10-Q 1 krc-20240331.htm 10-Q krc-20240331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
Commission File Number: 1-12675 (Kilroy Realty Corporation)
Commission File Number: 000-54005 (Kilroy Realty, L.P.)
KILROY REALTY CORPORATION
KILROY REALTY, L.P.
(Exact name of registrant as specified in its charter)
Kilroy Realty CorporationMaryland95-4598246
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Kilroy Realty, L.P.Delaware95-4612685
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)

12200 W. Olympic Boulevard, Suite 200, Los Angeles, California, 90064
(Address of principal executive offices) (Zip Code)

(310) 481-8400
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
RegistrantTitle of each className of each exchange on which registeredTicker Symbol
Kilroy Realty CorporationCommon Stock, $.01 par valueNew York Stock ExchangeKRC
Securities registered pursuant to Section 12(g) of the Act:
RegistrantTitle of each class
Kilroy Realty, L.P.Common Units Representing Limited Partnership Interests
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    
Kilroy Realty Corporation    Yes      No  
Kilroy Realty, L.P.         Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    
Kilroy Realty Corporation     Yes      No  
Kilroy Realty, L.P.         Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Kilroy Realty Corporation
Large accelerated filer ☑    Accelerated filer 
Non-accelerated filer ☐    Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Kilroy Realty, L.P.
Large accelerated filer ☐    Accelerated filer 
Non-accelerated filer ☑    Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Kilroy Realty Corporation Yes       No  
Kilroy Realty, L.P. Yes       No  
As of April 26, 2024, 117,368,360 shares of Kilroy Realty Corporation common stock, par value $.01 per share, were outstanding.
 



EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended March 31, 2024 of Kilroy Realty Corporation and Kilroy Realty, L.P. Unless stated otherwise or the context otherwise requires, references to “Kilroy Realty Corporation” or the “Company,” “we,” “our,” and “us” mean Kilroy Realty Corporation, a Maryland corporation, and its controlled and consolidated subsidiaries, and references to “Kilroy Realty, L.P.” or the “Operating Partnership” mean Kilroy Realty, L.P., a Delaware limited partnership and its controlled and consolidated subsidiaries.
The Company is a real estate investment trust, or REIT, and the general partner of the Operating Partnership. As of March 31, 2024, the Company owned an approximate 99.0% common general partnership interest in the Operating Partnership. The remaining approximate 1.0% common limited partnership interests are owned by non-affiliated investors and one of our directors. As the sole general partner of the Operating Partnership, the Company exercises exclusive and complete discretion over the Operating Partnership’s day-to-day management and control and can cause it to enter into certain major transactions, including acquisitions, dispositions, and refinancings and cause changes in its line of business, capital structure and distribution policies.
There are a few differences between the Company and the Operating Partnership that are reflected in the disclosures in this Form 10-Q. We believe it is important to understand the differences between the Company and the Operating Partnership in the context of how the Company and the Operating Partnership operate as an interrelated, consolidated company. The Company is a REIT, the only material asset of which is the partnership interests it holds in the Operating Partnership. As a result, the Company generally does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing equity from time to time and guaranteeing certain debt of the Operating Partnership. The Company itself is not directly obligated under any indebtedness, but generally guarantees all of the debt of the Operating Partnership. The Operating Partnership owns substantially all of the assets of the Company either directly or through its subsidiaries, conducts the operations of the Company’s business and is structured as a limited partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Company, which the Company generally contributes to the Operating Partnership in exchange for units of partnership interest, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s incurrence of indebtedness or through the issuance of units of partnership interest.
Noncontrolling interests, stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The common limited partnership interests in the Operating Partnership are accounted for as partners’ capital in the Operating Partnership’s financial statements and, to the extent not held by the Company, as noncontrolling interests in the Company’s financial statements. The differences between stockholders’ equity, partners’ capital and noncontrolling interests result from the differences in the equity issued by the Company and the Operating Partnership.
We believe combining the quarterly reports on Form 10-Q of the Company and the Operating Partnership into this single report results in the following benefits:
Combined reports better reflect how management and the analyst community view the business as a single operating unit;
Combined reports enhance investors’ understanding of the Company and the Operating Partnership by enabling them to view the business as a whole and in the same manner as management;
Combined reports are more efficient for the Company and the Operating Partnership and result in savings in time, effort and expense; and
Combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review.
To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:
consolidated financial statements;
the following notes to the consolidated financial statements:
Note 11, Net Income Available to Common Stockholders Per Share of the Company;
Note 12, Net Income Available to Common Unitholders Per Unit of the Operating Partnership;
Note 13, Supplemental Cash Flows Information of the Company; and
Note 14, Supplemental Cash Flows Information of the Operating Partnership;
i


“Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
—Liquidity and Capital Resources of the Company;” and
—Liquidity and Capital Resources of the Operating Partnership.”
This report also includes separate sections under “Part I – Financial Information, Item 4. Controls and Procedures” and separate Exhibit 31 and Exhibit 32 certifications for the Company and the Operating Partnership to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Company and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.

Available Information

We use our website (www.kilroyrealty.com) as a routine channel of distribution of company information, including press releases, presentations, and supplemental information, as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor our website in addition to following press releases, SEC filings, and public conference calls and webcasts. Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts.
ii


KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
QUARTERLY REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2024
TABLE OF CONTENTS
 
  Page
PART I – FINANCIAL INFORMATION
Item 1.
  
 
Item 1.
Item 2.  
Item 3.
Item 4.
PART II – OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) OF KILROY REALTY CORPORATION

KILROY REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except share data)
 March 31, 2024December 31, 2023
ASSETS
REAL ESTATE ASSETS:  
Land and improvements$1,743,170 $1,743,170 
Buildings and improvements8,479,359 8,463,674 
Undeveloped land and construction in progress2,114,242 2,034,804 
Total real estate assets held for investment12,336,771 12,241,648 
Accumulated depreciation and amortization(2,594,996)(2,518,304)
Total real estate assets held for investment, net9,741,775 9,723,344 
CASH AND CASH EQUIVALENTS855,007 510,163 
MARKETABLE SECURITIES (Notes 2 and 10)
109,513 284,670 
CURRENT RECEIVABLES, NET13,291 13,609 
DEFERRED RENT RECEIVABLES, NET457,494 460,979 
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET226,506 229,705 
RIGHT OF USE GROUND LEASE ASSETS130,026 125,506 
PREPAID EXPENSES AND OTHER ASSETS, NET (Note 3)
65,588 53,069 
TOTAL ASSETS$11,599,200 $11,401,045 
LIABILITIES AND EQUITY
LIABILITIES:
Secured debt, net (Notes 4 and 10)
$601,990 $603,225 
Unsecured debt, net (Notes 4 and 10)
4,518,297 4,325,153 
Accounts payable, accrued expenses and other liabilities401,892 371,179 
Ground lease liabilities (Note 9)128,966 124,353 
Accrued dividends and distributions65,111 64,440 
Deferred revenue and acquisition-related intangible liabilities, net166,436 173,638 
Rents received in advance and tenant security deposits73,777 79,364 
Total liabilities5,956,469 5,741,352 
COMMITMENTS AND CONTINGENCIES (Note 9)
EQUITY:
Stockholders’ Equity (Note 5):
Common stock, $.01 par value, 280,000,000 shares authorized, 117,366,405 and 117,239,558 shares issued and outstanding
1,174 1,173 
Additional paid-in capital5,208,753 5,205,839 
Retained earnings203,080 221,149 
Total stockholders’ equity5,413,007 5,428,161 
Noncontrolling Interests (Notes 1 and 6):
Common units of the Operating Partnership53,087 53,275 
Noncontrolling interests in consolidated property partnerships176,637 178,257 
Total noncontrolling interests229,724 231,532 
Total equity5,642,731 5,659,693 
TOTAL LIABILITIES AND EQUITY$11,599,200 $11,401,045 





