þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Kilroy Realty Corporation | Maryland | 95-4598246 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
Kilroy Realty, L.P. | Delaware | 95-4612685 |
(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) |
Kilroy Realty Corporation | |||
Large accelerated filer þ | Accelerated filer o | ||
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o | ||
Emerging growth company o 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. o | |||
Kilroy Realty, L.P. | |||
Large accelerated filer o | Accelerated filer o | ||
Non-accelerated filer þ (Do not check if a smaller reporting company) | Smaller reporting company o | ||
Emerging growth company o 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. o |
• | 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. |
• | consolidated financial statements; |
• | the following notes to the consolidated financial statements: |
◦ | Note 7, Stockholders’ Equity of the Company; |
◦ | Note 8, Partners’ Capital of the Operating Partnership; |
◦ | Note 12, Net Income Available to Common Stockholders Per Share of the Company; |
◦ | Note 13, Net Income Available to Common Unitholders Per Unit of the Operating Partnership; |
◦ | Note 14, Supplemental Cash Flow Information of the Company; and |
◦ | Note 15, 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.” |
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. | |||
September 30, 2017 | December 31, 2016 | ||||||
ASSETS | (unaudited) | ||||||
REAL ESTATE ASSETS: | |||||||
Land and improvements | $ | 1,076,172 | $ | 1,108,971 | |||
Buildings and improvements | 4,871,667 | 4,938,250 | |||||
Undeveloped land and construction in progress | 1,292,017 | 1,013,533 | |||||
Total real estate assets held for investment | 7,239,856 | 7,060,754 | |||||
Accumulated depreciation and amortization | (1,216,358 | ) | (1,139,853 | ) | |||
Total real estate assets held for investment, net | 6,023,498 | 5,920,901 | |||||
REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET | — | 9,417 | |||||
CASH AND CASH EQUIVALENTS | 64,954 | 193,418 | |||||
RESTRICTED CASH (Note 2) | 179,276 | 56,711 | |||||
MARKETABLE SECURITIES (Note 11) | 18,851 | 14,773 | |||||
CURRENT RECEIVABLES, NET (Note 3) | 18,626 | 13,460 | |||||
DEFERRED RENT RECEIVABLES, NET (Note 3) | 238,959 | 218,977 | |||||
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET | 185,420 | 208,368 | |||||
PREPAID EXPENSES AND OTHER ASSETS, NET (Note 4) | 108,715 | 70,608 | |||||
TOTAL ASSETS | $ | 6,838,299 | $ | 6,706,633 | |||
LIABILITIES AND EQUITY | |||||||
LIABILITIES: | |||||||
Secured debt, net (Notes 5 and 11) | $ | 465,828 | $ | 472,772 | |||
Unsecured debt, net (Notes 5 and 11) | 1,909,381 | 1,847,351 | |||||
Unsecured line of credit (Notes 5 and 11) | 60,000 | — | |||||
Accounts payable, accrued expenses and other liabilities | 271,405 | 202,391 | |||||
Accrued dividends and distributions (Note 16) | 43,324 | 222,306 | |||||
Deferred revenue and acquisition-related intangible liabilities, net | 145,556 | 150,360 | |||||
Rents received in advance and tenant security deposits | 46,925 | 52,080 | |||||
Liabilities of real estate assets held for sale | — | 56 | |||||
Total liabilities | 2,942,419 | 2,947,316 | |||||
COMMITMENTS AND CONTINGENCIES (Note 10) | |||||||
EQUITY: | |||||||
Stockholders’ Equity (Note 7): | |||||||
Preferred stock, $.01 par value, 30,000,000 shares authorized: | |||||||
6.875% Series G Cumulative Redeemable Preferred stock, $.01 par value, no shares issued and outstanding at 9/30/2017, and 4,000,000 shares authorized, issued and outstanding ($100,000 liquidation preference) at 12/31/2016 | — | 96,155 | |||||
6.375% Series H Cumulative Redeemable Preferred stock, $.01 par value, no shares issued and outstanding at 9/30/2017, and 4,000,000 shares authorized, issued and outstanding ($100,000 liquidation preference) at 12/31/2016 | — | 96,256 | |||||
Common stock, $.01 par value, 150,000,000 shares authorized, 98,382,256 and 93,219,439 shares issued and outstanding, respectively | 984 | 932 | |||||
Additional paid-in capital | 3,797,546 | 3,457,649 | |||||
Distributions in excess of earnings | (108,667 | ) | (107,997 | ) | |||
Total stockholders’ equity | 3,689,863 | 3,542,995 | |||||
Noncontrolling Interests: | |||||||
Common units of the Operating Partnership (Note 6) | 77,911 | 85,590 | |||||
Noncontrolling interests in consolidated property partnerships (Note 1) | 128,106 | 130,732 | |||||
Total noncontrolling interests | 206,017 | 216,322 | |||||
Total equity | 3,895,880 | 3,759,317 | |||||
TOTAL LIABILITIES AND EQUITY | $ | 6,838,299 | $ | 6,706,633 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
REVENUES | |||||||||||||||
Rental income | $ | 159,954 | $ | 146,539 | $ | 475,527 | $ | 423,947 | |||||||
Tenant reimbursements | 19,665 | 16,406 | 58,228 | 43,948 | |||||||||||
Other property income | 1,915 | 5,403 | 7,685 | 6,032 | |||||||||||
Total revenues | 181,534 | 168,348 | 541,440 | 473,927 | |||||||||||
EXPENSES | |||||||||||||||
Property expenses | 33,070 | 30,050 | 97,615 | 85,236 | |||||||||||
Real estate taxes | 16,371 | 14,501 | 50,878 | 39,378 | |||||||||||
Provision for bad debts | 1,036 | — | 2,743 | — | |||||||||||
Ground leases | 1,562 | 909 | 4,751 | 2,506 | |||||||||||
General and administrative expenses | 14,514 | 13,533 | 43,750 | 40,949 | |||||||||||
Acquisition-related expenses (Note 1) | — | 188 | — | 964 | |||||||||||
Depreciation and amortization | 62,567 | 56,666 | 185,737 | 160,452 | |||||||||||
Total expenses | 129,120 | 115,847 | 385,474 | 329,485 | |||||||||||
OTHER (EXPENSES) INCOME | |||||||||||||||
Interest income and other net investment gains (Note 11) | 1,526 | 538 | 3,629 | 1,120 | |||||||||||
Interest expense (Note 5) | (16,151 | ) | (14,976 | ) | (51,476 | ) | (41,189 | ) | |||||||
Total other (expenses) income | (14,625 | ) | (14,438 | ) | (47,847 | ) | (40,069 | ) | |||||||
INCOME FROM OPERATIONS BEFORE GAINS (LOSS) ON SALES OF REAL ESTATE | 37,789 | 38,063 | 108,119 | 104,373 | |||||||||||
Net gain (loss) on sale of land (Note 2) | 449 | — | 449 | (295 | ) | ||||||||||
Gains on sales of depreciable operating properties (Note 2) | 37,250 | 18,312 | 39,507 | 164,302 | |||||||||||
NET INCOME | 75,488 | 56,375 | 148,075 | 268,380 | |||||||||||
Net income attributable to noncontrolling common units of the Operating Partnership (Note 6) | (1,394 | ) | (1,453 | ) | (2,633 | ) | (5,892 | ) | |||||||
Net income attributable to noncontrolling interests in consolidated property partnerships | (2,984 | ) | (1,027 | ) | (9,359 | ) | (1,438 | ) | |||||||
Total income attributable to noncontrolling interests | (4,378 | ) | (2,480 | ) | (11,992 | ) | (7,330 | ) | |||||||
NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION | 71,110 | 53,895 | 136,083 | 261,050 | |||||||||||
Preferred dividends | (808 | ) | (3,313 | ) | (5,774 | ) | (9,938 | ) | |||||||
Original issuance costs of redeemed preferred stock and preferred units (Note 7) | (3,744 | ) | — | (7,589 | ) | — | |||||||||
Total preferred dividends | (4,552 | ) | (3,313 | ) | (13,363 | ) | (9,938 | ) | |||||||
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS | $ | 66,558 | $ | 50,582 | $ | 122,720 | $ | 251,112 | |||||||
Net income available to common stockholders per share – basic (Note 12) | $ | 0.67 | $ | 0.54 | $ | 1.24 | $ | 2.71 | |||||||
Net income available to common stockholders per share – diluted (Note 12) | $ | 0.67 | $ | 0.54 | $ | 1.23 | $ | 2.69 | |||||||
Weighted average common shares outstanding – basic (Note 12) | 98,352,139 | 92,227,016 | 98,008,780 | 92,220,522 | |||||||||||
Weighted average common shares outstanding – diluted (Note 12) | 98,911,612 | 92,920,406 | 98,591,048 | 92,831,538 | |||||||||||
Dividends declared per common share | $ | 0.425 | $ | 0.375 | $ | 1.225 | $ | 1.100 |
Common Stock | Total Stock- holders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||
Preferred Stock | Number of Shares | Common Stock | Additional Paid-in Capital | Retained Earnings / (Distributions in Excess of Earnings) | ||||||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2015 | $ | 192,411 | 92,258,690 | $ | 923 | $ | 3,047,894 | $ | (70,262 | ) | $ | 3,170,966 | $ | 63,620 | $ | 3,234,586 | ||||||||||||||
Net income | 261,050 | 261,050 | 7,330 | 268,380 | ||||||||||||||||||||||||||
Issuance of share-based compensation awards | 1,339 | 1,339 | 1,339 | |||||||||||||||||||||||||||
Non-cash amortization of share-based compensation | 19,303 | 19,303 | 19,303 | |||||||||||||||||||||||||||
Exercise of stock options | 51,000 | 2,173 | 2,173 | 2,173 | ||||||||||||||||||||||||||
Repurchase of common stock, stock options and restricted stock units | (110,528 | ) | (1 | ) | (6,873 | ) | (6,874 | ) | (6,874 | ) | ||||||||||||||||||||
Settlement of restricted stock units for shares of common stock | 72,130 | 1 | (1 | ) | — | — | ||||||||||||||||||||||||
Issuance of common units in connection with acquisition | 48,033 | 48,033 | ||||||||||||||||||||||||||||
Exchange of common units of the Operating Partnership | 1,200 | 39 | 39 | (39 | ) | — | ||||||||||||||||||||||||
Initial contribution from noncontrolling interest in consolidated property partnership, net of transaction costs | 113,022 | 113,022 | 78,654 | 191,676 | ||||||||||||||||||||||||||
Distributions to noncontrolling interests in consolidated property partnerships | (1,139 | ) | (1,139 | ) | ||||||||||||||||||||||||||
Adjustment for noncontrolling interest | 14,822 | 14,822 | (14,822 | ) | — | |||||||||||||||||||||||||
Preferred dividends | (9,938 | ) | (9,938 | ) | (9,938 | ) | ||||||||||||||||||||||||
Dividends declared per common share and common unit ($1.10 per share/unit) | (102,743 | ) | (102,743 | ) | (2,894 | ) | (105,637 | ) | ||||||||||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2016 | $ | 192,411 | 92,272,492 | $ | 923 | $ | 3,191,718 | $ | 78,107 | $ | 3,463,159 | $ | 178,743 | $ | 3,641,902 | |||||||||||||||
Common Stock | Total Stock- holders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||||||
Preferred Stock | Number of Shares | Common Stock | Additional Paid-in Capital | Distributions in Excess of Earnings | ||||||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2016 | $ | 192,411 | 93,219,439 | $ | 932 | $ | 3,457,649 | $ | (107,997 | ) | $ | 3,542,995 | $ | 216,322 | $ | 3,759,317 | ||||||||||||||
Net income | 136,083 | 136,083 | 11,992 | 148,075 | ||||||||||||||||||||||||||
Redemption of Series G and H Preferred stock (Note 7) | (192,411 | ) | (7,589 | ) | (200,000 | ) | (200,000 | ) | ||||||||||||||||||||||
Issuance of common stock (Note 7) | 4,427,500 | 44 | 308,768 | 308,812 | 308,812 | |||||||||||||||||||||||||
Issuance of share-based compensation awards | 5,291 | 5,291 | 5,291 | |||||||||||||||||||||||||||
Non-cash amortization of share-based compensation | 19,013 | 19,013 | 19,013 | |||||||||||||||||||||||||||
Exercise of stock options (Note 9) | 282,000 | 4 | 12,047 | 12,051 | 12,051 | |||||||||||||||||||||||||
Settlement of restricted stock units for shares of common stock | 317,848 | 3 | (3 | ) | — | — | ||||||||||||||||||||||||
Repurchase of common stock, stock options and restricted stock units | (168,881 | ) | (2 | ) | (12,984 | ) | (12,986 | ) | (12,986 | ) | ||||||||||||||||||||
Exchange of common units of the Operating Partnership | 304,350 | 3 | 10,936 | 10,939 | (10,939 | ) | — | |||||||||||||||||||||||
Contributions from noncontrolling interests in consolidated property partnerships | — | 250 | 250 | |||||||||||||||||||||||||||
Distributions to noncontrolling interests in consolidated property partnerships | — | (12,234 | ) | (12,234 | ) | |||||||||||||||||||||||||
Adjustment for noncontrolling interest | (3,171 | ) | (3,171 | ) | 3,171 | — | ||||||||||||||||||||||||
Preferred dividends | (5,774 | ) | (5,774 | ) | (5,774 | ) | ||||||||||||||||||||||||
Dividends declared per common share and common unit ($1.225 per share/unit) | (123,390 | ) | (123,390 | ) | (2,545 | ) | (125,935 | ) | ||||||||||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2017 | $ | — | 98,382,256 | $ | 984 | $ | 3,797,546 | $ | (108,667 | ) | $ | 3,689,863 | $ | 206,017 | $ | 3,895,880 |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | 148,075 | $ | 268,380 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization of real estate assets and leasing costs | 181,875 | 157,587 | |||||
Depreciation of non-real estate furniture, fixtures and equipment | 3,862 | 2,865 | |||||
Increase in provision for bad debts | 2,743 | — | |||||
Non-cash amortization of share-based compensation awards | 13,617 | 15,263 | |||||
Non-cash amortization of deferred financing costs and debt discounts and premiums | 2,398 | 2,020 | |||||
Non-cash amortization of net below market rents | (6,026 | ) | (5,128 | ) | |||
Gains on sales of depreciable operating properties (Note 2) | (39,507 | ) | (164,302 | ) | |||
(Gain) loss on sale of land (Note 2) | (449 | ) | 295 | ||||
Non-cash amortization of deferred revenue related to tenant-funded tenant improvements | (12,394 | ) | (9,700 | ) | |||
Straight-line rents | (25,537 | ) | (22,856 | ) | |||
Net change in other operating assets | (16,970 | ) | (7,263 | ) | |||
Net change in other operating liabilities | 24,855 | 15,444 | |||||
Net cash provided by operating activities | 276,542 | 252,605 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Expenditures for development properties and undeveloped land | (270,839 | ) | (222,719 | ) | |||
Expenditures for operating properties and other capital assets | (61,875 | ) | (81,688 | ) | |||
Net proceeds received from dispositions (Note 2) | 182,492 | 325,031 | |||||
(Increase) decrease in acquisition-related deposits | (30,490 | ) | 1,902 | ||||
Expenditures for acquisition of operating properties | — | (55,415 | ) | ||||
Expenditures for acquisition of undeveloped land | — | (33,513 | ) | ||||
Increase in note receivable | — | (1,000 | ) | ||||
Net cash used in investing activities | (180,712 | ) | (67,402 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Net proceeds from issuance of common stock (Note 7) | 308,812 | — | |||||
Redemption of Series G and H Preferred stock (Note 7) | (200,000 | ) | — | ||||
Proceeds from the issuance of unsecured debt (Note 5) | 250,000 | — | |||||
Repayments of unsecured debt (Note 5) | (189,000 | ) | — | ||||
Borrowings on unsecured revolving credit facility | 70,000 | 305,000 | |||||
Repayments on unsecured revolving credit facility | (10,000 | ) | (305,000 | ) | |||
Principal payments on secured debt | (5,740 | ) | (7,254 | ) | |||
Financing costs | (7,480 | ) | (1,485 | ) | |||
Repurchase of common stock and restricted stock units | (12,986 | ) | (6,874 | ) | |||
Proceeds from exercise of stock options | 12,051 | 2,173 | |||||
Contributions from noncontrolling interests in consolidated property partnerships | 250 | 191,676 | |||||
Distributions to noncontrolling interests in consolidated property partnerships | (12,234 | ) | (1,139 | ) | |||
Dividends and distributions paid to common stockholders and common unitholders | (297,993 | ) | (101,542 | ) | |||
Dividends and distributions paid to preferred stockholders and preferred unitholders (Note 7) | (7,409 | ) | (9,938 | ) | |||
Net cash (used in) provided by financing activities | (101,729 | ) | 65,617 | ||||
Net (decrease) increase in cash and cash equivalents and restricted cash | (5,899 | ) | 250,820 | ||||
Cash and cash equivalents and restricted cash, beginning of period | 250,129 | 57,204 | |||||
Cash and cash equivalents and restricted cash, end of period | $ | 244,230 | $ | 308,024 |
September 30, 2017 | December 31, 2016 | ||||||
ASSETS | (unaudited) | ||||||
REAL ESTATE ASSETS: | |||||||
Land and improvements | $ | 1,076,172 | $ | 1,108,971 | |||
Buildings and improvements | 4,871,667 | 4,938,250 | |||||
Undeveloped land and construction in progress | 1,292,017 | 1,013,533 | |||||
Total real estate assets held for investment | 7,239,856 | 7,060,754 | |||||
Accumulated depreciation and amortization | (1,216,358 | ) | (1,139,853 | ) | |||
Total real estate assets held for investment, net | 6,023,498 | 5,920,901 | |||||
REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET | — | 9,417 | |||||
CASH AND CASH EQUIVALENTS | 64,954 | 193,418 | |||||
RESTRICTED CASH (Note 2) | 179,276 | 56,711 | |||||
MARKETABLE SECURITIES (Note 11) | 18,851 | 14,773 | |||||
CURRENT RECEIVABLES, NET (Note 3) | 18,626 | 13,460 | |||||
DEFERRED RENT RECEIVABLES, NET (Note 3) | 238,959 | 218,977 | |||||
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET | 185,420 | 208,368 | |||||
PREPAID EXPENSES AND OTHER ASSETS, NET (Note 4) | 108,715 | 70,608 | |||||
TOTAL ASSETS | $ | 6,838,299 | $ | 6,706,633 | |||
LIABILITIES AND CAPITAL | |||||||
LIABILITIES: | |||||||
Secured debt, net (Notes 5 and 11) | $ | 465,828 | $ | 472,772 | |||
Unsecured debt, net (Notes 5 and 11) | 1,909,381 | 1,847,351 | |||||
Unsecured line of credit (Notes 5 and 11) | 60,000 | — | |||||
Accounts payable, accrued expenses and other liabilities | 271,405 | 202,391 | |||||
Accrued distributions (Note 16) | 43,324 | 222,306 | |||||
Deferred revenue and acquisition-related intangible liabilities, net | 145,556 | 150,360 | |||||
Rents received in advance and tenant security deposits | 46,925 | 52,080 | |||||
Liabilities of real estate assets held for sale | — | 56 | |||||
Total liabilities | 2,942,419 | 2,947,316 | |||||
COMMITMENTS AND CONTINGENCIES (Note 10) | |||||||
CAPITAL: | |||||||
Partners’ Capital (Note 8): | |||||||
6.875% Series G Cumulative Redeemable Preferred units, no units issued and outstanding at 9/30/2017, 4,000,000 units issued and outstanding ($100,000 liquidation preference) at 12/31/2016 | — | 96,155 | |||||
6.375% Series H Cumulative Redeemable Preferred units, no units issued and outstanding at 9/30/2017, 4,000,000 units issued and outstanding ($100,000 liquidation preference) at 12/31/2016 | — | 96,256 | |||||
Common units, 98,382,256 and 93,219,439 held by the general partner and 2,077,193 and 2,381,543 held by common limited partners issued and outstanding, respectively | 3,763,078 | 3,431,768 | |||||
Total partners’ capital | 3,763,078 | 3,624,179 | |||||
Noncontrolling interests in consolidated property partnerships and subsidiaries (Note 1) | 132,802 | 135,138 | |||||
Total capital | 3,895,880 | 3,759,317 | |||||
TOTAL LIABILITIES AND CAPITAL | $ | 6,838,299 | $ | 6,706,633 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
REVENUES | |||||||||||||||
