QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Kilroy Realty Corporation | |||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||
Kilroy Realty, L.P. | |||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Registrant's telephone number, including area code) | ||
N/A | ||
(Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act: | |||
Registrant | Title of each class | Name of each exchange on which registered | Ticker Symbol |
Kilroy Realty Corporation |
Securities registered pursuant to Section 12(g) of the Act: | |
Registrant | Title of each class |
Kilroy Realty, L.P. |
• | 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 5, Stockholders’ Equity of the Company; |
◦ | Note 7, 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. | |||
June 30, 2019 | December 31, 2018 | ||||||
ASSETS | |||||||
REAL ESTATE ASSETS: | |||||||
Land and improvements | $ | $ | |||||
Buildings and improvements | |||||||
Undeveloped land and construction in progress | |||||||
Total real estate assets held for investment | |||||||
Accumulated depreciation and amortization | ( | ) | ( | ) | |||
Total real estate assets held for investment, net | |||||||
CASH AND CASH EQUIVALENTS | |||||||
RESTRICTED CASH | |||||||
MARKETABLE SECURITIES (Note 11) | |||||||
CURRENT RECEIVABLES, NET (Note 1) | |||||||
DEFERRED RENT RECEIVABLES, NET (Note 1) | |||||||
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Note 1) | |||||||
RIGHT OF USE GROUND LEASE ASSETS (Notes 1 and 10) | — | ||||||
PREPAID EXPENSES AND OTHER ASSETS, NET (Note 3) | |||||||
TOTAL ASSETS | $ | $ | |||||
LIABILITIES AND EQUITY | |||||||
LIABILITIES: | |||||||
Secured debt, net (Notes 4 and 11) | $ | $ | |||||
Unsecured debt, net (Notes 4 and 11) | |||||||
Unsecured line of credit (Notes 4, 11 and 16) | |||||||
Accounts payable, accrued expenses and other liabilities | |||||||
Ground lease liabilities (Notes 1 and 10) | — | ||||||
Accrued dividends and distributions (Note 16) | |||||||
Deferred revenue and acquisition-related intangible liabilities, net | |||||||
Rents received in advance and tenant security deposits | |||||||
Total liabilities | |||||||
COMMITMENTS AND CONTINGENCIES (Note 10) | |||||||
EQUITY: | |||||||
Stockholders’ Equity (Note 5): | |||||||
Common stock, $.01 par value, 150,000,000 shares authorized, 100,972,035 and 100,746,988 shares issued and outstanding, respectively | |||||||
Additional paid-in capital | |||||||
Distributions in excess of earnings (Note 1) | ( | ) | ( | ) | |||
Total stockholders’ equity | |||||||
Noncontrolling Interests (Notes 1 and 6): | |||||||
Common units of the Operating Partnership | |||||||
Noncontrolling interests in consolidated property partnerships | |||||||
Total noncontrolling interests | |||||||
Total equity | |||||||
TOTAL LIABILITIES AND EQUITY | $ | $ |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
REVENUES (Note 1) | |||||||||||||||
Rental income | $ | $ | $ | $ | |||||||||||
Tenant reimbursements | |||||||||||||||
Other property income | |||||||||||||||
Total revenues | |||||||||||||||
EXPENSES | |||||||||||||||
Property expenses (Note 1) | |||||||||||||||
Real estate taxes | |||||||||||||||
Provision for bad debts (Note 1) | |||||||||||||||
Ground leases (Notes 1 and 10) | |||||||||||||||
General and administrative expenses | |||||||||||||||
Leasing costs (Note 1) | — | — | |||||||||||||
Depreciation and amortization | |||||||||||||||
Total expenses | |||||||||||||||
OTHER (EXPENSES) INCOME | |||||||||||||||
Interest income and other net investment gain (Note 11) | |||||||||||||||
Interest expense (Note 4) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Gains on sales of depreciable operating properties (Note 2) | |||||||||||||||
Total other (expenses) income | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
NET INCOME | |||||||||||||||
Net income attributable to noncontrolling common units of the Operating Partnership | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Net income attributable to noncontrolling interests in consolidated property partnerships | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Total income attributable to noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS | $ | $ | $ | $ | |||||||||||
Net income available to common stockholders per share – basic (Note 12) | $ | $ | $ | $ | |||||||||||
Net income available to common stockholders per share – diluted (Note 12) | $ | $ | $ | $ | |||||||||||
Weighted average common shares outstanding – basic (Note 12) | |||||||||||||||
Weighted average common shares outstanding – diluted (Note 12) |
Common Stock | Total Stock- holders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||
Number of Shares | Common Stock | Additional Paid-in Capital | Distributions in Excess of Earnings | |||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2018 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||
Net income | ||||||||||||||||||||||||||
Opening adjustment to Distributions in Excess of Earnings upon adoption of ASC 842 (Note 1) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
Issuance of share-based compensation awards | ||||||||||||||||||||||||||
Non-cash amortization of share-based compensation (Note 8) | ||||||||||||||||||||||||||
Settlement of restricted stock units for shares of common stock | ( | ) | — | |||||||||||||||||||||||
Repurchase of common stock, stock options and restricted stock units | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
Exchange of common units of the Operating Partnership | — | ( | ) | |||||||||||||||||||||||
Distributions to noncontrolling interests in consolidated property partnerships | — | ( | ) | ( | ) | |||||||||||||||||||||
Adjustment for noncontrolling interest | ( | ) | ||||||||||||||||||||||||
Dividends declared per common share and common unit ($0.455 per share/unit) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
BALANCE AS OF MARCH 31, 2019 | ( | ) | ||||||||||||||||||||||||
Net income | ||||||||||||||||||||||||||
Issuance of share-based compensation awards | ||||||||||||||||||||||||||
Non-cash amortization of share-based compensation (Note 8) | ||||||||||||||||||||||||||
Exercise of stock options | — | |||||||||||||||||||||||||
Settlement of restricted stock units for shares of common stock | — | — | — | |||||||||||||||||||||||
Repurchase and cancellation of common stock, stock options, and restricted stock units | ( | ) | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||
Distributions to noncontrolling interests in consolidated property partnerships | — | ( | ) | ( | ) | |||||||||||||||||||||
Adjustment for noncontrolling interest | ( | ) | ( | ) | ||||||||||||||||||||||
Dividends declared per common share and common unit ($0.485 per share/unit) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
BALANCE AS OF JUNE 30, 2019 | $ | $ | $ | ( | ) | $ | $ | $ |
Common Stock | Total Stock- holders’ Equity | Noncontrolling Interests | Total Equity | |||||||||||||||||||||||
Number of Shares | Common Stock | Additional Paid-in Capital | Distributions in Excess of Earnings | |||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2017 | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||
Net income | ||||||||||||||||||||||||||
Issuance of share-based compensation awards | ||||||||||||||||||||||||||
Non-cash amortization of share-based compensation | ||||||||||||||||||||||||||
Settlement of restricted stock units for shares of common stock | ( | ) | — | |||||||||||||||||||||||
Repurchase of common stock, stock options and restricted stock units | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
Exchange of common units of the Operating Partnership | — | ( | ) | |||||||||||||||||||||||
Distributions to noncontrolling interests in consolidated property partnerships | — | ( | ) | ( | ) | |||||||||||||||||||||
Adjustment for noncontrolling interest | ( | ) | ||||||||||||||||||||||||
Dividends declared per common share and common unit ($0.425 per share/unit) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
BALANCE AS OF MARCH 31, 2018 | ( | ) | ||||||||||||||||||||||||
Net income | ||||||||||||||||||||||||||
Issuance of common stock | ||||||||||||||||||||||||||
Issuance of share-based compensation awards | ||||||||||||||||||||||||||
Non-cash amortization of share-based compensation | ||||||||||||||||||||||||||
Exercise of stock options | — | |||||||||||||||||||||||||
Exchange of common units of the Operating Partnership | — | — | ( | ) | ||||||||||||||||||||||
Distributions to noncontrolling interests in consolidated property partnerships | — | ( | ) | ( | ) | |||||||||||||||||||||
Adjustment for noncontrolling interest | ( | ) | ( | ) | ||||||||||||||||||||||
Dividends declared per common share and common unit ($0.455 per share/unit) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
BALANCE AS OF JUNE 30, 2018 | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||
Six Months Ended June 30, | |||||||
2019 | 2018 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | $ | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization of real estate assets and leasing costs | |||||||
Depreciation of non-real estate furniture, fixtures and equipment | |||||||
(Recoveries of) provision for bad debts and write-offs (Note 1) | ( | ) | |||||
Non-cash amortization of share-based compensation awards | |||||||
Non-cash amortization of deferred financing costs and debt discounts and premiums | |||||||
Non-cash amortization of net below market rents | ( | ) | ( | ) | |||
Gain on sale of depreciable operating properties (Note 2) | ( | ) | |||||
Non-cash amortization of deferred revenue related to tenant-funded tenant improvements | ( | ) | ( | ) | |||
Straight-line rents | ( | ) | ( | ) | |||
Amortization of right of use ground lease assets | — | ||||||
Net change in other operating assets | ( | ) | ( | ) | |||
Net change in other operating liabilities | ( | ) | |||||
Net cash provided by operating activities | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Expenditures for development properties and undeveloped land | ( | ) | ( | ) | |||
Expenditures for operating properties | ( | ) | ( | ) | |||
Net proceeds received from dispositions (Note 2) | |||||||
Expenditures for acquisition of operating properties | ( | ) | |||||
Expenditures for acquisition of undeveloped land | ( | ) | |||||
Net decrease in acquisition-related deposits | |||||||
Proceeds received from repayment of note receivable | |||||||
Net cash used in investing activities | ( | ) | ( | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Borrowings on unsecured revolving credit facility (Note 4) | |||||||
Repayments on unsecured revolving credit facility (Notes 4 and 16) | ( | ) | ( | ) | |||
Borrowings on unsecured debt | |||||||
Principal payments and repayments of secured debt (Note 4) | ( | ) | ( | ) | |||
Financing costs | ( | ) | ( | ) | |||
Net proceeds from issuance of common stock | |||||||
Repurchase of common stock and restricted stock units | ( | ) | ( | ) | |||
Proceeds from exercise of stock options | |||||||
Distributions to noncontrolling interests in consolidated property partnerships | ( | ) | ( | ) | |||
Dividends and distributions paid to common stockholders and common unitholders | ( | ) | ( | ) | |||
Net cash provided by financing activities | |||||||
Net decrease in cash and cash equivalents and restricted cash | ( | ) | ( | ) | |||
Cash and cash equivalents and restricted cash, beginning of period | |||||||
Cash and cash equivalents and restricted cash, end of period | $ | $ |
June 30, 2019 | December 31, 2018 | ||||||
ASSETS | |||||||
REAL ESTATE ASSETS: | |||||||
Land and improvements | $ | $ | |||||
Buildings and improvements | |||||||
Undeveloped land and construction in progress | |||||||
Total real estate assets held for investment | |||||||
Accumulated depreciation and amortization | ( | ) | ( | ) | |||
Total real estate assets held for investment, net | |||||||
CASH AND CASH EQUIVALENTS | |||||||
RESTRICTED CASH | |||||||
MARKETABLE SECURITIES (Note 11) | |||||||
CURRENT RECEIVABLES, NET (Note 1) | |||||||
DEFERRED RENT RECEIVABLES, NET (Note 1) | |||||||
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Note 1) | |||||||
RIGHT OF USE GROUND LEASE ASSETS (Notes 1 and 10) | — | ||||||
PREPAID EXPENSES AND OTHER ASSETS, NET (Note 3) | |||||||
TOTAL ASSETS | $ | $ | |||||
LIABILITIES AND CAPITAL | |||||||
LIABILITIES: | |||||||
Secured debt, net (Notes 4 and 11) | $ | $ | |||||
Unsecured debt, net (Notes 4 and 11) | |||||||
Unsecured line of credit (Notes 4, 11 and 16) | |||||||
Accounts payable, accrued expenses and other liabilities | |||||||
Ground lease liabilities (Notes 1 and 10) | — | ||||||
Accrued distributions (Note 16) | |||||||
Deferred revenue and acquisition-related intangible liabilities, net | |||||||
Rents received in advance and tenant security deposits | |||||||
Total liabilities | |||||||
COMMITMENTS AND CONTINGENCIES (Note 10) | |||||||
CAPITAL: | |||||||
Common units, 100,972,035 and 100,746,988 held by the general partner and 2,023,287 and 2,025,287 held by common limited partners issued and outstanding, respectively (Note 6) | |||||||
Noncontrolling interests in consolidated property partnerships and subsidiaries (Note 1) | |||||||
Total capital | |||||||
TOTAL LIABILITIES AND CAPITAL | $ | $ |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
REVENUES (Note 1) | |||||||||||||||
Rental income | $ | $ | $ | $ | |||||||||||
Tenant reimbursements | |||||||||||||||
Other property income | |||||||||||||||
Total revenues | |||||||||||||||
EXPENSES | |||||||||||||||
Property expenses (Note 1) | |||||||||||||||
Real estate taxes | |||||||||||||||
Provision for bad debts (Note 1) | |||||||||||||||
Ground leases (Note 1 and 10) | |||||||||||||||
General and administrative expenses | |||||||||||||||
Leasing costs (Note 1) | — | — | |||||||||||||
Depreciation and amortization | |||||||||||||||
Total expenses | |||||||||||||||
OTHER (EXPENSES) INCOME | |||||||||||||||
Interest income and other net investment gain (Note 11) | |||||||||||||||
Interest expense (Note 4) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Gains on sales of depreciable operating properties (Note 2) | |||||||||||||||
Total other (expenses) income | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
NET INCOME | |||||||||||||||
Net income attributable to noncontrolling interests in consolidated property partnerships and subsidiaries | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
NET INCOME AVAILABLE TO COMMON UNITHOLDERS | $ | $ | $ | $ | |||||||||||
Net income available to common unitholders per unit – basic (Note 13) | $ | $ | $ | $ | |||||||||||
Net income available to common unitholders per unit – diluted (Note 13) | $ | $ | $ | $ | |||||||||||
Weighted average common units outstanding – basic (Note 13) | |||||||||||||||
Weighted average common units outstanding – diluted (Note 13) |
Partners’ Capital | Noncontrolling Interests in Consolidated Property Partnerships and Subsidiaries | |||||||||||||
Number of Common Units | Common Units | Total Capital | ||||||||||||
BALANCE AS OF DECEMBER 31, 2018 | $ | $ | $ | |||||||||||
Net income | ||||||||||||||
Opening adjustment to Partners’ Capital upon adoption of ASC 842 (Note 1) | ( | ) | ( | ) | ||||||||||
Issuance of share-based compensation awards | ||||||||||||||
Non-cash amortization of share-based compensation (Note 8) | ||||||||||||||
Settlement of restricted stock units | — | |||||||||||||
Repurchase of common units, stock options and restricted stock units | ( | ) | ( | ) | ( | ) | ||||||||
Distributions to noncontrolling interests in consolidated property partnerships | ( | ) | ( | ) | ||||||||||
Distributions declared per common unit ($0.455 per unit) | ( | ) | ( | ) | ||||||||||
BALANCE AS OF MARCH 31, 2019 | ||||||||||||||
Net income | ||||||||||||||
Issuance of share-based compensation awards | ||||||||||||||
Non-cash amortization of share-based compensation (Note 8) | ||||||||||||||
Exercise of stock options | ||||||||||||||
Settlement of restricted stock units | — | |||||||||||||
Repurchase and cancellation of common units, stock options, and restricted stock units | ( | ) | ( | ) | ( | ) | ||||||||
Distributions to noncontrolling interests in consolidated property partnerships | ( | ) | ( | ) | ||||||||||
Distributions declared per common unit ($0.485 per unit) | ( | ) | ( | ) | ||||||||||
BALANCE AS OF JUNE 30, 2019 | $ | $ | $ |
Partners’ Capital | Noncontrolling Interests in Consolidated Property Partnerships and Subsidiaries | |||||||||||||
Number of Common Units | Common Units | Total Capital | ||||||||||||
BALANCE AS OF DECEMBER 31, 2017 | $ | $ | $ | |||||||||||
Net income | ||||||||||||||
Issuance of share-based compensation awards | ||||||||||||||
Non-cash amortization of share-based compensation | ||||||||||||||
Settlement of restricted stock units | — | |||||||||||||
Repurchase of common units, stock options and restricted stock units | ( | ) | ( | ) | ( | ) | ||||||||
Distributions to noncontrolling interests in consolidated property partnerships | ( | ) | ( | ) | ||||||||||
Distributions declared per common unit ($0.425 per unit) | ( | ) | ( | ) | ||||||||||
BALANCE AS OF MARCH 31, 2018 | ||||||||||||||
Net income | ||||||||||||||
Issuance of common units | ||||||||||||||
Issuance of share-based compensation awards | ||||||||||||||
Non-cash amortization of share-based compensation | ||||||||||||||
Exercise of stock options | ||||||||||||||
Distributions to noncontrolling interests in consolidated property partnerships | ( | ) | ( | ) | ||||||||||
Distributions declared per common unit ($0.455 per unit) | ( | ) | ( | ) | ||||||||||
BALANCE AS OF JUNE 30, 2018 | $ | $ | $ | |||||||||||
Six Months Ended June 30, | |||||||
2019 | 2018 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | $ | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization of real estate assets and leasing costs | |||||||
Depreciation of non-real estate furniture, fixtures and equipment | |||||||
(Recoveries of) provision for bad debts and write-offs (Note 1) | ( | ) | |||||
Non-cash amortization of share-based compensation awards | |||||||
Non-cash amortization of deferred financing costs and debt discounts and premiums | |||||||
Non-cash amortization of net below market rents | ( | ) | ( | ) | |||
Gain on sale of depreciable operating properties (Note 2) | ( | ) | |||||
Non-cash amortization of deferred revenue related to tenant-funded tenant improvements | ( | ) | ( | ) | |||
Straight-line rents | ( | ) | ( | ) | |||
Amortization of right of use ground lease assets | — | ||||||
Net change in other operating assets | ( | ) | ( | ) | |||
Net change in other operating liabilities | ( | ) | |||||
Net cash provided by operating activities | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Expenditures for development properties and undeveloped land | ( | ) | ( | ) | |||
Expenditures for operating properties | ( | ) | ( | ) | |||
Net proceeds received from dispositions (Note 2) | |||||||
Expenditures for acquisition of operating properties | ( | ) | |||||
Expenditures for acquisition of undeveloped land | ( | ) | |||||
Net decrease in acquisition-related deposits | |||||||
Proceeds received from repayment of note receivable | |||||||
Net cash used in investing activities | ( | ) | ( | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Borrowings on unsecured revolving credit facility (Note 4) | |||||||