See accompanying notes to consolidated financial statements.
1


KILROY REALTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except share and per share data)
 
 Three Months Ended March 31,
 20242023
REVENUES  
Rental income (Note 8)
$274,890 $290,104 
Other property income3,691 2,698 
Total revenues278,581 292,802 
EXPENSES  
Property expenses57,320 53,780 
Real estate taxes29,239 28,228 
Ground leases (Note 9)2,752 2,369 
General and administrative expenses (Note 7)
17,579 23,936 
Leasing costs2,279 1,372 
Depreciation and amortization88,031 93,676 
Total expenses197,200 203,361 
OTHER INCOME (EXPENSES)   
Interest income13,190 1,460 
Interest expense (Note 4)
(38,871)(25,671)
      Total other expenses(25,681)(24,211)
NET INCOME55,700 65,230 
Net income attributable to noncontrolling common units of the Operating Partnership(502)(560)
Net income attributable to noncontrolling interests in consolidated property partnerships(5,278)(8,062)
Total income attributable to noncontrolling interests(5,780)(8,622)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS$49,920 $56,608 
Net income available to common stockholders per share – basic (Note 11)
$0.42 $0.48 
Net income available to common stockholders per share – diluted (Note 11)
$0.42 $0.48 
Weighted average shares of common stock outstanding – basic (Note 11)
117,337,666 117,059,329 
Weighted average shares of common stock outstanding – diluted (Note 11)
117,960,926 117,406,518 

























See accompanying notes to consolidated financial statements.
2


KILROY REALTY CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited; in thousands, except share and per share/unit data)


Common StockTotal
Stock-
holders’
Equity
Noncontrolling InterestsTotal
Equity
Number of
Shares
Common
Stock
Additional
Paid-in
Capital
Retained Earnings
BALANCE AS OF DECEMBER 31, 2023117,239,558 $1,173 $5,205,839 $221,149 $5,428,161 $231,532 $5,659,693 
Net income49,920 49,920 5,780 55,700 
Issuance of share-based compensation awards4,017 4,017 4,017 
Non-cash amortization of share-based compensation (Note 7)
4,727 4,727 4,727 
Settlement of restricted stock units for shares of common stock217,496 2 (2)  
Repurchase of common stock and restricted stock units(90,649)(1)(5,897)(5,898)(5,898)
Distributions to noncontrolling interests in consolidated property partnerships (6,898)(6,898)
Adjustment for noncontrolling interest69 69 (69) 
Dividends declared per share of common stock and common unit ($0.54 per share/unit)
(67,989)(67,989)(621)(68,610)
BALANCE AS OF MARCH 31, 2024117,366,405 $1,174 $5,208,753 $203,080 $5,413,007 $229,724 $5,642,731 


Common StockTotal
Stock-
holders’
Equity
Noncontrolling InterestsTotal
Equity
Number of
Shares
Common
Stock
Additional
Paid-in
Capital
Retained Earnings
BALANCE AS OF DECEMBER 31, 2022116,878,031 $1,169 $5,170,760 $265,118 $5,437,047 $237,914 $5,674,961 
Net income 56,608 56,608 8,622 65,230 
Issuance of share-based compensation awards1,365 1,365 1,365 
Non-cash amortization of share-based compensation11,566 11,566 11,566 
Settlement of restricted stock units for shares of common stock 445,973 4 (4)—  
Repurchase of common stock and restricted stock units(203,042)(2)(8,361)(8,363)(8,363)
Distributions to noncontrolling interests in consolidated property partnerships— (7,068)(7,068)
Adjustment for noncontrolling interest76 76 (76) 
Dividends declared per share of common stock and common unit ($0.54 per share/unit)
(64,647)(64,647)(622)(65,269)
BALANCE AS OF MARCH 31, 2023117,120,962 $1,171 $5,175,402 $257,079 $5,433,652 $238,770 $5,672,422 















See accompanying notes to consolidated financial statements.
3


KILROY REALTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
 
 Year Ended March 31,
 20242023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$55,700 $65,230 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of real estate assets and leasing costs86,460 91,671 
Depreciation of non-real estate furniture, fixtures and equipment1,571 2,005 
Revenue reversals for doubtful accounts, net (Note 8)
3,883 2,438 
Non-cash amortization of share-based compensation awards3,381 10,043 
Non-cash amortization of deferred financing costs and debt discounts1,757 1,355 
Non-cash amortization of net below market rents(904)(3,033)
Non-cash amortization of deferred revenue related to tenant-funded tenant improvements(4,969)(4,998)
Straight-line rents(2,123)(7,913)
Amortization of right of use ground lease assets262 253 
Net change in other operating assets(3,594)2,849 
Net change in other operating liabilities26,445 22,236 
Net cash provided by operating activities167,869 182,136 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Maturity of certificates of deposit (Note 2)
178,325  
Expenditures for development and redevelopment properties and undeveloped land(85,495)(100,457)
Expenditures for operating properties and other capital assets(15,981)(20,891)
Net cash provided by (used in) investing activities76,849 (121,348)
CASH FLOWS FROM FINANCING ACTIVITIES:  
Repurchase of common stock and restricted stock units(5,898)(8,363)
Distributions to noncontrolling interests in consolidated property partnerships(6,890)(7,060)
Dividends and distributions paid to common stockholders and common unitholders(63,931)(63,735)
Financing costs(17,192)(1,228)
Principal payments and repayments of secured debt (1,479)(1,423)
Proceeds from the issuance of unsecured debt (Note 4)395,516  
Repayments of unsecured debt (Note 4)(200,000) 
Borrowings on unsecured debt (Note 4)
 150,000 
Net cash provided by financing activities100,126 68,191 
Net increase in cash and cash equivalents and restricted cash344,844 128,979 
Cash and cash equivalents and restricted cash, beginning of period510,163 347,379 
Cash and cash equivalents and restricted cash, end of period$855,007 $476,358 


















See accompanying notes to consolidated financial statements.
4




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

KILROY REALTY, L.P.
CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except unit data)
 
 March 31, 2024December 31, 2023
ASSETS
REAL ESTATE ASSETS:
Land and improvements$1,743,170 $1,743,170 
Buildings and improvements8,479,359 8,463,674 
Undeveloped land and construction in progress2,114,242 2,034,804 
Total real estate assets held for investment12,336,771 12,241,648 
Accumulated depreciation and amortization(2,594,996)(2,518,304)
Total real estate assets held for investment, net9,741,775 9,723,344 
CASH AND CASH EQUIVALENTS855,007 510,163 
MARKETABLE SECURITIES (Notes 2 and 10)
109,513 284,670 
CURRENT RECEIVABLES, NET13,291 13,609 
DEFERRED RENT RECEIVABLES, NET457,494 460,979 
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET226,506 229,705 
RIGHT OF USE GROUND LEASE ASSETS130,026 125,506 
PREPAID EXPENSES AND OTHER ASSETS, NET (Note 3)
65,588 53,069 
TOTAL ASSETS$11,599,200 $11,401,045 
LIABILITIES AND CAPITAL
LIABILITIES:
Secured debt, net (Notes 4 and 10)
$601,990 $603,225 
Unsecured debt, net (Notes 4 and 10)
4,518,297 4,325,153 
Accounts payable, accrued expenses and other liabilities401,892 371,179 
Ground lease liabilities (Note 9)128,966 124,353 
Accrued distributions65,111 64,440 
Deferred revenue and acquisition-related intangible liabilities, net166,436 173,638 
Rents received in advance and tenant security deposits73,777 79,364 
Total liabilities5,956,469 5,741,352 
COMMITMENTS AND CONTINGENCIES (Note 9)
CAPITAL:
Partner's Capital - Common units, 117,366,405 and 117,239,558 held by the general partner and 1,150,574
held by common limited partners issued and outstanding
5,466,094 5,481,436 
Noncontrolling interests in consolidated property partnerships (Note 1)
176,637 178,257 
Total capital5,642,731 5,659,693 
TOTAL LIABILITIES AND CAPITAL$11,599,200 $11,401,045 














