EXPLANATORY NOTE

This report combines the annual reports on Form 10-K for the year ended December 31, ~~2016~~2019 of Kilroy Realty Corporation and Kilroy Realty, L.P. Unless stated otherwise or the context otherwise requires, references to “Kilroy Realty Corporation” or the “Company,” “we,” “our,” and “us” mean Kilroy Realty Corporation, a Maryland corporation, and its controlled and consolidated subsidiaries, and references to “Kilroy Realty, L.P.” or the “Operating Partnership” mean Kilroy Realty, L.P., a Delaware limited partnership, and its controlled and consolidated subsidiaries.

The Company is a real estate investment trust, or REIT, and the general partner of the Operating Partnership. As of December 31, ~~2016,~~2019, the Company owned an approximate ~~97.5%~~98.1% common general partnership interest in the Operating Partnership. The remaining approximate ~~2.5%~~1.9% common limited partnership interests are owned by non-affiliated investors and certain directors and officers of the Company. As the sole general partner of the Operating Partnership, the Company exercises exclusive and complete discretion over the Operating Partnership’s day-to-day management and control and can cause it to enter into certain major transactions including acquisitions, dispositions, and refinancings and cause changes in its line of business, capital structure and distribution policies.

There are a few differences between the Company and the Operating Partnership that are reflected in the disclosures in this Form 10-K. We believe it is important to understand the differences between the Company and the Operating Partnership in the context of how the Company and the Operating Partnership operate as an interrelated, consolidated company. The Company is a REIT, the only material asset of which is the partnership interests it holds in the Operating Partnership. As a result, the Company generally does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing equity from time to time and guaranteeing certain debt of the Operating Partnership. The Company itself is not directly obligated under any indebtedness, but generally guarantees ~~some~~all of the debt of the Operating Partnership. The Operating Partnership owns substantially all of the assets of the Company either directly or through its subsidiaries, conducts the operations of the Company’s business and is structured as a limited partnership with no publicly-traded equity. Except for net proceeds from equity issuances by the Company, which the Company generally contributes to the Operating Partnership in exchange for units of partnership interest, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s incurrence of indebtedness or through the issuance of units of partnership interest.

Noncontrolling interests, stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The common limited partnership interests in the Operating Partnership are accounted for as partners’ capital in the Operating Partnership’s financial statements and, to the extent not held by the Company, as noncontrolling interests in the Company’s financial statements. The Operating Partnership’s financial statements reflect the noncontrolling interest in Kilroy Realty Finance Partnership, L.P., a Delaware limited partnership (the “Finance Partnership”). This noncontrolling interest represents the Company’s 1% indirect general partnership interest in the Finance Partnership, which is directly held by Kilroy Realty Finance, Inc., a wholly owned subsidiary of the Company. The differences between stockholders’ equity, partners’ capital and noncontrolling interests result from the differences in the equity issued by the Company and the Operating Partnership, and in the Operating Partnership’s noncontrolling interest in the Finance Partnership.

We believe combining the annual reports on Form 10-K of the Company and the Operating Partnership into this single report results in the following benefits:

Combined reports better reflect how management and the analyst community view the business as a single operating unit;

Combined reports enhance investors’ understanding of the Company and the Operating Partnership by enabling them to view the business as a whole and in the same manner as management;

Combined reports are more efficient for the Company and the Operating Partnership and result in savings in time, effort and expense; and

Combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review.

To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:

Item 6. Selected Financial Data – Kilroy Realty Corporation;

Item 6. Selected Financial Data – Kilroy Realty, L.P.;

Item 7. 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;

consolidated financial statements;

the following notes to the consolidated financial statements:


◦	Note 8, Secured and Unsecured Debt of the Company;


◦	Note 9, Secured and Unsecured Debt of the Operating Partnership;


◦	Note 11, Noncontrolling Interests on the Company’s Consolidated Financial Statements;


◦	Note 12, Noncontrolling Interests on the Operating Partnership’s Consolidated Financial Statements;


◦	Note 13, Stockholders’ Equity of the Company;


◦	Note 14, ~~Partners'~~Partners’ Capital of the Operating Partnership;


◦	Note 21, Net Income Available to Common Stockholders Per Share of the Company;


