10-Q 1 krc-20220331.htm 10-Q krc-20220331
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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, 2022
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 22, 2022, 116,716,080 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, 2022 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, 2022, 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 certain directors and officers of the Company. 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 interest 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 4, Stockholders’ Equity of the Company;
◦Note 6, Partners’ Capital of the Operating Partnership;
◦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;
i

◦Note 13, Supplemental Cash Flow Information of the Company; and
◦Note 14, Supplemental Cash Flow Information of the Operating Partnership;
•“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, 2022
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, 2022December 31, 2021
ASSETS
REAL ESTATE ASSETS (Note 2):  
Land and improvements$1,715,192 $1,731,982 
Buildings and improvements7,509,311 7,543,585 
Undeveloped land and construction in progress2,158,279 2,017,126 
Total real estate assets held for investment11,382,782 11,292,693 
Accumulated depreciation and amortization(2,034,193)(2,003,656)
Total real estate assets held for investment, net9,348,589 9,289,037 
CASH AND CASH EQUIVALENTS331,685 414,077 
RESTRICTED CASH13,007 13,006 
MARKETABLE SECURITIES (Note 10)25,829 27,475 
CURRENT RECEIVABLES, NET12,107 14,386 
DEFERRED RENT RECEIVABLES, NET420,895 405,665 
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET228,426 234,458 
RIGHT OF USE GROUND LEASE ASSETS126,946 127,302 
PREPAID EXPENSES AND OTHER ASSETS, NET57,338 57,991 
TOTAL ASSETS$10,564,822 $10,583,397 
LIABILITIES AND EQUITY
LIABILITIES:
Secured debt, net (Notes 3 and 10)$247,030 $248,367 
Unsecured debt, net (Notes 3 and 10)3,821,433 3,820,383 
Accounts payable, accrued expenses and other liabilities391,920 391,264 
Ground lease liabilities125,414 125,550 
Accrued dividends and distributions (Note 15)61,951 61,850 
Deferred revenue and acquisition-related intangible liabilities, net171,121 171,151 
Rents received in advance and tenant security deposits80,192 74,962 
Total liabilities4,899,061 4,893,527 
COMMITMENTS AND CONTINGENCIES (Note 9)
EQUITY:
Stockholders’ Equity (Note 4):
Common stock, $.01 par value, 280,000,000 shares authorized, 116,716,080 and 116,464,169 shares issued and outstanding, respectively
1,167 1,165 
Additional paid-in capital5,149,968 5,155,232 
Retained earnings274,193 283,663 
Total stockholders’ equity5,425,328 5,440,060 
Noncontrolling Interests (Notes 1 and 5):
Common units of the Operating Partnership53,472 53,746 
Noncontrolling interests in consolidated property partnerships186,961 196,064 
Total noncontrolling interests240,433 249,810 
Total equity5,665,761 5,689,870 
TOTAL LIABILITIES AND EQUITY$10,564,822 $10,583,397 




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,
 20222021
REVENUES  
Rental income (Note 8)$263,208 $234,656 
Other property income2,293 990 
Total revenues265,501 235,646 
EXPENSES  
Property expenses45,424 38,859 
Real estate taxes25,870 25,266 
Ground leases1,826 1,828 
General and administrative expenses (Note 7)22,781 21,985 
Leasing costs1,013 692 
Depreciation and amortization88,660 75,932 
Total expenses185,574 164,562 
OTHER INCOME (EXPENSES)   
Interest and other income, net81 1,373 
Interest expense (Note 3)(20,625)(22,334)
Gain on sale of depreciable operating property— 457,288 
      Total other (expenses) income(20,544)436,327 
NET INCOME59,383 507,411 
Net income attributable to noncontrolling common units of the Operating Partnership(516)(4,886)
Net income attributable to noncontrolling interests in consolidated property partnerships(5,739)(4,894)
Total income attributable to noncontrolling interests(6,255)(9,780)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS$53,128 $497,631 
Net income available to common stockholders per share – basic (Note 11)$0.45 $4.27 
Net income available to common stockholders per share – diluted (Note 11)$0.45 $4.26 
Weighted average common shares outstanding – basic (Note 11)116,650,228 116,344,375 
Weighted average common shares outstanding – diluted (Note 11)117,060,094 116,801,384 
