Rental income | $ | 159,954 | $ | 146,539 | $ | 475,527 | $ | 423,947 | |||||||
Tenant reimbursements | 19,665 | 16,406 | 58,228 | 43,948 | |||||||||||
Other property income | 1,915 | 5,403 | 7,685 | 6,032 | |||||||||||
Total revenues | 181,534 | 168,348 | 541,440 | 473,927 | |||||||||||
EXPENSES | |||||||||||||||
Property expenses | 33,070 | 30,050 | 97,615 | 85,236 | |||||||||||
Real estate taxes | 16,371 | 14,501 | 50,878 | 39,378 | |||||||||||
Provision for bad debts | 1,036 | — | 2,743 | — | |||||||||||
Ground leases | 1,562 | 909 | 4,751 | 2,506 | |||||||||||
General and administrative expenses | 14,514 | 13,533 | 43,750 | 40,949 | |||||||||||
Acquisition-related expenses (Note 1) | — | 188 | — | 964 | |||||||||||
Depreciation and amortization | 62,567 | 56,666 | 185,737 | 160,452 | |||||||||||
Total expenses | 129,120 | 115,847 | 385,474 | 329,485 | |||||||||||
OTHER (EXPENSES) INCOME | |||||||||||||||
Interest income and other net investment gains (Note 11) | 1,526 | 538 | 3,629 | 1,120 | |||||||||||
Interest expense (Note 5) | (16,151 | ) | (14,976 | ) | (51,476 | ) | (41,189 | ) | |||||||
Total other (expenses) income | (14,625 | ) | (14,438 | ) | (47,847 | ) | (40,069 | ) | |||||||
INCOME FROM OPERATIONS BEFORE GAINS (LOSS) ON SALES OF REAL ESTATE | 37,789 | 38,063 | 108,119 | 104,373 | |||||||||||
Net gain (loss) on sale of land (Note 2) | 449 | — | 449 | (295 | ) | ||||||||||
Gains on sales of depreciable operating properties (Note 2) | 37,250 | 18,312 | 39,507 | 164,302 | |||||||||||
NET INCOME | 75,488 | 56,375 | 148,075 | 268,380 | |||||||||||
Net income attributable to noncontrolling interests in consolidated property partnerships and subsidiaries | (3,086 | ) | (1,121 | ) | (9,648 | ) | (1,703 | ) | |||||||
NET INCOME ATTRIBUTABLE TO KILROY REALTY, L.P. | 72,402 | 55,254 | 138,427 | 266,677 | |||||||||||
Preferred distributions | (808 | ) | (3,313 | ) | (5,774 | ) | (9,938 | ) | |||||||
Original issuance costs of redeemed preferred units (Note 8) | (3,744 | ) | — | (7,589 | ) | — | |||||||||
Total preferred distributions | (4,552 | ) | (3,313 | ) | (13,363 | ) | (9,938 | ) | |||||||
NET INCOME AVAILABLE TO COMMON UNITHOLDERS | $ | 67,850 | $ | 51,941 | $ | 125,064 | $ | 256,739 | |||||||
Net income available to common unitholders per unit – basic (Note 13) | $ | 0.67 | $ | 0.54 | $ | 1.23 | $ | 2.70 | |||||||
Net income available to common unitholders per unit – diluted (Note 13) | $ | 0.67 | $ | 0.54 | $ | 1.23 | $ | 2.68 | |||||||
Weighted average common units outstanding – basic (Note 13) | 100,429,332 | 94,858,292 | 100,160,595 | 94,630,183 | |||||||||||
Weighted average common units outstanding – diluted (Note 13) | 100,988,805 | 95,551,682 | 100,742,863 | 95,241,199 | |||||||||||
Dividends declared per common unit | $ | 0.425 | $ | 0.375 | $ | 1.225 | $ | 1.100 |
Partners’ Capital | Total Partners’ Capital | Noncontrolling Interests in Consolidated Property Partnerships and Subsidiaries | ||||||||||||||||||||
Preferred Units | Number of Common Units | Common Units | Total Capital | |||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2015 | $ | 192,411 | 94,023,465 | $ | 3,031,609 | $ | 3,224,020 | $ | 10,566 | $ | 3,234,586 | |||||||||||
Net income | 266,677 | 266,677 | 1,703 | 268,380 | ||||||||||||||||||
Issuance of common units in connection with acquisition | 867,701 | 48,033 | 48,033 | 48,033 | ||||||||||||||||||
Issuance of share-based compensation awards | 1,339 | 1,339 | 1,339 | |||||||||||||||||||
Non-cash amortization of share-based compensation | 19,303 | 19,303 | 19,303 | |||||||||||||||||||
Exercise of stock options | 51,000 | 2,173 | 2,173 | 2,173 | ||||||||||||||||||
Repurchase of common units, stock options and restricted stock units | (110,528 | ) | (6,874 | ) | (6,874 | ) | (6,874 | ) | ||||||||||||||
Settlement of restricted stock units | 72,130 | — | — | — | ||||||||||||||||||
Initial contribution from noncontrolling interest in consolidated property partnership, net of transaction costs | 113,022 | 113,022 | 78,654 | 191,676 | ||||||||||||||||||
Distributions to noncontrolling interests in consolidated property partnerships | (1,139 | ) | (1,139 | ) | ||||||||||||||||||
Preferred distributions | (9,938 | ) | (9,938 | ) | (9,938 | ) | ||||||||||||||||
Distributions declared per common unit ($1.10 per unit) | (105,637 | ) | (105,637 | ) | (105,637 | ) | ||||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2016 | $ | 192,411 | 94,903,768 | $ | 3,359,707 | $ | 3,552,118 | $ | 89,784 | $ | 3,641,902 | |||||||||||
Partners’ Capital | Total Partners’ Capital | Noncontrolling Interests in Consolidated Property Partnerships and Subsidiaries | ||||||||||||||||||||
Preferred Units | Number of Common Units | Common Units | Total Capital | |||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2016 | $ | 192,411 | 95,600,982 | $ | 3,431,768 | $ | 3,624,179 | $ | 135,138 | $ | 3,759,317 | |||||||||||
Net income | 138,427 | 138,427 | 9,648 | 148,075 | ||||||||||||||||||
Redemption of Series G and H Preferred units (Note 8) | (192,411 | ) | (7,589 | ) | (200,000 | ) | (200,000 | ) | ||||||||||||||
Issuance of common units (Note 8) | 4,427,500 | 308,812 | 308,812 | 308,812 | ||||||||||||||||||
Issuance of share-based compensation awards | 5,291 | 5,291 | 5,291 | |||||||||||||||||||
Non-cash amortization of share-based compensation | 19,013 | 19,013 | 19,013 | |||||||||||||||||||
Exercise of stock options (Note 9) | 282,000 | 12,051 | 12,051 | 12,051 | ||||||||||||||||||
Settlement of restricted stock units | 317,848 | — | — | — | ||||||||||||||||||
Repurchase of common units, stock options and restricted stock units | (168,881 | ) | (12,986 | ) | (12,986 | ) | (12,986 | ) | ||||||||||||||
Contributions from noncontrolling interests in consolidated property partnerships | 250 | 250 | ||||||||||||||||||||
Distributions to noncontrolling interests in consolidated property partnerships | (12,234 | ) | (12,234 | ) | ||||||||||||||||||
Preferred distributions | (5,774 | ) | (5,774 | ) | (5,774 | ) | ||||||||||||||||
Distributions declared per common unit ($1.225 per unit) | (125,935 | ) | (125,935 | ) | (125,935 | ) | ||||||||||||||||
BALANCE AS OF SEPTEMBER 30, 2017 | $ | — | 100,459,449 | $ | 3,763,078 | $ | 3,763,078 | $ | 132,802 | $ | 3,895,880 |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | 148,075 | $ | 268,380 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization of real estate assets and leasing costs | 181,875 | 157,587 | |||||
Depreciation of non-real estate furniture, fixtures and equipment | 3,862 | 2,865 | |||||
Increase in provision for bad debts | 2,743 | — | |||||
Non-cash amortization of share-based compensation awards | 13,617 | 15,263 | |||||
Non-cash amortization of deferred financing costs and debt discounts and premiums | 2,398 | 2,020 | |||||
Non-cash amortization of net below market rents | (6,026 | ) | (5,128 | ) | |||
Gains on sales of depreciable operating properties (Note 2) | (39,507 | ) | (164,302 | ) | |||
(Gain) loss on sale of land (Note 2) | (449 | ) | 295 | ||||
Non-cash amortization of deferred revenue related to tenant-funded tenant improvements | (12,394 | ) | (9,700 | ) | |||
Straight-line rents | (25,537 | ) | (22,856 | ) | |||
Net change in other operating assets | (16,970 | ) | (7,263 | ) | |||
Net change in other operating liabilities | 24,855 | 15,444 | |||||
Net cash provided by operating activities | 276,542 | 252,605 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Expenditures for development properties and undeveloped land | (270,839 | ) | (222,719 | ) | |||
Expenditures for operating properties and other capital assets | (61,875 | ) | (81,688 | ) | |||
Net proceeds received from dispositions (Note 2) | 182,492 | 325,031 | |||||
(Increase) decrease in acquisition-related deposits | (30,490 | ) | 1,902 | ||||
Expenditures for acquisition of operating properties | — | (55,415 | ) | ||||
Expenditures for acquisition of undeveloped land | — | (33,513 | ) | ||||
Increase in note receivable | — | (1,000 | ) | ||||
Net cash used in investing activities | (180,712 | ) | (67,402 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Net proceeds from issuance of common units (Note 8) | 308,812 | — | |||||
Redemption of Series G and H Preferred units (Note 8) | (200,000 | ) | — | ||||
Proceeds from the issuance of unsecured debt (Note 5) | 250,000 | — | |||||
Repayments of unsecured debt (Note 5) | (189,000 | ) | — | ||||
Borrowings on unsecured revolving credit facility | 70,000 | 305,000 | |||||
Repayments on unsecured revolving credit facility | (10,000 | ) | (305,000 | ) | |||
Principal payments on secured debt | (5,740 | ) | (7,254 | ) | |||
Financing costs | (7,480 | ) | (1,485 | ) | |||
Repurchase of common units and restricted stock units | (12,986 | ) | (6,874 | ) | |||
Proceeds from exercise of stock options | 12,051 | 2,173 | |||||
Contributions from noncontrolling interests in consolidated property partnerships | 250 | 191,676 | |||||
Distributions to noncontrolling interests in consolidated property partnerships | (12,234 | ) | (1,139 | ) | |||
Distributions paid to common unitholders | (297,993 | ) | (101,542 | ) | |||
Distributions paid to preferred unitholders (Note 8) | (7,409 | ) | (9,938 | ) | |||
Net cash (used in) provided by financing activities | (101,729 | ) | 65,617 | ||||
Net (decrease) increase in cash and cash equivalents and restricted cash | (5,899 | ) | 250,820 | ||||
Cash and cash equivalents and restricted cash, beginning of period | 250,129 | 57,204 | |||||
Cash and cash equivalents and restricted cash, end of period | $ | 244,230 | $ | 308,024 |
Number of Buildings | Rentable Square Feet (unaudited) | Number of Tenants | Percentage Occupied (unaudited) | Percentage Leased (unaudited) | ||||||||||
Stabilized Office Properties | 101 | 13,720,598 | 515 | 94.0 | % | 96.2 | % |
Number of Buildings | Number of Units | Percentage Occupied (unaudited) | Percentage Leased (unaudited) | ||||||||
Stabilized Residential Property | 1 | 200 | 72.0 | % | 74.5 | % |
Number of Properties/Projects | Estimated Rentable Square Feet (1) | |||
Development projects under construction (2) | 4 | 1,800,000 |
(1) | Estimated rentable square feet upon completion. |
(2) | Development projects under construction also include 96,000 square feet of retail space and 237 residential units in addition to the estimated office rentable square feet noted above. |
Location | Property Type | Month of Disposition | Number of Buildings | Rentable Square Feet | Sales Price (1) (in millions) | ||||||||
5717 Pacific Center Boulevard, San Diego, CA (2) | Office | January | 1 | 67,995 | $ | 12.1 | |||||||
Sorrento Mesa and Mission Valley Properties (3) | Office | September | 10 | 675,143 | 174.5 | ||||||||
Total Dispositions | 11 | 743,138 | $ | 186.6 | |||||||||
(1) | Represents gross sales price before the impact of broker commissions and closing costs. |
(2) | This property was classified as held for sale at December 31, 2016. |
(3) | The Sorrento Mesa and Mission Valley Properties includes the following properties: 10390, 10394, 10398, 10421, 10445 and 10455 Pacific Center Court, 2355, 2365, 2375 and 2385 Northside Drive and Pacific Corporate Center - Lot 8, a 5.0 acre undeveloped land parcel. |
September 30, 2017 | December 31, 2016 | ||||||
(in thousands) | |||||||
Current receivables | $ | 20,746 | $ | 15,172 | |||
Allowance for uncollectible tenant receivables | (2,120 | ) | (1,712 | ) | |||
Current receivables, net | $ | 18,626 | $ | 13,460 |
September 30, 2017 | December 31, 2016 | ||||||
(in thousands) | |||||||
Deferred rent receivables | $ | 241,929 | $ | 220,501 | |||
Allowance for deferred rent receivables | (2,970 | ) | (1,524 | ) | |||
Deferred rent receivables, net | $ | 238,959 | $ | 218,977 |
September 30, 2017 | December 31, 2016 | ||||||
(in thousands) | |||||||
Furniture, fixtures and other long-lived assets, net | $ | 39,889 | $ | 40,395 | |||
Notes receivable (1) | 19,838 | 19,439 | |||||
Prepaid expenses & acquisition deposits | 48,988 | 10,774 | |||||
Total prepaid expenses and other assets, net | $ | 108,715 | $ | 70,608 |
(1) | Approximately $15.1 million of our notes receivable are secured by real estate. |
September 30, 2017 | December 31, 2016 | ||||||
(in thousands) | |||||||
Outstanding borrowings | $ | 60,000 | $ | — | |||
Remaining borrowing capacity | 690,000 | 600,000 | |||||
Total borrowing capacity (1) | $ | 750,000 | $ | 600,000 | |||
Interest rate (2) | 2.24 | % | 1.82 | % | |||
Facility fee-annual rate (3) | 0.200% | ||||||
Maturity date | July 2022 | July 2019 |
(1) | We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $600.0 million under an accordion feature under the terms of the unsecured revolving credit facility and unsecured term loan facility. |
(2) | Our unsecured revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.000% and LIBOR plus 1.050% as of September 30, 2017 and December 31, 2016, respectively. |
(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 September 30, 2017 and December 31, 2016, $6.3 million and $3.3 million of unamortized deferred financing costs, respectively, remained to be amortized through the maturity date of our unsecured revolving credit facility, which are included in prepaid expenses and other assets, net on our consolidated balance sheets. |
September 30, 2017 | December 31, 2016 | ||||||
(in thousands) | |||||||
Outstanding borrowings (1) | $ | — | $ | 150,000 | |||
Remaining borrowing capacity | 150,000 | — | |||||
Total borrowing capacity (2) | $ | 150,000 | $ | 150,000 | |||
Interest rate (3) | 2.33 | % | 1.85 | % | |||
Undrawn facility fee-annual rate (4) | 0.200 | % | — | % | |||
Maturity date | July 2022 | July 2019 |
(1) | In July 2017, the unsecured term loan facility was paid down and the Facility was amended to include two, six-month delayed draw options on the unsecured term loan facility. The Company may draw on the unsecured term loan facility through July 2018, at which time the outstanding balance will become the balance of the unsecured term loan facility and no additional draws may be made. However, if the Company does not draw at least $75.0 million by the end of first option term in January 2018, the total borrowing capacity under the Facility will be reduced by 50% of the unutilized borrowing capacity at that time. The Company intends to draw $75.0 million prior to the end of the first option term in January 2018. |
(2) | As of September 30, 2017 and December 31, 2016, $1.2 million and $0.7 million of unamortized deferred financing costs, respectively, remained to be amortized through the maturity date of our unsecured term loan facility. |
(3) | Our unsecured term loan facility interest rate was calculated based on an annual rate of LIBOR plus 1.100% and LIBOR plus 1.150% as of September 30, 2017 and December 31, 2016, respectively. |
(4) | In July 2017, the Facility was amended to include a facility fee on the remaining borrowing capacity of the unsecured term loan facility, which is paid on a monthly basis. |
Year | (in thousands) | ||
Remaining 2017 | $ | 1,545 | |
2018 | 451,669 | ||
2019 | 76,309 | ||
2020 | 255,137 | ||
2021 | 5,342 | ||
Thereafter | 1,659,023 | ||
Total (1) | $ | 2,449,025 |
(1) | Includes gross principal balance of outstanding debt before the effect of the following at September 30, 2017: $10.9 million of unamortized deferred financing costs, $6.0 million of unamortized discounts for the unsecured senior notes and $3.0 million of unamortized premiums for the secured debt. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(in thousands) | |||||||||||||||
Gross interest expense | $ | 28,331 | $ | 26,184 | $ | 84,577 | $ | 79,027 | |||||||
Capitalized interest and deferred financing costs | (12,180 | ) | (11,208 | ) | (33,101 | ) | (37,838 | ) | |||||||
Interest expense | $ | 16,151 | $ | 14,976 | $ | 51,476 | $ | 41,189 |
September 30, 2017 | December 31, 2016 | September 30, 2016 | ||||||
Company owned common units in the Operating Partnership | 98,382,256 | 93,219,439 | 92,272,492 | |||||
Company owned general partnership interest | 97.9 | % | 97.5 | % | 97.2 | % | ||
Noncontrolling common units of the Operating Partnership | 2,077,193 | 2,381,543 | 2,631,276 | |||||
Ownership interest of noncontrolling interest | 2.1 | % | 2.5 | % | 2.8 | % |
Fair Value Assumptions | |
Fair value per share at February 24, 2017 | $80.89 |
Expected share price volatility | 21.00% |
Risk-free interest rate | 1.39% |
Remaining expected life | 2.8 years |
Fair Value (Level 1) (1) | |||||||
September 30, 2017 | December 31, 2016 | ||||||
Description | (in thousands) | ||||||
Marketable securities (2) | $ | 18,851 | $ | 14,773 |
(1) | Based on quoted prices in active markets for identical securities. |
(2) | The marketable securities are held in a limited rabbi trust. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Description | (in thousands) | (in thousands) | |||||||||||||
Net gain on marketable securities | $ | 536 | $ | 481 | $ | 1,719 | $ | 867 |
September 30, 2017 | December 31, 2016 | ||||||||||||||
Carrying Value | Fair Value (1) | Carrying Value | Fair Value (1) | ||||||||||||
(in thousands) | |||||||||||||||
Liabilities | |||||||||||||||
Secured debt, net | $ | 465,828 | $ | 467,968 | $ | 472,772 | $ | 469,234 | |||||||
Unsecured debt, net | 1,909,381 | 1,983,737 | 1,847,351 | 1,900,487 | |||||||||||
Unsecured line of credit | 60,000 | 60,087 | — | — |
(1) | Fair value calculated using Level II inputs, which are based on model-derived valuations in which significant inputs and significant value drivers are observable in active markets. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(in thousands, except share and per share amounts) | |||||||||||||||
Numerator: | |||||||||||||||
Net income attributable to Kilroy Realty Corporation | $ | 71,110 | $ | 53,895 | $ | 136,083 | $ | 261,050 | |||||||
Total preferred dividends | (4,552 | ) | (3,313 | ) | (13,363 | ) | (9,938 | ) | |||||||
Allocation to participating securities (1) | (501 | ) | (426 | ) | (1,460 | ) | (1,244 | ) | |||||||
Numerator for basic and diluted net income available to common stockholders | $ | 66,057 | $ | 50,156 | $ | 121,260 | $ | 249,868 | |||||||
Denominator: | |||||||||||||||
Basic weighted average vested shares outstanding | 98,352,139 | 92,227,016 | 98,008,780 | 92,220,522 | |||||||||||
Effect of dilutive securities | 559,473 | 693,390 | 582,268 | 611,016 | |||||||||||
Diluted weighted average vested shares and common share equivalents outstanding | 98,911,612 | 92,920,406 | 98,591,048 | 92,831,538 | |||||||||||