Repayments on unsecured revolving credit facility (Notes 4 and 16) | ( | ) | ( | ) | |||
Borrowings on unsecured debt | |||||||
Principal payments and repayments of secured debt (Note 4) | ( | ) | ( | ) | |||
Financing costs | ( | ) | ( | ) | |||
Net proceeds from issuance of common units | |||||||
Repurchase of common units and restricted stock units | ( | ) | ( | ) | |||
Proceeds from exercise of stock options | |||||||
Distributions to noncontrolling interests in consolidated property partnerships | ( | ) | ( | ) | |||
Distributions paid to common unitholders | ( | ) | ( | ) | |||
Net cash provided by financing activities | |||||||
Net decrease in cash and cash equivalents and restricted cash | ( | ) | ( | ) | |||
Cash and cash equivalents and restricted cash, beginning of period | |||||||
Cash and cash equivalents and restricted cash, end of period | $ | $ |
Number of Buildings | Rentable Square Feet | Number of Tenants | Percentage Occupied | Percentage Leased | ||||||||||
Stabilized Office Properties | % | % |
Number of Buildings | Number of Units | 2019 Average Occupancy | ||||||
Stabilized Residential Property | % |
Number of Properties/Projects | Estimated Rentable Square Feet (1) | |||
In-process development projects - tenant improvement (2) | ||||
In-process development projects - under construction (3) |
(1) | Estimated rentable square feet upon completion. |
(2) | Includes |
(3) | In addition to the estimated office rentable square feet noted above, development projects under construction also include |
Three Months Ended | Six Months Ended | ||||||
June 30, 2019 | June 30, 2019 | ||||||
(in thousands) | |||||||
Fixed lease payments | $ | $ | |||||
Variable lease payments | |||||||
Total rental income | $ | $ |
Location | Month of Disposition | Number of Buildings | Rentable Square Feet | Sales Price (in millions) (1) | |||||||
2829 Townsgate Road, Thousand Oaks, CA | May | $ | |||||||||
(1) | Represents gross sales price before the impact of broker commissions and closing costs. |
June 30, 2019 | December 31, 2018 | ||||||
(in thousands) | |||||||
Furniture, fixtures and other long-lived assets, net | $ | $ | |||||
Notes receivable, net (1) | |||||||
Prepaid expenses | |||||||
Total prepaid expenses and other assets, net | $ | $ |
(1) |
June 30, 2019 | December 31, 2018 | ||||||
(in thousands) | |||||||
Outstanding borrowings | $ | $ | |||||
Remaining borrowing capacity | |||||||
Total borrowing capacity (1) | $ | $ | |||||
Interest rate (2) | % | % | |||||
Facility fee-annual rate (3) | |||||||
Maturity date | July 2022 |
(1) | We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $ |
(2) | Our unsecured revolving credit facility interest rate was calculated based on the contractual rate of LIBOR plus |
(3) |
June 30, 2019 | December 31, 2018 | ||||||
(in thousands) | |||||||
Outstanding borrowings | $ | $ | |||||
Remaining borrowing capacity | |||||||
Total borrowing capacity (1) | $ | $ | |||||
Interest rate (2) | % | % | |||||
Undrawn facility fee-annual rate (3) | |||||||
Maturity date | July 2022 |
(1) | As of June 30, 2019 and December 31, 2018, $ |
(2) | Our unsecured term loan facility interest rate was calculated based on the contractual rate of LIBOR plus |
(3) | Prior to borrowing the full capacity of our unsecured term loan facility, the undrawn facility fee was calculated based on any unused borrowing capacity and was paid on a quarterly basis. |
Year | (in thousands) | ||
Remaining 2019 | $ | ||
2020 | |||
2021 | |||
2022 | |||
2023 | |||
2024 | |||
Thereafter | |||
Total aggregate principal value (1) | $ |
(1) | Includes gross principal balance of outstanding debt before the effect of the following at June 30, 2019: $ |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(in thousands) | |||||||||||||||
Gross interest expense | $ | $ | $ | $ | |||||||||||
Capitalized interest and deferred financing costs | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Interest expense | $ | $ | $ | $ |
June 30, 2019 | December 31, 2018 | June 30, 2018 | ||||||
Company owned common units in the Operating Partnership | ||||||||
Company owned general partnership interest | % | % | % | |||||
Noncontrolling common units of the Operating Partnership | ||||||||
Ownership interest of noncontrolling interest | % | % | % |
Fair Value Assumptions | |
Valuation date | February 1, 2019 |
Expected share price volatility | |
Risk-free interest rate | |
Fair value per share on valuation date |
Year Ending | (in thousands) | ||
Remaining 2019 | $ | ||
2020 | |||
2021 | |||
2022 | |||
2023 | |||
2024 | |||
Thereafter | |||
Total (1) | $ |
(1) | Excludes residential leases and leases with a term of one year or less. |
Year Ending | (in thousands) | ||
2019 | $ | ||
2020 | |||
2021 | |||
2022 | |||
2023 | |||
Thereafter | |||
Total (1) | $ |
(1) | Excludes residential leases and leases with a term of one year or less. |
Property | Contractual Expiration Date (1) |
601 108th Ave NE, Bellevue, WA | November 2093 |
701, 801 and 837 N. 34th Street, Seattle, WA (2) | December 2041 |
1701 Page Mill Road and 3150 Porter Drive, Palo Alto, CA | December 2067 |
Kilroy Airport Center Phases I, II, and III, Long Beach, CA | July 2084 |
(1) | Reflects the contractual expiration date prior to the impact of any extension or purchase options held by the Company. |
(2) | The Company has |
Year Ending | (in thousands) | ||
Remaining 2019 | $ | ||
2020 | |||
2021 | |||
2022 | |||
2023 | |||
2024 | |||
Thereafter | |||
Total undiscounted cash flows (1)(2)(3)(4)(5) | |||
Present value discount | ( | ) | |
Ground lease liabilities | $ |
(1) | Excludes contingent future rent payments based on gross income or adjusted gross income and reflects the minimum ground lease obligations before the impact of ground lease extension options. |
(2) | One of our ground lease obligations is subject to a fair market value adjustment every |
(3) | One of our ground lease obligations includes a component which is based on the percentage of gross income that exceeds the minimum ground rent. The minimum rent is subject to increases every |
(4) | One of our ground lease obligations is subject to a fair market value adjustment every five years based on a combination of CPI adjustments and third-party appraisals limited to maximum increases annually. The contractual obligations for that lease included above assume the current annual ground lease obligation in effect at June 30, 2019 for the remainder of the lease term since we cannot predict future adjustments. |
(5) | One of our ground lease obligations includes a component which is based on the percentage of adjusted gross income that exceeds the minimum ground rent. The minimum rent is subject to increases every |
Year Ending | (in thousands) | ||
2019 | $ | ||
2020 | |||
2021 | |||
2022 | |||
2023 | |||
Thereafter | |||
Total (1)(2)(3)(4)(5) | $ |
(1) | Excludes contingent future rent payments based on gross income or adjusted gross income and reflects the minimum ground lease obligations before the impact of ground lease extension options. |
(2) | One of our ground lease obligations is subject to a fair market value adjustment every |
(3) | One of our ground lease obligations includes a component which is based on the percentage of gross income that exceeds the minimum ground rent. The minimum rent is subject to increases every |
(4) | One of our ground lease obligations is subject to a fair market value adjustment every five years based on a combination of CPI adjustments and third-party appraisals limited to maximum increases annually. The contractual obligations for that lease included above assume the current annual ground lease obligation in effect at December 31, 2018 for the remainder of the lease term since we cannot predict future adjustments. |
(5) | One of our ground lease obligations includes a component which is based on the percentage of adjusted gross income that exceeds the minimum ground rent. The minimum rent is subject to increases every |
Fair Value (Level 1) (1) | |||||||
June 30, 2019 | December 31, 2018 | ||||||
Description | (in thousands) | ||||||
Marketable securities (2) | $ | $ |
(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 June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Description | (in thousands) | (in thousands) | |||||||||||||
Net gain on marketable securities | $ | $ | $ | $ |
June 30, 2019 | December 31, 2018 | ||||||||||||||
Carrying Value | Fair Value (1) | Carrying Value | Fair Value (1) | ||||||||||||
(in thousands) | |||||||||||||||
Liabilities | |||||||||||||||
Secured debt, net | $ | $ | $ | $ | |||||||||||
Unsecured debt, net | $ | $ | $ | $ | |||||||||||
Unsecured line of credit | $ | $ | $ | $ |
(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 June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(in thousands, except share and per share amounts) | |||||||||||||||
Numerator: | |||||||||||||||
Net income attributable to Kilroy Realty Corporation | $ | $ | $ | $ | |||||||||||
Allocation to participating securities (1) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Numerator for basic and diluted net income available to common stockholders | $ | $ | $ | $ | |||||||||||
Denominator: | |||||||||||||||
Basic weighted average vested shares outstanding | |||||||||||||||
Effect of dilutive securities | |||||||||||||||
Diluted weighted average vested shares and common share equivalents outstanding | |||||||||||||||
Basic earnings per share: | |||||||||||||||
Net income available to common stockholders per share | $ | $ | $ | $ | |||||||||||
Diluted earnings per share: | |||||||||||||||
Net income available to common stockholders per share | $ | $ | $ | $ |
(1) |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(in thousands, except unit and per unit amounts) | |||||||||||||||
Numerator: | |||||||||||||||
Net income attributable to Kilroy Realty, L.P. | $ | $ | $ | $ | |||||||||||
Allocation to participating securities (1) | ( | ) | ( | ) | ( | ) | ( | ) | |||||||
Numerator for basic and diluted net income available to common unitholders | $ | $ | $ | $ | |||||||||||
Denominator: | |||||||||||||||
Basic weighted average vested units outstanding | |||||||||||||||
Effect of dilutive securities | |||||||||||||||
Diluted weighted average vested units and common unit equivalents outstanding | |||||||||||||||
Basic earnings per unit: | |||||||||||||||
Net income available to common unitholders per unit | $ | $ | $ | $ | |||||||||||
Diluted earnings per unit: | |||||||||||||||
Net income available to common unitholders per unit | $ | $ | $ | $ |
(1) |
Six Months Ended June 30, | |||||||
2019 | 2018 | ||||||
SUPPLEMENTAL CASH FLOWS INFORMATION: | |||||||
Cash paid for interest, net of capitalized interest of $38,780 and $28,267 as of June 30, 2019 and 2018, respectively | $ | $ | |||||
Cash paid for amounts included in the measurement of ground lease liabilities | $ | $ | |||||
NON-CASH INVESTING TRANSACTIONS: | |||||||
Accrual for expenditures for operating properties and development properties | $ | $ | |||||
Assumption of accrued liabilities in connection with acquisitions | $ | $ | |||||
Tenant improvements funded directly by tenants | $ | $ | |||||
Initial measurement of operating right of use ground lease assets | $ | $ | — | ||||
Initial measurement of operating ground lease liabilities | $ | $ | — | ||||
NON-CASH FINANCING TRANSACTIONS: | |||||||
Accrual of dividends and distributions payable to common stockholders and common unitholders | $ | $ | |||||
Exchange of common units of the Operating Partnership into shares of the Company’s common stock | $ | $ |
Six Months Ended June 30, | |||||||
2019 | 2018 | ||||||
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: | |||||||
Cash and cash equivalents at beginning of period | $ | $ | |||||
Restricted cash at beginning of period | |||||||
Cash and cash equivalents and restricted cash at beginning of period | $ | $ | |||||
Cash and cash equivalents at end of period | $ | $ | |||||
Restricted cash at end of period | |||||||
Cash and cash equivalents and restricted cash at end of period | $ | $ |
Six Months Ended June 30, | |||||||
2019 | 2018 | ||||||
SUPPLEMENTAL CASH FLOWS INFORMATION: | |||||||
Cash paid for interest, net of capitalized interest of $38,780 and $28,267 as of June 30, 2019 and 2018, respectively | $ | $ | |||||
Cash paid for amounts included in the measurement of ground lease liabilities | $ | $ | |||||
NON-CASH INVESTING TRANSACTIONS: | |||||||
Accrual for expenditures for operating properties and development properties | $ | $ | |||||
Assumption of accrued liabilities in connection with acquisitions | $ | $ | |||||
Tenant improvements funded directly by tenants | $ | $ | |||||
Initial measurement of operating right of use ground lease assets | $ | $ | — | ||||
Initial measurement of operating ground lease liabilities | $ | $ | — | ||||
NON-CASH FINANCING TRANSACTIONS: | |||||||
Accrual of distributions payable to common unitholders | $ | $ |
Six Months Ended June 30, | |||||||
2019 | 2018 | ||||||
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: | |||||||
Cash and cash equivalents at beginning of period | $ | $ | |||||
Restricted cash at beginning of period | |||||||
Cash and cash equivalents and restricted cash at beginning of period | $ | $ | |||||
Cash and cash equivalents at end of period | $ | $ | |||||
Restricted cash at end of period | |||||||
Cash and cash equivalents and restricted cash at end of period | $ | $ |
• | 100 Hooper, SOMA, San Francisco, California, which we commenced construction on in November 2016. This project encompasses 311,859 square feet of office and 82,481 square feet of production, distribution and repair (“PDR”) space configured across two buildings with a total estimated investment of approximately $275.0 million. The office portion of the project is 100% leased and occupied by Adobe Systems Inc. and the PDR space is 86% leased as of the date of this report. We commenced revenue recognition on the lease with Adobe Systems Inc. on October 1, 2018. Cash rents on Phase I of the lease commenced in March 2019 and the remaining phases will commence through the second quarter of 2020. |
• | The Exchange on 16th, Mission Bay, San Francisco, California, which we commenced construction on in June 2015. This project totals 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 $585.0 million. The office space in the project is 100% leased to Dropbox, Inc. During the three months ended June 30, 2019, we completed construction and commenced revenue recognition on the first phase of the project, representing approximately 52% of the project. The remaining space |
• | One Paseo (Retail) - Del Mar, San Diego, California. We commenced construction on the retail component of this mixed-use project in December 2016, which is comprised of approximately 96,000 square feet of retail space with a total estimated investment of $100.0 million. As of the date of this report, the retail space of the project was 94% leased and 72% occupied. |
• | Kilroy Oyster Point (Phase I), South San Francisco, California. In March 2019, we commenced construction on Phase I of this 39-acre life science campus situated on the waterfront in South San Francisco. This first phase encompasses approximately 660,000 square feet of office space at a total estimated investment of $600.0 million. We currently expect the project to be delivered for tenant improvements in the second half of 2021. |
• | 9455 Towne Centre Drive, University Towne Center, San Diego, California. In March 2019, we commenced construction on this project which totals approximately 160,000 square feet of life science space at a total estimated investment of $125.0 million. We currently estimate the project to be delivered for tenant improvements mid-2020. |
• | Netflix and Living // On Vine, Hollywood, Los Angeles, California. We commenced construction on the office component of this mixed-use project in January 2018, which includes the project’s overall infrastructure and site work and approximately 355,000 square feet of office space for a total estimated investment of $300.0 million. The office space is 100% leased to Netflix, Inc. We commenced construction on the residential component of the project in December 2018, which totals 193 residential units at a total estimated investment of $195.0 million. The office component is currently expected to be delivered and ready for tenant improvements in the first quarter of 2020 and the residential component is currently expected to be completed in the fourth quarter of 2020. |
• | 333 Dexter, South Lake Union, Seattle, Washington, which we commenced construction on in June 2017. This project totals approximately 635,000 square feet of office space at a total estimated investment of $410.0 million. During the three months ended June 30, 2019, we executed a lease for 100% of the project with a Fortune 50 publicly traded company. Construction is currently in progress and the project is currently estimated to be stabilized in the second half of 2022. |
• | One Paseo (Residential and Office) - Del Mar, San Diego, California. We commenced construction on the residential component of this mixed-use project in December 2016 which includes 608 residential units. The total estimated investment for the residential component of the project is approximately $375.0 million. The residential component of this project is expected to be completed and delivered in phases starting in the third quarter of 2019. We commenced construction on the office component of the project in December 2018, which encompasses 285,000 square feet of office space at a total estimated investment of $205.0 million. The office component of the project is currently expected to be delivered and ready for tenant improvements in the second quarter of 2020. As of the date of this report, the office component of the project is 60% leased. |
Future Development Pipeline | Location | Approx. Developable Square Feet (1) | Total Costs as of 6/30/2019 ($ in millions)(2) | |||||
San Diego County | ||||||||
2100 Kettner | Little Italy | 175,000 - 200,000 | $ | 29.1 | ||||
Santa Fe Summit – Phases II and III | 56 Corridor | 600,000 - 650,000 | 80.0 | |||||
San Francisco Bay Area | ||||||||
Kilroy Oyster Point - Phase II - IV | South San Francisco | 1,750,000 - 1,900,000 | 315.2 | |||||
Flower Mart (3) | SOMA | 2,300,000 | 269.6 | |||||
TOTAL: | $ | 693.9 |
(1) | The developable square feet and scope of projects could change materially from estimated data provided due to one or more of the following: any significant changes in the economy, market conditions, our markets, tenant requirements and demands, construction costs, new supply, regulatory and entitlement processes or project design. |
(2) | Represents cash paid and costs incurred, including accrued liabilities in accordance with GAAP, as of June 30, 2019. |
(3) | On July 18, 2019, the San Francisco Planning Commission approved an initial office allocation of approximately 1.4 million square feet under Proposition M, as well as priority for a future phase allocation of approximately 350,000 square feet in 2021, with the remainder of the more than two million square feet of office space allocated after 2021. The Flower Mart Project’s development agreement must still be approved by the San Francisco Board of Supervisors and signed by the Mayor, which could be as early as October of this year. The Flower Mart project is an approximately 2.3 million square feet of office and retail mixed-use project located in Central SOMA. |