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, 2021116,464,169 $1,165 $5,155,232 $283,663 $5,440,060 $249,810 $5,689,870 
Net income53,128 53,128 6,255 59,383 
Issuance of share-based compensation awards1,942 1,942 1,942 
Non-cash amortization of share-based compensation (Note 7)6,598 6,598 6,598 
Settlement of restricted stock units for shares of common stock459,050 5 (5)— — 
Repurchase of common stock and restricted stock units(207,139)(3)(13,991)(13,994)(13,994)
Distributions to noncontrolling interests in consolidated property partnerships— (14,842)(14,842)
Adjustment for noncontrolling interest192 192 (192)— 
Dividends declared per common share and common unit ($0.52 per share/unit)
(62,598)(62,598)(598)(63,196)
BALANCE AS OF MARCH 31, 2022116,716,080 $1,167 $5,149,968 $274,193 $5,425,328 $240,433 $5,665,761 






Common StockTotal
Stock-
holders’
Equity		Noncontrolling InterestsTotal
Equity
Number of
Shares		Common
Stock		Additional
Paid-in
Capital		Retained Earnings (Distributions
in Excess of
Earnings)
BALANCE AS OF DECEMBER 31, 2020116,035,827 $1,160 $5,131,916 $(103,133)$5,029,943 $247,378 $5,277,321 
Net income 497,631 497,631 9,780 507,411 
Issuance of share-based compensation awards1,950 1,950 1,950 
Non-cash amortization of share-based compensation9,604 9,604 9,604 
Settlement of restricted stock units for shares of common stock 769,701 8 (8)— — 
Repurchase of common stock and restricted stock units(355,158)(3)(21,134)(21,137)(21,137)
Distributions to noncontrolling interests in consolidated property partnerships— (11,680)(11,680)
Adjustment for noncontrolling interest256 256 (256)— 
Dividends declared per common share and common unit ($0.500 per share/unit)
(60,002)(60,002)(575)(60,577)
BALANCE AS OF MARCH 31, 2021116,450,370 $1,165 $5,122,584 $334,496 $5,458,245 $244,647 $5,702,892 












See accompanying notes to consolidated financial statements.
3

KILROY REALTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
 
 Three Months Ended March 31,
 20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$59,383 $507,411 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of real estate assets and leasing costs87,001 74,431 
Depreciation of non-real estate furniture, fixtures and equipment1,659 1,501 
Revenue (recoveries) reversals for doubtful accounts, net (Note 8)(1,311)1,035 
Non-cash amortization of share-based compensation awards5,256 7,877 
Non-cash amortization of deferred financing costs and debt discounts821 794 
Non-cash amortization of net below market rents(2,892)(1,181)
Gain on sale of depreciable operating property— (457,288)
Non-cash amortization of deferred revenue related to tenant-funded tenant improvements(4,261)(4,204)
Straight-line rents(13,847)(17,292)
Amortization of right of use ground lease assets356 211 
Net change in other operating assets2,657 1,710 
Net change in other operating liabilities43,837 29,147 
Net cash provided by operating activities178,659 144,152 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Expenditures for acquisitions of development properties and undeveloped land (Note 2)(40,033)— 
Expenditures for development and redevelopment properties and undeveloped land(112,314)(172,325)
Expenditures for operating properties and other capital assets(17,027)(28,242)
Net proceeds received from disposition— 1,012,817 
Net cash (used in) provided by investing activities(169,374)812,250 
CASH FLOWS FROM FINANCING ACTIVITIES:  
Financing costs(318)(235)
Repurchase of common stock and restricted stock units(13,994)(21,137)
Distributions to noncontrolling interests in consolidated property partnerships(14,834)(11,672)
Dividends and distributions paid to common stockholders and common unitholders(61,161)(58,594)
Principal payments and repayments of secured debt (1,369)(1,316)
Net cash used in financing activities(91,676)(92,954)
Net (decrease) increase in cash and cash equivalents and restricted cash(82,391)863,448 
Cash and cash equivalents and restricted cash, beginning of period427,083 823,130 
Cash and cash equivalents and restricted cash, end of period$344,692 $1,686,578 



