Basic earnings per share: | |||||||||||||||
Net income available to common stockholders per share | $ | 0.67 | $ | 0.54 | $ | 1.24 | $ | 2.71 | |||||||
Diluted earnings per share: | |||||||||||||||
Net income available to common stockholders per share | $ | 0.67 | $ | 0.54 | $ | 1.23 | $ | 2.69 |
(1) | Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(in thousands, except unit and per unit amounts) | |||||||||||||||
Numerator: | |||||||||||||||
Net income attributable to Kilroy Realty, L.P. | $ | 72,402 | $ | 55,254 | $ | 138,427 | $ | 266,677 | |||||||
Total preferred distributions | (4,552 | ) | (3,313 | ) | (13,363 | ) | (9,938 | ) | |||||||
Allocation to participating securities (1) | (501 | ) | (426 | ) | (1,460 | ) | (1,244 | ) | |||||||
Numerator for basic and diluted net income available to common unitholders | $ | 67,349 | $ | 51,515 | $ | 123,604 | $ | 255,495 | |||||||
Denominator: | |||||||||||||||
Basic weighted average vested units outstanding | 100,429,332 | 94,858,292 | 100,160,595 | 94,630,183 | |||||||||||
Effect of dilutive securities | 559,473 | 693,390 | 582,268 | 611,016 | |||||||||||
Diluted weighted average vested units and common unit equivalents outstanding | 100,988,805 | 95,551,682 | 100,742,863 | 95,241,199 | |||||||||||
Basic earnings per unit: | |||||||||||||||
Net income available to common unitholders per unit | $ | 0.67 | $ | 0.54 | $ | 1.23 | $ | 2.70 | |||||||
Diluted earnings per unit: | |||||||||||||||
Net income available to common unitholders per unit | $ | 0.67 | $ | 0.54 | $ | 1.23 | $ | 2.68 |
(1) | Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs. |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
SUPPLEMENTAL CASH FLOWS INFORMATION: | |||||||
Cash paid for interest, net of capitalized interest of $31,880 and $36,468 as of September 30, 2017 and 2016, respectively | $ | 46,878 | $ | 42,858 | |||
NON-CASH INVESTING TRANSACTIONS: | |||||||
Accrual for expenditures for operating properties and development properties | $ | 104,409 | $ | 77,161 | |||
Tenant improvements funded directly by tenants | $ | 10,361 | $ | 16,803 | |||
Assumption of accrued liabilities in connection with acquisitions | $ | — | $ | 4,911 | |||
NON-CASH FINANCING TRANSACTIONS: | |||||||
Accrual of dividends and distributions payable to common stockholders and common unitholders | $ | 43,324 | $ | 36,109 | |||
Accrual of dividends and distributions payable to preferred stockholders and preferred unitholders | $ | — | $ | 1,656 | |||
Exchange of common units of the Operating Partnership into shares of the Company’s common stock | $ | 10,939 | $ | 39 | |||
Issuance of common units of the Operating Partnership in connection with an acquisition | $ | — | $ | 48,033 | |||
Secured debt assumed by buyers in connection with land dispositions | $ | — | $ | 2,322 |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: | |||||||
Cash and cash equivalents at beginning of period | $ | 193,418 | $ | 56,508 | |||
Restricted cash at beginning of period | 56,711 | 696 | |||||
Cash and cash equivalents and restricted cash at beginning of period | $ | 250,129 | $ | 57,204 | |||
Cash and cash equivalents at end of period | $ | 64,954 | $ | 250,523 | |||
Restricted cash at end of period | 179,276 | 57,501 | |||||
Cash and cash equivalents and restricted cash at end of period | $ | 244,230 | $ | 308,024 |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
SUPPLEMENTAL CASH FLOWS INFORMATION: | |||||||
Cash paid for interest, net of capitalized interest of $31,880 and $36,468 as of September 30, 2017 and 2016, respectively | $ | 46,878 | $ | 42,858 | |||
NON-CASH INVESTING TRANSACTIONS: | |||||||
Accrual for expenditures for operating properties and development properties | $ | 104,409 | $ | 77,161 | |||
Tenant improvements funded directly by tenants | $ | 10,361 | $ | 16,803 | |||
Assumption of accrued liabilities in connection with acquisitions | $ | — | $ | 4,911 | |||
NON-CASH FINANCING TRANSACTIONS: | |||||||
Accrual of distributions payable to common unitholders | $ | 43,324 | $ | 36,109 | |||
Accrual of distributions payable to preferred unitholders | $ | — | $ | 1,656 | |||
Issuance of common units of the Operating Partnership in connection with an acquisition | $ | — | $ | 48,033 | |||
Secured debt assumed by buyers in connection with land dispositions | $ | — | $ | 2,322 |
Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: | |||||||
Cash and cash equivalents at beginning of period | $ | 193,418 | $ | 56,508 | |||
Restricted cash at beginning of period | 56,711 | 696 | |||||
Cash and cash equivalents and restricted cash at beginning of period | $ | 250,129 | $ | 57,204 | |||
Cash and cash equivalents at end of period | $ | 64,954 | $ | 250,523 | |||
Restricted cash at end of period | 179,276 | 57,501 | |||||
Cash and cash equivalents and restricted cash at end of period | $ | 244,230 | $ | 308,024 |
• | Columbia Square Phase 2 - Office, located in the heart of Hollywood, California, two blocks from the corner of Sunset Boulevard and Vine Street. This project is comprised of three buildings totaling approximately 365,359 rentable square feet with a total estimated investment of approximately $230.0 million. The project was added to the stabilized portfolio during the first quarter of 2017 and was 88% occupied as of September 30, 2017. The project is currently 100% leased. |
• | The Exchange on 16th, Mission Bay, San Francisco, California, which we acquired in May 2014 and commenced construction on in June 2015. This project is currently anticipated to encompass approximately 750,000 gross rentable square feet consisting of 736,000 square feet of office space and 14,000 square feet of retail space at a total estimated investment of $570.0 million. Construction is currently in progress and the building and core shell are currently estimated to be completed in the first half of 2018. The office space in the project is 100% leased to Dropbox, Inc. The lease with Dropbox, Inc. will commence in phases beginning in the fourth quarter of 2018 through the fourth quarter of 2019. |
• | 333 Dexter, South Lake Union, Washington, which we acquired in February 2015 and commenced construction on in June 2017. This project encompasses approximately 650,000 gross rentable square feet of office space at a total estimated investment of $380.0 million. Construction is currently in progress and the building core and shell are currently estimated to be completed in the second half of 2019. |
• | 100 Hooper, San Francisco, California, which we acquired in July 2015 and commenced construction on in November 2016. This project will encompass approximately 314,000 square feet of office and approximately 86,000 square feet of production, distribution and repair (“PDR”) space configured in two, four-story buildings. The total estimated cost for this project is approximately $270.0 million. Construction is currently in process and the core and shell of the project |
• | One Paseo - Phase I (Retail and Residential), San Diego, California, which we acquired in November 2007 and commenced construction on in December 2016. Phase I of this mixed-use project includes site work and related infrastructure for the entire project, as well as 237 residential units and approximately 96,000 square feet of retail space. The total estimated investment for this project is approximately $225.0 million. Construction is currently in process and is currently expected to be completed in phases beginning in the third quarter of 2018. |
Near-Term Development Pipeline (1) | Location | Potential Start Date (2) | Approx. Developable Square Feet | Total Estimated Investment ($ in millions) | Total Costs as of 9/30/2017 (3) ($ in millions) | |||||||||
Academy Project | Hollywood | 2018 | 545,000 | $ | 425 | $ | 83.8 | |||||||
One Paseo - Phases II and III | Del Mar | TBD | 640,000 | 440 | 161.6 | |||||||||
Total Near-Term Development Pipeline | 1,185,000 | $ | 865 | $ | 245.4 |
(1) | Project timing, costs, developable square feet and scope could change materially from estimated data provided due to one or more of the following: any significant changes in the economy, market conditions, our markets, tenant requirements and demands, construction costs, new office supply, regulatory and entitlement processes, and project design. |
(2) | Actual commencement is subject to extensive consideration of market conditions and economic factors. |
(3) | Represents cash paid and costs incurred as of September 30, 2017. |
1st & 2nd Generation (2) | 2nd Generation (2) | ||||||||||||||||||||||||||
Number of Leases (3) | Rentable Square Feet (3) | TI/LC per Sq. Ft. (4) | Changes in Rents (5)(6) | Changes in Cash Rents (7) | Retention Rates (8) | Weighted Average Lease Term (in months) | |||||||||||||||||||||
New | Renewal | New | Renewal | ||||||||||||||||||||||||
Three Months Ended September 30, 2017 | 20 | 11 | 221,614 | 56,566 | $ | 58.76 | 51.5 | % | 31.5 | % | 19.7 | % | 80 | ||||||||||||||
Nine Months Ended September 30, 2017 | 57 | 47 | 521,079 | 685,522 | $ | 47.08 | 33.0 | % | 17.7 | % | 48.2 | % | 73 |
1st & 2nd Generation (2) | 2nd Generation (2) | |||||||||||||||||||||||
Number of Leases (3) | Rentable Square Feet (3) | TI/LC per Sq. Ft. (4) | Changes in Rents (5)(6) | Changes in Cash Rents (7) | Weighted Average Lease Term (in months) | |||||||||||||||||||
New | Renewal | New | Renewal | |||||||||||||||||||||
Three Months Ended September 30, 2017 (9)(10) | 22 | 11 | 152,547 | 56,566 | $ | 44.66 | 9.5 | % | 0.8 | % | 65 | |||||||||||||
Nine Months Ended September 30, 2017 (10) | 70 | 47 | 656,590 | 685,522 | $ | 48.89 | 27.9 | % | 12.8 | % | 70 |
(1) | Includes 100% of consolidated property partnerships. |
(2) | First generation leasing includes space where we have made capital expenditures that result in additional revenue generated when the space is re-leased. Second generation leasing includes space where we have made capital expenditures to maintain the current market revenue stream. |
(3) | Represents leasing activity for leases that commenced or were signed during the period, including first and second generation space, net of month-to-month leases. Excludes leasing on new construction. |
(4) | Tenant improvements and leasing commissions per square foot exclude tenant-funded tenant improvements. |
(5) | Calculated as the change between GAAP rents for new/renewed leases and the expiring GAAP rents for the same space. Excludes leases for which the space was vacant longer than one year or vacant when the property was acquired. |
(6) | Excludes commenced and executed leases of approximately 38,652 and 88,403 square feet, respectively, for the three months ended September 30, 2017, and 162,357 and 173,270 rentable square feet, respectively, for the nine months ended September 30, 2017, for which the space was vacant longer than one year or being leased for the first time. Space vacant for more than one year is excluded from our change in rents calculations to provide a meaningful market comparison. |
(7) | Calculated as the change between stated rents for new/renewed leases and the expiring stated rents for the same space. Excludes leases for which the space was vacant longer than one year or vacant when the property was acquired. |
(8) | Calculated as the percentage of space either renewed or expanded into by existing tenants or subtenants at lease expiration. |
(9) | Excluding two leases executed in our Orange County region for 32,097 rentable square feet, cash rents increased 9.7%. |
(10) | For the three months ended September 30, 2017, 18 leases totaling 133,789 rentable square feet were signed but not commenced as of September 30, 2017. For the nine months ended September 30, 2017, 35 leases totaling 448,854 rentable square feet were signed but not commenced as of September 30, 2017. |
Year of Lease Expiration | Number of Expiring Leases | Total Square Feet | % of Total Leased Sq. Ft. | Annualized Base Rent (2) | % of Total Annualized Base Rent (2) | Annualized Base Rent per Sq. Ft. (2) | ||||||||||||||
(in thousands) | ||||||||||||||||||||
Remainder of 2017 | 30 | 360,619 | 2.8 | % | $ | 12,956 | 2.3 | % | $ | 35.93 | ||||||||||
2018 | 80 | 1,235,826 | 9.7 | % | 51,982 | 9.3 | % | 42.06 | ||||||||||||
2019 | 99 | 1,547,021 | 12.2 | % | 56,605 | 10.1 | % | 36.59 | ||||||||||||
2020 | 107 | 1,739,675 | 13.7 | % | 68,376 | 12.3 | % | 39.30 | ||||||||||||
2021 | 86 | 994,240 | 7.8 | % | 44,151 | 7.9 | % | 44.41 | ||||||||||||
2022 | 56 | 572,999 | 4.5 | % | 23,523 | 4.2 | % | 41.05 | ||||||||||||
Total | 458 | 6,450,380 | 50.7 | % | $ | 257,593 | 46.1 | % | $ | 39.93 |
(1) | For leases that have been renewed early with existing tenants, the expiration date and annualized base rent information presented takes into consideration the renewed lease terms. Excludes leases not commenced as of September 30, 2017, space leased under month-to-month leases, storage leases, vacant space and future lease renewal options not executed as of September 30, 2017. |
(2) | Annualized base rent includes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization of deferred revenue related tenant-funded tenant improvements, amortization of above/below market rents, amortization for lease incentives due under existing leases and expense reimbursement revenue. Additionally, the underlying leases contain various expense structures including full service gross, modified gross and triple net. Percentages represent percentage of total portfolio annualized contractual base rental revenue. For additional information on tenant improvement and leasing commission costs incurred by the Company for the current reporting period, please see further discussion under the caption “Information on Leases Commenced and Executed.” |
Number of Properties/Projects | Estimated Rentable Square Feet (1) | |||
Development projects under construction (2) | 4 | 1,800,000 |
(1) | Estimated rentable square feet upon completion. |
(2) | Development projects under construction also include 96,000 square feet of retail space and 237 residential units in addition to the estimated office rentable square feet noted above. |
Number of Buildings | Rentable Square Feet | ||||
Total as of September 30, 2016 | 101 | 13,605,597 | |||
Acquisitions | 6 | 344,284 | |||
Completed development properties placed in-service | 4 | 438,391 | |||
Dispositions | (10 | ) | (675,143 | ) | |
Remeasurement | — | 7,469 | |||
Total as of September 30, 2017 (1) | 101 | 13,720,598 |
(1) | Includes four properties owned by consolidated property partnerships. |
Region | Number of Buildings | Rentable Square Feet | Occupancy at (1) | ||||||||||||
9/30/2017 | 6/30/2017 | 12/31/2016 | |||||||||||||
Los Angeles and Ventura Counties | 36 | 4,181,735 | 91.0 | % | 91.2 | % | 95.0 | % | |||||||
Orange County | 1 | 271,556 | 94.4 | % | 94.7 | % | 97.8 | % | |||||||
San Diego | 21 | 2,043,645 | 93.9 | % | 93.5 | % | 93.2 | % | |||||||
San Francisco Bay Area | 31 | 5,157,524 | 95.9 | % | 95.1 | % | 97.6 | % | |||||||
Greater Seattle | 12 | 2,066,138 | 95.2 | % | 97.0 | % | 97.2 | % | |||||||
Total Stabilized Portfolio | 101 | 13,720,598 | 94.0 | % | 93.9 | % | 96.0 | % |
- | Average Occupancy | ||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||
Stabilized Portfolio(1) | 93.9 | % | 96.1 | % | 94.1 | % | 95.3 | % | |||
Same Store Portfolio(2) | 94.3 | % | 96.7 | % | 94.9 | % | 96.4 | % |
(1) | Occupancy percentages reported are based on our stabilized office portfolio as of the end of the period presented and exclude occupancy percentages of properties held for sale. |
(2) | Occupancy percentages reported are based on office properties owned and stabilized as of January 1, 2016 and still owned and stabilized as of September 30, 2017. See discussion under “Results of Operations” for additional information. |
Tenant Name | Annualized Base Rental Revenue (1) ($ in thousands) | Rentable Square Feet | Percentage of Total Annualized Base Rental Revenue | Percentage of Total Rentable Square Feet | ||||||||||
LinkedIn Corporation | $ | 28,344 | 663,239 | 5.1 | % | 4.8 | % | |||||||
salesforce.com, inc. | 23,836 | 456,867 | 4.3 | % | 3.3 | % | ||||||||
DIRECTV, LLC | 23,152 | 684,411 | 4.2 | % | 5.0 | % | ||||||||
Box, Inc. | 22,441 | 371,792 | 4.0 | % | 2.7 | % | ||||||||
Dropbox, Inc. | 21,572 | 256,484 | 3.9 | % | 1.9 | % | ||||||||
Synopsys, Inc. | 15,492 | 340,913 | 2.8 | % | 2.5 | % | ||||||||
Bridgepoint Education, Inc. | 14,064 | 296,708 | 2.5 | % | 2.2 | % | ||||||||
Viacom International, Inc. | 13,718 | 211,343 | 2.5 | % | 1.5 | % | ||||||||
Delta Dental of California | 10,313 | 188,143 | 1.9 | % | 1.4 | % | ||||||||
Capital One, N.A. | 9,170 | 117,993 | 1.6 | % | 0.9 | % | ||||||||
AMN Healthcare, Inc. | 9,001 | 176,075 | 1.6 | % | 1.3 | % | ||||||||
Concur Technologies | 8,852 | 243,429 | 1.6 | % | 1.8 | % | ||||||||
Biotech/Healthcare Industry Tenant | 8,461 | 128,688 | 1.5 | % | 0.9 | % | ||||||||
Riot Games, Inc. | 7,355 | 131,537 | 1.3 | % | 1.0 | % | ||||||||
Neurocrine Biosciences, Inc. | 6,883 | 140,591 | 1.2 | % | 1.0 | % | ||||||||
Total Top Fifteen Tenants | $ | 222,654 | 4,408,213 | 40.0 | % | 32.2 | % |
(1) | Includes 100% of annualized base rental revenues of consolidated property partnerships. |
• | Same Store Properties – includes the consolidated results of all of the office properties that were owned and included in our stabilized portfolio for two comparable reporting periods, i.e., owned and included in our stabilized portfolio as of January 1, 2016 and still owned and included in the stabilized portfolio as of September 30, 2017; |
• | Stabilized Development Properties – includes the results generated by the following: |
◦ | One office development project that was added to the stabilized portfolio in the first quarter of 2017; |
◦ | Two office development projects that were completed and stabilized in March 2016; |
◦ | Our residential project that was completed in June 2016; and |
◦ | One office development project that was added to the stabilized portfolio in the fourth quarter of 2016; |
• | Acquisition Properties – includes the results, from the dates of acquisition through the periods presented, for the four office and three retail buildings we acquired in three transactions during 2016; and |
• | Dispositions and Other – includes the results of the ten properties disposed of in the third quarter of 2017, the one property disposed of during the first quarter of 2017, the six properties disposed of in 2016 and expenses for certain of our in-process, near-term and future development projects. |