1st & 2nd Generation (1)(2) | 2nd Generation (1)(2) | ||||||||||||||||||||||||||||||
Number of Leases (3) | Rentable Square Feet (3) | Retention Rates (4) | TI/LC per Sq. Ft. (5) | TI/LC per Sq. Ft. / Year | Changes in Rents (6)(7) | Changes in Cash Rents (8) | Weighted Average Lease Term (in months) | ||||||||||||||||||||||||
New | Renewal | New | Renewal | ||||||||||||||||||||||||||||
Three Months Ended June 30, 2019 | 23 | 14 | 439,146 | 411,856 | 58.8 | % | $ | 59.52 | $ | 7.29 | 45.2 | % | 19.1 | % | 98 | ||||||||||||||||
Six Months Ended June 30, 2019 | 35 | 30 | 661,759 | 570,478 | 41.1 | % | $ | 50.62 | $ | 6.83 | 41.0 | % | 17.1 | % | 89 |
1st & 2nd Generation (1)(2) | 2nd Generation (1)(2) | |||||||||||||||||||||||||||
Number of Leases (3) | Rentable Square Feet (3) | TI/LC per Sq. Ft. (5) | TI/LC per Sq. Ft. / Year | Changes in Rents (6)(7) | Changes in Cash Rents (8) | Weighted Average Lease Term (in months) | ||||||||||||||||||||||
New | Renewal | New | Renewal | |||||||||||||||||||||||||
Three Months Ended June 30, 2019 | 29 | 14 | 486,062 | 411,856 | $ | 67.43 | $ | 8.89 | 68.7 | % | 41.3 | % | 91 | |||||||||||||||
Six Months Ended June 30, 2019 | 39 | 30 | 530,811 | 570,478 | $ | 59.98 | $ | 8.37 | 65.4 | % | 40.0 | % | 86 |
(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) | Calculated as the percentage of space either renewed or expanded into by existing tenants or subtenants at lease expiration. |
(5) | Tenant improvements and leasing commissions per square foot excluding tenant-funded tenant improvements and certain tenant improvements used to fund base building improvements. |
(6) | 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. |
(7) | Excludes commenced and executed leases of approximately 105,434 and 154,110 rentable square feet, respectively, for the three months ended June 30, 2019, and 119,419 and 168,095 rentable square feet, respectively, for the six months ended June 30, 2019, 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 more meaningful market comparison. |
(8) | 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. |
(9) | During the three months ended June 30, 2019, 23 new leases totaling 412,912 square feet were signed but not commenced as of June 30, 2019. For the six months ended June 30, 2019, 28 leases totaling 428,373 rentable square feet were signed but not commenced as of June 30, 2019. |
Year of Lease Expiration | Number of Expiring Leases | Total Square Feet | % of Total Leased Sq. Ft. | Annualized Base Rent (2)(3) | % of Total Annualized Base Rent (2) | Annualized Base Rent per Sq. Ft. (2) | ||||||||||||||
(in thousands) | ||||||||||||||||||||
Remainder of 2019 (4) | 38 | 664,585 | 5.3 | % | $ | 37,442 | 6.1 | % | $ | 56.34 | ||||||||||
2020 | 87 | 1,087,589 | 8.7 | % | 47,563 | 7.7 | % | 43.73 | ||||||||||||
2021 | 83 | 864,357 | 7.0 | % | 37,107 | 6.0 | % | 42.93 | ||||||||||||
2022 | 53 | 671,664 | 5.5 | % | 30,082 | 4.9 | % | 44.79 | ||||||||||||
2023 | 69 | 1,180,599 | 9.4 | % | 63,722 | 10.3 | % | 53.97 | ||||||||||||
2024 | 56 | 1,010,352 | 8.1 | % | 47,647 | 7.7 | % | 47.16 | ||||||||||||
Total | 386 | 5,479,146 | 44.0 | % | $ | 263,563 | 42.7 | % | $ | 48.10 |
Year (4) | Region | # of Expiring Leases | Total Square Feet | % of Total Leased Sq. Ft. | Annualized Base Rent (2)(3) | % of Total Annualized Base Rent (2) | Annualized Rent per Sq. Ft. (2) | |||||||||||||||
2019 | Greater Los Angeles | 15 | 42,765 | 0.3 | % | $ | 2,220 | 0.4 | % | $ | 51.91 | |||||||||||
Orange County | 1 | 4,636 | 0.1 | % | 133 | — | % | 28.69 | ||||||||||||||
San Diego | 6 | 40,154 | 0.3 | % | 1,580 | 0.3 | % | 39.35 | ||||||||||||||
San Francisco Bay Area | 12 | 564,784 | 4.5 | % | 33,102 | 5.3 | % | 58.61 | ||||||||||||||
Greater Seattle | 4 | 12,246 | 0.1 | % | 407 | 0.1 | % | 33.24 | ||||||||||||||
Total | 38 | 664,585 | 5.3 | % | $ | 37,442 | 6.1 | % | $ | 56.34 | ||||||||||||
2020 | Greater Los Angeles | 50 | 459,422 | 3.7 | % | $ | 19,654 | 3.2 | % | $ | 42.78 | |||||||||||
Orange County | 5 | 38,526 | 0.3 | % | 1,238 | 0.2 | % | 32.13 | ||||||||||||||
San Diego | 15 | 260,552 | 2.1 | % | 10,448 | 1.7 | % | 40.10 | ||||||||||||||
San Francisco Bay Area | 13 | 240,366 | 1.9 | % | 13,662 | 2.2 | % | 56.84 | ||||||||||||||
Greater Seattle | 4 | 88,723 | 0.7 | % | 2,561 | 0.4 | % | 28.87 | ||||||||||||||
Total | 87 | 1,087,589 | 8.7 | % | $ | 47,563 | 7.7 | % | $ | 43.73 |
(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 June 30, 2019, space leased under month-to-month leases, storage leases, vacant space and future lease renewal options not executed as of June 30, 2019. |
(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.” |
(3) | Includes 100% of annualized base rent of consolidated property partnerships. |
(4) | Adjusting for leases executed as of June 30, 2019 but not yet commenced, the remaining 2019 and 2020 expirations would be reduced by 486,434 and 155,408 square feet, respectively. |
Number of Properties/Projects | Estimated Rentable Square Feet (1) | |||
In-process development projects - tenant improvement (2) | 2 | 846,000 | ||
In-process development projects - under construction (3) | 5 | 2,095,000 |
(1) | Estimated rentable square feet upon completion. |
(2) | Includes 96,000 square feet of retail space. |
(3) | In addition to the estimated office rentable square feet noted above, development projects under construction also include 801 residential units. |
Number of Buildings | Rentable Square Feet | ||||
Total as of June 30, 2018 | 104 | 13,881,509 | |||
Acquisitions | 1 | 110,030 | |||
Completed development properties placed in-service | 1 | 377,152 | |||
Dispositions | (12 | ) | (856,344 | ) | |
Remeasurement | — | 34,268 | |||
Total as of June 30, 2019 (1) | 94 | 13,546,615 |
(1) | Includes four properties owned by consolidated property partnerships (see Note 1 “Organization, Ownership and Basis of Presentation” to our consolidated financial statements included in this report for additional information) |
Region | Number of Buildings | Rentable Square Feet | Occupancy at (1) | ||||||||||||
6/30/2019 | 3/31/2019 | 12/31/2018 | |||||||||||||
Greater Los Angeles | 32 | 3,872,399 | 94.8 | % | 95.6 | % | 95.1 | % | |||||||
Orange County | 1 | 271,556 | 66.4 | % | 90.3 | % | 89.6 | % | |||||||
San Diego County | 21 | 2,045,941 | 90.2 | % | 90.2 | % | 89.3 | % | |||||||
San Francisco Bay Area | 32 | 5,554,929 | 94.5 | % | 92.5 | % | 96.4 | % | |||||||
Greater Seattle | 8 | 1,801,790 | 97.6 | % | 88.8 | % | 93.6 | % | |||||||
Total Stabilized Portfolio | 94 | 13,546,615 | 93.8 | % | 92.5 | % | 94.4 | % |
Average Occupancy | |||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||
Stabilized Portfolio(1) | 93.5 | % | 94.6 | % | 93.3 | % | 94.7 | % | |||
Same Store Portfolio(2) | 93.7 | % | 94.7 | % | 93.5 | % | 94.8 | % | |||
Residential Portfolio(3) | 76.5 | % | 83.6 | % | 73.4 | % | 83.3 | % |
(1) | Occupancy percentages reported are based on our stabilized office portfolio as of the end of the period presented. |
(2) | Occupancy percentages reported are based on office properties owned and stabilized as of January 1, 2018 and still owned and stabilized as of June 30, 2019 and exclude our residential tower. See discussion under “Results of Operations” for additional information. |
(3) | Our residential portfolio consists of our 200-unit residential tower located in Hollywood, California. |
Tenant Name | Region | Annualized Base Rental Revenue(1)(2) | Rentable Square Feet | Percentage of Total Annualized Base Rental Revenue(2) | Percentage of Total Rentable Square Feet | |||||||||
Dropbox, Inc. (3) | San Francisco Bay Area | 35,054 | 529,552 | 5.7 | % | 3.9 | % | |||||||
LinkedIn Corporation / Microsoft Corporation | San Francisco Bay Area | 29,752 | 663,460 | 4.8 | % | 4.9 | % | |||||||
Adobe Systems Inc. | San Francisco Bay Area / Greater Seattle | 27,928 | 513,111 | 4.5 | % | 3.8 | % | |||||||
salesforce.com, inc. | San Francisco Bay Area | 24,076 | 451,763 | 3.9 | % | 3.3 | % | |||||||
DIRECTV, LLC | Greater Los Angeles | 23,152 | 684,411 | 3.8 | % | 5.1 | % | |||||||
Box, Inc. | San Francisco Bay Area | 22,441 | 371,792 | 3.6 | % | 2.7 | % | |||||||
Okta, Inc. | San Francisco Bay Area | 17,122 | 207,066 | 2.8 | % | 1.5 | % | |||||||
Riot Games, Inc. | Greater Los Angeles | 15,514 | 251,509 | 2.5 | % | 1.9 | % | |||||||
Synopsys, Inc. | San Francisco Bay Area | 15,492 | 340,913 | 2.5 | % | 2.5 | % | |||||||
Viacom International, Inc. | Greater Los Angeles | 13,718 | 211,343 | 2.2 | % | 1.6 | % | |||||||
Amazon.com | Greater Seattle | 12,513 | 277,399 | 2.0 | % | 2.0 | % | |||||||
Concur Technologies | Greater Seattle | 10,643 | 288,322 | 1.7 | % | 2.1 | % | |||||||
Cisco Systems, Inc. | San Francisco Bay Area | 9,830 | 135,296 | 1.6 | % | 1.0 | % | |||||||
Capital One, N.A. | San Francisco Bay Area | 9,170 | 117,993 | 1.5 | % | 0.9 | % | |||||||
AMN Healthcare, Inc. | San Diego County | 9,001 | 176,075 | 1.5 | % | 1.3 | % | |||||||
Total Top Fifteen Tenants | 275,406 | 5,220,005 | 44.6 | % | 38.5 | % | ||||||||
(1) | Includes 100% of annualized base rental revenues of consolidated property partnerships. |
(2) | Annualized base rental revenue 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. Excludes month-to-month leases and vacant space as of June 30, 2019. |
(3) | During the three months ended June 30, 2019, the Company completed construction and commenced revenue recognition on its lease with Dropbox, Inc. for the first phase of The Exchange on 16th, which represents approximately 52% of the 750,000 square foot development project located in San Francisco’s Mission Bay district. |
• | Same Store Properties – includes the consolidated results of all of the 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, 2018 and still owned and included in the stabilized portfolio as of June 30, 2019, including our residential tower in Hollywood, California; |
• | Development Properties – includes the results generated by our in-process development projects, future development projects and stabilized development projects, including one office and one retail property in the tenant improvement phase that commenced revenue recognition in the second quarter of 2019 and one office development project that was added to the stabilized portfolio in the second quarter of 2019; |
• | Acquisition Properties – includes the results, from the dates of acquisition through the periods presented, for the four office buildings we acquired during 2018; and |
• | Disposition Properties – includes the results of the 11 properties disposed of in the fourth quarter of 2018 and the one property disposed of in the second quarter of 2019. |
Group | # of Buildings | Rentable Square Feet | ||||
Same Store Properties | 89 | 12,896,695 | ||||
Development Properties - Stabilized (1) | 1 | 394,340 | ||||
Acquisition Properties | 4 | 255,580 | ||||
Total Stabilized Office Portfolio | 94 | 13,546,615 |
(1) | Excludes development projects in the tenant improvement phase, our in-process development projects and future development projects. |
Three Months Ended June 30, | Dollar Change | Percentage Change | ||||||||||||
2019 | 2018 | |||||||||||||
($ in thousands) | ||||||||||||||
Reconciliation of Net Income Available to Common Stockholders to Net Operating Income, as defined: | ||||||||||||||
Net Income Available to Common Stockholders | $ | 42,194 | $ | 27,549 | $ | 14,645 | 53.2 | % | ||||||
Net income attributable to noncontrolling common units of the Operating Partnership | 871 | 566 | 305 | 53.9 | % | |||||||||
Net income attributable to noncontrolling interests in consolidated property partnerships | 4,150 | 3,640 | 510 | 14.0 | % | |||||||||
Net income | $ | 47,215 | $ | 31,755 | $ | 15,460 | 48.7 | % | ||||||
Unallocated expense (income): | ||||||||||||||
General and administrative expenses | 19,857 | 21,763 | (1,906 | ) | (8.8 | )% | ||||||||
Leasing costs | 2,650 | — | 2,650 | 100.0 | % | |||||||||
Depreciation and amortization | 68,252 | 64,006 | 4,246 | 6.6 | % | |||||||||
Interest income and other net investment gain | (616 | ) | (771 | ) | 155 | (20.1 | )% | |||||||
Interest expense | 11,727 | 12,712 | (985 | ) | (7.7 | )% | ||||||||
Gains on sales of depreciable operating properties | (7,169 | ) | — | (7,169 | ) | (100.0 | )% | |||||||
Net Operating Income, as defined | $ | 141,916 | $ | 129,465 | $ | 12,451 | 9.6 | % |
Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||
2019 | 2018 | ||||||||||||||||||||||||||||||||||||||
Same Store | Develop-ment | Acquisi-tion | Disposi-tion | Total | Same Store | Develop-ment | Acquisi-tion | Disposi-tion | Total | ||||||||||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||||||||||||||
Operating revenues: | |||||||||||||||||||||||||||||||||||||||
Rental income | $ | 180,662 | $ | 9,169 | $ | 7,369 | $ | 429 | $ | 197,629 | $ | 156,202 | $ | — | $ | 1,679 | $ | 6,634 | $ | 164,515 | |||||||||||||||||||
Tenant reimbursements | — | — | — | — | — | 17,670 | — | 345 | 1,552 | 19,567 | |||||||||||||||||||||||||||||
Other property income | 2,610 | 252 | — | 1 | 2,863 | 2,921 | — | — | 69 | 2,990 | |||||||||||||||||||||||||||||
Total | 183,272 | 9,421 | 7,369 | 430 | 200,492 | 176,793 | — | 2,024 | 8,255 | 187,072 | |||||||||||||||||||||||||||||
Property and related expenses: | |||||||||||||||||||||||||||||||||||||||
Property expenses | 36,005 | 1,609 | 817 | 105 | 38,536 | 30,683 | 29 | 136 | 1,719 | 32,567 | |||||||||||||||||||||||||||||
Real estate taxes | 16,607 | 554 | 739 | 26 | 17,926 | 16,395 | 299 | 267 | 852 | 17,813 | |||||||||||||||||||||||||||||
Provision for bad debts | — | — | — | — | — | 5,388 | — | — | 253 | 5,641 | |||||||||||||||||||||||||||||
Ground leases | 2,114 | — | — | — | 2,114 | 1,586 | — | — | — | 1,586 | |||||||||||||||||||||||||||||
Total | 54,726 | 2,163 | 1,556 | 131 | 58,576 | 54,052 | 328 | 403 | 2,824 | 57,607 | |||||||||||||||||||||||||||||
Net Operating Income, as defined | $ | 128,546 | $ | 7,258 | $ | 5,813 | $ | 299 | $ | 141,916 | $ | 122,741 | $ | (328 | ) | $ | 1,621 | $ | 5,431 | $ | 129,465 |
Three Months Ended June 30, 2019 as compared to the Three Months Ended June 30, 2018 | ||||||||||||||||||||||||||||||||||
Same Store | Development | Acquisition | Disposition | 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 | $ | 24,460 | 15.7 | % | $ | 9,169 | 100.0 | % | $ | 5,690 | 338.9 | % | $ | (6,205 | ) | (93.5 | )% | $ | 33,114 | 20.1 | % | |||||||||||||
Tenant reimbursements | (17,670 | ) | (100.0 | )% | — | — | % | (345 | ) | (100.0 | )% | (1,552 | ) | (100.0 | )% | (19,567 | ) | (100.0 | )% | |||||||||||||||
Other property income | (311 | ) | (10.6 | )% | 252 | 100.0 | % | — | — | % | (68 | ) | (98.6 | )% | (127 | ) | (4.2 | )% | ||||||||||||||||
Total | 6,479 | 3.7 | % | 9,421 | 100.0 | % | 5,345 | 264.1 | % | (7,825 | ) | (94.8 | )% | 13,420 | 7.2 | % | ||||||||||||||||||
Property and related expenses: | ||||||||||||||||||||||||||||||||||
Property expenses | 5,322 | 17.3 | % | 1,580 | NM* | 681 | 500.7 | % | (1,614 | ) | (93.9 | )% | 5,969 | 18.3 | % | |||||||||||||||||||
Real estate taxes | 212 | 1.3 | % | 255 | 85.3 | % | 472 | 176.8 | % | (826 | ) | (96.9 | )% | 113 | 0.6 | % | ||||||||||||||||||
Provision for bad debts | (5,388 | ) | (100.0 | )% | — | — | % | — | — | % | (253 | ) | (100.0 | )% | (5,641 | ) | (100.0 | )% | ||||||||||||||||
Ground leases | 528 | 33.3 | % | — | — | % | — | — | % | — | — | % | 528 | 33.3 | % | |||||||||||||||||||
Total | 674 | 1.2 | % | 1,835 | 559.5 | % | 1,153 | 286.1 | % | (2,693 | ) | (95.4 | )% | 969 | 1.7 | % | ||||||||||||||||||
Net Operating Income, as defined | $ | 5,805 | 4.7 | % | $ | 7,586 | NM* | $ | 4,192 | 258.6 | % | $ | (5,132 | ) | (94.5 | )% | $ | 12,451 | 9.6 | % |
* | Percentage not meaningful. |
• | An increase of $5.8 million attributable to the Same Store Properties driven by the following activity: |
• | An increase in total operating revenues of $6.5 million primarily due to: |
• | $2.4 million increase from new leases and renewals at higher rates primarily in the San Francisco Bay Area, Greater Los Angeles, and Greater Seattle regions; |
• | $4.5 million increase in the tenant reimbursement component of rental income due to the following: |
• | $2.7 million increase due to the adoption of Topic 842 on January 1, 2019, resulting in the gross-up of tenant direct billbacks, which were previously presented net in property expenses. These billbacks are also included in property expenses and have no net impact on net operating income; |
• | $1.3 million increase due to tenant recoveries of the new Proposition C gross receipts tax for San Francisco effective January 1, 2019; and |
• | $0.5 million increase due to a reimbursement adjustment related to 2018 for one tenant in the San Francisco Bay Area; |
• | $0.4 million increase in parking revenue primarily due to higher monthly tenant parking revenue at two properties in the San Francisco Bay Area and one property in Greater Seattle; partially offset by |
• | $0.8 million decrease primarily due to a restoration fee received from one tenant in 2018; |
• | An increase in property and related expenses of $0.7 million primarily due to the following: |
• | $5.3 million increase in property expenses primarily due to the following: |
• | $2.7 million increase due to the adoption of Topic 842 on January 1, 2019, resulting in the gross-up of tenant direct billbacks, which were previously presented net in property expenses. These billbacks are also included in operating revenues and have no net impact on net operating income; |
• | $1.3 million increase due to the new Proposition C gross receipts tax in the San Francisco Bay Area passed through to tenants which became effective on January 1, 2019; and |
• | $0.9 million increase in reimbursable expenses such as utilities, security, contract services, insurance, repairs and maintenance, and various other recurring expenses and a $0.4 million increase in non-reimbursable expenses primarily due to higher property management costs; |
• | $5.4 million decrease in provision for bad debts due to a provision recorded in 2018 related primarily to one tenant; and |
• | $0.5 million increase in ground leases primarily due to the adoption of Topic 842 on January 1, 2019, which resulted in property taxes related to properties where the Company is the lessee under a ground lease to be presented in ground lease expense. |
• | An increase in Net Operating Income of $7.6 million attributable to the Development Properties; |
• | An increase in Net Operating Income of $4.2 million attributable to the Acquisition Properties; and |
• | A decrease in Net Operating Income of $5.1 million attributable to the Disposition Properties. |
• | A decrease of $2.1 million due to lower stock compensation expense; and |
• | A decrease of $1.7 million resulting from lower professional service costs primarily related to legal costs incurred in 2018 connection with a previously disclosed litigation matter; partially offset by |
• | An increase of $1.9 million due to higher cash compensation costs related to the growth of the company. |
• | An increase of $1.4 million attributable to the Same Store Properties; |
• | An increase of $2.3 million attributable to the Development Properties; and |