◦	Note 22, Net Income Available to Common ~~Stockholders~~Unitholders Per ~~Share~~Unit of the ~~Company;~~Operating Partnership;


◦	Note 23, ~~Net Income Available to Common Unitholders Per Unit~~Supplemental Cash Flow Information of the ~~Operating Partnership;~~Company;


◦	Note 24, Supplemental Cash Flow Information of the ~~Company;~~Operating Partnership;


◦	Note ~~25, Supplemental Cash Flow~~26, Quarterly Financial Information of the ~~Operating Partnership;~~Company (Unaudited); and


◦	Note 27, Quarterly Financial Information of the ~~Company (Unaudited); and~~


◦	~~Note 28, Quarterly Financial Information of the~~ Operating Partnership (Unaudited).

This report also includes separate sections under Item 9A. Controls and Procedures and separate Exhibit 31 and Exhibit 32 certifications for ~~each of~~ the Company and the Operating Partnership to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Company and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.

TABLE OF CONTENTS



		Page
	PART I
Item 1.	Business	5
Item 1A.	Risk Factors	1315
Item 1B.	Unresolved Staff Comments	3135
Item 2.	Properties	3236
Item 3.	Legal Proceedings	4246
Item 4.	Mine Safety Disclosures	4246
	PART II
Item 5.	Market for Kilroy Realty Corporation’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	43 47
	Market for Kilroy Realty, L.P.’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	44 48
Item 6.	Selected Financial Data – Kilroy Realty Corporation	4650
	Selected Financial Data – Kilroy Realty, L.P.	4852
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5054
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	9593
Item 8.	Financial Statements and Supplementary Data	9694
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	9694
Item 9A.	Controls and Procedures	9795
Item 9B.	Other Information	~~101~~99
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	~~101~~99
Item 11.	Executive Compensation	~~101~~99
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~101~~99
Item 13.	Certain Relationships and Related Transactions, and Director Independence	~~101~~99
Item 14.	Principal Accountant Fees and Services	~~101~~99
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	~~102~~100
	SIGNATURES	~~108~~105

PART I

This document contains ~~forward-looking~~certain “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, among other things, statements or information concerning our plans, objectives, capital resources, portfolio performance, results of operations, projected future occupancy and rental rates, lease expirations, debt maturities, potential investments, strategies such as capital recycling, development and redevelopment activity, projected construction costs, projected construction commencement and completion dates, projected square footage of ~~office~~ space that could be constructed on undeveloped land that we own, projected rentable square footage of or number of units in properties under construction or in the development pipeline, anticipated proceeds from capital recycling activity or other dispositions and anticipated dates of those activities or dispositions, projected increases in the value of ~~our~~ properties, dispositions, future executive incentive compensation, pending, potential or proposed acquisitions, plans to grow our net operating income and funds from operations, our ability to re-lease properties at or above current market rates, anticipated market conditions, demographics and other forward-looking financial data, as well as the discussion in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations -Factors That May Influence Future Results of Operations.” Forward-looking statements are based on our current expectations, beliefs and assumptions, and are not guarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult to predict, many of which are outside of our control. Accordingly, actual performance, results and events may vary materially from those indicated or implied in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results or events. All forward-looking statements are based on ~~currently~~information that was available ~~information~~ and speak only as of the ~~date~~dates on which they ~~are~~were made. We assume no obligation to update any forward-looking statement that becomes untrue because of subsequent events, new information or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under ~~U.S.~~ federal securities laws.

In addition, this report contains information and statistics regarding, among other things, the industry, markets, submarkets and sectors in which we operate, the percentage by which certain leases are above or below applicable market rents and the number of square feet of office and other space that could be developed from specific parcels of undeveloped land. We obtained this information and these statistics from various third-party sources and our own internal estimates. We believe that these sources and estimates are reliable but have not independently verified them and cannot guarantee their accuracy or completeness.