Group | # of Buildings | Rentable Square Feet | ||||
Same Store Properties | 88 | 12,182,806 | ||||
Stabilized Development Properties | 6 | 1,079,333 | ||||
Acquisition Properties | 7 | 458,459 | ||||
Total Stabilized Office Portfolio | 101 | 13,720,598 |
Three Months Ended September 30, | Dollar Change | Percentage Change | ||||||||||||
2017 | 2016 | |||||||||||||
($ in thousands) | ||||||||||||||
Reconciliation of Net Income Available to Common Stockholders to Net Operating Income, as defined: | ||||||||||||||
Net Income Available to Common Stockholders | $ | 66,558 | $ | 50,582 | $ | 15,976 | 31.6 | % | ||||||
Preferred dividends | 808 | 3,313 | (2,505 | ) | (75.6 | )% | ||||||||
Original issuance costs of redeemed preferred stock and preferred units | 3,744 | — | 3,744 | 100.0 | % | |||||||||
Net income attributable to Kilroy Realty Corporation | $ | 71,110 | $ | 53,895 | $ | 17,215 | 31.9 | % | ||||||
Net income attributable to noncontrolling common units of the Operating Partnership | 1,394 | 1,453 | (59 | ) | (4.1 | )% | ||||||||
Net income attributable to noncontrolling interests in consolidated property partnerships | 2,984 | 1,027 | 1,957 | 190.6 | % | |||||||||
Net income | $ | 75,488 | $ | 56,375 | $ | 19,113 | 33.9 | % | ||||||
Unallocated expense (income): | ||||||||||||||
General and administrative expenses | 14,514 | 13,533 | 981 | 7.2 | % | |||||||||
Acquisition-related expenses | — | 188 | (188 | ) | (100.0 | )% | ||||||||
Depreciation and amortization | 62,567 | 56,666 | 5,901 | 10.4 | % | |||||||||
Interest income and other net investment gains | (1,526 | ) | (538 | ) | (988 | ) | 183.6 | % | ||||||
Interest expense | 16,151 | 14,976 | 1,175 | 7.8 | % | |||||||||
Net gain on sale of land | (449 | ) | — | (449 | ) | 100.0 | % | |||||||
Gains on sales of depreciable operating properties | (37,250 | ) | (18,312 | ) | (18,938 | ) | 103.4 | % | ||||||
Net Operating Income, as defined | $ | 129,495 | $ | 122,888 | $ | 6,607 | 5.4 | % |
Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||
2017 | 2016 | ||||||||||||||||||||||||||||||||||||||
Same Store | Stabilized Develop-ment | Acquisi-tion Properties | Disposi-tions & Other | Total | Same Store | Stabilized Develop-ment | Acquisi-tion Properties | Disposi-tions & Other | Total | ||||||||||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||||||||||||||
Operating revenues: | |||||||||||||||||||||||||||||||||||||||
Rental income | $ | 130,147 | $ | 18,550 | $ | 7,317 | $ | 3,940 | $ | 159,954 | $ | 129,684 | $ | 11,347 | $ | 1,339 | $ | 4,169 | $ | 146,539 | |||||||||||||||||||
Tenant reimbursements | 14,550 | 2,841 | 1,821 | 453 | 19,665 | 13,670 | 1,999 | 263 | 474 | 16,406 | |||||||||||||||||||||||||||||
Other property income | 1,396 | 91 | 206 | 222 | 1,915 | 287 | 19 | — | 5,097 | 5,403 | |||||||||||||||||||||||||||||
Total | 146,093 | 21,482 | 9,344 | 4,615 | 181,534 | 143,641 | 13,365 | 1,602 | 9,740 | 168,348 | |||||||||||||||||||||||||||||
Property and related expenses: | |||||||||||||||||||||||||||||||||||||||
Property expenses | 26,554 | 4,468 | 1,232 | 816 | 33,070 | 25,165 | 3,885 | 106 | 894 | 30,050 | |||||||||||||||||||||||||||||
Real estate taxes | 9,949 | 4,337 | 1,429 | 656 | 16,371 | 12,091 | 1,534 | 163 | 713 | 14,501 | |||||||||||||||||||||||||||||
Provision for bad debts | 643 | 15 | 362 | 16 | 1,036 | 23 | — | — | (23 | ) | — | ||||||||||||||||||||||||||||
Ground leases | 964 | — | 598 | — | 1,562 | 909 | — | — | — | 909 | |||||||||||||||||||||||||||||
Total | 38,110 | 8,820 | 3,621 | 1,488 | 52,039 | 38,188 | 5,419 | 269 | 1,584 | 45,460 | |||||||||||||||||||||||||||||
Net Operating Income, as defined | $ | 107,983 | $ | 12,662 | $ | 5,723 | $ | 3,127 | $ | 129,495 | $ | 105,453 | $ | 7,946 | $ | 1,333 | $ | 8,156 | $ | 122,888 |
Three Months Ended September 30, 2017 as compared to the Three Months Ended September 30, 2016 | ||||||||||||||||||||||||||||||||||
Same Store | Stabilized Development | Acquisition Properties | Dispositions & Other | Total | ||||||||||||||||||||||||||||||
Dollar Change | Percent Change | Dollar Change | Percent Change | Dollar Change | Percent Change | Dollar Change | Percent Change | Dollar Change | Percent Change | |||||||||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||||||||||||
Operating revenues: | ||||||||||||||||||||||||||||||||||
Rental income | $ | 463 | 0.4 | % | $ | 7,203 | 63.5 | % | $ | 5,978 | 446.5 | % | $ | (229 | ) | (5.5 | )% | $ | 13,415 | 9.2 | % | |||||||||||||
Tenant reimbursements | 880 | 6.4 | % | 842 | 42.1 | % | 1,558 | 592.4 | % | (21 | ) | (4.4 | )% | 3,259 | 19.9 | % | ||||||||||||||||||
Other property income | 1,109 | 386.4 | % | 72 | 378.9 | % | 206 | 100.0 | % | (4,875 | ) | (95.6 | )% | (3,488 | ) | (64.6 | )% | |||||||||||||||||
Total | 2,452 | 1.7 | % | 8,117 | 60.7 | % | 7,742 | 483.3 | % | (5,125 | ) | (52.6 | )% | 13,186 | 7.8 | % | ||||||||||||||||||
Property and related expenses: | ||||||||||||||||||||||||||||||||||
Property expenses | 1,389 | 5.5 | % | 583 | 15.0 | % | 1,126 | NM* | (78 | ) | (8.7 | )% | 3,020 | 10.0 | % | |||||||||||||||||||
Real estate taxes | (2,142 | ) | (17.7 | )% | 2,803 | 182.7 | % | 1,266 | 776.7 | % | (57 | ) | (8.0 | )% | 1,870 | 12.9 | % | |||||||||||||||||
Provision for bad debts | 620 | NM* | 15 | 100.0 | % | 362 | 100.0 | % | 39 | 169.6 | % | 1,036 | 100.0 | % | ||||||||||||||||||||
Ground leases | 55 | 6.1 | % | — | — | % | 598 | 100.0 | % | — | — | % | 653 | 71.8 | % | |||||||||||||||||||
Total | (78 | ) | (0.2 | )% | 3,401 | 62.8 | % | 3,352 | NM* | (96 | ) | (6.1 | )% | 6,579 | 14.5 | % | ||||||||||||||||||
Net Operating Income, as defined | $ | 2,530 | 2.4 | % | $ | 4,716 | 59.4 | % | $ | 4,390 | 329.3 | % | $ | (5,029 | ) | (61.7 | )% | $ | 6,607 | 5.4 | % |
• | An increase of $2.5 million attributable to the Same Store Properties driven by the following activity: |
• | An increase in rental income of $0.5 million primarily due to: |
• | $3.4 million increase from new leases and renewals at higher rates across all regions; |
• | $0.3 million increase in parking income due to increased parking demand and rates at certain properties as well as increased transient parking; partially offset by |
• | $3.2 million decrease due to lease expirations and early terminations in the San Francisco Bay Area, Los Angeles and Greater Seattle regions; |
• | An increase in tenant reimbursements of $0.9 million primarily due to higher reimbursable expenses at several properties across the portfolio; |
• | An increase in other property income of $1.1 million primarily due to early lease termination fees in the San Diego region and San Francisco Bay Area; |
• | An offsetting decrease in property and related expenses of $0.1 million primarily due to the following: |
• | $1.4 million increase in property expenses due to an increase in contract services, electricity, security, parking, repairs and maintenance, and various other reimbursable expenses, including a $0.3 million increase in non-recurring non-reimbursable expenses; |
• | $0.6 million increase in the bad debt provision primarily related to four tenants; offset by |
• | $2.1 million decrease in real estate taxes primarily due to lower supplemental taxes at one property that was previously redeveloped; |
• | An increase in Net Operating Income of $4.7 million attributable to the Stabilized Development Properties; |
• | An increase in Net Operating Income of $4.4 million attributable to the Acquisition Properties; and |
• | A decrease in Net Operating Income of $5.0 million attributable to the Dispositions and Other Properties due to $5.0 million of other property income received in 2016 relating to a property damage settlement. |
• | An increase of $4.3 million attributable to the Acquisition Properties; |
• | An increase of $1.5 million attributable to the Stabilized Development Properties; |
• | An increase of $0.2 million attributable to the Same Store Properties; and |
• | A decrease of $0.1 million attributable to Dispositions & Other Properties. |
Three Months Ended September 30, | ||||||||||||||
2017 | 2016 | Dollar Change | Percentage Change | |||||||||||
(in thousands) | ||||||||||||||
Gross interest expense | $ | 28,331 | $ | 26,184 | $ | 2,147 | 8.2 | % | ||||||
Capitalized interest and deferred financing costs | (12,180 | ) | (11,208 | ) | (972 | ) | 8.7 | % | ||||||
Interest expense | $ | 16,151 | $ | 14,976 | $ | 1,175 | 7.8 | % |
Nine Months Ended September 30, | Dollar Change | Percentage Change | ||||||||||||
2017 | 2016 | |||||||||||||
($ in thousands) | ||||||||||||||
Reconciliation of Net Income Available to Common Stockholders to Net Operating Income, as defined: | ||||||||||||||
Net Income Available to Common Stockholders | $ | 122,720 | $ | 251,112 | $ | (128,392 | ) | (51.1 | )% | |||||
Preferred dividends | 5,774 | 9,938 | (4,164 | ) | (41.9 | )% | ||||||||
Original issuance costs of redeemed preferred stock and preferred units | 7,589 | — | 7,589 | 100.0 | % | |||||||||
Net income attributable to Kilroy Realty Corporation | $ | 136,083 | $ | 261,050 | $ | (124,967 | ) | (47.9 | )% | |||||
Net income attributable to noncontrolling common units of the Operating Partnership | 2,633 | 5,892 | (3,259 | ) | (55.3 | )% | ||||||||
Net income attributable to noncontrolling interests in consolidated property partnerships | 9,359 | 1,438 | 7,921 | 550.8 | % | |||||||||
Net income | $ | 148,075 | $ | 268,380 | $ | (120,305 | ) | (44.8 | )% | |||||
Unallocated expense (income): | ||||||||||||||
General and administrative expenses | 43,750 | 40,949 | 2,801 | 6.8 | % | |||||||||
Acquisition-related expenses | — | 964 | (964 | ) | (100.0 | )% | ||||||||
Depreciation and amortization | 185,737 | 160,452 | 25,285 | 15.8 | % | |||||||||
Interest income and other net investment gains | (3,629 | ) | (1,120 | ) | (2,509 | ) | 224.0 | % | ||||||
Interest expense | 51,476 | 41,189 | 10,287 | 25.0 | % | |||||||||
Net (gain) loss on sale of land | (449 | ) | 295 | (744 | ) | (252.2 | )% | |||||||
Gains on sales of depreciable operating properties | (39,507 | ) | (164,302 | ) | 124,795 | (76.0 | )% | |||||||
Net Operating Income, as defined | $ | 385,453 | $ | 346,807 | $ | 38,646 | 11.1 | % |
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||
2017 | 2016 | ||||||||||||||||||||||||||||||||||||||
Same Store | Stabilized Develop-ment | Acquisition Properties | Dispositi-ons & Other | Total | Same Store | Stabilized Develop-ment | Acquisition Properties | Dispositi-ons & Other | Total | ||||||||||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||||||||||||||
Operating revenues: | |||||||||||||||||||||||||||||||||||||||
Rental income | $ | 388,721 | $ | 53,106 | $ | 21,884 | $ | 11,816 | $ | 475,527 | $ | 385,870 | $ | 22,610 | $ | 1,710 | $ | 13,757 | $ | 423,947 | |||||||||||||||||||
Tenant reimbursements | 43,592 | 7,356 | 5,846 | 1,434 | 58,228 | 37,823 | 4,028 | 317 | 1,780 | 43,948 | |||||||||||||||||||||||||||||
Other property income | 5,546 | 241 | 612 | 1,286 | 7,685 | 850 | 26 | — | 5,156 | 6,032 | |||||||||||||||||||||||||||||
Total | 437,859 | 60,703 | 28,342 | 14,536 | 541,440 | 424,543 | 26,664 | 2,027 | 20,693 | 473,927 | |||||||||||||||||||||||||||||
Property and related expenses: | |||||||||||||||||||||||||||||||||||||||
Property expenses | 78,649 | 12,659 | 3,666 | 2,641 | 97,615 | 74,193 | 7,094 | 116 | 3,833 | 85,236 | |||||||||||||||||||||||||||||
Real estate taxes | 34,946 | 9,198 | 4,901 | 1,833 | 50,878 | 33,624 | 3,282 | 181 | 2,291 | 39,378 | |||||||||||||||||||||||||||||
Provision for bad debts | 1,672 | (101 | ) | 1,080 | 92 | 2,743 | 39 | — | — | (39 | ) | — | |||||||||||||||||||||||||||
Ground leases | 2,956 | — | 1,795 | — | 4,751 | 2,506 | — | — | — | 2,506 | |||||||||||||||||||||||||||||
Total | 118,223 | 21,756 | 11,442 | 4,566 | 155,987 | 110,362 | 10,376 | 297 | 6,085 | 127,120 | |||||||||||||||||||||||||||||
Net Operating Income, as defined | $ | 319,636 | $ | 38,947 | $ | 16,900 | $ | 9,970 | $ | 385,453 | $ | 314,181 | $ | 16,288 | $ | 1,730 | $ | 14,608 | $ | 346,807 |
Nine Months Ended September 30, 2017 as compared to the Nine Months Ended September 30, 2016 | ||||||||||||||||||||||||||||||||||
Same Store | Stabilized Development | Acquisition Properties | Dispositions & Other | Total | ||||||||||||||||||||||||||||||
Dollar Change | Percent Change | Dollar Change | Percent Change | Dollar Change | Percent Change | Dollar Change | Percent Change | Dollar Change | Percent Change | |||||||||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||||||||||||
Operating revenues: | ||||||||||||||||||||||||||||||||||
Rental income | $ | 2,851 | 0.7 | % | $ | 30,496 | 134.9 | % | $ | 20,174 | NM* | $ | (1,941 | ) | (14.1 | )% | $ | 51,580 | 12.2 | % | ||||||||||||||
Tenant reimbursements | 5,769 | 15.3 | % | 3,328 | 82.6 | % | 5,529 | NM* | (346 | ) | (19.4 | )% | 14,280 | 32.5 | % | |||||||||||||||||||
Other property income | 4,696 | 552.5 | % | 215 | 826.9 | % | 612 | 100.0 | % | (3,870 | ) | (75.1 | )% | 1,653 | 27.4 | % | ||||||||||||||||||
Total | 13,316 | 3.1 | % | 34,039 | 127.7 | % | 26,315 | NM* | (6,157 | ) | (29.8 | )% | 67,513 | 14.2 | % | |||||||||||||||||||
Property and related expenses: | ||||||||||||||||||||||||||||||||||
Property expenses | 4,456 | 6.0 | % | 5,565 | 78.4 | % | 3,550 | NM* | (1,192 | ) | (31.1 | )% | 12,379 | 14.5 | % | |||||||||||||||||||
Real estate taxes | 1,322 | 3.9 | % | 5,916 | 180.3 | % | 4,720 | NM* | (458 | ) | (20.0 | )% | 11,500 | 29.2 | % | |||||||||||||||||||
Provision for bad debts | 1,633 | NM* | (101 | ) | (100.0 | )% | 1,080 | 100.0 | % | 131 | 335.9 | % | 2,743 | 100.0 | % | |||||||||||||||||||
Ground leases | 450 | 18.0 | % | — | — | % | 1,795 | 100.0 | % | — | — | % | 2,245 | 89.6 | % | |||||||||||||||||||
Total | 7,861 | 7.1 | % | 11,380 | 109.7 | % | 11,145 | NM* | (1,519 | ) | (25.0 | )% | 28,867 | 22.7 | % | |||||||||||||||||||
Net Operating Income, as defined | $ | 5,455 | 1.7 | % | $ | 22,659 | 139.1 | % | $ | 15,170 | 876.9 | % | $ | (4,638 | ) | (31.7 | )% | $ | 38,646 | 11.1 | % |
• | An increase of $5.5 million attributable to the Same Store Properties primarily resulting from: |
• | An increase in rental income of $2.9 million primarily due to the following: |
• | $9.0 million increase due to new leases and renewals at higher rates primarily in the San Francisco Bay Area, Los Angeles and Greater Seattle regions; |
• | $0.5 million increase in parking income due to increased tenant parking demand at certain properties; partially offset by |
• | $6.6 million decrease due to lease expirations and early terminations primarily in the San Francisco Bay Area, Los Angeles and Greater Seattle regions; |
• | An increase in tenant reimbursements of $5.8 million primarily due to: |
• | $3.3 million increase due to higher recurring expenses and increased occupancy at various properties across multiple regions; |
• | $1.6 million increase due to lower reimbursable supplemental taxes in 2016 as a result of a change in estimate at one property; |
• | $0.9 million increase primarily due to lower abated tenant reimbursements as compared to the prior year in addition to increased tenant reimbursements from tenants with 2016 base years; |
• | An increase in other property income of $4.7 million primarily due to early termination fees in the San Francisco Bay Area and San Diego region; |
• | An increase in property and related expenses of $7.9 million primarily due to the following: |
• | $4.5 million increase in property expenses primarily resulting from a $3.5 million increase in certain recurring operating costs related to security, parking, janitorial, engineers, repairs and maintenance, contract services, and various other reimbursable expenses and a $1.0 million increase in non-reimbursable expenses of which $0.5 million is non-recurring; |
• | $1.3 million increase in real estate taxes primarily due to regular annual property tax increases in 2017; |
• | $1.6 million increase in the provision for bad debt expense primarily related to four tenants; and |
• | $0.5 million increase in ground rent primarily due to higher percentage ground rent for one of our ground leases; |
• | An increase of $22.7 million attributable to the Stabilized Development Properties; |
• | An increase of $15.2 million attributable to the Acquisition Properties; and |
• | A decrease of $4.6 million attributable to the Dispositions & Other Properties primarily due to $5.0 million of other property income received in 2016 relating to a property damage settlement. |
• | An increase of approximately $2.1 million due to higher compensation and office expenses related to the growth of the Company; and |
• | An increase of $0.7 million attributable to compensation expense related to the mark-to-market adjustment for the Company’s deferred compensation plan. The compensation expense was offset by gains on the underlying marketable securities included in interest income and other net investment gains in the consolidated statements of operations. |
• | An increase of $14.5 million attributable to the Acquisition Properties; |
• | An increase of $8.0 million attributable to the Stabilized Development Properties; |
• | An increase of $3.7 million attributable to the Same Store Properties; offset by |
• | A decrease of $0.9 million attributable to the Dispositions and Other Properties. |
Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | Dollar Change | Percentage Change | |||||||||||
(in thousands) | ||||||||||||||
Gross interest expense | $ | 84,577 | $ | 79,027 | $ | 5,550 | 7.0 | % | ||||||
Capitalized interest and deferred financing costs | (33,101 | ) | (37,838 | ) | 4,737 | (12.5 | )% | |||||||
Interest expense | $ | 51,476 | $ | 41,189 | $ | 10,287 | 25.0 | % |
Shares/Units at September 30, 2017 | Aggregate Principal Amount or $ Value Equivalent | % of Total Market Capitalization | ||||||
($ in thousands) | ||||||||
Debt: (1)(2) | ||||||||
Unsecured Line of Credit | $ | 60,000 | 0.6 | % | ||||
Unsecured Senior Notes due 2018 | 325,000 | 3.4 | % | |||||
Unsecured Senior Notes due 2020 | 250,000 | 2.6 | % | |||||
Unsecured Senior Notes due 2023 | 300,000 | 3.1 | % | |||||
Unsecured Senior Notes due 2025 | 400,000 | 4.2 | % | |||||
Unsecured Senior Notes due 2029 | 400,000 | 4.2 | % | |||||
Unsecured Senior Notes Series A & B due 2027 & 2029 | 250,000 | 2.6 | % | |||||
Secured debt | 464,025 | 4.8 | % | |||||