• | An increase of $3.4 million attributable to the Acquisition Properties; partially offset by |
• | A decrease of $2.9 million attributable to the Disposition Properties. |
Three Months Ended June 30, | ||||||||||||||
2019 | 2018 | Dollar Change | Percentage Change | |||||||||||
(in thousands) | ||||||||||||||
Gross interest expense | $ | 32,607 | $ | 28,523 | $ | 4,084 | 14.3 | % | ||||||
Capitalized interest and deferred financing costs | (20,880 | ) | (15,811 | ) | (5,069 | ) | 32.1 | % | ||||||
Interest expense | $ | 11,727 | $ | 12,712 | $ | (985 | ) | (7.7 | )% |
Six Months Ended June 30, | Dollar Change | Percentage Change | ||||||||||||
2019 | 2018 | |||||||||||||
($ in thousands) | ||||||||||||||
Reconciliation of Net Income Available to Common Stockholders to Net Operating Income, as defined: | ||||||||||||||
Net Income Available to Common Stockholders | $ | 79,097 | $ | 63,795 | $ | 15,302 | 24.0 | % | ||||||
Net income attributable to noncontrolling common units of the Operating Partnership | 1,571 | 1,317 | 254 | 19.3 | % | |||||||||
Net income attributable to noncontrolling interests in consolidated property partnerships | 8,341 | 7,614 | 727 | 9.5 | % | |||||||||
Net income | $ | 89,009 | $ | 72,726 | $ | 16,283 | 22.4 | % | ||||||
Unallocated expense (income): | ||||||||||||||
General and administrative expenses | 43,198 | 37,322 | 5,876 | 15.7 | % | |||||||||
Leasing Costs | 4,407 | — | 4,407 | 100.0 | % | |||||||||
Depreciation and amortization | 134,387 | 126,721 | 7,666 | 6.0 | % | |||||||||
Interest income and other net investment gains | (2,444 | ) | (805 | ) | (1,639 | ) | 203.6 | % | ||||||
Interest expense | 22,970 | 26,210 | (3,240 | ) | (12.4 | )% | ||||||||
Gains on sales of depreciable operating properties | (7,169 | ) | — | (7,169 | ) | (100.0 | )% | |||||||
Net Operating Income, as defined | $ | 284,358 | $ | 262,174 | $ | 22,184 | 8.5 | % |
Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||
2019 | 2018 | ||||||||||||||||||||||||||||||||||||||
Same Store | Develop-ment | Acquisi-tion | Disposi-tion | Total | Same Store | Develop-ment | Acquisi-tion | Disposi-tion | Total | ||||||||||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||||||||||||||||||
Operating revenues: | |||||||||||||||||||||||||||||||||||||||
Rental income | $ | 364,639 | $ | 17,194 | $ | 14,455 | $ | 723 | $ | 397,011 | $ | 311,498 | $ | — | $ | 2,836 | $ | 13,052 | $ | 327,386 | |||||||||||||||||||
Tenant reimbursements | — | — | — | — | — | 35,250 | — | 584 | 2,883 | 38,717 | |||||||||||||||||||||||||||||
Other property income | 4,361 | 320 | — | 2 | 4,683 | 3,688 | — | — | 103 | 3,791 | |||||||||||||||||||||||||||||
Total | 369,000 | 17,514 | 14,455 | 725 | 401,694 | 350,436 | — | 3,420 | 16,038 | 369,894 | |||||||||||||||||||||||||||||
Property and related expenses: | |||||||||||||||||||||||||||||||||||||||
Property expenses | 72,358 | 2,671 | 1,434 | 222 | 76,685 | 60,647 | 71 | 251 | 3,269 | 64,238 | |||||||||||||||||||||||||||||
Real estate taxes | 33,196 | 1,766 | 1,536 | 67 | 36,565 | 32,344 | 469 | 443 | 1,703 | 34,959 | |||||||||||||||||||||||||||||
Provision for bad debts | — | — | — | — | — | 5,097 | — | — | 279 | 5,376 | |||||||||||||||||||||||||||||
Ground leases | 4,086 | — | — | — | 4,086 | 3,147 | — | — | — | 3,147 | |||||||||||||||||||||||||||||
Total | 109,640 | 4,437 | 2,970 | 289 | 117,336 | 101,235 | 540 | 694 | 5,251 | 107,720 | |||||||||||||||||||||||||||||
Net Operating Income, as defined | $ | 259,360 | $ | 13,077 | $ | 11,485 | $ | 436 | $ | 284,358 | $ | 249,201 | $ | (540 | ) | $ | 2,726 | $ | 10,787 | $ | 262,174 |
Six Months Ended June 30, 2019 as compared to the Six Months Ended June 30, 2018 | ||||||||||||||||||||||||||||||||||
Same Store | Development | Acquisition | Disposition | 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 | $ | 53,141 | 17.1 | % | $ | 17,194 | 100.0 | % | $ | 11,619 | 409.7 | % | $ | (12,329 | ) | (94.5 | )% | $ | 69,625 | 21.3 | % | |||||||||||||
Tenant reimbursements | (35,250 | ) | (100.0 | )% | — | — | % | (584 | ) | (100.0 | )% | (2,883 | ) | (100.0 | )% | (38,717 | ) | (100.0 | )% | |||||||||||||||
Other property income | 673 | 18.2 | % | 320 | 100.0 | % | — | — | % | (101 | ) | (98.1 | )% | 892 | 23.5 | % | ||||||||||||||||||
Total | 18,564 | 5.3 | % | 17,514 | 100.0 | % | 11,035 | 322.7 | % | (15,313 | ) | (95.5 | )% | 31,800 | 8.6 | % | ||||||||||||||||||
Property and related expenses: | ||||||||||||||||||||||||||||||||||
Property expenses | 11,711 | 19.3 | % | 2,600 | NM* | 1,183 | 471.3 | % | (3,047 | ) | (93.2 | )% | 12,447 | 19.4 | % | |||||||||||||||||||
Real estate taxes | 852 | 2.6 | % | 1,297 | 276.5 | % | 1,093 | 246.7 | % | (1,636 | ) | (96.1 | )% | 1,606 | 4.6 | % | ||||||||||||||||||
Provision for bad debts | (5,097 | ) | (100.0 | )% | — | — | % | — | — | % | (279 | ) | (100.0 | )% | (5,376 | ) | (100.0 | )% | ||||||||||||||||
Ground leases | 939 | 29.8 | % | — | — | % | — | — | % | — | — | % | 939 | 29.8 | % | |||||||||||||||||||
Total | 8,405 | 8.3 | % | 3,897 | 721.7 | % | 2,276 | 328.0 | % | (4,962 | ) | (94.5 | )% | 9,616 | 8.9 | % | ||||||||||||||||||
Net Operating Income, as defined | $ | 10,159 | 4.1 | % | $ | 13,617 | NM* | $ | 8,759 | 321.3 | % | $ | (10,351 | ) | (96.0 | )% | $ | 22,184 | 8.5 | % |
• | An increase of $10.2 million attributable to the Same Store Properties primarily resulting from: |
• | An increase in total operating revenues of $18.6 million primarily due to: |
• | $3.7 million increase from new leases and renewals at higher rates primarily in the San Francisco Bay Area and Greater Los Angeles regions; |
• | $10.9 million increase in the tenant reimbursement component of rental income due to the following: |
• | $5.5 million increase due to the adoption of Topic 842 on January 1, 2019, resulting in the gross-up of tenant direct billbacks, which were previously presented net in property expenses. These billbacks are also included in property expenses and have no net impact on net operating income; |
• | $2.6 million increase due to tenant recoveries of the new Proposition C gross receipts tax for San Francisco effective January 1, 2019; |
• | $1.5 million increase due to higher recoveries of recurring expenses related to property taxes, security, repairs and maintenance, and various other recurring expenses at certain properties; |
• | $0.8 million increase due to lower abated tenant reimbursements and various other adjustments; and |
• | $0.5 million increase due to new triple net tenants in the Greater Seattle region which replaced prior year base year tenants, offset by a decrease due to one tenant in the San Francisco Bay Area paying for expenses directly; |
• | $3.0 million net increase primarily due to a $4.2 million reversal of provision for bad debts related to the improved credit quality of a tenant for which the Company recorded a bad debt reserve in 2018, partially offset by $1.2 million of provision for bad debts recorded for other tenants during the six months ended June 30, 2019. The provision for bad debts is included in rental income beginning January 1, 2019 in connection with the adoption of ASC 842; and |
• | $0.8 million increase due to early lease termination fees primarily for one tenant in the San Francisco Bay Area; |
• | An increase in property and related expenses of $8.4 million primarily due to the following: |
• | $11.7 million increase in property expenses primarily due to the following: |
• | $5.5 million increase due to the adoption of Topic 842 on January 1, 2019, resulting in the gross-up of tenant direct billbacks, which were previously presented net in property expenses. These billbacks are also included in operating revenues and have no net impact on net operating income; |
• | $2.7 million increase due to the new Proposition C gross receipts tax in San Francisco passed through to tenants which became effective on January 1, 2019; and |
• | $2.8 million increase in reimbursable expenses such as utilities, security, contract services, janitorial, repairs and maintenance, and various other recurring expenses and a $0.6 million increase in non-reimbursable expenses primarily due to higher property management costs; |
• | $0.9 million increase in real estate taxes primarily comprised of: |
• | $1.1 million increase due to higher supplemental taxes assessed in 2019 for the 2016 to 2019 tax years at one property in the Greater Los Angeles region and lower estimated supplemental taxes in 2018 for the 2016 tax year for another property also in the Greater Los Angeles region; |
• | $0.4 million increase due to regular annual increases at various properties across the portfolio; partially offset by |
• | $0.9 million decrease due to the adoption of Topic 842 on January 1, 2019, which resulted in property taxes related to our four ground leases where the Company is the lessee to be presented in ground lease expense; |
• | $5.1 million decrease in provision for bad debts due to 2018 reserves primarily related to one tenant. The provision for bad debts was included in operating expenses prior to the adoption of ASC 842 on January 1, 2019; and |
• | $0.9 million increase in ground leases primarily due to the adoption of Topic 842 on January 1, 2019, which resulted in property taxes related to properties where the Company is the lessee under a ground lease to be presented in ground lease expense. |
• | An increase of $13.6 million attributable to the Development Properties; |
• | An increase of $8.8 million attributable to the Acquisition Properties; partially offset by |
• | A decrease of $10.4 million attributable to the Disposition Properties. |
• | An increase of approximately $6.0 million due to compensation related to the growth of the Company; and |
• | An increase of $1.6 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 gain on our consolidated statements of operations; partially offset by |
• | A decrease of approximately $1.7 million resulting from lower legal costs incurred in connection with a previously disclosed litigation matter. |
• | An increase of $3.0 million attributable to the Same Store Properties; |
• | An increase of $3.7 million attributable to the Development Properties; and |
• | An increase of $6.5 million attributable to the Acquisition Properties; partially offset by |
• | A decrease of $5.5 million attributable to the Disposition Properties. |
Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | Dollar Change | Percentage Change | |||||||||||
(in thousands) | ||||||||||||||
Gross interest expense | $ | 63,287 | $ | 55,603 | $ | 7,684 | 13.8 | % | ||||||
Capitalized interest and deferred financing costs | (40,317 | ) | (29,393 | ) | (10,924 | ) | 37.2 | % | ||||||
Interest expense | $ | 22,970 | $ | 26,210 | $ | (3,240 | ) | (12.4 | )% |
Shares/Units at June 30, 2019 | Aggregate Principal Amount or $ Value Equivalent | % of Total Market Capitalization | ||||||
($ in thousands) | ||||||||
Debt: (1) | ||||||||
Unsecured Line of Credit | $ | 375,000 | 3.5 | % | ||||
Unsecured Term Loan Facility | 150,000 | 1.4 | % | |||||
Unsecured Senior Notes due 2023 | 300,000 | 2.8 | % | |||||
Unsecured Senior Notes due 2024 | 425,000 | 3.9 | % | |||||
Unsecured Senior Notes due 2025 | 400,000 | 3.7 | % | |||||
Unsecured Senior Notes Series A & B due 2026 | 250,000 | 2.3 | % | |||||
Unsecured Senior Notes due 2028 | 400,000 | 3.7 | % | |||||
Unsecured Senior Notes due 2029 | 400,000 | 3.7 | % | |||||
Unsecured Senior Notes Series A & B due 2027 & 2029 | 250,000 | 2.3 | % | |||||
Secured debt | 260,427 | 2.4 | % | |||||
Total debt | $ | 3,210,427 | 29.7 | % | ||||
Equity and Noncontrolling Interest in the Operating Partnership: (2) | ||||||||
Common limited partnership units outstanding (3) | 2,023,287 | $ | 149,339 | 1.4 | % | |||
Common shares outstanding (4) | 100,972,035 | 7,452,746 | 68.9 | % | ||||
Total equity and noncontrolling interest in the Operating Partnership | $ | 7,602,085 | 70.3 | % | ||||
Total Market Capitalization | $ | 10,812,512 | 100.0 | % |
(1) | Represents gross aggregate principal amount due at maturity before the effect of the following at June 30, 2019: $16.1 million of unamortized deferred financing costs on the unsecured term loan facility, unsecured senior notes, and secured debt and $6.2 million of unamortized discounts for the unsecured senior notes. |
(2) | Value based on closing price per share of our common stock of $73.81 as of June 30, 2019. |
(3) | Includes common units of the Operating Partnership not owned by the Company; does not include noncontrolling interests in consolidated property partnerships. |
(4) | Shares of common stock outstanding exclude 6,201,204 shares of common stock sold under forward equity sale agreements that remain to be settled as of June 30, 2019. On July 22, 2019, the Company physically settled the forward equity sale agreements entered into on August 8, 2018. Upon settlement, the Company issued 5,000,000 shares of common stock for net proceeds of $354.3 million. |
• | Net cash flow from operations; |
• | Borrowings under the Operating Partnership’s unsecured revolving credit facility and term loan facility; |
• | Proceeds from our capital recycling program, including the disposition of less strategic or core 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. |
June 30, 2019 | December 31, 2018 | ||||||
(in thousands) | |||||||
Outstanding borrowings | $ | 375,000 | $ | 45,000 | |||
Remaining borrowing capacity | 375,000 | 705,000 | |||||
Total borrowing capacity (1) | $ | 750,000 | $ | 750,000 | |||
Interest rate (2) | 3.41 | % | 3.48 | % | |||
Facility fee-annual rate (3) | 0.200% | ||||||
Maturity date | July 2022 |
(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 the contractual rate of LIBOR plus 1.000% as of June 30, 2019 and December 31, 2018. |
(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 June 30, 2019 and December 31, 2018, $4.0 million and $4.7 million of unamortized deferred financing costs, respectively, which are included in prepaid expenses and other assets, net on our consolidated balance sheets, remained to be amortized through the maturity date of our unsecured revolving credit facility. |
June 30, 2019 | December 31, 2018 | ||||||
(in thousands) | |||||||
Outstanding borrowings | $ | 150,000 | $ | 150,000 | |||
Remaining borrowing capacity | — | — | |||||
Total borrowing capacity (1) | $ | 150,000 | $ | 150,000 | |||
Interest rate (2) | 3.52 | % | 3.49 | % | |||
Undrawn facility fee-annual rate (3) | 0.200% | ||||||
Maturity date | July 2022 |
(1) | As of June 30, 2019 and December 31, 2018, $0.8 million and $0.9 million of unamortized deferred financing costs, respectively, remained to be amortized through the maturity date of our unsecured term loan facility. |
(2) | Our unsecured term loan facility interest rate was calculated based on the contractual rate of LIBOR plus 1.100% as of June 30, 2019 and December 31, 2018. |
(3) | Prior to borrowing the full capacity of our unsecured term loan facility, the undrawn facility fee was calculated based on any unused borrowing capacity and was paid on a quarterly basis. |
Aggregate Principal Amount Outstanding | |||
(in thousands) | |||
Unsecured Line of Credit | $ | 375,000 | |
Unsecured Term Loan Facility | 150,000 | ||
Unsecured Senior Notes due 2023 | 300,000 | ||
Unsecured Senior Notes due 2024 | 425,000 | ||
Unsecured Senior Notes due 2025 | 400,000 | ||
Unsecured Senior Notes Series A & B due 2026 | 250,000 | ||
Unsecured Senior Notes due 2028 | 400,000 | ||
Unsecured Senior Notes due 2029 | 400,000 | ||
Unsecured Senior Notes Series A & B due 2027 & 2029 | 250,000 | ||
Secured Debt | 260,427 | ||
Total Unsecured and Secured Debt | $ | 3,210,427 | |
Less: Unamortized Net Discounts and Deferred Financing Costs (1) | (22,321 | ) | |
Total Debt, Net | $ | 3,188,106 |
(1) | Includes $16.1 million of unamortized deferred financing costs on the unsecured term loan facility, unsecured senior notes, and secured debt and $6.2 million of unamortized discounts for the unsecured senior notes. Excludes unamortized deferred financing costs on the unsecured revolving credit facility. |
Percentage of Total Debt (1) | Weighted Average Interest Rate(1) | ||||||||||
June 30, 2019 | December 31, 2018 | June 30, 2019 | December 31, 2018 | ||||||||
Secured vs. unsecured: | |||||||||||
Unsecured (2) | 91.9 | % | 88.6 | % | 4.0 | % | 4.0 | % | |||
Secured | 8.1 | % | 11.4 | % | 3.9 | % | 4.4 | % | |||
Variable-rate vs. fixed-rate: | |||||||||||
Variable-rate | 16.4 | % | 6.6 | % | 3.4 | % | 3.5 | % | |||
Fixed-rate (2) | 83.6 | % | 93.4 | % | 4.1 | % | 4.1 | % | |||
Stated rate (2) | 4.0 | % | 4.1 | % | |||||||
GAAP effective rate (3) | 4.0 | % | 4.0 | % | |||||||
GAAP effective rate including debt issuance costs | 4.2 | % | 4.2 | % |
(1) | As of the end of the period presented. |
(2) | Excludes the impact of the amortization of any debt discounts/premiums and deferred financing costs. |
(3) | Includes the impact of the amortization of any debt discounts/premiums, excluding deferred financing costs. |
• | 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 and Term Loan Facility and Private Placement Notes (as defined in the applicable Credit Agreements): | Covenant Level | Actual Performance as of June 30, 2019 | ||
Total debt to total asset value | less than 60% | 30% | ||
Fixed charge coverage ratio | greater than 1.5x | 3.3x | ||
Unsecured debt ratio | greater than 1.67x | 2.93x | ||
Unencumbered asset pool debt service coverage | greater than 1.75x | 4.03x | ||
Unsecured Senior Notes due 2023, 2024, 2025, 2028 and 2029 (as defined in the applicable Indentures): | ||||
Total debt to total asset value | less than 60% | 35% | ||
Interest coverage | greater than 1.5x | 10.6x | ||
Secured debt to total asset value | less than 40% | 3% | ||
Unencumbered asset pool value to unsecured debt | greater than 150% | 282% |
Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | Dollar Change | Percentage Change | |||||||||||
($ in thousands) | ||||||||||||||
Net cash provided by operating activities | $ | 165,660 | $ | 188,843 | $ | (23,183 | ) | (12.3 | )% | |||||
Net cash used in investing activities | $ | (417,036 | ) | $ | (664,346 | ) | $ | 247,310 | 37.2 | % | ||||
Net cash provided by financing activities | $ | 139,057 | $ | 459,522 | $ | (320,465 | ) | (69.7 | )% |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
(in thousands) | |||||||||||||||
Net income available to common stockholders | $ | 42,194 | $ | 27,549 | $ | 79,097 | $ | 63,795 | |||||||
Adjustments: | |||||||||||||||
Net income attributable to noncontrolling common units of the Operating Partnership | 871 | 566 | 1,571 | 1,317 | |||||||||||
Net income attributable to noncontrolling interests in consolidated property partnerships | 4,150 | 3,640 | 8,341 | 7,614 | |||||||||||
Depreciation and amortization of real estate assets | 67,011 | 62,956 | 131,982 | 124,633 | |||||||||||
Gains on sales of depreciable real estate | (7,169 | ) | — | (7,169 | ) | — | |||||||||
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships | (7,152 | ) | (6,082 | ) | (14,105 | ) | (12,445 | ) | |||||||
Funds From Operations (1)(2) | $ | 99,905 | $ | 88,629 | $ | 199,717 | $ | 184,914 |
(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 $4.4 million and $4.6 million for the three months ended June 30, 2019 and 2018, respectively, and $8.2 million and $8.9 million for the six months ended June 30, 2019 and 2018, 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 | |||||||||
