 
5

 
38,526

 
0.3
%
 
1,238

 
0.2
%
 
32.13

 
 
 
San Diego
 
14

 
254,962

 
2.1
%
 
10,153

 
1.8
%
 
39.82

 
 
 
San Francisco Bay Area
 
20

 
503,283

 
4.2
%
 
24,222

 
4.3
%
 
48.13

 
 
 
Greater Seattle
 
4

 
88,723

 
0.7
%
 
2,561

 
0.5
%
 
28.87

 
 
 
Total
 
95

 
1,349,815

 
11.2
%
 
$
56,795

 
10.1
%
 
$
42.08

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2021
 
Greater Los Angeles
 
47

 
313,760

 
2.6
%
 
$
12,538

 
2.2
%
 
$
39.96

 
 
 
Orange County
 
5

 
72,299

 
0.6
%
 
2,556

 
0.4
%
 
35.35

 
 
 
San Diego
 
13

 
235,674

 
2.0
%
 
9,258

 
1.6
%
 
39.28

 
 
 
San Francisco Bay Area
 
12

 
266,788

 
2.2
%
 
14,336

 
2.5
%
 
53.74

 
 
 
Greater Seattle
 
8

 
28,312

 
0.2
%
 
901

 
0.2
%
 
31.82

 
 
 
Total
 
85

 
916,833

 
7.6
%
 
$
39,589

 
6.9
%
 
$
43.18

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2022
 
Greater Los Angeles
 
31

 
278,050

 
2.3
%
 
$
12,605

 
2.2
%
 
$
45.33

 
 
 
Orange County
 
2

 
6,898

 
0.1
%
 
269

 
%
 
39.00

 
 
 
San Diego
 
7

 
198,982

 
1.7
%
 
6,854

 
1.2
%
 
34.45

 
 
 
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

 
637,258

 
5.4
%
 
$
27,392

 
4.7
%
 
$
42.98

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2023
 
Greater Los Angeles
 
32

 
368,453

 
3.1
%
 
$
18,416

 
3.2
%
 
$
49.98

 
 
 
Orange County
 
3

 
17,738

 
0.1
%
 
709

 
0.1
%
 
39.97

 
 
 
San Diego
 
11

 
225,060

 
1.9
%
 
9,140

 
1.6
%
 
40.61

 
 
 
San Francisco Bay Area
 
20

 
569,849

 
4.8
%
 
35,049

 
6.2
%
 
61.51

 
 
 
Greater Seattle
 
6

 
90,918

 
0.8
%
 
3,117

 
0.5
%
 
34.28

 
 
 
Total
 
72

 
1,272,018

 
10.7
%
 
$
66,431

 
11.6
%
 
$
52.22

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2024
and
Beyond
 
Greater Los Angeles
 
56

 
2,004,635

 
16.7
%
 
$
87,153

 
15.3
%
 
$
43.48

 
 
 
Orange County
 
3

 
32,316

 
0.3
%
 
1,209

 
0.2
%
 
37.41

 
 
 
San Diego
 
26

 
845,371

 
7.1
%
 
38,407

 
6.8
%
 
45.43

 
 
 
San Francisco Bay Area
 
47

 
2,784,688

 
23.2
%
 
159,186

 
28.0
%
 
57.16

 
 
 
Greater Seattle
 
34

 
1,286,775

 
10.6
%
 
49,751

 
8.8
%
 
38.66

 
 
 
Total
 
166

 
6,953,785

 
57.9
%
 
$
335,706

 
59.1
%
 
$
48.28

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

20

Kilroy Realty Corporation
First Quarter 2019 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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q2 2019
 
25

 
202,324

 
1.7
%
 
$
7,990

 
1.4
%
 
$
39.49

 
 
Q3 2019
 
24

 
494,363

 
4.1
%
 
28,143

 
5.0
%
 
56.93

 
 
Q4 2019
 
20

 
158,969

 
1.4
%
 
6,763

 
1.2
%
 
42.54

 
 
Total 2019 (2)
 
69

 
855,656

 
7.2
%
 
$
42,896

 
7.6
%
 
$
50.13

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2020:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Q1 2020
 
29

 
323,297

 
2.7
%
 
$
13,486

 
2.4
%
 
$
41.71

 
 
Q2 2020
 
21

 
239,895

 
2.0
%
 
9,931

 
1.7
%
 
41.40

 
 
Q3 2020
 
18

 
290,811

 
2.4
%
 
11,094

 
2.0
%
 
38.15

 
 
Q4 2020
 
27

 
495,812

 
4.1
%
 
22,284

 
4.0
%
 
44.94

 
 
Total 2020
 
95

 
1,349,815

 
11.2
%
 
$
56,795

 
10.1
%
 
$
42.08

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Includes 100% of annualized base rent of consolidated property partnerships.
(2)
Adjusting for leasing transactions executed as of March 31, 2019 but not yet commenced, the 2019 expirations would be reduced by 549,078 square feet.