See accompanying notes to consolidated financial statements.
5


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

Three Months Ended March 31,
20242023
REVENUES
Rental income (Note 8)
$274,890 $290,104 
Other property income3,691 2,698 
Total revenues278,581 292,802 
EXPENSES
Property expenses57,320 53,780 
Real estate taxes29,239 28,228 
Ground leases (Note 9)2,752 2,369 
General and administrative expenses (Note 7)
17,579 23,936 
Leasing costs2,279 1,372 
Depreciation and amortization88,031 93,676 
Total expenses197,200 203,361 
OTHER INCOME (EXPENSES)
Interest income13,190 1,460 
Interest expense (Note 4)
(38,871)(25,671)
Total other expenses(25,681)(24,211)
NET INCOME55,700 65,230 
Net income attributable to noncontrolling interests in consolidated property partnerships and subsidiaries(5,278)(8,062)
NET INCOME AVAILABLE TO COMMON UNITHOLDERS$50,422 $57,168 
Net income available to common unitholders per unit – basic (Note 12)
$0.42 $0.48 
Net income available to common unitholders per unit – diluted (Note 12)
$0.42 $0.48 
Weighted average common units outstanding – basic (Note 12)
118,488,240 118,209,903 
Weighted average common units outstanding – diluted (Note 12)
119,111,500 118,557,092 



























See accompanying notes to consolidated financial statements.
6


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

Partners’ CapitalNoncontrolling Interests in Consolidated Property Partnerships
Number of
Common
Units
Common
Units
Total
Capital
BALANCE AS OF DECEMBER 31, 2023118,390,132 $5,481,436 $178,257 $5,659,693 
Net income50,422 5,278 55,700 
Issuance of share-based compensation awards4,017 4,017 
Non-cash amortization of share-based compensation (Note 7)
4,727 4,727 
Settlement of restricted stock units217,496 — — 
Repurchase of common units and restricted stock units(90,649)(5,898)(5,898)
Distributions to noncontrolling interests in consolidated property partnerships(6,898)(6,898)
Distributions declared per common unit ($0.54 per unit)
(68,610)(68,610)
BALANCE AS OF MARCH 31, 2024118,516,979 $5,466,094 $176,637 $5,642,731 



Partners’ CapitalNoncontrolling Interests in Consolidated Property Partnerships
Number of
Common
Units
Common
Units
Total
Capital
BALANCE AS OF DECEMBER 31, 2022118,028,605 $5,490,571 $184,390 $5,674,961 
Net income57,168 8,062 65,230 
Issuance of share-based compensation awards1,365 1,365 
Non-cash amortization of share-based compensation11,566 11,566 
Settlement of restricted stock units445,973 — — 
Repurchase of common units and restricted stock units(203,042)(8,363)(8,363)
Distributions to noncontrolling interests in consolidated property partnerships(7,068)(7,068)
Distributions declared per common unit ($0.54 per unit)
(65,269)(65,269)
BALANCE AS OF MARCH 31, 2023118,271,536 $5,487,038 $185,384 $5,672,422 
























See accompanying notes to consolidated financial statements.
7


KILROY REALTY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)

 Year Ended March 31,
 20242023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$55,700 $65,230 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of real estate assets and leasing costs86,460 91,671 
Depreciation of non-real estate furniture, fixtures and equipment1,571 2,005 
Revenue reversals for doubtful accounts, net (Note 8)3,883 2,438 
Non-cash amortization of share-based compensation awards3,381 10,043 
Non-cash amortization of deferred financing costs and debt discounts1,757 1,355 
Non-cash amortization of net below market rents(904)(3,033)
Non-cash amortization of deferred revenue related to tenant-funded tenant improvements(4,969)(4,998)
Straight-line rents(2,123)(7,913)
Amortization of right of use ground lease assets262 253 
Net change in other operating assets(3,594)2,849 
Net change in other operating liabilities26,445 22,236 
Net cash provided by operating activities167,869 182,136 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Maturity of certificates of deposit (Note 2)178,325  
Expenditures for development and redevelopment properties and undeveloped land(85,495)(100,457)
Expenditures for operating properties and other capital assets(15,981)(20,891)
Net cash provided by (used in) investing activities76,849 (121,348)
CASH FLOWS FROM FINANCING ACTIVITIES:  
Repurchase of common units and restricted stock units(5,898)(8,363)
Distributions to noncontrolling interests in consolidated property partnerships(6,890)(7,060)
Distributions paid to common unitholders(63,931)(63,735)
Financing costs(17,192)(1,228)
Principal payments and repayments of secured debt(1,479)(1,423)
Proceeds from the issuance of unsecured debt (Note 4)
395,516  
Repayments of unsecured debt (Note 4)
(200,000) 
Borrowings on unsecured debt (Note 4)
 150,000 
Net cash provided by financing activities100,126 68,191 
Net increase in cash and cash equivalents and restricted cash344,844 128,979 
Cash and cash equivalents and restricted cash, beginning of period510,163 347,379 
Cash and cash equivalents and restricted cash, end of period$855,007 $476,358 
 

















See accompanying notes to consolidated financial statements.
8


KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.    Organization, Ownership and Basis of Presentation

Organization and Ownership

Kilroy Realty Corporation (the “Company”) is a self-administered real estate investment trust (“REIT”) active in premier office, life science, and mixed-use property types in the United States. The Company’s approach to modern business environments is designed to drive creativity and productivity for some of the world’s leading technology, entertainment, life science, and business services companies and we have been consistently recognized for our leadership in sustainability and building operations. The Company owns, develops, acquires, and manages real estate assets, consisting primarily of premier properties in Los Angeles, San Diego, the San Francisco Bay Area, Seattle, and Austin, which we believe have strategic advantages and strong barriers to entry. The Company qualifies as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). The Company’s common stock is publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “KRC.”

We own our interests in all of our real estate assets through Kilroy Realty, L.P. (the “Operating Partnership”) and conduct substantially all of our operations through the Operating Partnership. Unless stated otherwise or the context otherwise requires, the terms “Kilroy Realty Corporation” or the “Company,” “we,” “our,” and “us” refer to Kilroy Realty Corporation and its consolidated subsidiaries, including the Operating Partnership, and the term “Operating Partnership” refers to Kilroy Realty, L.P. and its consolidated subsidiaries. The descriptions of our business, employees, and properties apply to both the Company and the Operating Partnership.

Our stabilized portfolio of operating properties was comprised of the following properties at March 31, 2024:
Number of
Buildings
Rentable
Square Feet
Number of
Tenants
Percentage 
Occupied (1)
Stabilized Office Properties (2)
121 17,043,497 410 84.2 %
________________________
(1)Represents economic occupancy.
(2)Includes stabilized life science and retail space.
Number of
Projects
Number of
Units
2024 Average Occupancy
Stabilized Residential Properties3 1,001 93.1 %

Our stabilized portfolio includes all of our properties with the exception of development properties currently committed for construction, under construction, and in the tenant improvement phase, redevelopment properties under construction, undeveloped land, and real estate assets held for sale. We define redevelopment properties as those properties for which we expect to spend significant development and construction costs pursuant to a formal plan to change its use, the intended result of which is a higher economic return on the property. We define properties in the tenant improvement phase as development or redevelopment properties where the project has reached “cold shell condition” and is ready for tenant improvements, which may require additional major base building construction before being placed in service. Projects in the tenant improvement phase are moved into our stabilized portfolio once the project reaches the earlier of 95% occupancy or one year from the date of the cessation of major base building construction activities. Costs capitalized to construction in progress for development and redevelopment properties are transferred to land and improvements, buildings and improvements, and deferred leasing costs on our consolidated balance sheets as the projects or phases of projects are placed in service.