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, 2022December 31, 2021
ASSETS
REAL ESTATE ASSETS (Note 2):
Land and improvements$1,715,192 $1,731,982 
Buildings and improvements7,509,311 7,543,585 
Undeveloped land and construction in progress2,158,279 2,017,126 
Total real estate assets held for investment11,382,782 11,292,693 
Accumulated depreciation and amortization(2,034,193)(2,003,656)
Total real estate assets held for investment, net9,348,589 9,289,037 
CASH AND CASH EQUIVALENTS331,685 414,077 
RESTRICTED CASH13,007 13,006 
MARKETABLE SECURITIES (Note 10)25,829 27,475 
CURRENT RECEIVABLES, NET12,107 14,386 
DEFERRED RENT RECEIVABLES, NET420,895 405,665 
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET228,426 234,458 
RIGHT OF USE GROUND LEASE ASSETS126,946 127,302 
PREPAID EXPENSES AND OTHER ASSETS, NET57,338 57,991 
TOTAL ASSETS$10,564,822 $10,583,397 
LIABILITIES AND CAPITAL
LIABILITIES:
Secured debt, net (Notes 3 and 10)$247,030 $248,367 
Unsecured debt, net (Notes 3 and 10)3,821,433 3,820,383 
Accounts payable, accrued expenses and other liabilities391,920 391,264 
Ground lease liabilities125,414 125,550 
Accrued distributions (Note 15)61,951 61,850 
Deferred revenue and acquisition-related intangible liabilities, net171,121 171,151 
Rents received in advance and tenant security deposits80,192 74,962 
Total liabilities4,899,061 4,893,527 
COMMITMENTS AND CONTINGENCIES (Note 9)
CAPITAL:
Common units, 116,716,080 and 116,464,169 held by the general partner and 1,150,574 and 1,150,574
held by common limited partners issued and outstanding, respectively (Note 5)
5,478,800 5,493,806 
Noncontrolling interests in consolidated property partnerships (Note 1)186,961 196,064 
Total capital5,665,761 5,689,870 
TOTAL LIABILITIES AND CAPITAL$10,564,822 $10,583,397 













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,
20222021
REVENUES
Rental income (Note 8)$263,208 $234,656 
Other property income2,293 990 
Total revenues265,501 235,646 
EXPENSES
Property expenses45,424 38,859 
Real estate taxes25,870 25,266 
Ground leases1,826 1,828 
General and administrative expenses (Note 7)22,781 21,985 
Leasing costs1,013 692 
Depreciation and amortization88,660 75,932 
Total expenses185,574 164,562 
OTHER INCOME (EXPENSES)
Interest and other income, net81 1,373 
Interest expense (Note 3)(20,625)(22,334)
Gain on sale of depreciable operating property— 457,288 
Total other (expenses) income (20,544)436,327 
NET INCOME59,383 507,411 
Net income attributable to noncontrolling interests in consolidated property partnerships and subsidiaries(5,739)(4,894)
NET INCOME AVAILABLE TO COMMON UNITHOLDERS$53,644 $502,517 
Net income available to common unitholders per unit – basic (Note 12) $0.45 $4.27 
Net income available to common unitholders per unit – diluted (Note 12)$0.45 $4.26 
Weighted average common units outstanding – basic (Note 12)117,800,802 117,494,949 
Weighted average common units outstanding – diluted (Note 12)118,210,668 117,951,958 


























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, 2021117,614,743 $5,493,806 $196,064 $5,689,870 
Net income53,644 5,739 59,383 
Issuance of share-based compensation awards1,942 1,942 
Non-cash amortization of share-based compensation (Note 7)6,598 6,598 
Settlement of restricted stock units459,050 — — 
Repurchase of common units and restricted stock units(207,139)(13,994)(13,994)
Distributions to noncontrolling interests in consolidated property partnerships(14,842)(14,842)
Distributions declared per common unit ($0.52 per unit)
(63,196)(63,196)
BALANCE AS OF MARCH 31, 2022117,866,654 $5,478,800 $186,961 $5,665,761 