21

Kilroy Realty Corporation
First Quarter 2019 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
 
$
29,752

 
663,460

 
5.2
%
 
5.0
%
 
 
Adobe Systems Inc.
 
San Francisco Bay Area / Greater Seattle
 
27,897

 
501,573

 
4.9
%
 
3.8
%
 
 
salesforce.com, inc.
 
San Francisco Bay Area
 
24,076

 
451,763

 
4.2
%
 
3.4
%
 
 
DIRECTV, LLC
 
Greater Los Angeles
 
23,152

 
684,411

 
4.1
%
 
5.2
%
 
 
Box, Inc.
 
San Francisco Bay Area
 
22,441

 
371,792

 
4.0
%
 
2.8
%
 
 
Dropbox, Inc.
 
San Francisco Bay Area
 
17,501

 
291,784

 
3.1
%
 
2.2
%
 
 
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
 
 
 
$
254,739

 
4,833,980

 
44.8
%
 
36.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
The information presented is as of March 31, 2019.
(2)
Includes 100% of annualized base rental revenues of consolidated property partnerships.



22

Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


Consolidated Ventures (Noncontrolling Property Partnerships)

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

23

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

 
$
275.0

 
$
256.0

 
90%
 
82%
 
 
The Exchange on 16th (5)
 
Mission Bay
 
2Q 2015
 
3Q 2019 -
3Q 2020
 
750,000

 
585.0

 
478.9

 
99%
 
—%
 
 
Mixed-Use
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
San Diego County
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   One Paseo - Retail
 
Del Mar
 
4Q 2016
 
3Q 2019
 
96,000

 
95.0

 
83.4

 
92%
 
49%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL:
 
 
 
 
 
 
 
1,246,000

 
$
955.0

 
$
818.3

 
96%
 
30%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UNDER CONSTRUCTION
 
Location
 
Construction Start Date
 
Estimated Stabilization Date (2)
 
Estimated Rentable Square Feet
 
Total Estimated Investment
 
Total Cash Costs Incurred as of
3/31/2019 (3)
 
Office % Leased
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office / Life Science
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
San Francisco Bay Area
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Kilroy Oyster Point - Phase I
 
South San Francisco
 
1Q 2019
 
3Q 2022
 
630,000

 
$
600.0

 
$
86.0

 
—%
 
 
San Diego County
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      9455 Towne Centre Drive
 
University Towne Center
 
1Q 2019
 
2Q 2021
 
160,000

 
125.0

 
19.6

 
—%
 
 
Greater Seattle
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
333 Dexter
 
South Lake Union
 
2Q 2017
 
3Q 2020
 
650,000

 
380.0

 
202.7

 
—%
 
 
Mixed-Use
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Greater Los Angeles
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Netflix // On Vine - Office
 
Hollywood
 
1Q 2018
 
1Q 2021
 
355,000

 
300.0

 
127.1

 
100%
 
 
Living // On Vine - Residential
 
Hollywood
 
4Q 2018
 
4Q 2020
 
193 Resi Units

 
195.0

 
58.7

 
N/A
 
 
San Diego County
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
One Paseo - Residential
 
Del Mar
 
4Q 2016
 
3Q 2019 -
3Q 2020
 
608 Resi Units

 
375.0

 
283.7

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

 
205.0

 
99.5

 
60%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL:
 
 
 
 
 
 
 
 
 
$
2,180.0

 
$
877.3

 
26%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(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 March 31, 2019, excluding accrued liabilities recorded in accordance with GAAP. Upon adoption of ASC 842 “Leases” effective January 1, 2019, also excludes leasing overhead.
(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 52% 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.