As of March 31, 2024, the following properties were excluded from our stabilized portfolio:

Number of
Properties/Projects
Estimated Rentable
Square Feet (1)
In-process development projects - under construction1875,000 
In-process redevelopment projects - under construction2100,000 
________________________
(1)Estimated rentable square feet upon completion.

9

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)



We did not have any properties held for sale at March 31, 2024. Our stabilized portfolio also excludes our future development pipeline, which, as of March 31, 2024, was comprised of eight future development sites, representing approximately 64 gross acres of undeveloped land.

As of March 31, 2024, all of our properties, development projects, and redevelopment projects and all of our business was conducted in the state of California, with the exception of ten stabilized office properties and one future development project located in the state of Washington, and one stabilized office property and one future development project in Austin, Texas. All of our properties, development projects, and redevelopment projects are 100% owned, excluding four office properties owned by three consolidated property partnerships. Two of the three consolidated property partnerships, 100 First Street Member, LLC (“100 First LLC”) and 303 Second Street Member, LLC (“303 Second LLC”), each owned one office property in San Francisco, California through subsidiary REITs. As of March 31, 2024, the Company owned a 56% common equity interest in both 100 First LLC and 303 Second LLC. The third consolidated property partnership, Redwood City Partners, LLC (“Redwood LLC”), owned two office properties in Redwood City, California. As of March 31, 2024, the Company owned an approximate 93% common equity interest in Redwood LLC. The remaining interests in all three property partnerships were owned by unrelated third parties.

Ownership and Basis of Presentation

The consolidated financial statements of the Company include the consolidated financial position and results of operations of the Company, the Operating Partnership, 303 Second LLC, 100 First LLC, Redwood LLC, and all of our wholly-owned and controlled subsidiaries. The consolidated financial statements of the Operating Partnership include the consolidated financial position and results of operations of the Operating Partnership, 303 Second LLC, 100 First LLC, Redwood LLC, and all of our wholly-owned and controlled subsidiaries. All intercompany balances and transactions have been eliminated in the consolidated financial statements.

As of March 31, 2024, the Company owned an approximate 99.0% common general partnership interest in the Operating Partnership. The remaining approximate 1.0% common limited partnership interest in the Operating Partnership as of March 31, 2024 was owned by non-affiliated investors and one of our directors. Both the general and limited common partnership interests in the Operating Partnership are denominated in common units. Generally, the number of common units held by the Company is equivalent to the number of outstanding shares of the Company’s common stock, and the rights of all the common units to quarterly distributions and payments in liquidation mirror those of the Company’s common stockholders. The common limited partners have certain redemption rights as provided in the Operating Partnership’s Seventh Amended and Restated Agreement of Limited Partnership, as amended (the “Partnership Agreement”). With the exception of the Operating Partnership and our consolidated property partnerships, all of our subsidiaries are wholly-owned.

The accompanying interim financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying interim financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented. However, the results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. The interim financial statements for the Company and the Operating Partnership should be read in conjunction with the audited consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2023.

Variable Interest Entities
The Operating Partnership is a variable interest entity (“VIE”) that is consolidated by the Company as the primary beneficiary, as the Operating Partnership is a limited partnership in which the common limited partners do not have substantive kick-out or participating rights. At March 31, 2024, the consolidated financial statements of the Company included two VIEs in addition to the Operating Partnership: 100 First LLC and 303 Second LLC. At March 31, 2024, the Company and the Operating Partnership were determined to be the primary beneficiaries of these two VIEs since we had the ability to control the activities that most significantly impacted each of the VIEs’ economic performance. As of March 31, 2024, the two VIEs’ total assets, liabilities, and noncontrolling interests included on our consolidated balance sheet were approximately $415.2 million (of which $346.0 million related to real estate held for investment), approximately $25.3 million, and approximately $172.3 million,
10

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)



respectively. Revenues, income, and net assets generated by 100 First LLC and 303 Second LLC may only be used to settle their contractual obligations, which primarily consist of operating expenses, capital expenditures, and required distributions.

At December 31, 2023, the consolidated financial statements of the Company included two VIEs in addition to the Operating Partnership: 100 First LLC and 303 Second LLC. At December 31, 2023, the Company and the Operating Partnership were determined to be the primary beneficiaries of these two VIEs since we had the ability to control the activities that most significantly impacted each of the VIEs’ economic performance. At December 31, 2023, the impact of consolidating the VIEs increased the Company’s total assets, liabilities, and noncontrolling interests on our consolidated balance sheet by approximately $416.7 million (of which $350.0 million related to real estate held for investment), approximately $23.6 million, and approximately $173.7 million, respectively.

Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting this ASU on our consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Tax Disclosures.” The ASU is effective for annual periods beginning after December 15, 2024. The Company does not currently anticipate that the guidance will have a material impact on our consolidated financial statements or notes to our consolidated financial statements.

2.    Marketable Securities

Marketable securities consisted of the following at March 31, 2024 and December 31, 2023:
March 31, 2024December 31, 2023
(in thousands)
Deferred compensation plan assets$31,257 $28,089 
Certificates of deposit (1)
78,256 256,581 
Total marketable securities$109,513 $284,670 
________________________
(1)The certificates of deposit have an original issuance term greater than three months but less than 12 months.

3.    Prepaid Expenses and Other Assets, Net

Prepaid expenses and other assets, net consisted of the following at March 31, 2024 and December 31, 2023:
March 31, 2024December 31, 2023
(in thousands)
Furniture, fixtures and other long-lived assets, net$37,028 $37,073 
Prepaid expenses and deferred financing costs, net22,253 10,532 
Other assets6,307 5,464 
Total prepaid expenses and other assets, net$65,588 $53,069 

11

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




4.    Secured and Unsecured Debt of the Operating Partnership

The Company generally guarantees all of the Operating Partnership’s unsecured debt obligations, including the unsecured revolving credit facility, the unsecured term loan facilities, and all of the unsecured senior notes.

Unsecured Senior Notes - Registered Public Offering

In January 2024, the Operating Partnership issued $400.0 million aggregate principal amount of unsecured senior notes in a registered public offering. The outstanding balance of the unsecured senior notes is included in unsecured debt, net of an initial issuance discount of $4.5 million, on our consolidated balance sheets. The unsecured senior notes, which are scheduled to mature on January 15, 2036, require semi-annual interest payments each January and July based on a stated annual interest rate of 6.250%. The Operating Partnership may redeem the notes at any time, either in whole or in part, subject to the payment of an early redemption premium with respect to redemptions prior to October 15, 2035. On or after October 15, 2035, the Operating Partnership may redeem the notes at any time, either in whole or in part, at par.

Unsecured Revolving Credit Facility and Term Loan Facilities

In March 2024, the Operating Partnership amended and restated the terms of its unsecured revolving credit facility. The amendment and restatement maintained the $1.1 billion borrowing capacity and extended the maturity date of the unsecured revolving credit facility to July 31, 2028.