ITEM 1.	BUSINESS

The Company

We are a self-administered 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”). We own our interests in all of our real estate assets through the Operating Partnership and the Finance Partnership and generally conduct substantially all of our operations through the Operating Partnership. ~~We qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”).~~

Our stabilized portfolio of operating properties was comprised of the following properties at December 31, ~~2016~~:2019:

Number of
Buildings

Rentable
Square Feet

Number of
Tenants

Percentage
Occupied
Percentage Leased
Stabilized Office Properties 108
14,025,856
549
96.0 % 97.0 %



	Number of Buildings	Rentable Square Feet	Number of Tenants	Percentage Occupied		Percentage Leased
Stabilized Office Properties	112	13,475,795	451	94.6	%	97.0	%

Number of
Buildings Number of Units
Percentage
Occupied
Percentage Leased
Stabilized Residential Property 1
200
46.0 % 56.5 %



	Number of Buildings	Number of Units	2019 Average Occupancy
Stabilized Residential Property	1	200	82.4	%

Our stabilized portfolio includes all of our properties with the exception of development and redevelopment properties currently committed for construction, under construction, or ~~committed for construction, “lease-up”~~in the tenant improvement phase, undeveloped land, recently completed residential properties not yet stabilized and real estate assets held for ~~sale and undeveloped land.~~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 ~~“lease-up”~~ properties in the tenant improvement phase as office and retail properties that we ~~recently developed~~are developing or ~~redeveloped that have not yet~~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 ~~and are within~~or one year ~~following~~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 year ended December 31, ~~2016,~~2019, we added ~~three~~one completed development ~~projects~~project to our stabilized office portfolio consisting of ~~two projects totaling 640,942 rentable~~394,340 square feet in San Francisco, ~~California and a 73,000 rentable square foot project in Del Mar,~~ California. ~~These three properties were included in our stabilized office portfolio as of December 31, 2016.~~ As of December 31, ~~2016,~~2019, the following properties were excluded from our stabilized portfolio. We did not have any redevelopment properties ~~as of~~or properties held for sale at December 31, ~~2016.~~

2019.

Number of
Properties/Projects

Estimated Office Rentable
Square Feet
Properties held for sale ⁽¹⁾
1 67,995
Development project in “lease-up” ⁽²⁾
1 377,000
Development projects under construction ⁽²⁾⁽³⁾
3 1,100,000



	Number of Properties/Projects	Estimated Rentable Square Feet ⁽¹⁾ /Units
In-process development projects - tenant improvement⁽²⁾	2	846,000
In-process development projects - under construction ⁽³⁾	6	2,291,000
Completed residential development project⁽⁴⁾	1	237 units

~~_______________~~________________________


(1)	~~See Note 4 “Dispositions and Real Estate Assets Held for Sale” to our consolidated financial statements included in this report for additional information.~~Estimated rentable square feet upon completion.


(2)	~~Estimated rentable~~Includes 96,000 square feet ~~upon completion. See “Item 7. Management’s Discussion and Analysis~~ of ~~Financial Condition and Results of Operations —Factors That May Influence Future Results of Operations —Completed, In-Process and Future Development Pipeline” for more information.~~retail space.


(3)	~~Development~~In addition to the estimated office and life science rentable square feet noted above, development projects under construction also include ~~96,000 square feet of retail space and 237~~564 residential units.


(4)	Represents recently completed residential units ~~in addition to the estimated office rentable square feet noted above.~~not yet stabilized.

Our stabilized portfolio also excludes our ~~near-term and~~ future development pipeline, which as of December 31, ~~2016,~~2019, was comprised of ~~seven potential~~five future development sites, representing approximately 5461 gross acres of undeveloped ~~land on which we believe we have the potential to develop over 4.8 million square feet of office space, depending upon economic conditions.~~land.