24

Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


Future Development Pipeline
($ in millions)
 
FUTURE DEVELOPMENT PIPELINE:
 
Location
 
Approx. Developable
Square Feet (1)
 
Total Cash Costs Incurred as of 3/31/2019 (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
San Diego County
 
 
 
 
 
 
 
 
 
 
2100 Kettner
 
Little Italy
 
175,000 - 200,000
 
$
25.1

 
 
Santa Fe Summit – Phases II and III
 
56 Corridor
 
600,000 - 650,000
 
78.2

 
 
San Francisco Bay Area
 
 
 
 
 
 
 
 
 
 
Kilroy Oyster Point - Phases II - IV
 
South San Francisco
 
1,750,000 - 1,900,000
 
279.0

 
 
Flower Mart
 
SOMA
 
TBD
 
233.3

 
 
TOTAL:
 
 
 
 
 
 
 
$
615.6

 
 
 
 
 
 
 
 
 
 
 
 
________________________
(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 March 31, 2019, excluding accrued liabilities recorded in accordance with GAAP.



25

Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


Capital Structure
As of March 31, 2019
($ in thousands)
 
 
 
 
 
 
 
 
 
 
 
Shares/Units
March 31, 2019
 
Aggregate Principal
Amount or
$ Value Equivalent
 
% of Total
Market
Capitalization
 
 
DEBT: (1)
 
 
 
 
 
 
 
 
Unsecured Line of Credit
 
 
 
$
185,000

 
1.7
%
 
 
Unsecured Term Loan Facility
 
 
 
150,000

 
1.4
%
 
 
Unsecured Senior Notes due 2023
 
 
 
300,000

 
2.8
%
 
 
Unsecured Senior Notes due 2024
 
 
 
425,000

 
3.9
%
 
 
Unsecured Senior Notes due 2025
 
 
 
400,000

 
3.7
%
 
 
Unsecured Senior Notes Series A & B due 2026
 
 
 
250,000

 
2.3
%
 
 
Unsecured Senior Notes due 2028
 
 
 
400,000

 
3.7
%
 
 
Unsecured Senior Notes due 2029
 
 
 
400,000

 
3.7
%
 
 
Unsecured Senior Notes Series A & B due 2027 & 2029
 
 
 
250,000

 
2.3
%
 
 
Secured Debt
 
 
 
260,882

 
2.4
%
 
 
Total Debt
 
 
 
$
3,020,882

 
27.9
%
 
 
EQUITY AND NONCONTROLLING INTEREST IN THE OPERATING PARTNERSHIP: (2)
 
 
 
 
 
 
 
 
Common limited partnership units outstanding (3)
 
2,023,287
 
$
153,689

 
1.4
%
 
 
Shares of common stock outstanding (4)
 
100,967,024
 
7,669,455

 
70.7
%
 
 
Total Equity and Noncontrolling Interests in the Operating Partnership
 
 
 
$
7,823,144

 
72.1
%
 
 
TOTAL MARKET CAPITALIZATION
 
 
 
$
10,844,026

 
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 $75.96 as of March 31, 2019.
(3)
Includes common units of the Operating Partnership not owned by the Company; does not include noncontrolling interests in consolidated property partnerships.
(4)
Shares of common stock outstanding exclude 6,201,204 shares of common stock sold under forward equity sale agreements that remain to be settled as of the date of this report.




26

Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


Debt Analysis
As of March 31, 2019
 
 
 
 
 
 
 
 
 
 
TOTAL DEBT COMPOSITION
 
 
 
 
Percent of
Total Debt
 
Weighted Average
 
 
 
 
Interest Rate
 
Years to Maturity
 
 
Secured vs. Unsecured Debt
 
 
 
 
 
 
 
 
Unsecured Debt
 
91.4%
 
4.0%
 
7.0
 
 
Secured Debt
 
8.6%
 
3.9%
 
7.9
 
 
Floating vs. Fixed-Rate Debt
 
 
 
 
 
 
 
 
Floating-Rate Debt
 
11.1%
 
3.5%
 
3.3
 
 
Fixed-Rate Debt
 
88.9%
 
4.1%
 
7.5
 
 
 
 
 
 
 
 
 
 
 
Stated Interest Rate
 
 
 
4.0%
 
7.1
 
 
 
 
 
 
 
 
 
 
 
GAAP Effective Rate
 
 
 
4.0%
 
 
 
 
 
 
 
 
 
 
 
 
 
GAAP Effective Rate Including Debt Issuance Costs
 
 
 
4.2%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
KEY DEBT COVENANTS
 
 
 