The following table summarizes the balance and terms of our unsecured revolving credit facility as of March 31, 2024 and December 31, 2023:
Unsecured Revolving Credit Facility
March 31, 2024December 31, 2023
(in thousands)
Outstanding borrowings$ $ 
Remaining borrowing capacity (1)
1,100,000 1,100,000 
Total borrowing capacity (1)
$1,100,000 $1,100,000 
Interest rate (2)
6.34 %6.38 %
Facility fee-annual rate (3)
0.200%
Maturity date (4)
July 31, 2028July 31, 2025
________________________
(1)Remaining and total borrowing capacity are further reduced by the amount of our outstanding letters of credit which total approximately $5.2 million as of March 31, 2024 and December 31, 2023. We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $500.0 million under an accordion feature pursuant to the terms of the unsecured revolving credit facility.
(2)Our unsecured revolving credit facility interest rate was calculated using the Secured Overnight Financing Rate (“SOFR”) plus a SOFR adjustment of 0.10% (“Adjusted SOFR”) and a margin of 0.900% based on our credit rating as of March 31, 2024 and December 31, 2023. We may be entitled to a temporary 0.01% reduction in the interest rate provided we meet certain sustainability goals with respect to the ongoing reduction of greenhouse gas emissions.
(3)Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs in connection with the amendment and restatement of the unsecured revolving credit facility. As of March 31, 2024 and December 31, 2023, $15.2 million and $3.2 million of unamortized deferred financing costs, respectively, which are included in prepaid expenses and other assets, net on our consolidated balance sheets, remained to be amortized through the maturity date of our unsecured revolving credit facility.
(4)The maturity date may be extended by two six-month periods, at the Operating Partnership’s election.

The Operating Partnership intends to borrow under the unsecured revolving credit facility from time to time for general corporate purposes, including to finance development and redevelopment expenditures, to fund potential acquisitions, to repay long-term debt, and to supplement cash balances in response to market conditions.

In connection with amending and restating the unsecured revolving credit facility, the Operating Partnership repaid $200.0 million of its existing $520.0 million unsecured term loan facility (the “2022 Term Loan Facility”) and extended the maturity date on $200.0 million of the remaining $320.0 million principal balance by 12 months to October 3, 2025 (the “2024 Term Loan Facility”). The following table summarizes the balance and terms of our 2024 Term Loan Facility as of March 31, 2024:

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KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)



2024 Term Loan Facility
March 31, 2024
(in thousands)
Outstanding borrowings$200,000 
Remaining borrowing capacity 
Total borrowing capacity (1)
$200,000 
Interest rate (2)
6.37 %
Maturity date (3)
October 3, 2025
____________________
(1)We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $130.0 million as of March 31, 2024, under an accordion feature pursuant to the terms of the 2024 Term Loan Facility.
(2)Our 2024 Term Loan Facility interest rate was calculated using Adjusted SOFR plus a margin of 0.950% based on our credit rating as of March 31, 2024. Additionally, we incurred debt origination and legal costs in connection with the amendment and restatement of the unsecured revolving credit facility. As of March 31, 2024 $3.0 million of unamortized deferred financing costs, inclusive of unamortized initial issuance costs transferred from the 2022 Term Loan Facility, remained to be amortized through the maturity date of the 2024 Term Loan Facility.
(3)The maturity date may be extended by two 12-month periods, at the Operating Partnership’s election.

The following table summarizes the balance and terms of our 2022 Term Loan Facility as of March 31, 2024 and December 31, 2023:

2022 Term Loan Facility
March 31, 2024December 31, 2023
(in thousands)
Outstanding borrowings$120,000 $520,000 
Remaining borrowing capacity  
Total borrowing capacity$120,000 $520,000 
Interest rate (1)
6.38 %6.41 %
Undrawn facility fee-annual rate (2)
0.200%
Maturity date (3)
October 3, 2024
____________________
(1)Our 2022 Term Loan Facility interest rate was calculated using Adjusted SOFR plus a margin of 0.950% based on our credit rating as of March 31, 2024 and December 31, 2023.
(2)Our undrawn facility fee is paid on a quarterly basis and is calculated based on the remaining borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs. As of December 31, 2023, $2.3 million of unamortized deferred financing costs remained to be amortized through the maturity date of our 2022 Term Loan Facility.
(3)The maturity date may be extended by two 12-month periods, at the Operating Partnership’s election.

Debt Covenants and Restrictions

The unsecured revolving credit facility, unsecured term loan facilities, the unsecured senior notes, including the private placement notes, and certain other secured debt arrangements contain covenants and restrictions requiring us to meet certain financial ratios and reporting requirements. Some of the more restrictive financial covenants include a maximum ratio of total debt to total asset value, a minimum fixed-charge coverage ratio, a maximum ratio of secured debt to total asset value, a minimum unsecured debt ratio, and a minimum unencumbered asset pool debt service coverage ratio. Noncompliance with one or more of the covenants and restrictions could result in the full principal balance of the associated debt becoming immediately due and payable. We were in compliance with all of our debt covenants as of March 31, 2024.
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KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




Debt Maturities

The following table summarizes the stated debt maturities and scheduled amortization payments for all outstanding debt as of March 31, 2024:

Year
(in thousands)
Remaining 2024 (1)
$528,238 
2025 (2)
606,246 
2026401,317 
2027249,125 
2028400,000 
2029475,000 
Thereafter2,500,000 
Total aggregate principal value (3)
$5,159,926 
________________________ 
(1)Includes the $120.0 million outstanding as of March 31, 2024 on the 2022 Term Loan Facility, for which the Company has two 12-month extension options.
(2)Includes the $200.0 million outstanding as of March 31, 2024 on the 2024 Term Loan Facility, for which the Company has two 12-month extension options.
(3)Includes gross principal balance of outstanding debt before the effect of the following at March 31, 2024: $30.2 million of unamortized deferred financing costs for the unsecured term loan facilities, unsecured senior notes, and secured debt and $9.5 million of unamortized discounts for the unsecured senior notes.

Capitalized Interest and Loan Fees

The following table sets forth gross interest expense, including debt discount and deferred financing cost amortization, net of capitalized interest, for the three months ended March 31, 2024 and 2023. The interest expense capitalized was recorded as a cost of development and redevelopment and increased the carrying value of undeveloped land and construction in progress.
Three Months Ended March 31,
20242023
(in thousands)
Gross interest expense$58,678 $43,402 
Capitalized interest and deferred financing costs (19,807)(17,731)
Interest expense$38,871 $25,671 


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KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)



5.    Stockholders’ Equity of the Company

At-The-Market Stock Offering Program

In March 2024, the Company terminated its at-the-market (“ATM”) stock offering program (the “2018 ATM Program”) and commenced a new at-the-market stock offering program (the “2024 ATM”), under which we may currently offer and sell shares of our common stock having an aggregate gross sales price up to $500.0 million from time to time in “at-the-market” offerings. In connection with the 2024 ATM Program, the Company may also, at its discretion, enter into forward equity sale agreements. The use of forward equity sale agreements allows the Company to lock in a share price on the sale of shares of our common stock at the time an agreement is executed, but defer settling the forward equity sale agreements and receiving the proceeds from the sale of shares until a later date. The Company did not complete any sales of common stock under either program during the three months ended March 31, 2024.

Share Repurchase Program

In February 2024, the Company’s Board of Directors approved a new share repurchase program (the “Share Repurchase Program”) that authorizes the repurchase of shares of the Company’s common stock having an aggregate gross purchase price of up to $500.0 million. The Share Repurchase Program supersedes and replaces the Company’s previous share repurchase program. Under the Share Repurchase Program, repurchases may be made from time to time using a variety of methods, which may include open market purchases and privately negotiated transactions. The specific timing, price, and size of purchases will depend on prevailing stock prices, general economic and market conditions, and other considerations. The Share Repurchase Program does not have a termination date and repurchases may be discontinued at any time. The Company did not repurchase any common stock under the Share Repurchase Program during the three months ended March 31, 2024.

6.    Noncontrolling Interests on the Company’s Consolidated Financial Statements

Common Units of the Operating Partnership

The Company owned an approximate 99.0% common general partnership interest in the Operating Partnership as of March 31, 2024 and December 31, 2023. The remaining approximate 1.0% common limited partnership interest as of March 31, 2024 and December 31, 2023 was owned by non-affiliated investors and one of our directors in the form of noncontrolling common units. There were 1,150,574 common units outstanding held by these investors and one of our directors as of March 31, 2024 and December 31, 2023.