Total debt | $ | 2,449,025 | 25.5 | % | ||||
Equity and Noncontrolling Interest in the Operating Partnership: (3) | ||||||||
Common limited partnership units outstanding (4)(5) | 2,077,193 | $ | 147,730 | 1.6 | % | |||
Common shares outstanding (5) | 98,382,256 | 6,996,946 | 72.9 | % | ||||
Total equity and noncontrolling interest in the Operating Partnership | $ | 7,144,676 | 74.5 | % | ||||
Total Market Capitalization | $ | 9,593,701 | 100.0 | % |
(1) | Represents gross aggregate principal amount due at maturity before the effect of the following at September 30, 2017: $10.9 million of unamortized deferred financing costs, $6.0 million of unamortized discounts for the unsecured senior notes and $3.0 million of unamortized premiums for the secured debt. |
(2) | As of September 30, 2017, there was no outstanding balance on the unsecured term loan facility. |
(3) | Includes common units of the Operating Partnership; does not include noncontrolling interests in consolidated property partnerships. |
(4) | Represents common units not owned by the Company. |
(5) | Value based on closing price per share of our common stock of $71.12 as of September 30, 2017. |
• | Net cash flow from operations; |
• | Borrowings under the Operating Partnership’s unsecured revolving credit facility, unsecured term loan facility, and unsecured senior notes; |
• | Proceeds from our capital recycling program, including the disposition of nonstrategic assets and the formation of strategic ventures; |
• | Proceeds from additional secured or unsecured debt financings; and |
• | Proceeds from public or private issuance of debt or equity securities. |
• | Development and redevelopment costs; |
• | Operating property or undeveloped land acquisitions; |
• | Property operating and corporate expenses; |
• | Capital expenditures, tenant improvement and leasing costs; |
• | Debt service and principal payments, including debt maturities; |
• | Distributions to common and preferred security holders; |
• | Repurchases and redemptions of outstanding common or preferred stock of the Company; and |
• | Outstanding debt repurchases, redemptions and repayments. |
September 30, 2017 | December 31, 2016 | ||||||
(in thousands) | |||||||
Outstanding borrowings | $ | 60,000 | $ | — | |||
Remaining borrowing capacity | 690,000 | 600,000 | |||||
Total borrowing capacity (1) | $ | 750,000 | $ | 600,000 | |||
Interest rate (2) | 2.24 | % | 1.82 | % | |||
Facility fee-annual rate (3) | 0.200% | ||||||
Maturity date | July 2022 | July 2019 |
(1) | We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $600.0 million under an accordion feature under the terms of the unsecured revolving credit facility and unsecured term loan facility. |
(2) | Our unsecured revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.000% and LIBOR plus 1.050% as of September 30, 2017 and December 31, 2016, respectively. |
(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 September 30, 2017 and December 31, 2016, $6.3 million and $3.3 million of unamortized deferred financing costs, respectively, remained to be amortized through the maturity date of our unsecured revolving credit facility, which are included in prepaid expenses and other assets, net on our consolidated balance sheets. |
September 30, 2017 | December 31, 2016 | ||||||
(in thousands) | |||||||
Outstanding borrowings (1) | $ | — | $ | 150,000 | |||
Remaining borrowing capacity | 150,000 | — | |||||
Total borrowing capacity (2) | $ | 150,000 | $ | 150,000 | |||
Interest rate (3) | 2.33 | % | 1.85 | % | |||
Undrawn facility fee-annual rate (4) | 0.200 | % | — | % | |||
Maturity date | July 2022 | July 2019 |
(1) | In July 2017, the unsecured term loan facility was paid down and the Facility was amended to include two, six-month delayed draw options on the unsecured term loan facility. The Company may draw on the unsecured term loan facility through July 2018, at which time the outstanding balance will become the balance of the unsecured term loan facility and no additional draws may be made. However, if the Company does not draw at least $75.0 million by the end of first option term in January 2018, the total borrowing capacity under the Facility will be reduced by 50% of the unutilized borrowing capacity at that time. The Company intends to draw $75.0 million prior to the end of the first option term in January 2018. |
(2) | As of September 30, 2017 and December 31, 2016, $1.2 million and $0.7 million of unamortized deferred financing costs, respectively, remained to be amortized through the maturity date of our unsecured term loan facility. |
(3) | Our unsecured term loan facility interest rate was calculated based on an annual rate of LIBOR plus 1.100% and LIBOR plus 1.150% as of September 30, 2017 and December 31, 2016, respectively. |
(4) | In July 2017, the Facility was amended to include a facility fee on the remaining borrowing capacity of the unsecured term loan facility, which is paid on a monthly basis. |
Aggregate Principal Amount Outstanding | |||
(in thousands) | |||
Unsecured Line of Credit (1) | $ | 60,000 | |
Unsecured Senior Notes due 2018 | 325,000 | ||
Unsecured Senior Notes due 2020 | 250,000 | ||
Unsecured Senior Notes due 2023 | 300,000 | ||
Unsecured Senior Notes due 2025 | 400,000 | ||
Unsecured Senior Notes due 2029 | 400,000 | ||
Unsecured Senior Notes Series A & B due 2027 & 2029 | 250,000 | ||
Secured Debt | 464,025 | ||
Total Unsecured and Secured Debt | $ | 2,449,025 | |
Less: Unamortized Net Discounts and Deferred Financing Costs | (13,816 | ) | |
Total Debt, Net | $ | 2,435,209 |
(1) | As of September 30, 2017, there was no outstanding balance on the unsecured term loan facility. |
• | Decreases in our cash flows from operations, which could create further dependence on the unsecured revolving credit facility; |
• | An increase in the proportion of variable-rate debt, which could increase our sensitivity to interest rate fluctuations in the future; and |
• | A decrease in the value of our properties, which could have an adverse effect on the Operating Partnership’s ability to incur additional debt, refinance existing debt at competitive rates, or comply with its existing debt obligations. |
Unsecured Credit Facility and Term Loan Facility (as defined in the applicable Credit Agreements) (1): | Covenant Level | Actual Performance as of September 30, 2017 | ||
Total debt to total asset value | less than 60% | 25% | ||
Fixed charge coverage ratio | greater than 1.5x | 3.3x | ||
Unsecured debt ratio | greater than 1.67x | 4.12x | ||
Unencumbered asset pool debt service coverage | greater than 1.75x | 4.41x | ||
Unsecured Senior Notes due 2018, 2020, 2023, 2025 and 2029 (as defined in the applicable Indentures): | ||||
Total debt to total asset value | less than 60% | 32% | ||
Interest coverage | greater than 1.5x | 7.1x | ||
Secured debt to total asset value | less than 40% | 6% | ||
Unencumbered asset pool value to unsecured debt | greater than 150% | 329% |
(1) | As of September 30, 2017, the covenant performance under the Unsecured Senior Notes Series A and B due 2027 and 2029 (“private placement notes”), was substantially similar to the Facility; however, the unsecured debt ratio under the private placement notes was 3.61x reflecting definitional differences on unencumbered value. The Operating Partnership was in compliance under the credit agreement of the private placement notes as of September 30, 2017. |
Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | Dollar Change | Percentage Change | |||||||||||
($ in thousands) | ||||||||||||||
Net cash provided by operating activities | $ | 276,542 | $ | 252,605 | $ | 23,937 | 9.5 | % | ||||||
Net cash used in investing activities | (180,712 | ) | (67,402 | ) | (113,310 | ) | 168.1 | % | ||||||
Net cash (used in) provided by financing activities | (101,729 | ) | 65,617 | (167,346 | ) | (255.0 | )% |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
(in thousands) | |||||||||||||||
Net income available to common stockholders | $ | 66,558 | $ | 50,582 | $ | 122,720 | $ | 251,112 | |||||||
Adjustments: | |||||||||||||||
Net income attributable to noncontrolling common units of the Operating Partnership | 1,394 | 1,453 | 2,633 | 5,892 | |||||||||||
Net income attributable to noncontrolling interests in consolidated property partnerships | 2,984 | 1,027 | 9,359 | 1,438 | |||||||||||
Depreciation and amortization of real estate assets | 61,141 | 55,460 | 181,875 | 157,587 | |||||||||||
Gains on sales of depreciable real estate | (37,250 | ) | (18,312 | ) | (39,507 | ) | (164,302 | ) | |||||||
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships | (5,280 | ) | (1,675 | ) | (16,832 | ) | (2,277 | ) | |||||||
Funds From Operations (1)(2) | $ | 89,547 | $ | 88,535 | $ | 260,248 | $ | 249,450 |
(1) | Reported amounts are attributable to common stockholders, common unitholders and restricted stock unitholders. |
(2) | FFO available to common stockholders and unitholders includes amortization of deferred revenue related to tenant-funded tenant improvements of $4.2 million and $3.6 million for the three months ended September 30, 2017 and 2016, respectively, and $12.4 million and $9.7 million for the nine months ended September 30, 2017 and 2016, respectively. |
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 4. | CONTROLS AND PROCEDURES |
ITEM 1A. | RISK FACTORS |
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Period | Total Number of Shares of Stock Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) that May Yet be Purchased Under the Plans or Programs | |||||||||
July 1, 2017 - July 31, 2017 | 11,853 | $ | 73.35 | — | — | ||||||||
August 1, 2017 - August 31, 2017 | 6,650 | 68.78 | — | — | |||||||||
September 1, 2017 - September 30, 2017 | 249 | 68.10 | — | — | |||||||||
Total | 18,752 | $ | 71.66 | — | — |
(1) | Includes shares of common stock remitted to the Company to satisfy tax withholding obligations in connection with the distribution of, or the vesting and distribution of, restricted stock units or restricted stock in shares of common stock. The value of such shares of common stock remitted to the Company was based on the closing price of the Company’s common stock on the applicable withholding date. |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 5. | OTHER INFORMATION |
ITEM 6. | EXHIBITS |
Exhibit Number | Description | |
3.(i)1 | ||
3.(i)2 | ||
3.(i)3 | ||
3.(i)(4) | ||
3.(i)(5) | ||
3.(ii)1 | ||
3.(ii)2 | ||
10.1 | ||
10.2† | ||
10.3 | ||
10.4 | ||
31.1* | ||
31.2* | ||
31.3* | ||
31.4* | ||
32.1* | ||
32.2* | ||
32.3* | ||
32.4* | ||
101.1 | The following Kilroy Realty Corporation and Kilroy Realty, L.P. financial information for the quarter ended September 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Equity (unaudited), (iv) Consolidated Statements of Capital (unaudited), (v) Consolidated Statements of Cash Flows (unaudited) and (vi) Notes to the Consolidated Financial Statements (unaudited).(1) |
* | Filed herewith. |
† | Management contract or compensatory plan or arrangement. |
(1) | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections. |
KILROY REALTY CORPORATION | ||
By: | /s/ John Kilroy | |
John Kilroy President and Chief Executive Officer (Principal Executive Officer) | ||
By: | /s/ Tyler H. Rose | |
Tyler H. Rose Executive Vice President and Chief Financial Officer (Principal Financial Officer) | ||
By: | /s/ Heidi R. Roth | |
Heidi R. Roth Executive Vice President and Chief Accounting Officer (Principal Accounting Officer) |
KILROY REALTY, L.P. | ||
BY: | KILROY REALTY CORPORATION | |
Its general partner | ||
By: | /s/ John Kilroy | |
John Kilroy President and Chief Executive Officer (Principal Executive Officer) | ||
By: | /s/ Tyler H. Rose | |
Tyler H. Rose Executive Vice President and Chief Financial Officer (Principal Financial Officer) | ||
By: | /s/ Heidi R. Roth | |
Heidi R. Roth Executive Vice President and Chief Accounting Officer (Principal Accounting Officer) |
1. | I have reviewed this quarterly report on Form 10-Q of Kilroy Realty Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ John Kilroy |
John Kilroy |
President and Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Kilroy Realty Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Tyler H. Rose |
Tyler H. Rose |
Executive Vice President and Chief Financial Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Kilroy Realty, L.P.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ John Kilroy |
John Kilroy |
President and Chief Executive Officer |
Kilroy Realty Corporation, sole general partner of Kilroy Realty, L.P. |
1. | I have reviewed this quarterly report on Form 10-Q of Kilroy Realty, L.P.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ Tyler H. Rose |
Tyler H. Rose |
Executive Vice President and Chief Financial Officer |
Kilroy Realty Corporation, sole general partner of Kilroy Realty, L.P. |
(i) | the accompanying Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
(ii) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ John Kilroy | |
John Kilroy | |
President and Chief Executive Officer | |
Date: | October 26, 2017 |
(i) | the accompanying Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
(ii) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Tyler H. Rose | |
Tyler H. Rose | |
Executive Vice President and Chief Financial Officer | |
Date: | October 26, 2017 |
(i) | the accompanying Quarterly Report on Form 10-Q of the Operating Partnership for the quarter ended September 30, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
(ii) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership. |
/s/ John Kilroy | |
John Kilroy | |
President and Chief Executive Officer | |
Kilroy Realty Corporation, sole general partner of Kilroy Realty, L.P. | |
Date: | October 26, 2017 |
(i) | the accompanying Quarterly Report on Form 10-Q of the Operating Partnership for the quarter ended September 30, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
(ii) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership. |
/s/ Tyler H. Rose | |
Tyler H. Rose | |
Executive Vice President and Chief Financial Officer | |
Kilroy Realty Corporation, sole general partner of Kilroy Realty, L.P. | |
Date: | October 26, 2017 |
Document and Entity Information - shares |
9 Months Ended | |
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Sep. 30, 2017 |
Oct. 20, 2017 |
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Entity Registrant Name | KILROY REALTY CORP | |
Entity Central Index Key | 0001025996 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2017 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 98,382,256 | |
Kilroy Realty, L.P. [Member] | ||
Entity Registrant Name | Kilroy Realty, L.P. | |
Entity Central Index Key | 0001493976 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Non-accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2017 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false |
Consolidated Statements of Equity (Unaudited) (Parenthetical) - $ / shares |
3 Months Ended | 9 Months Ended | |||
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Dec. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
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Statement of Stockholders' Equity [Abstract] | |||||
Dividends declared per common share and common unit (in dollars per share) | $ 1.90 | $ 0.425 | $ 0.375000 | $ 1.225 | $ 1.1 |
Consolidated Balance Sheets (KILROY REALTY, L.P.) (Parenthetical) - Kilroy Realty, L.P. [Member] - USD ($) $ in Thousands |
9 Months Ended | 12 Months Ended |
---|---|---|
Sep. 30, 2017 |
Dec. 31, 2016 |
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Series G Cumulative Redeemable Preferred Units [Member] | ||
Preferred units, issued | 0 | 4,000,000 |
Preferred units, outstanding | 0 | 4,000,000 |
Preferred stock dividend rate percentage | 0.00% | 6.875% |
Preferred stock liquidation preference | $ 0 | $ 100,000 |
Series H Cumulative Redeemable Preferred Units [Member] | ||
Preferred units, issued | 0 | 4,000,000 |
Preferred units, outstanding | 0 | 4,000,000 |
Preferred stock dividend rate percentage | 0.00% | 6.375% |
Preferred stock liquidation preference | $ 0 | $ 100,000 |
Common Units [Member] | ||
General partner, units issued | 98,382,256 | 93,219,439 |
General partners, units outstanding | 98,382,256 | 93,219,439 |
Limited partners, units issued | 2,077,193 | 2,381,543 |
Noncontrolling common units of the Operating Partnership | 2,077,193 | 2,381,543 |
Consolidated Statements of Capital (KILROY REALTY, L.P.) (Parenthetical) - $ / shares |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
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Kilroy Realty, L.P. [Member] | ||||
Dividends declared per common unit (in dollars per unit) | $ 0.425 | $ 0.375 | $ 1.225 | $ 1.1000 |
Organization and Basis of Presentation |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization and Basis of Presentation | Organization and Basis of Presentation Organization Kilroy Realty Corporation (the “Company”) is a self-administered real estate investment trust (“REIT”) active in premier office and mixed-use submarkets along the West Coast. We own, develop, acquire and manage real estate assets, consisting primarily of Class A properties in the coastal regions of Los Angeles, Orange County, San Diego County, the San Francisco Bay Area and Greater Seattle, 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”) and Kilroy Realty Finance Partnership, L.P. (the “Finance 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 September 30, 2017:
Our stabilized portfolio includes all of our properties with the exception of development and redevelopment properties currently under construction or committed for construction, “lease-up” properties, real estate assets held for sale and undeveloped land. 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 “lease-up” properties as office properties we recently developed or redeveloped that have not yet reached 95% occupancy and are within one year following cessation of major construction activities. There were no operating properties in “lease-up” or held for sale as of September 30, 2017. During the nine months ended September 30, 2017, we added one development project to our stabilized office portfolio consisting of 365,359 rentable square feet in Hollywood, California. As of September 30, 2017, the following properties were excluded from our stabilized portfolio. We did not have any redevelopment properties at September 30, 2017.