Covenant
 
Actual Performance
as of March 31, 2019
 
 
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%
 
29%
 
 
Fixed charge coverage ratio
 
greater than 1.5x
 
3.3x
 
 
Unsecured debt ratio
 
greater than 1.67x
 
3.14x
 
 
Unencumbered asset pool debt service coverage
 
greater than 1.75x
 
4.22x
 
 
 
 
 
 
 
 
 
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
 
10.2x
 
 
Secured debt to total asset value
 
less than 40%
 
3%
 
 
Unencumbered asset pool value to unsecured debt
 
greater than 150%
 
293%
 
 
 
 
 
 
 
 

27

Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


Debt Analysis
($ in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
DEBT MATURITY SCHEDULE
 
Floating/
Fixed Rate
 
Stated
Rate
 
Maturity
Date
 
2019
 
2020
 
2021
 
2022
 
2023
 
After 2023
 
Total (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unsecured Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Floating
 
3.50%
 
7/31/2022
 
 
 
 
 
 
 
$
185,000

 
 
 
 
 
$
185,000

 
 
Floating
 
3.60%
 
7/31/2022
 
 
 
 
 
 
 
150,000

 
 
 

 
150,000

 
 
Fixed 
 
3.80%
 
1/15/2023
 
 
 
 
 
 
 
 
 
300,000

 
 
 
300,000

 
 
Fixed
 
3.45%
 
12/15/2024
 
 
 
 
 
 
 
 
 
 
 
425,000

 
425,000

 
 
Fixed
 
4.38%
 
10/1/2025
 
 
 
 
 
 
 
 
 
 
 
400,000

 
400,000

 
 
Fixed
 
4.30%
 
7/18/2026
 
 
 
 
 
 
 
 
 
 
 
50,000

 
50,000

 
 
Fixed
 
4.35%
 
10/18/2026
 
 
 
 
 
 
 
 
 
 
 
200,000

 
200,000

 
 
Fixed
 
3.35%
 
2/17/2027
 
 
 
 
 
 
 
 
 
 
 
175,000

 
175,000

 
 
Fixed
 
4.75%
 
12/15/2028
 
 
 
 
 
 
 
 
 
 
 
400,000

 
400,000

 
 
Fixed
 
3.45%
 
2/17/2029
 
 
 
 
 
 
 
 
 
 
 
75,000

 
75,000

 
 
Fixed
 
4.25%
 
8/15/2029
 
 
 
 
 
 
 
 
 
 
 
400,000

 
400,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total unsecured debt
 
4.01%
 
 
 

 

 

 
335,000

 
300,000

 
2,125,000

 
2,760,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Secured Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed
 
3.57%
 
12/1/2026
 

 
3,224

 
3,341

 
3,462

 
3,587

 
156,386

 
170,000

 
 
Fixed
 
4.48%
 
7/1/2027
 
1,380

 
1,913

 
2,001

 
2,092

 
2,188

 
81,308

 
90,882

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total secured debt
 
3.89%
 
 
 
1,380

 
5,137

 
5,342

 
5,554

 
5,775

 
237,694

 
260,882

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
4.00%
 
 
 
$
1,380

 
$
5,137

 
$
5,342

 
$
340,554

 
$
305,775

 
$
2,362,694

 
$
3,020,882

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Represents the gross aggregate principal amount due at maturity before the effect of unamortized deferred financing costs and premiums and discounts.





28

Kilroy Realty Corporation
First Quarter 2019 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 May 6, 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 after the adoption of the new lease accounting standard ASC 842 as follows: consolidated operating revenues (rental income and other property income) less consolidated property and related expenses (property expenses, real estate taxes and ground leases). The Company defines NOI prior to the adoption of the new lease accounting standard ASC 842 as follows: 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 leasing costs, 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, leasing costs, interest expense, depreciation and amortization costs, other nonproperty income and losses and the level of capital expenditures 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, leasing costs, interest expense, depreciation and amortization costs, other nonproperty income and losses and the level of capital expenditures necessary to maintain the operating performance of the Company’s properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact the Company’s results from operations.



29

Kilroy Realty Corporation
First Quarter 2019 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 the provision for bad debts. Because Same Store Cash NOI excludes the change in NOI from developed, redeveloped, acquired and disposed of and held for sale properties, it highlights operating trends on a cash basis such as occupancy levels, rental rates and operating costs on properties. Other REITs may use different methodologies for calculating Same Store Cash NOI, and accordingly, our Same Store Cash NOI may not be comparable to other REITs.