The noncontrolling common units may be redeemed by unitholders for cash. Except under certain circumstances, we, at our option, may satisfy the cash redemption obligation with shares of the Company’s common stock on a one-for-one basis. If satisfied in cash, the value for each noncontrolling common unit upon redemption is the amount equal to the average of the closing quoted price per share of the Company’s common stock, par value $0.01 per share, as reported on the NYSE for the ten trading days immediately preceding the applicable redemption date. The aggregate value upon redemption of the then-outstanding noncontrolling common units was $41.3 million and $47.0 million as of March 31, 2024 and December 31, 2023, respectively. This redemption value does not necessarily represent the amount that would be distributed with respect to each noncontrolling common unit in the event of our termination or liquidation. In the event of our termination or liquidation, it is generally expected that each common unit would be entitled to a liquidating distribution equal to the liquidating distribution payable in respect of each share of the Company’s common stock.
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KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




7.    Share-Based Compensation

Stockholder Approved Share-Based Incentive Compensation Plan

As of March 31, 2024, we maintained one share-based incentive compensation plan, the Kilroy Realty 2006 Incentive Award Plan, as amended (the “2006 Plan”). The Company has a currently effective registration statement registering 12.6 million shares of our common stock for possible issuance under our 2006 Plan. As of March 31, 2024, approximately 2.1 million shares were available for grant under the 2006 Plan. The calculation of shares available for grant is presented after taking into account a reserve for a sufficient number of shares to cover the vesting and payment of 2006 Plan awards that were outstanding on that date, including performance-based vesting awards at (i) levels actually achieved for the performance conditions (as defined below) for which the performance period has been completed and (ii) at maximum levels for the other performance and market conditions (as defined below) for awards still in a performance period.

Executive Transitions

On January 21, 2024, John Kilroy retired as the Company's Chief Executive Officer (“CEO”) while remaining Chair of the Board of Directors through the end of his current term. On January 22, 2024, Angela Aman joined the Company as CEO and a member of the Board of Directors and was granted 101,627 Time-Based RSUs with a one-year vesting period.

2024 Share-Based Compensation Grants

In February 2024, the Executive Compensation Committee of the Company’s Board of Directors awarded 501,594 restricted stock units to certain officers of the Company under the 2006 Plan, which included 265,205 RSUs (at the target level of performance) that are subject to time, market and/or performance-based vesting requirements (the “2024 Performance-Based RSUs”) and 236,389 RSUs that are subject to time-based vesting requirements (the “2024 Time-Based RSUs”). Each RSU granted is entitled to earn dividend equivalents in the form of RSUs that vest upon vesting of the underlying RSU award.

2024 Performance-Based RSU Grant

The 2024 Performance-Based RSUs are scheduled to vest at the end of a three year period (consisting of calendar years 2024-2026). A target number of 2024 Performance-Based RSUs were awarded, and the final number of 2024 Performance-Based RSUs that vest (which may be more or less than the target number) will be based upon (1) during the first calendar year of the three year performance measurement period, the achievement of pre-set FFO per share goals that applies to 100% of the Performance-Based RSUs awarded (the “FFO Performance Condition”) and (2) a performance measure that applies to 50% of the award based upon a measure of the Company’s average net debt to EBITDA ratio for the three year performance period (the “Net Debt to EBITDA Ratio Performance Condition”) and a market measure that applies to the other 50% of the award based upon the relative ranking of the Company’s total stockholder return for the three year performance period compared to the total stockholder returns of an established comparison group of companies over the same period (the “Market Condition”). The 2024 Performance-Based RSUs are also subject to a three year service vesting provision (the “service vesting condition”) and are scheduled to cliff vest on the date the final vesting percentage is determined following the end of the three year performance period under the awards. The number of 2024 Performance-Based RSUs ultimately earned could fluctuate from the target number of 2024 Performance-Based RSUs granted based upon the levels of achievement for the FFO Performance Condition, the Net Debt to EBITDA Ratio Performance Condition, the Market Condition, and the extent to which the service vesting condition is satisfied. The estimate of the number of 2024 Performance-Based RSUs earned is evaluated quarterly during the performance period based on our estimate for each of the performance conditions measured against the applicable goals.

Compensation expense for the 2024 Performance-Based RSU grant is recognized on a straight-line basis over the requisite service period for each participant, which is generally the three year service period. During the three months ended March 31, 2024, we recognized $0.4 million of compensation expense for the 2024 Performance-Based RSU grant assuming the target level of achievement for both the FFO Performance Condition and the Net Debt to EBITDA Ratio Performance Condition. In the event we achieve a lower level of performance or fail to meet the FFO Performance Condition, we would reverse a portion or all of the $0.4 million of compensation expense.

Each 2024 Performance-Based RSU represents the right to receive one share of our common stock in the future subject to, and as modified by, the Company’s level of achievement of the applicable performance and market conditions. The fair value of the portion of the award subject to the Net Debt to EBITDA Ratio Performance Condition was calculated using the closing
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KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)



price of the Company’s common stock on the valuation date noted below. The fair value of the portion of the award subject to the Market Condition was calculated using a Monte Carlo simulation pricing model based on the assumptions in the table below, which resulted in the following grant date fair value per share.

Fair Value Assumptions
Valuation dateFebruary 1, 2024
Fair value per share on valuation date (1)
$36.00
Expected share price volatility34.0%
Risk-free interest rate3.98%
________________________ 
(1)For one participant, the fair value per share on the valuation date for their 2024 Performance-Based RSUs is $36.43.

The computation of expected volatility was based on a blend of the historical volatility of our shares of common stock over a period of twice the remaining performance period as of the grant date and implied volatility data based on the observed pricing of six month publicly-traded options on shares of our common stock. The risk-free interest rate was based on the yield curve on zero-coupon U.S. Treasury STRIP securities in effect at February 1, 2024.

The fair value of the 2024 Performance-Based RSU grant as of the valuation date noted above, based on a target level of achievement, was $9.5 million. For the three months ended March 31, 2024, we recorded compensation expense based upon the grant date fair value per share for each component multiplied by the estimated number of RSUs to be earned.

2024 Time-Based RSU Grants

The 2024 Time-Based RSUs are scheduled to vest in three equal annual installments beginning on January 5, 2025 through January 5, 2027. Compensation expense for the 2024 Time-Based RSUs is recognized on a straight-line basis over the requisite service period, which is generally the explicit service period. Each 2024 Time-Based RSU represents the right to receive one share of our common stock in the future, subject to continued employment through the applicable vesting date, unless accelerated upon separation of employment, provided certain conditions are met. The total grant date fair value of the 2024 Time-Based RSU awards was $8.3 million, which was based on the $35.20 closing share price of the Company’s common stock on the NYSE on the February 1, 2024 grant date.

2023 and 2022 Performance-Based RSUs

Consistent with the 2024 Performance-Based RSU grant discussed above, the final number of 2023 and 2022 Performance-Based RSUs that vest will be based upon (1) the FFO Performance Condition that applies to 100% of the Performance-Based RSUs awarded as determined at the end of the first calendar year of the performance measurement period and (2) the Net Debt to EBITDA Ratio Performance Condition that applies to 50% of the award and the Market Condition that applies to the other 50% of the award, both of which are based on the full three-year performance measurement period. The 2023 FFO Performance Condition was achieved at 150% of the target level of achievement. The 2022 FFO Performance Condition was achieved at 150% of the target level of achievement.