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Our stabilized portfolio also excludes our near-term and future development pipeline, which as of September 30, 2017 was comprised of five development sites, representing approximately 47 gross acres of undeveloped land. As of September 30, 2017, all of our properties and development projects were owned and all of our business was conducted in the state of California with the exception of twelve office properties and one development project under construction located in the state of Washington. All of our properties and development projects are 100% owned, excluding four office properties owned by three consolidated property partnerships. Two of the three 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 September 30, 2017, the Company owned a 56% common equity interest in both 100 First LLC and 303 Second LLC. The third property partnership, Redwood City Partners, LLC (“Redwood LLC”) owned two office properties in Redwood City, California. As of September 30, 2017, 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, the Finance Partnership, Kilroy Services, LLC (“KSLLC”), 100 First LLC, 303 Second 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, the Finance Partnership, KSLLC, 100 First LLC, 303 Second LLC, Redwood LLC and all wholly-owned and controlled subsidiaries of the Operating Partnership. All intercompany balances and transactions have been eliminated in the consolidated financial statements. As of September 30, 2017, the Company owned an approximate 97.9% common general partnership interest in the Operating Partnership. The remaining approximate 2.1% common limited partnership interest in the Operating Partnership as of September 30, 2017 was owned by non-affiliated investors and certain of our executive officers and directors (see Note 6). 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.” Kilroy Realty Finance, Inc., which is a wholly-owned subsidiary of the Company, is the sole general partner of the Finance Partnership and owns a 1.0% common general partnership interest in the Finance Partnership. The Operating Partnership owns the remaining 99.0% common limited partnership interest. We conduct substantially all of our development activities through KSLLC, which is a wholly owned subsidiary of the Operating Partnership. 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, 2017. 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, 2016. Variable Interest Entities The Operating Partnership is a variable interest entity (“VIE”) of the Company as the Operating Partnership is a limited partnership in which the common limited partners do not have substantive kick-out or participating rights. At September 30, 2017, the consolidated financial statements of the Company included two VIEs in addition to the Operating Partnership: 100 First LLC and 303 Second LLC. At September 30, 2017, 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 VIE’s economic performance. As of September 30, 2017, these two VIEs’ total assets, liabilities and noncontrolling interests included on our consolidated balance sheet were approximately $429.4 million (of which $383.7 million related to real estate held for investment), approximately $151.4 million and approximately $121.8 million, respectively. Revenues, income and net assets generated by 100 First LLC and 303 Second LLC may only be used to settle its contractual obligations, which primarily consist of operating expenses, capital expenditures and required distributions. At December 31, 2016, the consolidated financial statements of the Company and the Operating Partnership included three VIEs in which we were deemed to be the primary beneficiary: 100 First LLC, 303 Second LLC and an entity established during the fourth quarter of 2016 to facilitate a transaction intended to qualify as a like-kind exchange pursuant to Section 1031 of the Code (“Section 1031 Exchange”). In January 2017, the Section 1031 Exchange was successfully completed and the entity established for the 1031 Exchange was no longer a VIE. At December 31, 2016, the impact of consolidating the VIEs increased the Company’s total assets, liabilities and noncontrolling interests on our consolidated balance sheet by approximately $654.3 million (of which $588.6 million related to real estate held for investment), approximately $166.1 million and approximately $124.3 million, respectively. Adoption of New Accounting Pronouncements Effective January 1, 2017, the Company adopted FASB ASU No. 2017-01 (“ASU 2017-01”) which clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework provides a screen for determining whether an integrated set of assets is a business combination or an asset acquisition and clarifies that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar assets, the set of assets and activities is deemed not to meet the definition of a business. As a result of our adoption of the guidance, which we adopted on a prospective basis, the Company expects that most of our future acquisitions of operating properties and development properties that were previously accounted for as business combinations will instead be accounted for as asset acquisitions under the new guidance. In addition, we expect that most of the transaction costs associated with these future acquisitions will be capitalized as part of the purchase price of the acquisition instead of being expensed as incurred to acquisition-related expenses. The Company did not have any acquisitions of operating properties during the nine months ended September 30, 2017. Also effective January 1, 2017, the Company adopted ASU No. 2016-18 (“ASU 2016-18”) which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The Company adopted ASU 2016-18 on a retrospective basis. Therefore, amounts generally described as restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the Company’s consolidated statements of cash flows for the nine months ended September 30, 2017 and 2016. As a result of the adoption of ASU 2016-18, the change in restricted cash is no longer presented as a separate line item within cash flows from investing activities on the Company’s consolidated statements of cash flows since such balances are now included in total cash at both the beginning and end of the reporting period. As a result, for the nine months ended September 30, 2016, the Company had net cash used in investing activities of $67.4 million instead of net cash used in investing activities of $124.2 million as previously reported since the Company had an increase in restricted cash of $56.8 million during the nine months ended September 30, 2016 primarily due to $48.4 million of restricted cash that was held at qualified intermediaries to facilitate potential future Section1031 Exchanges. In addition, effective January 1, 2017, the Company adopted ASU No. 2016-09 (“ASU 2016-09”) which simplified several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The adoption of this guidance did not have an impact on our consolidated financial statements or notes to our consolidated financial statements. Recently Issued Accounting Pronouncements ASU No. 2016-02 “Leases (Topic 842)” On February 25, 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”) to amend the accounting guidance for leases. The accounting applied by a lessor is largely unchanged under ASU 2016-02. However, the standard requires lessees to recognize lease assets and lease liabilities for leases classified as operating leases on the balance sheet. Lessees will recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it will recognize lease expense for such leases generally on a straight-line basis over the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and early adoption is permitted. We are currently conducting our evaluation of the impact of the guidance on our consolidated financial statements and have an active project team working on the evaluation and implementation of the guidance. We currently believe that the adoption of the standard will not significantly change the accounting for operating leases on our consolidated balance sheets where we are the lessor, and that such leases will be accounted for in a similar method to existing standards with the underlying leased asset being reported and recognized as a real estate asset. We currently expect that certain non-lease components will need to be accounted for separately from the lease components, with the lease components continuing to be recognized on a straight-line basis over the term of the lease and certain non-lease components (such as common area maintenance) being accounted for under the new revenue recognition guidance in ASU 2014-09 discussed below, even when revenue for such non-lease components is not separately stipulated in the lease. In addition, under ASU 2016-02, lessors will only be permitted to capitalize and amortize incremental direct leasing costs. As a result, we expect that upon the adoption of the standard, we will no longer be able to capitalize and amortize certain leasing related costs and instead will expense these costs as incurred. We currently expect this could have a material impact to the Company’s results of operations upon adoption of the standard. For leases where we are the lessee, specifically for our ground leases, we currently believe that the adoption of the standard will significantly change the accounting on our consolidated balance sheets since both existing ground leases and any future ground leases will be required to be recorded on the Company’s consolidated balance sheets as an obligation of the Company. We currently believe that existing ground leases executed before the January 1, 2019 adoption date will continue to be accounted for as operating leases and will not have a material impact on our recognition of ground lease expense or our results of operations. However, we believe that we will be required to recognize a right of use asset and a lease liability on our consolidated balance sheets equal to the present value of the minimum lease payments required in accordance with each ground lease. As of September 30, 2017, our future undiscounted minimum rental payments under these leases totaled $252.8 million, with several of the leases containing provisions for rental payments to fluctuate based on fair market value and operating income measurements with expirations through 2093. In addition, we currently believe that for new ground leases entered into after the adoption date of the new standard, such leases could be required to be accounted for as a financing type lease, resulting in ground lease expense recorded using the effective interest method instead of on a straight-line basis over the term of the lease. This could have a significant impact on our results of operations if we enter into material new ground leases after the date of adoption since ground lease expense calculated using the effective interest method results in an increased amount of ground lease expense in the earlier years of a ground lease as compared to the current straight-line method. We will adopt the guidance on a modified retrospective basis as required by ASU 2016-02. We are in the process of evaluating whether we will elect to apply the practical expedients identified in the standard but currently believe that we may do so. ASU No. 2014-09 “Revenue From Contracts with Customers (Topic 606)” In May 2014, the FASB issued ASU 2014-09 “Revenue From Contracts with Customers (Topic 606)” (“ASU 2014-09”). The objective of ASU 2014-09 is to establish a single comprehensive model for entities to use in accounting for revenue from contracts with customers and will supersede most of the existing revenue recognition guidance. On May 9, 2016 and December 21, 2016, the FASB issued ASU No. 2016-12 and ASU No. 2016-20, which provides practical expedients, technical corrections, and improvements for certain aspects of ASU No. 2014-09. Public business entities may elect to adopt the amendments as of the original effective date; however, adoption is required for annual reporting periods beginning after December 15, 2017. We have compiled an inventory of the sources of revenue that will be impacted by ASU 2014-09. Specifically, we have evaluated the impact of the guidance on timing of gain recognition for dispositions and currently do not believe there will be a material impact to our consolidated financial statements given the simplicity of the Company’s historical disposition transactions. In addition, we currently believe that certain non-lease components of revenue from leases such as common area maintenance and certain types of parking revenue may be impacted by ASU 2014-09 when we adopt ASU 2016-02 on January 1, 2019. We are in the process of evaluating the impact on these non-lease revenue components and currently believe the impact will be limited to the income statement presentation of revenue and not the total amount of revenue recognized. Other Recently Issued Pronouncements On May 10, 2017, the FASB issued ASU No. 2017-09 “Compensation - Stock Compensation (Topic 718)” to clarify the scope of modification accounting. Under the guidance, an entity will not apply modification accounting to a share-based payment award if the award’s fair value, vesting conditions, and classification as an equity or liability instrument remain the same immediately before and after the change. The guidance is effective for annual periods beginning after December 15, 2017 and early adoption is permitted. 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. On February 22, 2017, the FASB issued ASU No. 2017-05 “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20)” (“ASU 2017-05”) to provide guidance and clarify the scope of the original guidance within Subtopic 610-20 “Gains and Losses from the Derecognition of Nonfinancial Assets” that was issued in connection with ASU 2014-09, which provided guidance for recognizing gains and losses from the transfer of nonfinancial assets in transactions with noncustomers. ASU 2017-05 additionally adds guidance pertaining to the partial sales of real estate and clarifies that nonfinancial assets within the scope of Accounting Standards Codification Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. For example, a parent may transfer control of nonfinancial assets by transferring ownership interests in a consolidated subsidiary. ASU 2017-05 is effective for fiscal years beginning after December 15, 2017, with early application permitted for fiscal years beginning after December 15, 2016. We are currently evaluating the impact of ASU 2017-05 on our consolidated financial statements and currently do not anticipate that the guidance will have a material impact on our consolidated financial statements or notes to our consolidated financial statements. On August 26, 2016, the FASB issued ASU No. 2016-15 (“ASU 2016-15”) to provide guidance for areas where there is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. 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. On June 16, 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”) to amend the accounting for credit losses for certain financial instruments. Under the new guidance, an entity recognizes its estimate of expected credit losses as an allowance, which the FASB believes will result in more timely recognition of such losses. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. 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. On January 5, 2016, the FASB issued ASU No. 2016-01 (“ASU 2016-01”) to amend the accounting guidance on the classification and measurement of financial instruments. The standard requires that all investments in equity securities, including other ownership interests, are carried at fair value through net income. This requirement does not apply to investments that qualify for equity method accounting or to those that result in consolidation of the investee or for which the entity has elected the predictability exception to fair value measurement. Additionally, the standard requires that the portion of the total fair value change caused by a change in instrument-specific credit risk for financial liabilities for which the fair value option has been elected would be recognized in other comprehensive income. Any accumulated amount remaining in other comprehensive income is reclassified to earnings when the liability is extinguished. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017. 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. |
Dispositions |
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dispositions | Dispositions The following table summarizes the properties sold during the nine months ended September 30, 2017.
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The total gain on the operating properties and land sold during the nine months ended September 30, 2017 was $39.5 million and $0.4 million, respectively. As of September 30, 2017, approximately $170.6 million of net proceeds related to the Sorrento Mesa and Mission Valley Properties disposition were temporarily being held at qualified intermediaries, at our direction, for the purpose of facilitating potential future Section 1031 Exchanges. The cash proceeds are included in restricted cash on our consolidated balance sheets as of September 30, 2017. |
Receivables |
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Receivables | Receivables Current Receivables, net Current receivables, net is primarily comprised of contractual rents and other lease-related obligations due from tenants. The balance consisted of the following as of September 30, 2017 and December 31, 2016:
Deferred Rent Receivables, net Deferred rent receivables, net consisted of the following as of September 30, 2017 and December 31, 2016:
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Prepaid Expenses and Other Assets, Net |
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Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prepaid Expenses and Other Assets, Net | Prepaid Expenses and Other Assets, Net Prepaid expenses and other assets, net consisted of the following at September 30, 2017 and December 31, 2016:
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Secured and Unsecured Debt of the Operating Partnership |
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Secured and Unsecured Debt of the Operating Partnership | Secured and Unsecured Debt of the Operating Partnership Unsecured Senior Notes - Private Placement On February 17, 2017, the Operating Partnership issued the $175.0 million principal amount of its 3.35% Senior Notes, Series A, due February 17, 2027 (the “Series A Notes”), and the $75.0 million principal amount of its 3.45% Senior Notes, Series B, due February 17, 2029 (the “Series B Notes” and, together with the Series A Notes, the “Series A and B Notes”). The Series A and B Notes were issued pursuant to a delayed draw option under a Note Purchase Agreement entered into in connection with a private placement in September 2016. As of September 30, 2017, there was $175.0 million and $75.0 million issued and outstanding aggregate principal amount of Series A and B Notes, respectively. The Series A Notes mature on February 17, 2027, and the Series B Notes mature on February 17, 2029, unless earlier redeemed or prepaid pursuant to the terms of the Note Purchase Agreement. Interest on the Series A and B Notes is payable semi-annually in arrears on February 17 and August 17 of each year. The Operating Partnership may, at its option and upon notice to the purchasers of the Series A and B Notes, prepay at any time all, or from time to time, any part of the Series A and B Notes then outstanding (in an amount not less than 5% of the aggregate principal amount of the Series A and B Notes then outstanding in the case of a partial prepayment), at 100% of the principal amount so prepaid, plus the make-whole amount determined for the prepayment date with respect to such principal amount as set forth in the Note Purchase Agreement. In connection with the issuance of the Series A and B Notes, the Company entered into an agreement whereby it guarantees the payment by the Operating Partnership of all amounts due with respect to the Series A and B Notes and the performance by the Operating Partnership of its obligations under the Note Purchase Agreement. Unsecured Revolving Credit Facility and Term Loan Facility In July 2017, the Operating Partnership amended and restated the terms of its unsecured revolving credit facility and unsecured term loan facility (together, the “Facility”). The amendment and restatement increased the size of the unsecured revolving credit facility from $600.0 million to $750.0 million, maintained the size of the unsecured term loan facility of $150.0 million, reduced the borrowing costs and extended the maturity date of the Facility to July 2022. The unsecured term loan facility features two six-month delayed draw options. The following table summarizes the balance and terms of our unsecured revolving credit facility as of September 30, 2017 and December 31, 2016:
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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. The following table summarizes the balance and terms of our unsecured term loan facility as of September 30, 2017 and December 31, 2016:
Additionally, as of December 31, 2016 the Operating Partnership had a $39.0 million unsecured term loan outstanding with an annual interest rate of LIBOR plus 1.150% that was to mature in July 2019. As of December 31, 2016, $0.2 million of unamortized deferred financing costs remained to be amortized through the maturity date of our unsecured term loan. Concurrently with the amendment of the Facility, the Operating Partnership repaid its $39.0 million unsecured term loan. Debt Covenants and Restrictions The unsecured revolving credit facility, the unsecured term loan facility, the unsecured term loan, the unsecured senior notes, the Series A and B 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 September 30, 2017. Debt Maturities The following table summarizes the stated debt maturities and scheduled amortization payments of our issued and outstanding debt, excluding unamortized debt discounts, premiums and deferred financing costs, as of September 30, 2017:
Capitalized Interest and Loan Fees The following table sets forth gross interest expense, including debt discount/premium and deferred financing cost amortization, net of capitalized interest, for the three and nine months ended September 30, 2017 and 2016. The interest expense capitalized was recorded as a cost of development and increased the carrying value of undeveloped land and construction in progress.