April 1, 2019 - April 30, 2019 | 5,464 | $ | 75.34 | — | — | ||||||||
May 1, 2019 - May 31, 2019 | — | — | — | — | |||||||||
June 1, 2019 - June 30, 2019 | 1,012 | 75.63 | — | — | |||||||||
Total | 6,476 | $ | 75.38 | — | — |
(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 | ||
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 June 30, 2019, 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/ Merryl E. Werber | |
Merryl E. Werber Senior Vice President, Chief Accounting Officer and Controller (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/ Merryl E. Werber | |
Merryl E. Werber Senior Vice President, Chief Accounting Officer and Controller (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 June 30, 2019 (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: | July 25, 2019 |
(i) | the accompanying Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2019 (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: | July 25, 2019 |
(i) | the accompanying Quarterly Report on Form 10-Q of the Operating Partnership for the quarter ended June 30, 2019 (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: | July 25, 2019 |
(i) | the accompanying Quarterly Report on Form 10-Q of the Operating Partnership for the quarter ended June 30, 2019 (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: | July 25, 2019 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares |
Jun. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (in shares) | 150,000,000 | 150,000,000 |
Common stock, shares issued (in shares) | 100,972,035 | 100,746,988 |
Common stock, shares outstanding (in shares) | 100,972,035 | 100,746,988 |
CONSOLIDATED STATEMENTS OF EQUITY (Parenthetical) - $ / shares |
3 Months Ended | |||
---|---|---|---|---|
Jun. 30, 2019 |
Mar. 31, 2019 |
Jun. 30, 2018 |
Mar. 31, 2018 |
|
Statement of Stockholders' Equity [Abstract] | ||||
Dividends declared per common share and common unit (in dollars per share) | $ 0.485 | $ 0.455 | $ 0.455 | $ 0.425 |
CONSOLIDATED BALANCE SHEETS (KILROY REALTY, L.P.) (Parenthetical) - Common units [Member] - Kilroy Realty L.P. [Member] - shares |
Jun. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
General partner, units issued | 100,972,035 | 100,746,988 |
General partners, units outstanding | 100,972,035 | 100,746,988 |
Limited partners, units issued | 2,023,287 | 2,025,287 |
Noncontrolling common units of the Operating Partnership | 2,023,287 | 2,025,287 |
CONSOLIDATED STATEMENTS OF CAPITAL (KILROY REALTY, L.P.) (Parenthetical) - $ / shares |
3 Months Ended | |||
---|---|---|---|---|
Jun. 30, 2019 |
Mar. 31, 2019 |
Jun. 30, 2018 |
Mar. 31, 2018 |
|
Kilroy Realty L.P. [Member] | ||||
Dividends declared per common unit (in dollars per unit) | $ 0.485 | $ 0.455 | $ 0.455 | $ 0.425 |
Organization, Ownership and Basis of Presentation |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Ownership and Basis of Presentation | Organization, Ownership and Basis of Presentation Organization and Ownership Kilroy Realty Corporation (the “Company”) is a self-administered real estate investment trust (“REIT”) active in premier office 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 Greater 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 June 30, 2019:
Our stabilized portfolio includes all of our properties with the exception of development and redevelopment properties currently committed for construction, under construction, or in the tenant improvement phase, undeveloped land and real estate assets held for sale. We define redevelopment properties as those properties for which we expect to spend significant development and construction costs on the existing or acquired buildings pursuant to a formal plan, the intended result of which is a higher economic return on the property. We define properties in the tenant improvement phase as office and retail properties that we are developing or redeveloping where the project has reached cold shell condition and is ready for tenant improvements, which may require additional major base building construction before being placed in service. Projects in the tenant improvement phase are added to our stabilized portfolio once the project reaches the earlier of 95% occupancy or one year from the date of the cessation of major base building construction activities. Costs capitalized to construction in progress for development and redevelopment properties are transferred to land and improvements, buildings and improvements, and deferred leasing costs on our consolidated balance sheets at the historical cost of the property as the projects are placed in service. During the three months ended June 30, 2019, we added one development project to our stabilized office portfolio consisting of 394,340 square feet in San Francisco, California. As of June 30, 2019, the following properties were excluded from our stabilized portfolio. We did not have any redevelopment properties or properties held for sale at June 30, 2019.
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Our stabilized portfolio also excludes our future development pipeline, which as of June 30, 2019 was comprised of four potential development sites, representing approximately 59 gross acres of undeveloped land. As of June 30, 2019, 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 eight 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 June 30, 2019, 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 June 30, 2019, 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, 303 Second LLC, 100 First LLC, Redwood LLC and all of our wholly-owned and controlled subsidiaries. The consolidated financial statements of the Operating Partnership include the consolidated financial position and results of operations of the Operating Partnership, the Finance Partnership, 303 Second LLC, 100 First LLC, Redwood LLC and all of our wholly-owned and controlled subsidiaries. All intercompany balances and transactions have been eliminated in the consolidated financial statements. As of June 30, 2019, the Company owned an approximate 98.0% common general partnership interest in the Operating Partnership. The remaining approximate 2.0% common limited partnership interest in the Operating Partnership as of June 30, 2019 was owned by non-affiliated investors and certain of our executive officers and directors. Both the general and limited common partnership interests in the Operating Partnership are denominated in common units. Generally, the number of common units held by the Company is equivalent to the number of outstanding shares of the Company’s common stock, and the rights of all the common units to quarterly distributions and payments in liquidation mirror those of the Company’s common stockholders. The common limited partners have certain redemption rights as provided in the Operating Partnership’s Seventh Amended and Restated Agreement of Limited Partnership, as amended, the “Partnership Agreement”. 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. 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, 2019. 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, 2018. Variable Interest Entities The Operating Partnership is a variable interest entity (“VIE”) that is consolidated by the Company as the primary beneficiary as the Operating Partnership is a limited partnership in which the common limited partners do not have substantive kick-out or participating rights. At June 30, 2019, the consolidated financial statements of the Company included two VIEs in addition to the Operating Partnership: 100 First LLC and 303 Second LLC. At June 30, 2019, the Operating Partnership was determined to be the primary beneficiary of these two VIEs since the Operating Partnership had the ability to control the activities that most significantly impact each of the VIE’s economic performance. As of June 30, 2019, the two VIEs’ total assets, liabilities and noncontrolling interests included on our consolidated balance sheet were approximately $457.3 million (of which $392.0 million related to real estate held for investment), approximately $30.9 million and approximately $187.0 million, respectively. Revenues, income and net assets generated by 100 First LLC and 303 Second LLC may only be used to settle their contractual obligations, which primarily consist of operating expenses, capital expenditures and required distributions. At December 31, 2018, 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 2018 to facilitate a transaction intended to qualify as a like-kind exchange pursuant to Section 1031 of the Code (“Section 1031 Exchange”). In January 2019, the Section 1031 Exchange was successfully completed and the related VIE was terminated. At December 31, 2018, the impact of consolidating the VIEs increased the Company’s total assets, liabilities and noncontrolling interests on our consolidated balance sheet by approximately $615.4 million (of which $543.9 million related to real estate held for investment), approximately $45.1 million and approximately $186.4 million, respectively. Accounting Pronouncements Adopted January 1, 2019 Effective January 1, 2019, we adopted Financial Accounting Standards Board (“FASB”) ASU No. 2016-02 “Leases (Topic 842)” (“Topic 842”) and the related FASB ASU Nos. 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01 which provide practical expedients, technical corrections and improvements for certain aspects of ASU 2016-02, on a modified retrospective basis. Topic 842 establishes a single comprehensive model for entities to use in accounting for leases and supersedes the existing leasing guidance. We evaluated each of the Company’s contracts to determine if the contract is or contains a lease and concluded that Topic 842 is applicable to the Company as a lessor in its tenant lease agreements and as a lessee in its ground leases. Lessor Accounting As a lessor, the Company’s leases with tenants for its real estate assets generally provide for the lease of space, as well as common area maintenance and parking. Under Topic 842, the lease of space is considered a lease component while the common area maintenance billings and tenant parking are considered nonlease components, which fall under revenue recognition guidance in Topic 606. However, upon adopting the guidance in Topic 842, the Company determined that its tenant leases met the criteria to apply the practical expedient provided by ASU 2018-11 to recognize the lease and non-lease components together as one single component. This conclusion was based on the consideration that 1) the timing and pattern of transfer of the nonlease components and associated lease component are the same, and 2) the lease component, if accounted for separately, would be classified as an operating lease. As the lease of space is the predominant component of the Company’s leasing arrangements, we accounted for all lease and non-lease components as one single component under Topic 842. As a result, the adoption of Topic 842 did not have any impact on the Company’s timing or pattern of recognition of rental revenues as compared to previous guidance. Transient daily parking revenue will be accounted for under the guidance in Topic 606 and included in other property income in our consolidated statements of operations. To reflect their recognition as one lease component, rental revenues, tenant reimbursements and other lease related property income related to leases that also meet the requirements of the practical expedient provided by ASU 2018-11 have been combined in one line item subsequent to the adoption of Topic 842 for the three and six months ended June 30, 2019 in rental income on the Company’s consolidated statements of operations. In addition, under Topic 842, lessor costs for certain services directly reimbursed by tenants, which were previously presented on a net basis under previous guidance, are required to be presented on a gross basis in revenues and expenses. During the three and six months ended June 30, 2019, we incurred additional property expenses of $3.1 million and $6.1 million, respectively, for which we were reimbursed, that were not required to be grossed up under the previous guidance. We presented this amount on a gross basis within rental income and property expenses in the Company’s consolidated statements of operations as a result of the adoption, which had no impact on net income. Our rental income is mostly comprised of fixed contractual payments defined under the lease that, in most cases, escalate annually over the term of the lease at fixed rates. Additionally, rental income includes variable payments for tenant reimbursements of property-related expenses and payments based on a percentage of tenant’s sales. The table below sets forth the allocation of rental income between fixed and variable payments for the three and six months ended June 30, 2019:
Leasing Costs Upon adoption of Topic 842, the Company elected to apply the package of practical expedients provided and did not reassess the following as of January 1, 2019: 1) whether any expired or existing contracts are or contain leases; 2) the lease classification for any expired or existing leases; and 3) initial direct costs for any existing leases. Under Topic 842, initial direct costs for both lessees and lessors would include only those costs that are incremental to the arrangement and would not have been incurred if the lease had not been obtained. As a result, beginning January 1, 2019, the Company will no longer capitalize internal leasing costs and third-party legal leasing costs and instead will expense these costs as incurred. These expenses are included in leasing costs and general and administrative expenses on our consolidated statements of operations in 2019. During the three and six months ended June 30, 2019, the Company expensed approximately $3.4 million and $6.0 million, respectively, of indirect leasing costs which would have been capitalized prior to the adoption of Topic 842. The election of the package of practical expedients described above permits us to continue to account for our leases that commenced before January 1, 2019 under the previously existing lease accounting guidance for the remainder of their lease terms, and to apply the new lease accounting guidance to leases commencing or modified after January 1, 2019. On January 1, 2019, we recognized a $3.1 million cumulative-effect adjustment, primarily related to internal leasing costs and legal leasing costs for tenant leases that had not commenced prior to that date, to increase distributions in excess of earnings for the Company and partners’ capital for the Operating Partnership in connection with our adoption of Topic 842. Allowances for Tenant and Deferred Rent Receivables Upon the adoption of Topic 842 on January 1, 2019, our determination of the adequacy of the Company’s allowances for tenant receivables includes a binary assessment of whether or not the amounts due under a tenant’s lease agreement are probable of collection. For such amounts that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For such amounts that are deemed not probable of collection, revenue is recorded as the lesser of (i) the amount which would be recognized on a straight-line basis or (ii) cash that has been received from the tenant, with any tenant and deferred rent receivable balances charged as a direct write-off against rental income in the period of the change in the collectability determination. In addition, for tenant and deferred rent receivables deemed probable of collection we also may record an allowance under other authoritative GAAP depending upon our evaluation of the individual receivables, specific credit enhancements, current economic conditions, and other relevant factors. Such allowances are recorded as increases or decreases through rental income on our consolidated statements of operations. Lessee Accounting The Company’s ground leases are the primary contracts in which we are the lessee. Upon adoption of Topic 842 on January 1, 2019, the Company had four existing ground leases which were classified as operating leases. We elected to apply the practical expedient to use hindsight in determining the lease term of our existing ground leases. As discussed above, the Company also elected to apply the package of practical expedients provided by Topic 842 and therefore did not reassess the classification of these ground leases. Existing ground leases that commenced before the January 1, 2019 adoption date continued to be accounted for as operating leases, and the new guidance did not have a material impact on our recognition of ground lease expense or our results of operations. However, for periods beginning after January 1, 2019, we are now required to recognize a lease liability on our consolidated balance sheets equal to the present value of the minimum future lease payments required in accordance with each ground lease, as well as a right of use asset equal to the lease liability adjusted for above and below market intangibles and deferred leasing costs. The adoption of Topic 842 resulted in the recognition of right of use ground lease assets totaling $82.9 million and ground lease liabilities totaling $87.4 million on January 1, 2019. There was no material impact to our consolidated statements of operations or consolidated statements of cash flows as a result of adoption of this new guidance. For further information, refer to Note 10. For leases with a term of 12 months or less where we are the lessee, we made an accounting policy election by class of underlying asset not to recognize right of use lease assets and lease liabilities. We recognize lease expense for such leases generally on a straight-line basis over the lease term. The following are our updated significant accounting policies that have been affected by the adoption of Topic 842. Significant Accounting Policies Revenue Recognition and Allowances for Tenant and Deferred Rent Receivables We recognize revenue from rent, tenant reimbursements, parking and other lease-related revenue once all of the following criteria are met: (i) the agreement has been fully executed and delivered, (ii) services have been rendered, (iii) the amount is fixed or determinable and (iv) payment has been received or the collectability of the amount due is probable. Lease termination fees are amortized over the remaining lease term, if applicable. If there is no remaining lease term, they are recognized when received and realized. Minimum annual rental revenues are recognized in rental revenues on a straight-line basis over the non-cancellable term of the related lease. We carry our current and deferred rent receivables net of allowances for amounts that may not be collected. Prior to the adoption of Topic 842 on January 1, 2019, the allowances are increased or decreased through provision for bad debts on our consolidated statements of operations. Upon the adoption of Topic 842 on January 1, 2019, our determination of the adequacy of the Company's allowances for tenant receivables includes a binary assessment of whether or not the amounts due under a tenant’s lease agreement are probable of collection. For such amounts that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For such amounts that are deemed not