Compensation cost for the 2023 performance-based RSUs for the three months ended March 31, 2024 assumes the 2023 Net Debt to EBITDA Ratio Performance Condition is met at the target level of achievement. Compensation cost for the 2022 performance-based RSUs for the three months ended March 31, 2024 assumes the 2022 Net Debt to EBITDA Ratio Performance Condition is met at 150% of the target level of achievement.

Share-Based Compensation Cost Recorded During the Period

The total compensation cost for all share-based compensation programs was $4.7 million and $11.6 million for the three months ended March 31, 2024 and 2023, respectively. Share-based compensation costs for the three months ended March 31, 2023 include $4.5 million of accelerated share-based compensation costs for our former CEO and former President. Of the total share-based compensation costs, $1.3 million and $1.5 million was capitalized as part of real estate assets for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, there was approximately $35.2 million of total unrecognized compensation cost related to nonvested RSUs granted under share-based compensation arrangements. Such amount is based in part upon the estimated future outcome of the performance metrics as of March 31, 2024, and the actual compensation cost ultimately recognized could increase or decrease from this estimate based upon actual performance results. These costs are expected to be recognized over a weighted-average period of 2.0 years. The remaining compensation cost related to these nonvested RSU awards had been recognized in periods prior to March 31, 2024.
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KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




8.    Rental Income and Future Minimum Rent

Our rental income is primarily comprised of payments defined under leases and generally are subject to scheduled fixed increases. Additionally, rental income includes variable payments for tenant reimbursements of property-related expenses and payments based on a percentage of tenant sales.

The table below sets forth the allocation of rental income between fixed and variable payments and net collectability reversals for the three months ended March 31, 2024 and 2023:
Three Months Ended March 31,
20242023
(in thousands)
Fixed lease payments$230,315 $245,835 
Variable lease payments48,458 46,707 
Net collectability reversals (1)
(3,883)(2,438)
Total rental income$274,890 $290,104 
_____________________
(1)Represents adjustments to rental income related to our assessment of the collectability of amounts due under leases with our tenants, including recognition of deferred rent balances associated with tenants moved to / restored from a cash basis of revenue recognition and allowances for uncollectible receivables.

We have operating leases with tenants that expire at various dates through 2048 and may be subject to scheduled fixed increases and future renewal options. Generally, the leases grant tenants renewal options. Leases also provide for additional rents based on certain operating expenses. Future contractual minimum rent under operating leases, which includes amounts contractually due from leases that are on a cash basis of reporting due to creditworthiness considerations, as of March 31, 2024 for future periods is summarized as follows:
Year Ending(in thousands)
Remaining 2024$608,984 
2025808,474 
2026765,873 
2027706,957 
2028665,823 
2029579,246 
Thereafter1,501,596 
Total (1)
$5,636,953 
_____________________
(1)Excludes residential leases and leases with a term of one year or less.


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KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




9.    Commitments and Contingencies

General

As of March 31, 2024, we had commitments of approximately $293.8 million, excluding our ground lease commitments, for contracts and executed leases directly related to our operating, development, and redevelopment properties.

Ground Leases

The following table summarizes our properties that are held subject to long-term noncancellable ground lease obligations as of March 31, 2024 and the respective contractual expiration dates:
Property
Contractual Expiration Date (1)
701, 801 and 837 N. 34th Street, Seattle, WA (2)
December 2041
1701 Page Mill Road and 3150 Porter Drive, Palo Alto, CADecember 2067
Kilroy Airport Center Phases I, II and III, Long Beach, CAJuly 2084
3243 S. La Cienega Boulevard, Los Angeles, CAOctober 2106
200 W. 6th Street, Austin, TXDecember 2112
____________________
(1)    Reflects the contractual expiration date prior to the impact of any extension or purchase options held by the Company.
(2)    The Company has three 10-year and one 45-year extension options for this ground lease, which if exercised would extend the expiration date to December 2116. These extension options are not assumed to be exercised in our calculation of the present value of the future minimum lease payments for this lease.

To determine the discount rates used to calculate the present value of the minimum future lease payments for our ground leases, we used a hypothetical curve derived from unsecured corporate borrowing rates over the lease term. The weighted average discount rate used to determine the present value of our minimum lease payments was 4.67%. As of March 31, 2024, the weighted average remaining lease term of our ground leases is 63 years. For the three months ended March 31, 2024 and 2023, variable lease costs totaling $1.0 million were recorded to ground leases expense on our consolidated statements of operations.

The minimum commitment under our ground leases, as of March 31, 2024, for future periods is as follows:
Year Ending
(in thousands)
Remaining 2024
$5,052 
20256,772 
20266,809 
20276,850 
20286,869 
20296,869 
Thereafter367,744 
Total undiscounted cash flows (1)(2)(3)(4)(5)(6)
$406,965 
Present value discount(277,999)
Ground lease liabilities$128,966 
________________________
(1)Excludes contingent future rent payments based on gross income or adjusted gross income and reflects the minimum ground lease obligations before the impact of ground lease extension options.
(2)    One of our ground lease obligations is subject to a fair market value adjustment every five years. The contractual obligations for that lease included above assume the current annual ground lease obligation in effect at March 31, 2024 for the remainder of the lease term, as we cannot predict future adjustments.
(3)    One of our ground lease obligations is subject to a fair market value adjustment every five years based on a combination of CPI adjustments and third-party appraisals limited to maximum increases annually. The contractual obligations for that lease included above assume the current annual ground lease obligation in effect at March 31, 2024 for the remainder of the lease term, as we cannot predict future adjustments.
(4)    One of our ground lease obligations includes a component that is based on the percentage of adjusted gross income that exceeds the minimum ground rent. The minimum rent is subject to increases every 10 years by an amount equal to 60% of the average annual percentage rent for the previous three years. The contractual obligations for this lease included above assume the current annual ground lease obligation in effect at March 31, 2024 for the remainder of the lease term, as we cannot predict future adjustments.
(5)    One of our ground lease obligations is subject to fixed 5% ground rent increases every five years, with the next increase occurring on November 1, 2027.
(6)    One of our ground lease obligations is subject to fixed 2% ground rent increases every year, with ground rent resets occurring every ten years based on CPI. The contractual obligations for that lease included above assume increases for the remaining current ten-year period based on the current annual ground lease obligation in effect at March 31, 2024 and no subsequent changes for the remainder of the lease term, as we cannot predict future CPI adjustments.

Environmental Matters

As of March 31, 2024, we had accrued environmental remediation liabilities of approximately $73.7 million in connection with certain of our in-process and future development projects.
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KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




10.    Fair Value Measurements and Disclosures

Assets and Liabilities Reported at Fair Value

The only assets we record at fair value on our consolidated financial statements are the marketable securities related to our Deferred Compensation Plan. The following table sets forth the fair value of our Deferred Compensation Plan assets as of March 31, 2024 and December 31, 2023:
Fair Value (Level 1) (1)
March 31, 2024December 31, 2023
Description(in thousands)
Deferred Compensation Plan assets (2)
$31,257 $28,089 
________________________
(1)    Based on quoted prices in active markets for identical securities.
(2)    The Deferred Compensation Plan assets are held in a limited rabbi trust.