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

EBITDA, as adjusted:

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




30

Kilroy Realty Corporation
First Quarter 2019 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 2018 Restated 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.


31

Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


Definitions Included in Supplemental
Annualized Base Rent:

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

Change in GAAP/Cash Rents (Leases Commenced):

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

Change in GAAP/Cash Rents (Leases Executed):

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

Estimated Stabilization Date (Development):

Management’s estimation of the earlier of stabilized occupancy (95%) or one year from the date of the cessation of major base building construction activities for office and retail properties and upon substantial completion for residential properties.

FAD Payout Ratio:

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

First Generation Capital Expenditures:

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

Fixed Charge Coverage Ratio:

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

FFO Payout Ratio:

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


32

Kilroy Realty Corporation
First Quarter 2019 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, 2018 and still owned and included in the stabilized portfolio as of March 31, 2019. It does not include undeveloped land, development and redevelopment properties currently committed for construction, under construction, or in the tenant improvement phase and properties held-for-sale. We define redevelopment properties as those projects for which we expect to spend significant development and construction costs on existing or acquired buildings pursuant to a formal plan, the intended result of which is a higher economic return on the property.

Stated Interest Rate:

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

Tenant Improvement Phase:

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


33

Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


Reconciliation of Net Income Available to Common Stockholders to Same Store Net Operating Income
(unaudited, $ in thousands)
 
 
 
Three Months Ended March 31,
 
 
 
 
2019
 
2018
 
 
Net Income Available to Common Stockholders
 
$
36,903

 
$
36,246

 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
700

 
751

 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
4,191

 
3,974

 
 
Net Income
 
41,794

 
40,971

 
 
Adjustments:
 


 


 
 
General and administrative expenses
 
23,341

 
15,559

 
 
Leasing costs
 
1,757

 

 
 
Depreciation and amortization
 
66,135

 
62,715

 
 
Interest income and other net investment loss (gain)
 
(1,828
)
 
(34
)
 
 
Interest expense
 
11,243

 
13,498

 
 
Net Operating Income, as defined (1)
 
142,442

 
132,709

 
 
Wholly-Owned Properties
 
122,834

 
114,513

 
 
Consolidated property partnerships: (2)
 
 
 
 
 
 
100 First Street (3)
 
6,015

 
4,749

 
 
303 Second Street (3)
 
7,798

 
7,673

 
 
Crossing/900 (4)
 
5,795

 
5,774

 
 
Net Operating Income, as defined (1)
 
142,442

 
132,709

 
 
Non-Same Store GAAP Net Operating Income (5)
 
(11,544
)
 
(5,906
)
 
 
Same Store GAAP Net Operating Income
 
130,898

 
126,803

 
 
GAAP to Cash Adjustments:
 


 
 
 
 
GAAP Operating Revenues Adjustments, net (6)
 
(19,706
)
 
(10,509
)
 
 
GAAP Operating Expenses Adjustments, net (7)
 
(18
)
 
(284
)
 
 
Same Store Cash Net Operating Income
 
$
111,174

 
$
116,010

 
 
 
 
 
 
 
 
________________________
(1)
Please refer to pages 29-30 for Management Statements on Net Operating Income, Same Store Net Operating Income and Same Store Cash Net Operating Income.
(2)
Reflects GAAP Net Operating Income for all periods presented.
(3)
For all periods presented, an unrelated third party entity owned approximately 44% common equity interests in two properties located at 100 First Street and 303 Second Street in San Francisco, CA.
(4)
For all periods presented, an unrelated third party entity owned an approximate 7% common equity interest in two properties located at 900 Jefferson Avenue and 900 Middlefield Road in Redwood City, CA.
(5)
Includes the results of 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 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.

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Kilroy Realty Corporation
First Quarter 2019 Supplemental Financial Report


Reconciliation of Net Income Available to Common Stockholders to EBITDA, as Adjusted
(unaudited, $ in thousands)
 
 
 
Three Months Ended March 31,
 
 
 
 
2019
 
2018
 
 
Net Income Available to Common Stockholders
 
$
36,903

 
$
36,246

 
 
Interest expense
 
11,243

 
13,498

 
 
Depreciation and amortization
 
66,135

 
62,715

 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
700

 
751

 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
4,191

 
3,974

 
 
EBITDA, as adjusted (1)
 
$
119,172

 
$
117,184

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


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