probable of collection, revenue is recorded as the lesser of (i) the amount which would be recognized on a straight-line basis or (ii) cash that has been received from the tenant, with any tenant and deferred rent receivable balances charged as a direct write-off against rental income in the period of the change in the collectability determination. In addition, for tenant and deferred rent receivables deemed probable of collection we also may record an allowance under other authoritative GAAP depending upon our evaluation of the individual receivables, specific credit enhancements, current economic conditions, and other relevant factors. Such allowances are recorded as increases or decreases through rental income on our consolidated statements of operations. For the three months ended June 30, 2019, we recorded a provision for bad debts of $0.2 million. For the six months ended June 30, 2019, we recorded a net reversal of allowance for tenant and deferred rent receivables of $3.3 million primarily due to the improved credit quality of a tenant that we previously recorded a provision against during the three months ended June 30, 2018. For the three and six months ended June 30, 2018, we recorded a provision for bad debts of $5.6 million and $5.4 million, respectively, primarily related to this tenant. Rental revenue recognition commences when the tenant takes possession or controls the physical use of the leased space. In order for the tenant to take possession, the leased space must be substantially complete and ready for its intended use. In order to determine whether the leased space is substantially complete and ready for its intended use, we begin by determining whether the Company or the tenant owns the tenant improvements. When we conclude that the Company is the owner of tenant improvements, rental revenue recognition begins when the tenant takes possession of the finished space, which is generally when Company-owned tenant improvements are substantially complete. In certain instances, when we conclude that the Company is not the owner (the tenant is the owner) of tenant improvements, rental revenue recognition begins when the tenant takes possession or controls the physical use of the leased space. When we conclude that the Company is the owner of tenant improvements, we record the cost to construct the tenant improvements, including costs paid for or reimbursed by the tenants, as a capital asset. For these tenant improvements, we record the amount funded by or reimbursed by the tenants as deferred revenue, which is amortized on a straight-line basis as additional rental income over the term of the related lease. When we conclude that the tenant is the owner of tenant improvements for accounting purposes, we record our contribution towards those improvements as a lease incentive, which is included in deferred leasing costs and acquisition-related intangible assets, net on our consolidated balance sheets and amortized as a reduction to rental income on a straight-line basis over the term of the related lease. For residential properties, we commence revenue recognition upon lease commencement. Residential rental revenue is recognized on a straight-line basis over the term of the related lease, net of any concessions. Tenant Reimbursements Reimbursements from tenants, consisting of amounts due from tenants for common area maintenance, real estate taxes and other recoverable costs, are recognized in rental income subsequent to the adoption of Topic 842 in the period the recoverable costs are incurred. Tenant reimbursements where we pay the associated costs directly to third-party vendors and are reimbursed by our tenants are recognized and recorded on a gross basis. Other Property Income Other property income primarily includes amounts recorded in connection with transient daily parking, tenant bankruptcy settlement payments, broken deal income and property damage settlement related payments. Other property income also includes miscellaneous income from tenants, restoration fees and fees for late rental payments. Amounts recorded within other property income fall within the scope of Topic 606 and are accounted for at the point in time when control of the goods or services transfers to the customer and our performance obligation is satisfied. Accounting Pronouncements Effective in 2020 and Beyond ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326)” 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. In November 2018, the FASB released ASU No. 2018-19 “Codification Improvements to Topic 326, Financial Instrument - Credit Losses.” This ASU clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20 “Financial Instruments – Credit Losses.” Instead, impairment of receivables arising from operating leases should be accounted for under Subtopic 842-30 “Leases – Lessor.” 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 anticipate that the guidance will have a material impact on its consolidated financial statements or notes to its consolidated financial statements. ASU No. 2018-13 “Fair Value Measurement (Topic 820)” On August 28, 2018, the FASB issued ASU No. 2018-13 (“ASU 2018-13”) to amend the disclosure requirements for fair value measurements. The amendments in ASU 2018-13 include new, modified and eliminated disclosure requirements and are the result of a broader disclosure project called FASB Concepts Statement, Conceptual Framework for Financial Reporting - Chapter 8: Notes to Financial Statements (the “Concepts Statement”), which the FASB finalized on August 28, 2018. The FASB used the guidance in the Concepts Statement to improve the effectiveness of Topic 820’s disclosure requirements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for any eliminated or modified disclosures. The Company currently anticipates that the guidance will not have a significant impact on the disclosures in the notes to its consolidated financial statements. ASU No. 2018-15 “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)” On August 29, 2018, the FASB issued ASU No. 2018-15 (“ASU 2018-15”) to amend a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. ASU 2018-15 can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact of ASU 2018-15 on its consolidated financial statements and notes to its consolidated financial statements.
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Dispositions |
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dispositions | Dispositions Operating Property Dispositions The following table summarizes the operating property sold during the six months ended June 30, 2019:
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The total gain on the sale of the operating property sold during the six months ended June 30, 2019 was $7.2 million.
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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 June 30, 2019 and December 31, 2018:
________________________ (1) Notes receivable are shown net of a valuation allowance of approximately $3.6 million and $2.9 million as of June 30, 2019 and December 31, 2018, respectively.
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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 Secured Debt On February 11, 2019, the Company repaid at par a secured mortgage note payable for $74.3 million that was due in June 2019. Unsecured Debt The Company generally guarantees all of the Operating Partnership’s unsecured debt obligations including the unsecured revolving credit facility, the unsecured term loan facility and all of the unsecured senior notes. Unsecured Revolving Credit Facility and Term Loan Facility The following table summarizes the balance and terms of our unsecured revolving credit facility as of June 30, 2019 and December 31, 2018:
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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 June 30, 2019 and December 31, 2018:
Debt Covenants and Restrictions The unsecured revolving credit facility, the unsecured term loan facility, the unsecured senior notes, the Series A and B Notes due 2026 and Series A and B Notes due 2027 and 2029 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 June 30, 2019. Debt Maturities The following table summarizes the stated debt maturities and scheduled amortization payments of our issued and outstanding debt as of June 30, 2019:
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 six months ended June 30, 2019 and 2018. 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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Stockholders' Equity of the Company |
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Jun. 30, 2019 | |
Equity [Abstract] | |
Stockholders' Equity of the Company | Stockholders’ Equity of the Company At-The-Market Stock Offering Program Under our at-the-market stock offering program, which commenced in June 2018, we may offer and sell shares of our common stock having an aggregate gross sales price up to $500.0 million from time to time in “at-the-market” offerings. In connection with the at-the-market program, the Company may enter into forward equity sale agreements with certain financial institutions acting as forward purchasers whereby, at our discretion, the forward purchasers may borrow and sell shares of our common stock under our at-the-market program. The use of a forward equity sale agreement allows the Company to lock in a share price on the sale of shares of our common stock at the time the agreement is executed but defer settling the forward equity sale agreements and receiving the proceeds from the sale of shares until a later date. During the six months ended June 30, 2019, we executed 12-month forward equity sale agreements with financial institutions acting as forward purchasers under our at-the-market stock offering program to sell 1,201,204 shares of common stock at a weighted average sales price of $75.92 per share before underwriting discounts, commissions and offering expenses. The Company did not receive any proceeds from the sale of its common shares by the forward purchasers. The Company currently expects to fully physically settle the forward equity sale agreements and receive cash proceeds upon one or more settlement dates, at the Company’s discretion, prior to the final settlement dates under the forward equity sale agreements in March and April 2020, in which case we expect to receive aggregate net cash proceeds at settlement equal to the number of shares specified in such forward equity sale agreement multiplied by the relevant forward price per share. The weighted average forward sale price that we expect to receive upon physical settlement of the agreements will be subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread, (ii) the forward purchasers’ stock borrowing costs and (iii) scheduled dividends during the term of the agreements. We have not settled any portion of these forward equity sale agreements as of the date of this filing. Upon physical settlement, the Company will contribute the net proceeds from the issuance of shares of our common stock to the Operating Partnership in exchange for an equal number of units in the Operating Partnership. Since commencement of the program, we have completed sales of 447,466 shares of common stock through June 30, 2019 and 1,201,204 shares have been sold by forward purchasers under forward equity sale agreements, which have not been settled as of the date of this filing. We did not settle any forward sales of common stock under our at-the-market program during the six months ended June 30, 2019 and as of June 30, 2019 approximately $375.0 million remains 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. 2018 Common Stock Forward Equity Sale Agreements In August 2018, the Company entered into forward equity sale agreements with certain financial institutions acting as forward purchasers in connection with an offering of 5,000,000 shares of common stock at an initial gross offering price of $360.5 million, or $72.10 per share, before underwriting discounts, commissions and offering expenses. The forward purchasers borrowed and sold an aggregate of 5,000,000 shares of common stock in the offering. The Company did not receive any proceeds from the sale of its shares of common stock by the forward purchasers at the time of the offering. The forward sale price that we will receive upon physical settlement of the agreements, which was initially $71.68 per share, will be subject to adjustment for (i) a floating interest rate factor equal to a specified daily rate less a spread, (ii) the forward purchasers’ stock borrowing costs and (iii) scheduled dividends during the term of the forward equity sale agreements. On July 22, 2019, the Company physically settled the forward equity sale agreements entered into in August 2018. Upon settlement, the Company issued 5,000,000 shares of common stock for net proceeds of $354.3 million and contributed the net proceeds to the Operating Partnership in exchange for an equal number of units in the Operating Partnership.
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Noncontrolling Interests on the Company's Consolidated Financial Statements |
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Jun. 30, 2019 | |
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 98.0%, 98.0%, and 98.0% common general partnership interest in the Operating Partnership as of June 30, 2019, December 31, 2018 and June 30, 2018, respectively. The remaining approximate 2.0%, 2.0%, and 2.0% common limited partnership interest as of June 30, 2019, December 31, 2018 and June 30, 2018, respectively, was owned by non-affiliated investors and certain of our executive officers and directors in the form of noncontrolling common units. There were 2,023,287, 2,025,287 and 2,070,690 common units outstanding held by these investors, executive officers and directors as of June 30, 2019, December 31, 2018 and June 30, 2018, respectively. |
Partners' Capital of the Operating Partnership |
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Partners' Capital Notes [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Partners’ Capital of the Operating Partnership | Partners’ Capital of the Operating Partnership Common Units Outstanding The following table sets forth the number of common units held by the Company and the number of common units held by non-affiliated investors and certain of our executive officers and directors in the form of noncontrolling common units as well as the ownership interest held on each respective date:
For further discussion of the noncontrolling common units as of June 30, 2019 and December 31, 2018, refer to Note 6.
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Share-Based Compensation |
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Jun. 30, 2019 | |||||||||||||||
Share-based Payment Arrangement [Abstract] | |||||||||||||||
Share-Based Compensation | Share-Based Compensation Stockholder Approved Equity Compensation Plans As of June 30, 2019, we maintained one share-based incentive compensation plan, the Kilroy Realty 2006 Incentive Award Plan, as amended (the “2006 Plan”). The Company has a currently effective registration statement registering 9.2 million shares of our common stock for possible issuance under the 2006 Plan. As of June 30, 2019, approximately 0.2 million shares were available for grant under the 2006 Plan. The calculation of shares available for grant is presented after taking into account a reserve for a sufficient number of shares to cover the vesting and payment of 2006 Plan awards that were outstanding on that date, including performance-based vesting awards at (i) levels actually achieved for the performance conditions (as defined below) for which the performance period has been completed and (ii) at maximum levels for the performance and market conditions (as defined below) for awards still in a performance period. 2019 Share-Based Compensation Grants In February 2019, the Executive Compensation Committee of the Company’s Board of Directors awarded 288,378 restricted stock units (“RSUs”) to certain officers of the Company under the 2006 Plan, which included 143,396 RSUs (at the target level of performance) that are subject to market and/or performance-based vesting requirements (the “2019 Performance-Based RSUs”) and 144,982 RSUs that are subject to time-based vesting requirements (the “2019 Time-Based RSUs”). 2019 Performance-Based RSU Grant The 2019 Performance-Based RSUs are scheduled to vest at the end of a three year period (consisting of calendar years 2019-2021). A target number of 2019 Performance-Based RSUs were awarded, and the final number of 2019 Performance-Based RSUs that vest (which may be more or less than the target number) will be based upon (1) the achievement of pre-set FFO per share goals for the year ending December 31, 2019 that applies to 100% of the Performance-Based RSUs awarded (the “FFO performance condition”) and (2) a performance measure that applies to 50% of the award based upon a measure of the Company’s average debt to EBITDA ratio for the three year performance period (the “debt to EBITDA ratio performance condition”) and a market measure that applies to the other 50% of the award based upon the relative ranking of the Company’s total stockholder return for the three year performance period compared to the total stockholder returns of an established comparison group of companies over the same period (the “market condition”). The 2019 Performance-Based RSUs are also subject to a three year service vesting provision (the “service vesting condition”) and are scheduled to cliff vest on the date the final vesting percentage is determined following the end of the three year performance period under the awards. The number of 2019 Performance-Based RSUs ultimately earned could fluctuate from the target number of 2019 Performance-Based RSUs granted based upon the levels of achievement for the FFO performance condition, the debt to EBITDA ratio performance condition, the market condition, and the extent to which the service vesting condition is satisfied. The estimate of the number of 2019 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 June 30, 2019, the number of 2019 Performance-Based RSUs estimated to be earned based on the Company’s estimate of the performance conditions measured against the applicable goals was 212,957, and the compensation cost recorded to date for this program was based on that estimate. Compensation expense for the 2019 Performance-Based RSU grant is recognized on a straight-line basis over the requisite service period for each participant, which is generally the three year service period. Each 2019 Performance-Based RSU represents the right, subject to the applicable vesting conditions, to receive one share of our common stock in the future. The determination of the grant date fair value of the portion of the 2019 Performance-Based RSU grants covered by the debt to EBITDA ratio performance condition was based on the $69.89 share price on the February 1, 2019 grant date. The determination of the grant date fair value of the portion of the 2019 Performance-Based RSU grants covered by the market condition was calculated using a Monte Carlo simulation pricing model based on the assumptions in the table below, which resulted in a $72.57 grant date fair value per share.