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Noncontrolling Interests on the Company's Consolidated Financial Statements |
9 Months Ended |
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Sep. 30, 2017 | |
Noncontrolling Interest [Abstract] | |
Noncontrolling Interests on the Company's Consolidated Financial Statements | Noncontrolling Interests on the Company’s Consolidated Financial Statements Common Units of the Operating Partnership The Company owned an approximate 97.9%, 97.5% and 97.2% common general partnership interest in the Operating Partnership as of September 30, 2017, December 31, 2016 and September 30, 2016, respectively. The remaining approximate 2.1%, 2.5% and 2.8% common limited partnership interest as of September 30, 2017, December 31, 2016 and September 30, 2016, respectively, was owned by non-affiliated investors and certain of our executive officers and directors in the form of noncontrolling common units. There were 2,077,193, 2,381,543 and 2,631,276 common units outstanding held by these investors, executive officers and directors as of September 30, 2017, December 31, 2016 and September 30, 2016, respectively. 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 $145.6 million and $174.9 million as of September 30, 2017 and December 31, 2016, 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. |
Stockholders' Equity of the Company |
9 Months Ended |
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Sep. 30, 2017 | |
Equity [Abstract] | |
Stockholders' Equity of the Company | Stockholders’ Equity of the Company Preferred Stock Redemption On August 15, 2017, the Company redeemed all 4,000,000 shares of its 6.375% Series H Cumulative Redeemable Preferred Stock (“Series H Preferred Stock”). The shares of Series H Preferred Stock were redeemed at a redemption price equal to their stated liquidation preference of $25.00 per share, representing $100.0 million in aggregate. The redemption payment did not include any additional accrued dividends because the redemption date was also the dividend payment date. On March 30, 2017 (the “Series G Redemption Date”), the Company redeemed all 4,000,000 shares of its 6.875% Series G Cumulative Redeemable Preferred Stock (“Series G Preferred Stock”). The shares of Series G Preferred Stock were redeemed at a redemption price equal to their stated liquidation preference of $25.00 per share, representing $100.0 million in aggregate, plus all accrued and unpaid dividends to the Series G Redemption Date. During the three and nine months ended September 30, 2017, we recognized non-recurring non-cash charges of $3.7 million and $7.6 million, respectively, as a reduction to net income available to common stockholders for the original issuance costs related to the Series G and Series H Preferred Stock. Common Stock Issuance In January 2017, the Company completed an underwritten public offering of 4,427,500 shares of its common stock. The net offering proceeds, after deducting underwriting discounts and offering expenses, were approximately $308.8 million. We used a portion of the proceeds to partially fund our 2016 special dividend and used the remaining proceeds for general corporate uses, to fund development expenditures and to repay outstanding indebtedness. At-The-Market Stock Offering Program Under our current at-the-market stock offering program, which commenced in December 2014, we may offer and sell shares of our common stock having an aggregate gross sales price of up to $300.0 million from time to time in “at-the-market” offerings. No shares of common stock were sold under this program during the nine months ended September 30, 2017. Since commencement of the program through September 30, 2017, we have sold 2,459,165 shares of common stock having an aggregate gross sales price of $182.4 million. As of September 30, 2017, shares of common stock having an aggregate gross sales price of up to $117.6 million remain available to be sold under this program. Actual future sales will depend upon a variety of factors, including but not limited to market conditions, the trading price of the Company’s common stock and our capital needs. We have no obligation to sell the remaining shares available for sale under this program. Payment of 2016 Special Cash Dividend On January 13, 2017, the Company paid $184.3 million of special cash dividends, which was the equivalent of $1.90 of special cash dividend per share of common stock to stockholders of record on December 30, 2016. This special dividend payment was in addition to the $36.4 million of regular dividends we also paid on January 13, 2017 to common stockholders, unitholders and RSU holders of record on December 30, 2016. |
Partners' Capital of the Operating Partnership |
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Partners’ Capital of the Operating Partnership | Partners’ Capital of the Operating Partnership Preferred Stock Redemption On August 15, 2017, the Company redeemed all 4,000,000 shares of its 6.375% Series H Preferred Stock. For each share of Series H Preferred Stock that was outstanding, the Company had an equivalent number of 6.375% Series H Preferred Units (“Series H Preferred Units”) outstanding with substantially similar terms as the Series H Preferred Stock. In connection with the redemption of the Series H Preferred Stock, the Series H Preferred Units held by the Company were redeemed by the Operating Partnership. On March 30, 2017, the Company redeemed all 4,000,000 shares of its 6.875% Series G Preferred Stock. For each share of Series G Preferred Stock that was outstanding, the Company had an equivalent number of 6.875% Series G Preferred Units (“Series G Preferred Units”) outstanding with substantially similar terms as the Series G Preferred Stock. In connection with the redemption of the Series G Preferred Stock, the Series G Preferred Units held by the Company were redeemed by the Operating Partnership. Issuance of Common Units In January 2017, the Company completed an underwritten public offering of 4,427,500 shares of its common stock as discussed in Note 7. The net offering proceeds of approximately $308.8 million were contributed by the Company to the Operating Partnership in exchange for 4,427,500 common units. 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:
For further discussion of the noncontrolling common units as of September 30, 2017 and December 31, 2016, refer to Note 6. |
Share-Based Compensation |
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Sep. 30, 2017 | |||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||
Share-Based Compensation | Share-Based Compensation Stockholder Approved Equity Compensation Plans As of September 30, 2017, we maintained one share-based incentive compensation plan, the Kilroy Realty 2006 Incentive Award Plan, as amended (the “2006 Plan”). As of September 30, 2017, 2,004,127 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 target levels for the performance or market conditions (as defined below) for awards still in a performance period. 2017 Share-Based Compensation Grants In February 2017, the Executive Compensation Committee of the Company’s Board of Directors awarded 229,976 restricted stock units (“RSUs”) to certain officers of the Company under the 2006 Plan, which included 130,956 RSUs (at the target level of performance), or 57%, that are subject to market and/or performance-based vesting requirements (the “2017 Performance-Based RSUs”) and 99,020 RSUs, or 43%, that are subject to time-based vesting requirements (the “2017 Time-Based RSUs”). 2017 Performance-Based RSU Grant The 2017 Performance-Based RSUs are scheduled to vest at the end of a three-year period based upon the achievement of pre-set FFO per share goals for the year ending December 31, 2017 (the “FFO performance condition”) and also based upon either the average FAD per share growth or the Company’s average debt to EBITDA ratio (the “other performance conditions”) or the average annual relative total stockholder return ranking for the Company compared to an established comparison group of companies (the “market condition”) for the three-year period ending December 31, 2019. The 2017 Performance-Based RSUs are also subject to a three-year service vesting provision and are scheduled to cliff vest at the end of the three-year period. The number of 2017 Performance-Based RSUs ultimately earned could fluctuate from the target number of 2017 Performance-Based RSUs granted based upon the levels of achievement for the FFO performance condition, the other performance conditions and the market condition. The estimate of the number of 2017 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. As of September 30, 2017, the number of 2017 Performance-Based RSUs estimated to be earned based on the Company’s estimate of the performance conditions measured against the applicable goals was 130,956, and the compensation cost recorded to date for this program was based on that estimate. Compensation expense for the 2017 Performance-Based RSU grant will be recorded on a straight-line basis over the three-year period. Each 2017 Performance-Based RSU represents the right, subject to the applicable vesting conditions, to receive one share of our common stock in the future. The total fair value of the 2017 Performance-Based RSU grant was $10.3 million at February 24, 2017. The determination of the fair value of the 2017 Performance-Based RSU grant with other performance conditions takes into consideration the likelihood of achievement of the FFO performance condition and the other performance conditions. The grant date fair value for the performance awards with a market condition was calculated using a Monte Carlo simulation pricing model based on the assumptions in the table below. For the portion of the 2017 Performance-Based RSUs subject to the market condition, for the nine months ended September 30, 2017, we recorded compensation expense based upon the $80.89 fair value at February 24, 2017. The following table summarizes the assumptions utilized in the Monte Carlo simulation pricing model:
The computation of expected volatility is based on a blend of the historical volatility of our shares of common stock over approximately 5.6 years, as that is expected to be most consistent with future volatility and equates to a time period twice as long as the approximate 2.8-year remaining performance period of the RSUs and implied volatility data based on the observed pricing of six month publicly-traded options on our shares of common stock. The risk-free interest rate is based on the yield curve on zero-coupon U.S. Treasury STRIP securities in effect at February 24, 2017. The expected life of the RSUs is equal to the remaining 2.8 year vesting period as of February 24, 2017. 2017 Time-Based RSU Grant The 2017 Time-Based RSUs are scheduled to vest in three equal installments beginning on January 5, 2018 through January 5, 2020. Compensation expense for the 2017 Time-Based RSUs will be recognized on a straight-line basis over the three-year service vesting period. Each 2017 Time-Based RSU represents the right to receive one share of our common stock in the future. The total fair value of the 2017 Time-Based RSU grant was $7.5 million, which was based on the $73.30 and $77.16 closing share prices of the Company’s common stock on the NYSE on the February 3, 2017 and February 24, 2017 grant dates, respectively. Share-Based Award Activity During the nine months ended September 30, 2017, 282,000 non-qualified stock options were exercised at an exercise price per share equal to $42.61. As of September 30, 2017, there were 29,500 stock options outstanding. Share-Based Compensation Cost Recorded During the Period The total compensation cost for all share-based compensation programs was $6.4 million and $6.8 million for the three months ended September 30, 2017 and 2016, respectively, and $19.0 million and $19.3 million for the nine months ended September 30, 2017 and 2016, respectively. Of the total share-based compensation costs, $1.7 million and $1.5 million was capitalized as part of real estate assets and deferred leasing costs for the three months ended September 30, 2017 and 2016, respectively, and $5.4 million and $4.0 million for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, there was approximately $30.9 million of total unrecognized compensation cost related to nonvested incentive awards granted under share-based compensation arrangements that is expected to be recognized over a weighted-average period of 1.9 years. The remaining compensation cost related to these nonvested incentive awards had been recognized in periods prior to September 30, 2017. |
Commitments and Contingencies |
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Sep. 30, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies General As of September 30, 2017, we had commitments of approximately $755.0 million, excluding our ground lease commitments, for contracts and executed leases directly related to our operating properties and development projects. Environmental Matters We follow the policy of monitoring all of our properties, both acquisition and existing stabilized portfolio properties, for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist, we are not currently aware of any environmental liability with respect to our stabilized portfolio properties that would have a material adverse effect on our financial condition, results of operations and cash flow, or that we believe would require additional disclosure or the recording of a loss contingency. As of September 30, 2017, we had accrued environmental remediation liabilities of approximately $27.1 million recorded on our consolidated balance sheets in connection with certain of our future development projects. It is possible that we could incur additional environmental remediation costs in connection with these future development projects. However, given we are in the pre-development phase on these future development projects, potential additional environmental costs are not reasonably estimable at this time and certain changes in estimates could occur as the site conditions, final project timing, design elements, actual soil conditions and other aspects of the projects, which may depend upon municipal and other approvals beyond the control of the Company, are determined. |
Fair Value Measurements and Disclosures |
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Fair Value Measurements and Disclosures | 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 marketable securities as of September 30, 2017 and December 31, 2016:
We report the change in the fair value of the marketable securities at the end of each accounting period in interest income and other net investment gains in the consolidated statements of operations. We also adjust the related Deferred Compensation Plan liability to fair value at the end of each accounting period based on the performance of the benchmark funds selected by each participant, which results in a corresponding increase or decrease to compensation cost for the period. The following table sets forth the net gain on marketable securities recorded during the three and nine months ended September 30, 2017 and 2016:
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 September 30, 2017 and December 31, 2016:
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Net Income Available to Common Stockholders Per Share of the Company |
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Net Income Available to Common Stockholders Per Share of the Company | 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 and nine months ended September 30, 2017 and 2016:
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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, RSUs and other securities are considered in our diluted earnings per share calculation for the three and nine months ended September 30, 2017 and 2016. Certain market measure-based RSUs are not included in dilutive securities for the three and nine months ended September 30, 2017 and 2016, as not all performance metrics had been met by the end of the applicable reporting periods. See Note 9 “Share-Based Compensation” for additional information regarding share-based compensation. |
Net Income Available to Common Unitholders Per Unit of the Operating Partnership |
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Earnings Per Unit [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income Available to Common Unitholders Per Unit of the Operating Partnership | 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 and nine months ended September 30, 2017 and 2016:
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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, RSUs and other securities are considered in our diluted earnings per share calculation for the three and nine months ended September 30, 2017 and 2016. Certain market measure-based RSUs are not included in dilutive securities for the three and nine months ended September 30, 2017 and 2016, as not all performance metrics had been met by the end of the applicable reporting periods. See Note 9 “Share-Based Compensation” for additional information regarding share-based compensation. |
Supplemental Cash Flow Information of the Company |
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Supplemental Cash Flow Elements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Cash Flow Information of the Company | Supplemental Cash Flow Information of the Company Supplemental cash flow information is included as follows (in thousands):
The following is a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the nine months ended September 30, 2017 and 2016.
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Supplemental Cash Flow Information of the Operating Partnership |
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Other Significant Noncash Transactions [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Cash Flow Information of the Operating Partnership | Supplemental Cash Flow Information of the Company Supplemental cash flow information is included as follows (in thousands):
The following is a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the nine months ended September 30, 2017 and 2016.
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Kilroy Realty, L.P. [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Significant Noncash Transactions [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Cash Flow Information of the Operating Partnership | Supplemental Cash Flow Information of the Operating Partnership: Supplemental cash flow information is included as follows (in thousands):
The following is a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the nine months ended September 30, 2017 and 2016.