Partners’ CapitalNoncontrolling Interests in Consolidated Property Partnerships and Subsidiaries
Number of
Common
Units		Common
Units		Total
Capital
BALANCE AS OF DECEMBER 31, 2020117,186,401 $5,079,818 $197,503 $5,277,321 
Net income502,517 4,894 507,411 
Issuance of share-based compensation awards1,950 1,950 
Non-cash amortization of share-based compensation9,604 9,604 
Settlement of restricted stock units769,701 — — 
Repurchase of common units and restricted stock units(355,158)(21,137)(21,137)
Distributions to noncontrolling interests in consolidated property partnerships(11,680)(11,680)
Distributions declared per common unit ($0.500 per unit)
(60,577)(60,577)
BALANCE AS OF MARCH 31, 2021117,600,944 $5,512,175 $190,717 $5,702,892 

























See accompanying notes to consolidated financial statements.
7

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

 Three Months Ended March 31,
 20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$59,383 $507,411 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of real estate assets and leasing costs87,001 74,431 
Depreciation of non-real estate furniture, fixtures and equipment1,659 1,501 
Revenue (recoveries) reversals for doubtful accounts, net (Note 8)(1,311)1,035 
Non-cash amortization of share-based compensation awards5,256 7,877 
Non-cash amortization of deferred financing costs and debt discounts821 794 
Non-cash amortization of net below market rents(2,892)(1,181)
Gain on sale of depreciable operating property— (457,288)
Non-cash amortization of deferred revenue related to tenant-funded tenant improvements(4,261)(4,204)
Straight-line rents(13,847)(17,292)
Amortization of right of use ground lease assets356 211 
Net change in other operating assets2,657 1,710 
Net change in other operating liabilities43,837 29,147 
Net cash provided by operating activities178,659 144,152 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Expenditures for acquisition of development properties and undeveloped land (Note 2)(40,033)— 
Expenditures for development and redevelopment properties and undeveloped land(112,314)(172,325)
Expenditures for operating properties and other capital assets(17,027)(28,242)
Net proceeds received from disposition— 1,012,817 
Net cash (used in) provided by investing activities(169,374)812,250 
CASH FLOWS FROM FINANCING ACTIVITIES:  
Financing costs(318)(235)
Repurchase of common units and restricted stock units(13,994)(21,137)
Distributions to noncontrolling interests in consolidated property partnerships(14,834)(11,672)
Distributions paid to common unitholders(61,161)(58,594)
Principal payments and repayments of secured debt(1,369)(1,316)
Net cash used in financing activities(91,676)(92,954)
Net (decrease) increase in cash and cash equivalents and restricted cash(82,391)863,448 
Cash and cash equivalents and restricted cash, beginning of period427,083 823,130 
Cash and cash equivalents and restricted cash, end of period$344,692 $1,686,578 
 


















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 submarkets in the United States. We own, develop, acquire and manage real estate assets, consisting primarily of Class A properties in Greater Los Angeles, San Diego County, the San Francisco Bay Area, Greater Seattle and Austin, Texas, which we believe have strategic advantages and strong barriers to entry. Class A real estate encompasses attractive and efficient buildings of high quality that are attractive to tenants, are well-designed and constructed with above-average material, workmanship and finishes and are well-maintained and managed. We qualify 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”). We generally conduct substantially all of our operations through the Operating Partnership. Unless stated otherwise or the context indicates otherwise, the terms “Kilroy Realty Corporation” or the “Company,” “we,” “our,” and “us” refer to Kilroy Realty Corporation and its consolidated subsidiaries 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, 2022:
Number of
Buildings		Rentable
Square Feet		Number of
Tenants
Percentage 
Occupied (1)
Percentage Leased
Stabilized Office Properties (2)
118 15,221,912 415 91.3 %93.1 %
________________________
(1)Represents economic occupancy.
(2)Includes stabilized life science and retail space.