The computation of expected volatility is based on a blend of the historical volatility of our shares of common stock over approximately 5.8 years, as that is expected to be most consistent with future volatility and equates to a time period twice as long as the approximate 2.9-year 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 1, 2019. The total grant date fair value of the 2019 Performance-Based RSU awards was $10.2 million on the February 1, 2019 grant date of the awards. For the three months ended June 30, 2019, we recorded compensation expense based upon the grant date fair value per share for each component multiplied by the estimated number of RSUs to be earned as discussed above. 2019 Time-Based RSU Grant The 2019 Time-Based RSUs are scheduled to vest in three equal annual installments beginning on January 5, 2020 through January 5, 2022. Compensation expense for the 2019 Time-Based RSUs is recognized on a straight-line basis over the requisite service period for each participant, which is generally the three year service vesting period. Each 2019 Time-Based RSU represents the right to receive one share of our common stock in the future. The total grant date fair value of the 2019 Time-Based RSU awards was $10.1 million, which was based on the $69.89 closing share price of the Company’s common stock on the NYSE on the February 1, 2019 grant date of the awards. Share-Based Compensation Cost Recorded During the Period The total compensation cost for all share-based compensation programs was $8.7 million and $11.5 million for the three months ended June 30, 2019 and 2018, respectively, and $17.5 million and $16.6 million for the six months ended June 30, 2019 and 2018, respectively. Of the total share-based compensation costs, $1.9 million and $3.5 million was capitalized as part of real estate assets for the three and six months ended June 30, 2019, and $2.8 million and $4.3 million was capitalized as part of real estate assets and deferred leasing costs for the three and six months ended June 30, 2018. As of June 30, 2019, there was approximately $70.5 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 2.5 years. The remaining compensation cost related to these nonvested incentive awards had been recognized in periods prior to June 30, 2019.
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Future Minimum Rent |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Future Minimum Rent | Future Minimum Rent We have operating leases with tenants that expire at various dates through 2043 that are generally subject to scheduled fixed increases with certain leases containing adjustments in rent based on the Consumer Price Index. Generally, the leases grant tenants renewal options. Leases also provide for additional rents based on certain operating expenses. Future contractual minimum rent under operating leases as of June 30, 2019 (under Topic 842) for future periods is summarized as follows:
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Future contractual minimum rent under operating leases as of December 31, 2018 for future periods is summarized as follows:
______________ (1) Excludes residential leases and leases with a term of one year or less.
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Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies | Commitments and Contingencies General As of June 30, 2019, we had commitments of approximately $1.2 billion, excluding our ground lease commitments, for contracts and executed leases directly related to our operating properties and development projects. Ground Leases The following table summarizes our properties that are held subject to long-term noncancellable ground lease obligations and the respective contractual expiration dates:
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On January 1, 2019, we adopted Topic 842 and recognized ground lease liabilities on our consolidated balance sheets equal to the present value of the minimum lease payments required in accordance with each ground lease. We also recognized right of use ground lease assets equal to the ground lease liabilities adjusted for above and below market ground lease intangibles and deferred leasing costs. To determine the discount rates used to calculate the present value of the lease payments, we used a hypothetical curve derived from unsecured corporate borrowing rates over the lease terms. The weighted average discount rate for our ground leases was 5.15%. On January 1, 2019, we recognized right of use ground lease assets totaling $82.9 million and ground lease liabilities totaling $87.4 million. As of June 30, 2019, the weighted average remaining lease term of our ground leases is 52 years. For the three and six months ended June 30, 2019, variable lease costs totaling $0.8 million and $1.5 million, respectively, were recorded to ground leases expense on our consolidated statements of operations. The minimum commitment under our ground leases as of June 30, 2019 (under Topic 842) for future periods is summarized as follows:
The minimum commitment under our ground leases as of December 31, 2018 for future periods is summarized as follows:
Environmental Matters We follow the policy of monitoring all of our properties, including acquisition, development 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 June 30, 2019, we had accrued environmental remediation liabilities of approximately $71.6 million recorded on our consolidated balance sheets in connection with certain of our in-process and future development projects. The accrued environmental remediation liabilities represent the remaining costs we estimate we will incur prior to and during the development process at various development acquisition sites. These estimates, which we developed with the assistance of third party experts, consist primarily of the removal of contaminated soil, performing environmental closure activities, constructing remedial systems and other related costs since we are required to dispose of any existing contaminated soil and sometimes perform other environmental closure or remedial activities when we develop new buildings at these sites. We record estimated environmental remediation obligations for acquired properties at the acquisition date when we are aware of such costs and when such costs are probable of being incurred and can be reasonably estimated. Estimated costs related to development environmental remediation liabilities are recorded as an increase to the cost of the development project. Actual costs are recorded as a decrease to the liability when incurred. These accruals are adjusted as an increase or decrease to the development project costs and as an increase or decrease to the accrued environmental remediation liability if we obtain further information or circumstances change. The environmental remediation obligations recorded at June 30, 2019 were not discounted to their present values since the amount and timing of cash payments are not fixed. It is possible that we could incur additional environmental remediation costs in connection with these development projects. However, potential additional environmental costs for these development projects cannot be reasonably estimated 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 Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 June 30, 2019 and December 31, 2018:
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 gain/loss 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 (loss) on marketable securities recorded during the three and six months ended June 30, 2019 and 2018:
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 June 30, 2019 and December 31, 2018:
(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.
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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 six months ended June 30, 2019 and 2018:
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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, shares issuable under forward equity sale agreements and other securities are considered in our diluted earnings per share calculation for the three and six months ended June 30, 2019 and 2018. Certain market measure-based RSUs are not included in dilutive securities for the three and six months ended June 30, 2019 and 2018, as not all performance metrics had been met by the end of the applicable reporting periods. See Note 8 “Share-Based Compensation” for additional information regarding share-based compensation.
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Net Income Available to Common Unitholders Per Unit of the Operating Partnership |
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Net Income Available to Common Unitholders Per Unit of the Operating Partnership | 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 six months ended June 30, 2019 and 2018:
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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, shares issuable under forward equity sale agreements and other securities are considered in our diluted earnings per share calculation for the three and six months ended June 30, 2019 and 2018. Certain market measure-based RSUs are not included in dilutive securities for the three and six months ended June 30, 2019 and 2018, as not all performance metrics had been met by the end of the applicable reporting periods. See Note 8 “Share-Based Compensation” for additional information regarding share-based compensation.
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Net Income Available To Common Unitholders [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 six months ended June 30, 2019 and 2018:
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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, shares issuable under forward equity sale agreements and other securities are considered in our diluted earnings per share calculation for the three and six months ended June 30, 2019 and 2018. Certain market measure-based RSUs are not included in dilutive securities for the three and six months ended June 30, 2019 and 2018, as not all performance metrics had been met by the end of the applicable reporting periods. See Note 8 “Share-Based Compensation” for additional information regarding share-based compensation.
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Supplemental Cash Flow Information of the Company |
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 six months ended June 30, 2019 and 2018.
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Supplemental Cash Flow Information of the Operating Partnership |
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 six months ended June 30, 2019 and 2018.
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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 six months ended June 30, 2019 and 2018.
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Subsequent Events |
6 Months Ended |
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Jun. 30, 2019 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events On July 17, 2019, aggregate dividends, distributions and dividend equivalents of $50.8 million were paid to common stockholders, common unitholders and RSU holders of record on June 28, 2019. On July 22, 2019, the Company physically settled the forward equity sale agreements entered into in August 2018. Upon settlement, the Company issued 5,000,000 shares of common stock for net proceeds of $354.3 million and contributed the net proceeds to the Operating Partnership in exchange for an equal number of units in the Operating Partnership, which was then used to pay down the unsecured revolving credit facility. As of the date of this report, $60.0 million was outstanding on the unsecured revolving credit facility. Refer to Note 5 for additional information.
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Organization, Ownership and Basis of Presentation (Policies) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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, 303 Second LLC, 100 First LLC, Redwood LLC and all of our wholly-owned and controlled subsidiaries. The consolidated financial statements of the Operating Partnership include the consolidated financial position and results of operations of the Operating Partnership, the Finance Partnership, 303 Second LLC, 100 First LLC, Redwood LLC and all of our wholly-owned and controlled subsidiaries. All intercompany balances and transactions have been eliminated in the consolidated financial statements. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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, 2019. 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, 2018.
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New accounting pronouncements | Accounting Pronouncements Adopted January 1, 2019 Effective January 1, 2019, we adopted Financial Accounting Standards Board (“FASB”) ASU No. 2016-02 “Leases (Topic 842)” (“Topic 842”) and the related FASB ASU Nos. 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01 which provide practical expedients, technical corrections and improvements for certain aspects of ASU 2016-02, on a modified retrospective basis. Topic 842 establishes a single comprehensive model for entities to use in accounting for leases and supersedes the existing leasing guidance. We evaluated each of the Company’s contracts to determine if the contract is or contains a lease and concluded that Topic 842 is applicable to the Company as a lessor in its tenant lease agreements and as a lessee in its ground leases. Lessor Accounting As a lessor, the Company’s leases with tenants for its real estate assets generally provide for the lease of space, as well as common area maintenance and parking. Under Topic 842, the lease of space is considered a lease component while the common area maintenance billings and tenant parking are considered nonlease components, which fall under revenue recognition guidance in Topic 606. However, upon adopting the guidance in Topic 842, the Company determined that its tenant leases met the criteria to apply the practical expedient provided by ASU 2018-11 to recognize the lease and non-lease components together as one single component. This conclusion was based on the consideration that 1) the timing and pattern of transfer of the nonlease components and associated lease component are the same, and 2) the lease component, if accounted for separately, would be classified as an operating lease. As the lease of space is the predominant component of the Company’s leasing arrangements, we accounted for all lease and non-lease components as one single component under Topic 842. As a result, the adoption of Topic 842 did not have any impact on the Company’s timing or pattern of recognition of rental revenues as compared to previous guidance. Transient daily parking revenue will be accounted for under the guidance in Topic 606 and included in other property income in our consolidated statements of operations. To reflect their recognition as one lease component, rental revenues, tenant reimbursements and other lease related property income related to leases that also meet the requirements of the practical expedient provided by ASU 2018-11 have been combined in one line item subsequent to the adoption of Topic 842 for the three and six months ended June 30, 2019 in rental income on the Company’s consolidated statements of operations. In addition, under Topic 842, lessor costs for certain services directly reimbursed by tenants, which were previously presented on a net basis under previous guidance, are required to be presented on a gross basis in revenues and expenses. During the three and six months ended June 30, 2019, we incurred additional property expenses of $3.1 million and $6.1 million, respectively, for which we were reimbursed, that were not required to be grossed up under the previous guidance. We presented this amount on a gross basis within rental income and property expenses in the Company’s consolidated statements of operations as a result of the adoption, which had no impact on net income. Our rental income is mostly comprised of fixed contractual payments defined under the lease that, in most cases, escalate annually over the term of the lease at fixed rates. Additionally, rental income includes variable payments for tenant reimbursements of property-related expenses and payments based on a percentage of tenant’s sales. The table below sets forth the allocation of rental income between fixed and variable payments for the three and six months ended June 30, 2019:
Leasing Costs Upon adoption of Topic 842, the Company elected to apply the package of practical expedients provided and did not reassess the following as of January 1, 2019: 1) whether any expired or existing contracts are or contain leases; 2) the lease classification for any expired or existing leases; and 3) initial direct costs for any existing leases. Under Topic 842, initial direct costs for both lessees and lessors would include only those costs that are incremental to the arrangement and would not have been incurred if the lease had not been obtained. As a result, beginning January 1, 2019, the Company will no longer capitalize internal leasing costs and third-party legal leasing costs and instead will expense these costs as incurred. These expenses are included in leasing costs and general and administrative expenses on our consolidated statements of operations in 2019. During the three and six months ended June 30, 2019, the Company expensed approximately $3.4 million and $6.0 million, respectively, of indirect leasing costs which would have been capitalized prior to the adoption of Topic 842. The election of the package of practical expedients described above permits us to continue to account for our leases that commenced before January 1, 2019 under the previously existing lease accounting guidance for the remainder of their lease terms, and to apply the new lease accounting guidance to leases commencing or modified after January 1, 2019. On January 1, 2019, we recognized a $3.1 million cumulative-effect adjustment, primarily related to internal leasing costs and legal leasing costs for tenant leases that had not commenced prior to that date, to increase distributions in excess of earnings for the Company and partners’ capital for the Operating Partnership in connection with our adoption of Topic 842. Allowances for Tenant and Deferred Rent Receivables Upon the adoption of Topic 842 on January 1, 2019, our determination of the adequacy of the Company’s allowances for tenant receivables includes a binary assessment of whether or not the amounts due under a tenant’s lease agreement are probable of collection. For such amounts that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For such amounts that are deemed not probable of collection, revenue is recorded as the lesser of (i) the amount which would be recognized on a straight-line basis or (ii) cash that has been received from the tenant, with any tenant and deferred rent receivable balances charged as a direct write-off against rental income in the period of the change in the collectability determination. In addition, for tenant and deferred rent receivables deemed probable of collection we also may record an allowance under other authoritative GAAP depending upon our evaluation of the individual receivables, specific credit enhancements, current economic conditions, and other relevant factors. Such allowances are recorded as increases or decreases through rental income on our consolidated statements of operations. Lessee Accounting The Company’s ground leases are the primary contracts in which we are the lessee. Upon adoption of Topic 842 on January 1, 2019, the Company had four existing ground leases which were classified as operating leases. We elected to apply the practical expedient to use hindsight in determining the lease term of our existing ground leases. As discussed above, the Company also elected to apply the package of practical expedients provided by Topic 842 and therefore did not reassess the classification of these ground leases. Existing ground leases that commenced before the January 1, 2019 adoption date continued to be accounted for as operating leases, and the new guidance did not have a material impact on our recognition of ground lease expense or our results of operations. However, for periods beginning after January 1, 2019, we are now required to recognize a lease liability on our consolidated balance sheets equal to the present value of the minimum future lease payments required in accordance with each ground lease, as well as a right of use asset equal to the lease liability adjusted for above and below market intangibles and deferred leasing costs. The adoption of Topic 842 resulted in the recognition of right of use ground lease assets totaling $82.9 million and ground lease liabilities totaling $87.4 million on January 1, 2019. There was no material impact to our consolidated statements of operations or consolidated statements of cash flows as a result of adoption of this new guidance. For further information, refer to Note 10. For leases with a term of 12 months or less where we are the lessee, we made an accounting policy election by class of underlying asset not to recognize right of use lease assets and lease liabilities. We recognize lease expense for such leases generally on a straight-line basis over the lease term. The following are our updated significant accounting policies that have been affected by the adoption of Topic 842. Significant Accounting Policies Revenue Recognition and Allowances for Tenant and Deferred Rent Receivables We recognize revenue from rent, tenant reimbursements, parking and other lease-related revenue once all of the following criteria are met: (i) the agreement has been fully executed and delivered, (ii) services have been rendered, (iii) the amount is fixed or determinable and (iv) payment has been received or the collectability of the amount due is probable. Lease termination fees are amortized over the remaining lease term, if applicable. If there is no remaining lease term, they are recognized when received and realized. Minimum annual rental revenues are recognized in rental revenues on a straight-line basis over the non-cancellable term of the related lease. We carry our current and deferred rent receivables net of allowances for amounts that may not be collected. Prior to the adoption of Topic 842 on January 1, 2019, the allowances are increased or decreased through provision for bad debts on our consolidated statements of operations. Upon the adoption of Topic 842 on January 1, 2019, our determination of the adequacy of the Company's allowances for tenant receivables includes a binary assessment of whether or not the amounts due under a tenant’s lease agreement are probable of collection. For such amounts that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For such amounts that are deemed not probable of collection, revenue is recorded as the lesser of (i) the amount which would be recognized on a straight-line basis or (ii) cash that has been received from the tenant, with any tenant and deferred rent receivable balances charged as a direct write-off against rental income in the period of the change in the collectability determination. In addition, for tenant and deferred rent receivables deemed probable of collection we also may record an allowance under other authoritative GAAP depending upon our evaluation of the individual receivables, specific credit enhancements, current economic conditions, and other relevant factors. Such allowances are recorded as increases or decreases through rental income on our consolidated statements of operations. For the three months ended June 30, 2019, we recorded a provision for bad debts of $0.2 million. For the six months ended June 30, 2019, we recorded a net reversal of allowance for tenant and deferred rent receivables of $3.3 million primarily due to the improved credit quality of a tenant that we previously recorded a provision against during the three months ended June 30, 2018. For the three and six months ended June 30, 2018, we recorded a provision for bad debts of $5.6 million and $5.4 million, respectively, primarily related to this tenant. Rental revenue recognition commences when the tenant takes possession or controls the physical use of the leased space. In order for the tenant to take possession, the leased space must be substantially complete and ready for its intended use. In order to determine whether the leased space is substantially complete and ready for its intended use, we begin by determining whether the Company or the tenant owns the tenant improvements. When we conclude that the Company is the owner of tenant improvements, rental revenue recognition begins when the tenant takes possession of the finished space, which is generally when Company-owned tenant improvements are substantially complete. In certain instances, when we conclude that the Company is not the owner (the tenant is the owner) of tenant improvements, rental revenue recognition begins when the tenant takes possession or controls the physical use of the leased space. When we conclude that the Company is the owner of tenant improvements, we record the cost to construct the tenant improvements, including costs paid for or reimbursed by the tenants, as a capital asset. For these tenant improvements, we record the amount funded by or reimbursed by the tenants as deferred revenue, which is amortized on a straight-line basis as additional rental income over the term of the related lease. When we conclude that the tenant is the owner of tenant improvements for accounting purposes, we record our contribution towards those improvements as a lease incentive, which is included in deferred leasing costs and acquisition-related intangible assets, net on our consolidated balance sheets and amortized as a reduction to rental income on a straight-line basis over the term of the related lease. For residential properties, we commence revenue recognition upon lease commencement. Residential rental revenue is recognized on a straight-line basis over the term of the related lease, net of any concessions. Tenant Reimbursements Reimbursements from tenants, consisting of amounts due from tenants for common area maintenance, real estate taxes and other recoverable costs, are recognized in rental income subsequent to the adoption of Topic 842 in the period the recoverable costs are incurred. Tenant reimbursements where we pay the associated costs directly to third-party vendors and are reimbursed by our tenants are recognized and recorded on a gross basis. Other Property Income Other property income primarily includes amounts recorded in connection with transient daily parking, tenant bankruptcy settlement payments, broken deal income and property damage settlement related payments. Other property income also includes miscellaneous income from tenants, restoration fees and fees for late rental payments. Amounts recorded within other property income fall within the scope of Topic 606 and are accounted for at the point in time when control of the goods or services transfers to the customer and our performance obligation is satisfied. Accounting Pronouncements Effective in 2020 and Beyond ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326)” 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. In November 2018, the FASB released ASU No. 2018-19 “Codification Improvements to Topic 326, Financial Instrument - Credit Losses.” This ASU clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20 “Financial Instruments – Credit Losses.” Instead, impairment of receivables arising from operating leases should be accounted for under Subtopic 842-30 “Leases – Lessor.” 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 anticipate that the guidance will have a material impact on its consolidated financial statements or notes to its consolidated financial statements. ASU No. 2018-13 “Fair Value Measurement (Topic 820)” On August 28, 2018, the FASB issued ASU No. 2018-13 (“ASU 2018-13”) to amend the disclosure requirements for fair value measurements. The amendments in ASU 2018-13 include new, modified and eliminated disclosure requirements and are the result of a broader disclosure project called FASB Concepts Statement, Conceptual Framework for Financial Reporting - Chapter 8: Notes to Financial Statements (the “Concepts Statement”), which the FASB finalized on August 28, 2018. The FASB used the guidance in the Concepts Statement to improve the effectiveness of Topic 820’s disclosure requirements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for any eliminated or modified disclosures. The Company currently anticipates that the guidance will not have a significant impact on the disclosures in the notes to its consolidated financial statements. ASU No. 2018-15 “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)” On August 29, 2018, the FASB issued ASU No. 2018-15 (“ASU 2018-15”) to amend a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. ASU 2018-15 can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact of ASU 2018-15 on its consolidated financial statements and notes to its consolidated financial statements.