Financial Instruments Disclosed at Fair Value

The following table sets forth the carrying value and the fair value of our other financial instruments as of March 31, 2024 and December 31, 2023:
March 31, 2024December 31, 2023
Carrying
Value
Fair
Value
(1)
Carrying
Value
Fair
Value
(1)
(in thousands)
Assets
Certificates of deposit (2)
$78,256 $78,256 $256,581 $256,581 
Liabilities
Secured debt, net $601,990 $574,885 $603,225 $585,826 
Unsecured debt, net $4,518,297 $4,117,905 $4,325,153 $3,927,104 
________________________
(1)Fair value calculated using Level 2 inputs, which are based on model-derived valuations in which significant inputs and significant value drivers are observable in active markets.
(2)The carrying value of the certificates of deposit approximate their fair values due to their short-term maturities. See Note 2 "Marketable Securities" for additional information.
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KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




11.    Net Income Available to Common Stockholders Per Share of the Company

The following table reconciles the numerator and denominator in computing the Company’s basic and diluted per-share computations for net income available to common stockholders for the three months ended March 31, 2024 and 2023:
 Three Months Ended March 31,
 20242023
 (in thousands, except share and per share amounts)
Numerator:
Net income available to common stockholders$49,920 $56,608 
Allocation to participating securities (1)
(799)(364)
Numerator for basic and diluted net income available to common stockholders$49,121 $56,244 
Denominator:  
Basic weighted average vested shares outstanding117,337,666 117,059,329 
Effect of dilutive securities623,260 347,189 
Diluted weighted average vested shares and common stock equivalents outstanding117,960,926 117,406,518 
Basic earnings per share:  
Net income available to common stockholders per share$0.42 $0.48 
Diluted earnings per share:  
Net income available to common stockholders per share$0.42 $0.48 
________________________ 
(1)Participating securities include certain time-based RSUs and vested market measure-based RSUs.

Share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are considered participating securities. The impact of potentially dilutive common shares, including stock options and RSUs are considered in our diluted earnings per share calculation for the three months ended March 31, 2024 and 2023. Certain market measure-based RSUs are not included in dilutive securities for the three months ended March 31, 2024 and 2023, as not all performance metrics had been met by the end of the applicable reporting periods. Additionally, certain unvested time-based RSUs are not included in dilutive securities for the three months ended March 31, 2024 and 2023, as they were anti-dilutive. See Note 7 “Share-Based Compensation” for additional information regarding share-based compensation.

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KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




12.    Net Income Available to Common Unitholders Per Unit of the Operating Partnership

The following table reconciles the numerator and denominator in computing the Operating Partnership’s basic and diluted per-unit computations for net income available to common unitholders for the three months ended March 31, 2024 and 2023:
 Three Months Ended March 31,
 20242023
 (in thousands, except unit and per unit amounts)
Numerator:
Net income available to common unitholders$50,422 $57,168 
Allocation to participating securities (1)
(799)(364)
Numerator for basic and diluted net income available to common unitholders$49,623 $56,804 
Denominator:  
Basic weighted average vested units outstanding118,488,240 118,209,903 
Effect of dilutive securities623,260 347,189 
Diluted weighted average vested units and common unit equivalents outstanding119,111,500 118,557,092 
Basic earnings per unit:
Net income available to common unitholders per unit$0.42 $0.48 
Diluted earnings per unit:  
Net income available to common unitholders per unit$0.42 $0.48 
________________________ 
(1)Participating securities include certain time-based RSUs and vested market measure-based RSUs.

    Share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are considered participating securities. The impact of potentially dilutive common units, including stock options and RSU are considered in our diluted earnings per share calculation for the three months ended March 31, 2024 and 2023. Certain market measure-based RSUs are not included in dilutive securities for the three months ended March 31, 2024 and 2023, as not all performance metrics had been met by the end of the applicable reporting periods. Additionally, certain unvested time-based RSUs are not included in dilutive securities for the three months ended March 31, 2024 and 2023, as they were anti-dilutive. See Note 7 “Share-Based Compensation” for additional information regarding share-based compensation.

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KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




13.    Supplemental Cash Flows Information of the Company

Supplemental cash flows information as follows (in thousands):
Year Ended March 31,
20242023
SUPPLEMENTAL CASH FLOWS INFORMATION:  
Cash paid for interest, net of capitalized interest of $18,697 and $16,467 as of March 31, 2024 and 2023, respectively
$16,336 $8,980 
Cash paid for amounts included in the measurement of ground lease liabilities$1,560 $1,704 
NON-CASH INVESTING TRANSACTIONS:  
Accrual for expenditures for operating properties and development and redevelopment properties$57,027 $81,706 
Tenant improvements funded directly by tenants$603 $4,329 
Remeasurement of ground lease liability and related right of use ground lease asset$4,782 $ 
NON-CASH FINANCING TRANSACTIONS: 
Accrual of dividends and distributions payable to common stockholders and common unitholders$65,111 $64,461 

The following is a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the three months ended March 31, 2024 and 2023.
Year Ended March 31,
20242023
(in thousands)
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:  
Cash and cash equivalents at beginning of period $510,163 $347,379 
Restricted cash at beginning of period  
Cash and cash equivalents and restricted cash at beginning of period$510,163 $347,379 
Cash and cash equivalents at end of period $855,007 $476,358 
Restricted cash at end of period  
Cash and cash equivalents and restricted cash at end of period$855,007 $476,358 

14.    Supplemental Cash Flows Information of the Operating Partnership

Supplemental cash flows information as follows (in thousands):
 Year Ended March 31,
 20242023
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest, net of capitalized interest of $18,697 and $16,467 as of March 31, 2024 and 2023, respectively
$16,336 $8,980 
Cash paid for amounts included in the measurement of ground lease liabilities$1,560 $1,704 
NON-CASH INVESTING TRANSACTIONS:
Accrual for expenditures for operating properties and development and redevelopment properties$57,027 $81,706 
Tenant improvements funded directly by tenants$603 $4,329 
Remeasurement of ground lease liability and related right of use ground lease asset$4,782 $ 
NON-CASH FINANCING TRANSACTIONS:
Accrual of distributions payable to common unitholders$65,111 $64,461 

23

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




The following is a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the three months ended March 31, 2024 and 2023.
Year Ended March 31,
20242023
(in thousands)
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:  
Cash and cash equivalents at beginning of period $510,163 $347,379 
Restricted cash at beginning of period  
Cash and cash equivalents and restricted cash at beginning of period$510,163 $347,379 
Cash and cash equivalents at end of period $855,007 $476,358 
Restricted cash at end of period  
Cash and cash equivalents and restricted cash at end of period$855,007 $476,358 
24


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion relates to our consolidated financial statements and should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. The results of operations discussion is combined for the Company and the Operating Partnership because there are no material differences in the results of operations between the two reporting entities.

Forward-Looking Statements

Statements contained in this “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are not historical facts may be forward-looking statements. Forward-looking statements include, among other things, statements or information concerning our plans, objectives, capital resources, portfolio performance, results of operations, projected future occupancy and rental rates, lease expirations, debt maturities, potential investments, strategies such as capital recycling, development and redevelopment activity, projected construction costs, projected construction commencement and completion dates, projected square footage of space that could be constructed on undeveloped land that we own, projected rentable square footage of or number of units in properties under construction or in the development pipeline, anticipated proceeds from capital recycling activity or other dispositions and anticipated dates of those activities or dispositions, projected increases in the value of properties, dispositions, future executive incentive compensation, pending, potential or proposed acquisitions, plans to grow our Net Operating Income and FFO, our ability to re-lease properties at or above current market rates, anticipated market conditions and demographics and other forward-looking financial data, as well as the discussion in “—Factors That May Influence Future Results of Operations,” “—Liquidity and Capital Resource of the Company,” and “—Liquidity and Capital Resources of the Operating Partnership.” Forward-looking statements can be identified by the use of words such as “believes,” “expects,” “projects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” and the negative of these words and phrases and similar expressions that do not relate to historical matters. Forward-looking statements are based on our 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 our 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, including periods of heightened inflation, 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, Texas, 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, including bankruptcy, lack of liquidity or lack of funding, and the impact labor disruptions or strikes, such as episodic strikes in the entertainment industry, may have on our tenants’ businesses; our ability to re-lease property at or above current market rates; reduced demand for office space, including as a result of remote working and flexible working arrangements that allow work from remote locations other than an employer’s office premises; 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; changes in interest rates and the availability of financing on attractive terms or at all, which may adversely impact our futur