Number of
Projects		Number of
Units		2022 Average Occupancy
Stabilized Residential Properties3 1,001 93.7 %

Our stabilized portfolio includes all of our properties with the exception of development properties currently committed for construction, under construction, or 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 on the existing or acquired buildings pursuant to a formal plan, the intended result of which is a higher economic return on the property. We define properties in the tenant improvement phase as office and life science properties that we are developing or redeveloping 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 added to 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 at the historical cost of the property as the projects or phases of projects are placed in service.

As of March 31, 2022, the following properties were excluded from our stabilized portfolio. We did not have any properties held for sale at March 31, 2022.
Number of
Properties/Projects
Estimated Rentable
Square Feet (1)
In-process development projects - tenant improvement31,604,000 
In-process development projects - under construction2946,000 
In-process redevelopment projects - under construction3330,000 
________________________
(1)Estimated rentable square feet upon completion.

9
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)



Our stabilized portfolio also excludes our future development pipeline, which as of March 31, 2022 was comprised of seven future development sites, representing approximately 62 gross acres of undeveloped land.

As of March 31, 2022, all of our properties, development projects and redevelopment projects were owned and all of our business was conducted in the state of California with the exception of nine stabilized office properties, one development project in the tenant improvement phase and one future development project located in the state of Washington, and one development project in the tenant improvement phase 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, 2022, 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, 2022, 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, 2022, 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, 2022 was owned by non-affiliated investors and certain of our executive officers and 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, 2022. 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, 2021.


10
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)



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, 2022, the consolidated financial statements of the Company included three VIEs in addition to the Operating Partnership: 100 First LLC, 303 Second LLC and one entity established during the first quarter of 2022 to facilitate potential future Section 1031 Exchanges. At March 31, 2022, the Company and the Operating Partnership were determined to be the primary beneficiaries of these three VIEs since we had the ability to control the activities that most significantly impact each of the VIEs’ economic performance. As of March 31, 2022, the three VIEs’ total assets, liabilities and noncontrolling interests included on our consolidated balance sheet were approximately $483.5 million (of which $413.2 million related to real estate held for investment), approximately $29.8 million and approximately $181.7 million, 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, 2021, 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, 2021, 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 impact each of the VIEs’ economic performance. At December 31, 2021, the impact of consolidating the VIEs increased the Company’s total assets, liabilities and noncontrolling interests on our consolidated balance sheet by approximately $462.3 million (of which $377.9 million related to real estate held for investment), approximately $28.1 million and approximately $190.7 million, respectively.


2.    Acquisitions

Development Project Acquisitions

During the three months ended March 31, 2022, we acquired the following development site from an unrelated third party.
PropertyDate of AcquisitionSubmarket
Purchase Price (in millions) (1)
10615 Burnet Road, Austin, TXMarch 9, 2022Stadium District / Domain$40.0 
________________________ 
(1)Excludes acquisition-related costs.

11
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




3.    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 and all of the unsecured senior notes.

Unsecured Revolving Credit Facility

The following table summarizes the balance and terms of our unsecured revolving credit facility as of March 31, 2022 and December 31, 2021:
March 31, 2022December 31, 2021
(in thousands)
Outstanding borrowings$— $— 
Remaining borrowing capacity
1,100,000 1,100,000 
Total borrowing capacity (1)
$1,100,000 $1,100,000 
Interest rate (2)
1.35 %1.00 %
Facility fee-annual rate (3)
0.200%
Maturity dateJuly 2025
________________________
(1)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 under the terms of the unsecured revolving credit facility.
(2)Our unsecured revolving credit facility interest rate was calculated based on the contractual rate of LIBOR plus 0.900% as of March 31, 2022 and December 31, 2021.
(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. As of March 31, 2022 and December 31, 2021, $6.8 million and $7.3 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 respective maturity dates presented of our unsecured revolving credit facility.

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

Debt Covenants and Restrictions

The unsecured revolving credit facility, 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 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 believe we were in compliance with all of our debt covenants as of March 31, 2022.