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Organization, Ownership and Basis of Presentation (Tables) |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of allocation of rental income between fixed and variable payments | The table below sets forth the allocation of rental income between fixed and variable payments for the three and six months ended June 30, 2019:
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Summary of real estate properties | As of June 30, 2019, the following properties were excluded from our stabilized portfolio. We did not have any redevelopment properties or properties held for sale at June 30, 2019.
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Our stabilized portfolio of operating properties was comprised of the following properties at June 30, 2019:
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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 operating property sold during the six months ended June 30, 2019:
__________________ (1) Represents gross sales price before the impact of broker commissions and closing costs.
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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 June 30, 2019 and December 31, 2018:
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Secured and Unsecured Debt of the Operating Partnership (Tables) - Kilroy Realty L.P. [Member] |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Instrument [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unsecured revolving credit facility | The following table summarizes the balance and terms of our unsecured term loan facility as of June 30, 2019 and December 31, 2018:
(3) Prior to borrowing the full capacity of our unsecured term loan facility, the undrawn facility fee was calculated based on any unused borrowing capacity and was paid on a quarterly basis. The following table summarizes the balance and terms of our unsecured revolving credit facility as of June 30, 2019 and December 31, 2018:
________________________
(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 June 30, 2019 and December 31, 2018, $4.0 million and $4.7 million of unamortized deferred financing costs, respectively, which are included in prepaid expenses and other assets, net on our consolidated balance sheets, remained to be amortized through the maturity date of our unsecured revolving credit facility
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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 as of June 30, 2019:
(1) Includes gross principal balance of outstanding debt before the effect of the following at June 30, 2019: $16.1 million of unamortized deferred financing costs for the unsecured term loan facility, unsecured senior notes and secured debt and $6.2 million of unamortized discounts for the unsecured senior notes.
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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 six months ended June 30, 2019 and 2018. 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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Partners' Capital of the Operating Partnership (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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:
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Share-Based Compensation (Tables) |
6 Months Ended | ||||||||||||||
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Jun. 30, 2019 | |||||||||||||||
Share-based Payment Arrangement [Abstract] | |||||||||||||||
Schedule of share-based payment award, restricted stock units, valuation assumptions |
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Future Minimum Rent (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Future contractual minimum rent under operating leases | Future contractual minimum rent under operating leases as of June 30, 2019 (under Topic 842) for future periods is summarized as follows:
______________
Future contractual minimum rent under operating leases as of December 31, 2018 for future periods is summarized as follows:
______________ (1) Excludes residential leases and leases with a term of one year or less.
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Commitments and Contingencies (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of contractual expiration dates for ground leases | The following table summarizes our properties that are held subject to long-term noncancellable ground lease obligations and the respective contractual expiration dates:
____________________
(2) The Company has three 10-year and one 45-year extension options for this ground lease, which if exercised would extend the expiration date to December 2116. These extensions options are not assumed to be exercised in our calculation of the present value of the future minimum lease payments for this lease.
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Schedule of future minimum rental repayments for ground leases | The minimum commitment under our ground leases as of June 30, 2019 (under Topic 842) for future periods is summarized as follows:
The minimum commitment under our ground leases as of December 31, 2018 for future periods is summarized as follows:
(5) One of our ground lease obligations includes a component which is based on the percentage of adjusted gross income that exceeds the minimum ground rent. The minimum rent is subject to increases every ten years by an amount equal to 60% of the average annual percentage rent for the previous three years. The contractual obligations for this lease included above assume the current annual ground lease obligation in effect at December 31, 2018 for the remainder of the lease term since we cannot predict future adjustments.
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Fair Value Measurements and Disclosures (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 June 30, 2019 and December 31, 2018:
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Net gain (loss) on marketable securities | The following table sets forth the net gain (loss) on marketable securities recorded during the three and six months ended June 30, 2019 and 2018:
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Carrying value and fair value of company's remaining financial instruments | The following table sets forth the carrying value and the fair value of our other financial instruments as of June 30, 2019 and December 31, 2018:
(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.
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Net Income Available to Common Stockholders Per Share of the Company (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 six months ended June 30, 2019 and 2018:
________________________ (1) Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs.
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Net Income Available to Common Unitholders Per Unit of the Operating Partnership (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income Available To Common Unitholders [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 six months ended June 30, 2019 and 2018:
________________________ (1) Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs.
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Kilroy Realty L.P. [Member] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income Available To Common Unitholders [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income available to common stockholders | 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 six months ended June 30, 2019 and 2018:
________________________ (1) Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs.
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Supplemental Cash Flow Information of the Company (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 six months ended June 30, 2019 and 2018.
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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 six months ended June 30, 2019 and 2018.
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Supplemental Cash Flow Information of the Operating Partnership (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 six months ended June 30, 2019 and 2018.
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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 six months ended June 30, 2019 and 2018.
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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 six months ended June 30, 2019 and 2018.
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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 six months ended June 30, 2019 and 2018.
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Organization, Ownership and Basis of Presentation - Allocation of Rental Income (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended |
---|---|---|
Jun. 30, 2019 |
Jun. 30, 2019 |
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Operating Lease, Lease Income [Abstract] | ||
Fixed lease payments | $ 173,013 | $ 344,827 |
Variable lease payments | 24,616 | 52,184 |
Total rental income | $ 197,629 | $ 397,011 |
Dispositions (Details) $ in Thousands |
1 Months Ended | 3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|---|
May 31, 2019
USD ($)
ft²
building
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Jun. 30, 2019
USD ($)
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Jun. 30, 2018
USD ($)
|
Jun. 30, 2019
USD ($)
|
Jun. 30, 2018
USD ($)
|
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Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||||
Gains on sales of operating properties | $ 7,169 | $ 0 | $ 7,169 | $ 0 | |
2829 Townsgate Road, Thousand Oaks, CA [Member] | Operating Properties [Member] | |||||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||||
Number of properties | building | 1 | ||||
Rentable square feet | ft² | 84,098 | ||||
Sales price | $ 18,300 |
Prepaid Expenses and Other Assets, Net (Details) - USD ($) $ in Thousands |
Jun. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Prepaid Expense and Other Assets [Abstract] | ||
Furniture, fixtures and other long-lived assets, net | $ 36,466 | $ 36,833 |
Note receivable | 1,542 | 2,113 |
Prepaid expenses | 17,984 | 13,927 |
Total prepaid expenses and other assets, net | 55,992 | 52,873 |
Notes receivable, valuation allowance | $ 3,600 | $ 2,900 |
Secured and Unsecured Debt of the Operating Partnership - Narrative (Details) $ in Millions |
Feb. 11, 2019
USD ($)
|
---|---|
Kilroy Realty L.P. [Member] | Secured debt [Member] | Mortgage payable [Member] | |
Debt Instrument [Line Items] | |
Repayments of notes payable | $ 74.3 |
Secured and Unsecured Debt of the Operating Partnership - Debt Maturities (Details) - Kilroy Realty L.P. [Member] $ in Thousands |
Jun. 30, 2019
USD ($)
|
---|---|
Stated debt maturities and scheduled amortization payments, excluding debt discounts | |
Remaining 2019 | $ 925 |
2020 | 5,137 |
2021 | 5,342 |
2022 | 530,554 |
2023 | 305,775 |
2024 | 431,006 |
Thereafter | 1,931,688 |
Total debt | 3,210,427 |
Unamortized deferred financing costs | (16,100) |
Unsecured senior notes [Member] | |
Stated debt maturities and scheduled amortization payments, excluding debt discounts | |
Unamortized discount | $ (6,200) |
Secured and Unsecured Debt of the Operating Partnership - Capitalized Interest and Loan Fees (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
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Capitalized Interest and Loan Fees [Line Items] | ||||
Interest expense | $ 11,727 | $ 12,712 | $ 22,970 | $ 26,210 |
Kilroy Realty L.P. [Member] | ||||
Capitalized Interest and Loan Fees [Line Items] | ||||
Gross interest expense | 32,607 | 28,523 | 63,287 | 55,603 |
Capitalized interest and deferred financing costs | (20,880) | (15,811) | (40,317) | (29,393) |
Interest expense | $ 11,727 | $ 12,712 | $ 22,970 | $ 26,210 |
Noncontrolling Interests on the Company's Consolidated Financial Statements - Common Units of the Operating Partnership (Details) $ / shares in Units, $ in Millions |
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2019
USD ($)
trading_day
$ / shares
shares
|
Dec. 31, 2018
USD ($)
$ / shares
shares
|
Jun. 30, 2018
shares
|
|
Noncontrolling Interest [Line Items] | |||
Common limited partnership interest in the Operating Partnership | 2.00% | 2.00% | 2.00% |
Common stock, par value (in dollars per share) | $ / shares | $ 0.01 | $ 0.01 | |
Number of trading days | trading_day | 10 | ||
Aggregate value upon redemption of outstanding noncontrolling common units | $ | $ 153.4 | $ 126.4 | |
Kilroy Realty L.P. [Member] | Common units [Member] | |||
Noncontrolling Interest [Line Items] | |||
Common units outstanding held by common limited partners (in units) | shares | 2,023,287 | 2,025,287 | 2,070,690 |
Operating Partnership [Member] | |||
Noncontrolling Interest [Line Items] | |||
Common general partnership interest in the Operating Partnership | 98.00% | 98.00% | 98.00% |
Partners' Capital of the Operating Partnership (Details) - shares |
Jun. 30, 2019 |
Dec. 31, 2018 |
Jun. 30, 2018 |
---|---|---|---|
General Partners' Capital Account [Abstract] | |||
Ownership interest of noncontrolling interest | 2.00% | 2.00% | 2.00% |
Operating Partnership [Member] | |||
General Partners' Capital Account [Abstract] | |||
Company owned general partnership interest | 98.00% | 98.00% | 98.00% |
Kilroy Realty L.P. [Member] | Common units [Member] | |||
General Partners' Capital Account [Abstract] | |||
Company owned common units in the Operating Partnership | 100,972,035 | 100,746,988 | 100,559,903 |
Noncontrolling common units of the Operating Partnership | 2,023,287 | 2,025,287 | 2,070,690 |
Share-Based Compensation - Fair Value Assumptions (Details) - 2018 Performance-Based RSUs [Member] |
Feb. 01, 2019 |
---|---|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Expected share price volatility | 19.00% |
Risk-free interest rate | 2.48% |
Future Minimum Rent - Future Contractual Minimum Rent (Details) - USD ($) $ in Thousands |
Jun. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Future contractual minimum rent under operating lease | ||
Remaining 2019 | $ 293,414 | |
2020 | 669,541 | |
2021 | 698,248 | |
2022 | 712,674 | |
2023 | 687,633 | |
2024 | 659,640 | |
Thereafter | 3,291,426 | |
Total | $ 7,012,576 | |
Future contractual minimum rent under operating lease | ||
2019 | $ 566,783 | |
2020 | 632,875 | |
2021 | 631,835 | |
2022 | 620,684 | |
2023 | 586,371 | |
Thereafter | 3,240,143 | |
Total | $ 6,278,691 |
Commitments and Contingencies - Minimum Commitment Under Ground Leases (Details) - USD ($) $ in Thousands |
Jun. 30, 2019 |
Jan. 01, 2019 |
Dec. 31, 2018 |
---|---|---|---|
Minimum commitment under our ground leases | |||
Remaining 2019 | $ 2,577 | ||
2020 | 5,154 | ||
2021 | 5,154 | ||
2022 | 5,154 | ||
2023 | 5,154 | ||
2024 | 5,154 | ||
Thereafter | 228,465 | ||
Total | 256,812 | ||
Present value discount | (169,730) | ||
Operating ground lease liabilities | $ 87,082 | $ 87,409 | |
Minimum commitment under our ground leases | |||
2019 | $ 5,154 | ||
2020 | 5,154 | ||
2021 | 5,154 | ||
2022 | 5,154 | ||
2023 | 5,154 | ||
Thereafter | 233,619 | ||
Total | $ 259,389 |
Fair Value Measurements and Disclosures - Assets and Liabilities Reported at Fair Value (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
Dec. 31, 2018 |
|
Fair value adjustment of marketable securities and deferred compensation plan liability | |||||
Net gain on marketable securities | $ 544 | $ 422 | $ 2,225 | $ 18 | |
Fair value, measurements, recurring [Member] | Fair value (Level 1) [Member] | |||||
Assets and Liabilities Reported at Fair Value | |||||
Marketable securities | $ 25,203 | $ 25,203 | $ 21,779 |
Supplemental Cash Flow Information of the Company - Reconciliation of Cash and Cash Equivalents and Restricted Cash (Details) - USD ($) $ in Thousands |
Jun. 30, 2019 |
Dec. 31, 2018 |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|---|---|
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: | ||||
Cash and cash equivalents | $ 52,415 | $ 51,604 | $ 50,817 | $ 57,649 |
Restricted cash | 6,300 | 119,430 | 0 | 9,149 |
Cash and cash equivalents and restricted cash | $ 58,715 | $ 171,034 | $ 50,817 | $ 66,798 |
Supplemental Cash Flow Information of the Operating Partnership - Reconciliation of Cash and Cash Equivalents and Restricted Cash (Details) - USD ($) $ in Thousands |
Jun. 30, 2019 |
Dec. 31, 2018 |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|---|---|
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: | ||||
Cash and cash equivalents | $ 52,415 | $ 51,604 | $ 50,817 | $ 57,649 |
Restricted cash | 6,300 | 119,430 | 0 | 9,149 |
Cash and cash equivalents and restricted cash | 58,715 | 171,034 | 50,817 | 66,798 |
Kilroy Realty L.P. [Member] | ||||
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: | ||||
Cash and cash equivalents | 52,415 | 51,604 | 57,649 | |
Restricted cash | 6,300 | 119,430 | 0 | 9,149 |
Cash and cash equivalents and restricted cash | $ 58,715 | $ 171,034 | $ 50,817 | $ 66,798 |
Subsequent Events (Details) - USD ($) $ in Thousands |
6 Months Ended | ||||
---|---|---|---|---|---|
Jul. 22, 2019 |
Jul. 17, 2019 |
Jun. 30, 2019 |
Jun. 30, 2018 |
Dec. 31, 2018 |
|
Subsequent Event [Line Items] | |||||
Payment of dividend | $ 93,858 | $ 85,931 | |||
Proceeds from issuance of stock | 0 | $ 124,147 | |||
Outstanding borrowings | $ 375,000 | $ 45,000 | |||
Subsequent event [Member] | |||||
Subsequent Event [Line Items] | |||||
Payment of dividend | $ 50,800 | ||||
Proceeds from issuance of stock | $ 354,300 | ||||
Subsequent event [Member] | Revolving credit facility [Member] | |||||
Subsequent Event [Line Items] | |||||
Outstanding borrowings | $ 60,000 | ||||
Subsequent event [Member] | Common Stock [Member] | |||||
Subsequent Event [Line Items] | |||||
Number of shares issued (in shares) | 5,000,000 |
Label | Element | Value |
---|---|---|
Accounting Standards Update 2016-02 [Member] | Parent [Member] | ||
Cumulative Effect of New Accounting Principle in Period of Adoption | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | $ (3,146,000) |
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