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Subsequent Events |
9 Months Ended |
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Sep. 30, 2017 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events On October 10, 2017, the Company completed the acquisition of a 1.2 acre development site located in the Little Italy neighborhood of downtown San Diego, California for $19.4 million in cash. On October 18, 2017, aggregate dividends, distributions and dividend equivalents of $43.3 million were paid to common stockholders, common unitholders and RSU holders of record on September 30, 2017. |
Organization and Basis of Presentation (Policies) |
9 Months Ended |
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Sep. 30, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Consolidation policy | The consolidated financial statements of the Company include the consolidated financial position and results of operations of the Company, the Operating Partnership, the Finance Partnership, Kilroy Services, LLC (“KSLLC”), 100 First LLC, 303 Second 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, the Finance Partnership, KSLLC, 100 First LLC, 303 Second LLC, Redwood LLC and all wholly-owned and controlled subsidiaries of the Operating Partnership. All intercompany balances and transactions have been eliminated in the consolidated financial statements. |
Basis of accounting | 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, 2017. 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, 2016. |
New accounting pronouncements | Adoption of New Accounting Pronouncements Effective January 1, 2017, the Company adopted FASB ASU No. 2017-01 (“ASU 2017-01”) which clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework provides a screen for determining whether an integrated set of assets is a business combination or an asset acquisition and clarifies that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar assets, the set of assets and activities is deemed not to meet the definition of a business. As a result of our adoption of the guidance, which we adopted on a prospective basis, the Company expects that most of our future acquisitions of operating properties and development properties that were previously accounted for as business combinations will instead be accounted for as asset acquisitions under the new guidance. In addition, we expect that most of the transaction costs associated with these future acquisitions will be capitalized as part of the purchase price of the acquisition instead of being expensed as incurred to acquisition-related expenses. The Company did not have any acquisitions of operating properties during the nine months ended September 30, 2017. Also effective January 1, 2017, the Company adopted ASU No. 2016-18 (“ASU 2016-18”) which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The Company adopted ASU 2016-18 on a retrospective basis. Therefore, amounts generally described as restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the Company’s consolidated statements of cash flows for the nine months ended September 30, 2017 and 2016. As a result of the adoption of ASU 2016-18, the change in restricted cash is no longer presented as a separate line item within cash flows from investing activities on the Company’s consolidated statements of cash flows since such balances are now included in total cash at both the beginning and end of the reporting period. As a result, for the nine months ended September 30, 2016, the Company had net cash used in investing activities of $67.4 million instead of net cash used in investing activities of $124.2 million as previously reported since the Company had an increase in restricted cash of $56.8 million during the nine months ended September 30, 2016 primarily due to $48.4 million of restricted cash that was held at qualified intermediaries to facilitate potential future Section1031 Exchanges. In addition, effective January 1, 2017, the Company adopted ASU No. 2016-09 (“ASU 2016-09”) which simplified several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The adoption of this guidance did not have an impact on our consolidated financial statements or notes to our consolidated financial statements. Recently Issued Accounting Pronouncements ASU No. 2016-02 “Leases (Topic 842)” On February 25, 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”) to amend the accounting guidance for leases. The accounting applied by a lessor is largely unchanged under ASU 2016-02. However, the standard requires lessees to recognize lease assets and lease liabilities for leases classified as operating leases on the balance sheet. Lessees will recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it will recognize lease expense for such leases generally on a straight-line basis over the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and early adoption is permitted. We are currently conducting our evaluation of the impact of the guidance on our consolidated financial statements and have an active project team working on the evaluation and implementation of the guidance. We currently believe that the adoption of the standard will not significantly change the accounting for operating leases on our consolidated balance sheets where we are the lessor, and that such leases will be accounted for in a similar method to existing standards with the underlying leased asset being reported and recognized as a real estate asset. We currently expect that certain non-lease components will need to be accounted for separately from the lease components, with the lease components continuing to be recognized on a straight-line basis over the term of the lease and certain non-lease components (such as common area maintenance) being accounted for under the new revenue recognition guidance in ASU 2014-09 discussed below, even when revenue for such non-lease components is not separately stipulated in the lease. In addition, under ASU 2016-02, lessors will only be permitted to capitalize and amortize incremental direct leasing costs. As a result, we expect that upon the adoption of the standard, we will no longer be able to capitalize and amortize certain leasing related costs and instead will expense these costs as incurred. We currently expect this could have a material impact to the Company’s results of operations upon adoption of the standard. For leases where we are the lessee, specifically for our ground leases, we currently believe that the adoption of the standard will significantly change the accounting on our consolidated balance sheets since both existing ground leases and any future ground leases will be required to be recorded on the Company’s consolidated balance sheets as an obligation of the Company. We currently believe that existing ground leases executed before the January 1, 2019 adoption date will continue to be accounted for as operating leases and will not have a material impact on our recognition of ground lease expense or our results of operations. However, we believe that we will be required to recognize a right of use asset and a lease liability on our consolidated balance sheets equal to the present value of the minimum lease payments required in accordance with each ground lease. As of September 30, 2017, our future undiscounted minimum rental payments under these leases totaled $252.8 million, with several of the leases containing provisions for rental payments to fluctuate based on fair market value and operating income measurements with expirations through 2093. In addition, we currently believe that for new ground leases entered into after the adoption date of the new standard, such leases could be required to be accounted for as a financing type lease, resulting in ground lease expense recorded using the effective interest method instead of on a straight-line basis over the term of the lease. This could have a significant impact on our results of operations if we enter into material new ground leases after the date of adoption since ground lease expense calculated using the effective interest method results in an increased amount of ground lease expense in the earlier years of a ground lease as compared to the current straight-line method. We will adopt the guidance on a modified retrospective basis as required by ASU 2016-02. We are in the process of evaluating whether we will elect to apply the practical expedients identified in the standard but currently believe that we may do so. ASU No. 2014-09 “Revenue From Contracts with Customers (Topic 606)” In May 2014, the FASB issued ASU 2014-09 “Revenue From Contracts with Customers (Topic 606)” (“ASU 2014-09”). The objective of ASU 2014-09 is to establish a single comprehensive model for entities to use in accounting for revenue from contracts with customers and will supersede most of the existing revenue recognition guidance. On May 9, 2016 and December 21, 2016, the FASB issued ASU No. 2016-12 and ASU No. 2016-20, which provides practical expedients, technical corrections, and improvements for certain aspects of ASU No. 2014-09. Public business entities may elect to adopt the amendments as of the original effective date; however, adoption is required for annual reporting periods beginning after December 15, 2017. We have compiled an inventory of the sources of revenue that will be impacted by ASU 2014-09. Specifically, we have evaluated the impact of the guidance on timing of gain recognition for dispositions and currently do not believe there will be a material impact to our consolidated financial statements given the simplicity of the Company’s historical disposition transactions. In addition, we currently believe that certain non-lease components of revenue from leases such as common area maintenance and certain types of parking revenue may be impacted by ASU 2014-09 when we adopt ASU 2016-02 on January 1, 2019. We are in the process of evaluating the impact on these non-lease revenue components and currently believe the impact will be limited to the income statement presentation of revenue and not the total amount of revenue recognized. Other Recently Issued Pronouncements On May 10, 2017, the FASB issued ASU No. 2017-09 “Compensation - Stock Compensation (Topic 718)” to clarify the scope of modification accounting. Under the guidance, an entity will not apply modification accounting to a share-based payment award if the award’s fair value, vesting conditions, and classification as an equity or liability instrument remain the same immediately before and after the change. The guidance is effective for annual periods beginning after December 15, 2017 and early adoption is permitted. 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. On February 22, 2017, the FASB issued ASU No. 2017-05 “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20)” (“ASU 2017-05”) to provide guidance and clarify the scope of the original guidance within Subtopic 610-20 “Gains and Losses from the Derecognition of Nonfinancial Assets” that was issued in connection with ASU 2014-09, which provided guidance for recognizing gains and losses from the transfer of nonfinancial assets in transactions with noncustomers. ASU 2017-05 additionally adds guidance pertaining to the partial sales of real estate and clarifies that nonfinancial assets within the scope of Accounting Standards Codification Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. For example, a parent may transfer control of nonfinancial assets by transferring ownership interests in a consolidated subsidiary. ASU 2017-05 is effective for fiscal years beginning after December 15, 2017, with early application permitted for fiscal years beginning after December 15, 2016. We are currently evaluating the impact of ASU 2017-05 on our consolidated financial statements and currently do not anticipate that the guidance will have a material impact on our consolidated financial statements or notes to our consolidated financial statements. On August 26, 2016, the FASB issued ASU No. 2016-15 (“ASU 2016-15”) to provide guidance for areas where there is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. 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. On June 16, 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”) to amend the accounting for credit losses for certain financial instruments. Under the new guidance, an entity recognizes its estimate of expected credit losses as an allowance, which the FASB believes will result in more timely recognition of such losses. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. 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. On January 5, 2016, the FASB issued ASU No. 2016-01 (“ASU 2016-01”) to amend the accounting guidance on the classification and measurement of financial instruments. The standard requires that all investments in equity securities, including other ownership interests, are carried at fair value through net income. This requirement does not apply to investments that qualify for equity method accounting or to those that result in consolidation of the investee or for which the entity has elected the predictability exception to fair value measurement. Additionally, the standard requires that the portion of the total fair value change caused by a change in instrument-specific credit risk for financial liabilities for which the fair value option has been elected would be recognized in other comprehensive income. Any accumulated amount remaining in other comprehensive income is reclassified to earnings when the liability is extinguished. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017. 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. |
Organization and Basis of Presentation (Tables) |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of real estate properties | As of September 30, 2017, the following properties were excluded from our stabilized portfolio. We did not have any redevelopment properties at September 30, 2017.
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Our stabilized portfolio of operating properties was comprised of the following properties at September 30, 2017:
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Dispositions (Tables) |
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of dispositions and real estate assets held for sale | The following table summarizes the properties sold during the nine months ended September 30, 2017.
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Receivables (Tables) |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Current Receivables, net | Current receivables, net is primarily comprised of contractual rents and other lease-related obligations due from tenants. The balance consisted of the following as of September 30, 2017 and December 31, 2016:
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Deferred Rent Receivables, net | Deferred rent receivables, net consisted of the following as of September 30, 2017 and December 31, 2016:
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Prepaid Expenses and Other Assets, Net (Tables) |
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Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prepaid expenses and other assets, net | Prepaid expenses and other assets, net consisted of the following at September 30, 2017 and December 31, 2016:
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Secured and Unsecured Debt of the Operating Partnership (Tables) - Kilroy Realty, L.P. [Member] |
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Debt Instrument [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unsecured revolving credit facility | The following table summarizes the balance and terms of our unsecured term loan facility as of September 30, 2017 and December 31, 2016:
The following table summarizes the balance and terms of our unsecured revolving credit facility as of September 30, 2017 and December 31, 2016:
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Schedule of debt maturities | The following table summarizes the stated debt maturities and scheduled amortization payments of our issued and outstanding debt, excluding unamortized debt discounts, premiums and deferred financing costs, as of September 30, 2017:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Capitalized interest and loan fees | The following table sets forth gross interest expense, including debt discount/premium and deferred financing cost amortization, net of capitalized interest, for the three and nine months ended September 30, 2017 and 2016. The interest expense capitalized was recorded as a cost of development and increased the carrying value of undeveloped land and construction in progress.
|
Partners' Capital of the Operating Partnership (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Partners' Capital Notes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of 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:
|
Share-Based Compensation (Tables) |
9 Months Ended | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2017 | |||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||
Schedule of share-based payment award, restricted stock units, valuation assumptions | The following table summarizes the assumptions utilized in the Monte Carlo simulation pricing model:
|
Fair Value Measurements and Disclosures (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value of the company's marketable securities | The following table sets forth the fair value of our marketable securities as of September 30, 2017 and December 31, 2016:
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Fair value adjustment of marketable securities and deferred compensation plan liability | The following table sets forth the net gain on marketable securities recorded during the three and nine months ended September 30, 2017 and 2016:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Carrying value and fair value of company's remaining financial assets and liabilities | The following table sets forth the carrying value and the fair value of our other financial instruments as of September 30, 2017 and December 31, 2016:
|
Net Income Available to Common Stockholders Per Share of the Company (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income available to common stockholders | 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 and nine months ended September 30, 2017 and 2016:
________________________
|
Net Income Available to Common Unitholders Per Unit of the Operating Partnership (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income Available To Common Unitholders [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) available to common unitholders | 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 and nine months ended September 30, 2017 and 2016:
________________________
|
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Kilroy Realty, L.P. [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income Available To Common Unitholders [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) available to common unitholders | 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 and nine months ended September 30, 2017 and 2016:
________________________
|
Supplemental Cash Flow Information of the Company (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Cash Flow Elements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of supplemental cash flows | Supplemental cash flow information is included as follows (in thousands):
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Reconciliation of cash and cash equivalents and restricted cash | The following is a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the nine months ended September 30, 2017 and 2016.
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Reconciliation of cash and cash equivalents and restricted cash | The following is a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the nine months ended September 30, 2017 and 2016.
|
Supplemental Cash Flow Information of the Operating Partnership (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Significant Noncash Transactions [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of supplemental cash flows | Supplemental cash flow information is included as follows (in thousands):
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Reconciliation of cash and cash equivalents and restricted cash | The following is a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the nine months ended September 30, 2017 and 2016.
|
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Reconciliation of cash and cash equivalents and restricted cash | The following is a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the nine months ended September 30, 2017 and 2016.
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Kilroy Realty, L.P. [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Significant Noncash Transactions [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of supplemental cash flows | Supplemental cash flow information is included as follows (in thousands):
|
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Reconciliation of cash and cash equivalents and restricted cash | The following is a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the nine months ended September 30, 2017 and 2016.
|
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Reconciliation of cash and cash equivalents and restricted cash | The following is a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the nine months ended September 30, 2017 and 2016.
|
Organization and Basis of Presentation (Details) - Sep. 30, 2017 |
Total |
ft² |
tenant |
number_of_residential_units |
building |
project |
property_units |
property |
---|---|---|---|---|---|---|---|---|
Stabilized office properties [Member] | ||||||||
Real Estate Properties [Line Items] | ||||||||
Number of Buildings | 101 | 4 | ||||||
Rentable Square Feet (unaudited) | 13,720,598 | |||||||
Number of Tenants | tenant | 515 | |||||||
Percentage Occupied (unaudited) | 94.00% | |||||||
Percentage Leased (unaudited) | 96.20% | |||||||
Stabilized residential properties [Member] | ||||||||
Real Estate Properties [Line Items] | ||||||||
Number of Buildings | building | 1 | |||||||
Percentage Occupied (unaudited) | 72.00% | |||||||
Percentage Leased (unaudited) | 74.50% | |||||||
Number of Units | property_units | 200 | |||||||
Development projects under construction [Member] | ||||||||
Real Estate Properties [Line Items] | ||||||||
Number of Buildings | project | 4 | |||||||
Rentable Square Feet (unaudited) | 1,800,000 | |||||||
Number of residential units | number_of_residential_units | 237 | |||||||
Retail site [Member] | Development projects under construction [Member] | ||||||||
Real Estate Properties [Line Items] | ||||||||
Rentable Square Feet (unaudited) | 96,000 |
Receivables (Details) - USD ($) $ in Thousands |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Current Receivables, net | ||
Current receivables | $ 20,746 | $ 15,172 |
Allowance for uncollectible tenant receivables | (2,120) | (1,712) |
Current receivables, net | 18,626 | 13,460 |
Deferred Rent Receivables, net | ||
Deferred rent receivables | 241,929 | 220,501 |
Allowance for deferred rent receivables | (2,970) | (1,524) |
Deferred rent receivables, net | $ 238,959 | $ 218,977 |
Prepaid Expenses and Other Assets, Net (Details) - USD ($) $ in Thousands |
Sep. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Debt Instrument [Line Items] | ||
Furniture, fixtures and other long-lived assets, net | $ 39,889 | $ 40,395 |
Notes receivable (1) | 19,838 | 19,439 |
Prepaid expenses & acquisition deposits | 48,988 | 10,774 |
Total prepaid expenses and other assets, net | 108,715 | $ 70,608 |
Secured debt [Member] | ||
Debt Instrument [Line Items] | ||
Notes receivable (1) | $ 15,100 |
Secured and Unsecured Debt of the Operating Partnership - Unsecured Senior Notes - Private Placement (Details) - Kilroy Realty, L.P. [Member] - USD ($) |
9 Months Ended | |
---|---|---|
Sep. 30, 2017 |
Feb. 17, 2017 |
|
Debt Instrument [Line Items] | ||
Long-term debt, gross | $ 2,449,025,000 | |
Unsecured Debt [Member] | Three point three five percent Series A Unsecured Senior Notes [Member] | ||
Debt Instrument [Line Items] | ||
Long-term debt, gross | 175,000,000 | $ 175,000,000 |
Stated coupon rate | 3.35% | |
Unsecured Debt [Member] | Three point four five percent Series B Unsecured Senior Notes [Member] | ||
Debt Instrument [Line Items] | ||
Long-term debt, gross | $ 75,000,000 | $ 75,000,000 |
Stated coupon rate | 3.45% | |
Unsecured Debt [Member] | Series A and B Unsecured Senior Notes [Member] | ||
Debt Instrument [Line Items] | ||
Operating partnership, payment percent | 5.00% | |
Operating partnership, total payment percentage | 100.00% |
Secured and Unsecured Debt of the Operating Partnership - Debt Maturities (Details) - Kilroy Realty, L.P. [Member] $ in Thousands |
Sep. 30, 2017
USD ($)
|
---|---|
Stated debt maturities and scheduled amortization payments, excluding debt discounts | |
Remaining 2017 | $ 1,545 |
2018 | 451,669 |
2019 | 76,309 |
2020 | 255,137 |
2021 | 5,342 |
Thereafter | 1,659,023 |
Total debt | 2,449,025 |
Unamortized debt issuance costs | (10,900) |
Unsecured Senior Notes [Member] | |
Stated debt maturities and scheduled amortization payments, excluding debt discounts | |
Unamortized discount | (6,000) |
Secured debt [Member] | |
Stated debt maturities and scheduled amortization payments, excluding debt discounts | |
Unamortized premium | $ 3,000 |
Secured and Unsecured Debt of the Operating Partnership - Capitalized Interest and Loan Fees (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
|
Capitalized Interest and Loan Fees [Line Items] | ||||
Interest expense | $ 16,151 | $ 14,976 | $ 51,476 | $ 41,189 |
Kilroy Realty, L.P. [Member] | ||||
Capitalized Interest and Loan Fees [Line Items] | ||||
Gross interest expense | 28,331 | 26,184 | 84,577 | 79,027 |
Capitalized interest and deferred financing costs | (12,180) | (11,208) | (33,101) | (37,838) |
Interest expense | $ 16,151 | $ 14,976 | $ 51,476 | $ 41,189 |
Noncontrolling Interests on the Company's Consolidated Financial Statements - Common Units of the Operating Partnership (Details) - USD ($) $ / shares in Units, $ in Millions |
Sep. 30, 2017 |
Dec. 31, 2016 |
Sep. 30, 2016 |
---|---|---|---|
Noncontrolling Interest [Line Items] | |||
Common general partnership interest in the Operating Partnership | 97.90% | 97.50% | 97.20% |
Common limited partnership interest in the Operating Partnership | 2.10% | 2.50% | 2.80% |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 | |
Aggregate value upon redemption of outstanding noncontrolling common units | $ 145.6 | $ 174.9 | |
Brannan St Project [Member] | |||
Noncontrolling Interest [Line Items] | |||
Common stock, par value (in dollars per share) | $ 0.01 | ||
Kilroy Realty, L.P. [Member] | Capital Units [Member] | |||
Noncontrolling Interest [Line Items] | |||
Common units outstanding held by common limited partners | 2,077,193 | 2,381,543 | 2,631,276 |
Share-Based Compensation (Details) - 2017 Performance-Based RSUs [Member] |
9 Months Ended |
---|---|
Sep. 30, 2017
$ / shares
| |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Grant date fair value (in dollars per share) | $ 80.89 |
Expected share price volatility | 21.00% |
Risk-free interest rate | 1.39% |
Remaining expected life | 2 years 10 months |
Commitments and Contingencies (Details) $ in Millions |
Sep. 30, 2017
USD ($)
|
---|---|
Commitments and Contingencies Disclosure [Abstract] | |
Commitments | $ 755.0 |
Accrued environmental remediation liabilities | $ 27.1 |
Fair Value Measurements and Disclosures (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2017 |
Sep. 30, 2016 |
Sep. 30, 2017 |
Sep. 30, 2016 |
Dec. 31, 2016 |
|
Fair value adjustment of marketable securities and deferred compensation plan liability | |||||
Net gain on marketable securities | $ 536 | $ 481 | $ 1,719 | $ 867 | |
Fair Value (Level 1) [Member] | |||||
Assets and Liabilities Reported at Fair Value | |||||
Marketable securities | $ 18,851 | $ 18,851 | $ 14,773 |
Supplemental Cash Flow Information of the Company - Reconciliation of cash and cash equivalents and restricted cash (Details) - USD ($) $ in Thousands |
Sep. 30, 2017 |
Dec. 31, 2016 |
Sep. 30, 2016 |
---|---|---|---|
Supplemental Cash Flow Elements [Abstract] | |||
Cash and cash equivalents at beginning of period | $ 193,418 | $ 250,523 | $ 56,508 |
Restricted cash at beginning of period | 56,711 | 57,501 | 696 |
Cash and cash equivalents and restricted cash, beginning of period | 250,129 | 308,024 | 57,204 |
Cash and cash equivalents at end of period | 64,954 | 193,418 | 250,523 |
Restricted cash at end of period | 179,276 | 56,711 | 57,501 |
Cash and cash equivalents and restricted cash, end of period | $ 244,230 | $ 250,129 | $ 308,024 |
Subsequent Events (Details) $ in Thousands |
9 Months Ended | ||||
---|---|---|---|---|---|
Oct. 18, 2017
USD ($)
|
Oct. 10, 2017
USD ($)
a
|
Jan. 13, 2017
USD ($)
|
Sep. 30, 2017
USD ($)
|
Sep. 30, 2016
USD ($)
|
|
Subsequent Event [Line Items] | |||||
Payment of special dividend | $ 36,400 | $ 297,993 | $ 101,542 | ||
Subsequent Event [Member] | |||||
Subsequent Event [Line Items] | |||||
Payment of special dividend | $ 43,300 | ||||
Subsequent Event [Member] | Little Italy, Sand Diego, California [Member] | |||||
Subsequent Event [Line Items] | |||||
Area of land | a | 1.2 | ||||
Cash payment | $ 19,400 |
YP/
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