Debt Maturities

The following table summarizes the stated debt maturities and scheduled amortization payments for all outstanding debt as of March 31, 2022:

Year
(in thousands)
Remaining 2022$4,186 
20235,775 
2024431,006 
2025406,246 
2026401,317 
2027249,125 
Thereafter2,600,000 
Total aggregate principal value (1)
$4,097,655 
________________________ 
(1)Includes gross principal balance of outstanding debt before the effect of the following at March 31, 2022: $22.0 million of unamortized deferred financing costs for the unsecured senior notes and secured debt and $7.1 million of unamortized discounts for the unsecured senior notes.

12
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)



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, 2022 and 2021. 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,
20222021
(in thousands)
Gross interest expense$39,723 $39,242 
Capitalized interest and deferred financing costs (19,098)(16,908)
Interest expense$20,625 $22,334 

4.    Stockholders’ Equity of the Company

At-The-Market Stock Offering Program

Under our at-the-market stock offering program, which commenced in June 2018, we may 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 our at-the-market program, the Company may enter into forward equity sale agreements with certain financial institutions acting as forward purchasers whereby, at our discretion, the forward purchasers may borrow and sell shares of our common stock under our at-the-market program. The use of a forward equity sale agreement allows the Company to lock in a share price on the sale of shares of our common stock at the time the 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 have any outstanding forward equity sale agreements to be settled at March 31, 2022.

Since commencement of our current at-the-market program, we have completed sales of 3,594,576 shares of common stock through March 31, 2022. As of March 31, 2022, we may offer and sell shares of our common stock having an aggregate gross sales price up to approximately $214.2 million under our current at-the-market program. The Company did not complete any sales of common stock under the program during the three months ended March 31, 2022.

5.    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, 2022, December 31, 2021 and March 31, 2021. The remaining approximate 1.0% common limited partnership interest as of March 31, 2022, December 31, 2021 and March 31, 2021 was owned by non-affiliated investors and certain of our executive officers and directors in the form of noncontrolling common units. There were 1,150,574 common units outstanding held by these investors, executive officers and directors as of March 31, 2022, December 31, 2021 and March 31, 2021.

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 $.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 $87.7 million and $76.2 million as of March 31, 2022 and December 31, 2021, 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 expected in most cases 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.

13
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)



6.    Partners’ Capital of the Operating Partnership

Common Units Outstanding

The following table sets forth the number of common units held by the Company and the number of common units held by non-affiliated investors and certain of our executive officers and directors in the form of noncontrolling common units as well as the ownership interest held on each respective date:
March 31, 2022December 31, 2021March 31, 2021
Company owned common units in the Operating Partnership116,716,080 116,464,169 116,450,370 
Company owned general partnership interest99.0 %99.0 %99.0 %
Noncontrolling common units of the Operating Partnership1,150,574 1,150,574 1,150,574 
Ownership interest of noncontrolling interest1.0 %1.0 %1.0 %

For further discussion of the noncontrolling common units as of March 31, 2022 and December 31, 2021, refer to Note 5 “Noncontrolling Interests on the Company’s Consolidated Financial Statements.”

7.    Share-Based Compensation

Stockholder Approved Share-Based Incentive Compensation Plan

As of March 31, 2022, 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 10.7 million shares of our common stock for possible issuance under our 2006 Plan. As of March 31, 2022, approximately 1.0 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.

2022 Share-Based Compensation Grants

In January 2022, the Executive Compensation Committee of the Company’s Board of Directors awarded 351,281 restricted stock units (“RSUs”) to certain officers of the Company under the 2006 Plan, which included 193,111 RSUs (at the target level of performance) that are subject to market and/or performance-based vesting requirements (the “2022 Performance-Based RSUs”) and 158,170 RSUs that are subject to time-based vesting requirements (the “2022 Time-Based RSUs”).

2022 Performance-Based RSU Grant

The 2022 Performance-Based RSUs are scheduled to vest at the end of a three year period (consisting of calendar years 2022-2024). A target number of 2022 Performance-Based RSUs were awarded, and the final number of 2022 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 debt to EBITDA ratio for the three year performance period (the “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 2022 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 2022 Performance-Based RSUs ultimately earned could fluctuate from the target number of 2022 Performance-Based RSUs granted based upon the levels of achievement for the FFO Performance Condition, the 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 2022 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. During the three months ended March 31, 2022, we recognized $