As of December 31, ~~2016,~~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 ~~twelve~~eight office properties, one development project under construction and one recently acquired future development project located in the state of Washington. ~~As of December 31, 2016, we owned 100% of all~~All of our properties and ~~developments,~~development projects are 100% owned, excluding four office properties ~~located in San Francisco, California~~ owned by three consolidated property partnerships, and ~~one project~~two development projects held in a Variable Interest ~~Entity~~Entities (“~~VIE”~~VIEs”) which we consolidated for financial reporting purposes (see Note 2 “Basis of ~~Presentation and~~ Significant Accounting Policies” to our consolidated financial statements included in this report).The ~~one project held in a VIE was~~two VIEs were established to facilitate potential future transactions intended to qualify as a like-kind exchanges pursuant to Section 1031 of the Code (“Section 1031 ~~Exchanges”~~Exchange”) to defer taxable gains on dispositions for federal and state income tax purposes. Two of the three consolidated property partnerships, 100 First Street Member, LLC (“100 First LLC”) and 303 Second Street Member, LLC (“303 Second LLC”), ~~in which the Company owns an approximate 56% equity interest,~~ each owned one office property in San Francisco, California through subsidiary ~~REITs (see Note 11 “Noncontrolling Interests on~~REITs. As of December 31, 2019, the ~~Company’s Consolidated Financial Statements”~~Company owned a 56% common equity interest in both 100 First LLC and Note 12 “Noncontrolling Interests on the Operating Partnership’s Consolidated Financial Statements” to our consolidated financial statements included in this report for additional information). The remaining interests were owned by an unrelated third party.303 Second LLC. The third consolidated property partnership, ~~in which the Company owns an approximate 93% common equity interest,~~ Redwood City Partners, LLC (“Redwood LLC”), owned two office properties in Redwood City, California. As of December 31, 2019, the Company owned an approximate 93% common equity interest in Redwood LLC. The remaining ~~interest was~~interests in all three property partnerships were owned by an unrelated third ~~party.~~parties. All three property partnerships are consolidated entities.

We own our interests in all of our real estate assets through the Operating Partnership and the Finance Partnership and generally conduct substantially all of our operations through the Operating Partnership of which we owned a ~~97.5%~~98.1% common general partnership interest as ofDecember 31, ~~2016.~~2019. The remaining ~~2.5%~~1.9% common limited partnership interest in the Operating Partnership as of December 31, ~~2016~~2019 was owned by non-affiliated investors and certain of our executive officers and directors. Kilroy Realty Finance, Inc., 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.~~interest in the Finance Partnership. The Operating Partnership owns the remaining 99.0% common limited partnership interest. ~~We conduct substantially all of our development activities through Kilroy Services, LLC (“KSLLC”), which is a wholly owned subsidiary of the Operating Partnership.~~ With the exception of the Operating Partnership and our consolidated property partnerships, all of our subsidiaries are wholly-owned.

Available Information; Website Disclosure; Corporate Governance Documents

Kilroy Realty Corporation was incorporated in the state of Maryland on September 13, 1996 and Kilroy Realty, L.P. was organized in the state of Delaware on October 2, 1996. Our principal executive offices are located at 12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064. Our telephone number at that location is (310) 481-8400. Our website is www.kilroyrealty.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this annual report on Form 10-K or any other report or document we file with or furnish to the SEC. All reports we will file with the SEC are available free of charge via EDGAR through the SEC website at www.sec.gov. ~~In addition, the public may read and copy materials we file with the SEC at the SEC’s public reference room located at 100 F Street, N.E., Washington, D.C. 20549.~~ All reports that we will file with the SEC will also be available free of charge on our website at www.kilroyrealty.com as soon as reasonably practicable after we file those materials with, or furnish them to, the SEC.

The following documents relating to corporate governance are also available free of charge on our website under ~~“Investor Relations~~“Investors —Overview —Corporate Governance” and available in print to any security holder upon request:

Corporate Governance Guidelines;

Code of Business Conduct and Ethics;

Audit Committee Charter;

Executive Compensation Committee Charter; ~~and~~

Nominating / Corporate Governance Committee Charter; and

Corporate Social Responsibility and Sustainability Committee Charter.

You may request copies of any of these documents by writing to:

Attention: Investor Relations

Kilroy Realty Corporation

12200 West Olympic Boulevard, Suite 200

Los Angeles, California 90064

We intend to disclose on our website under ~~"Investor Relations~~“Investors —Overview —Corporate ~~Governance"~~Governance” any amendment to, or waiver of, any provisions of our Code of Business Conduct and Ethics applicable to the directors and/or officers of the Company that would otherwise be required to be disclosed under the rules of the Securities and Exchange Commission or the New York Stock Exchange.

Business and Growth Strategies

Growth Strategies. We believe that a number of factors and strategies will enable us to continue to achieve our objectives of long-term sustainable growth in Net Operating Income (defined below) and FFO (defined below) as well as maximization of long-term stockholder value. These factors and strategies include:

the quality, geographic location, physical characteristics and operating sustainability of our properties;

our ability to efficiently manage our assets as a low cost provider of commercial real estate through our seasoned management team possessing core capabilities in all aspects of real estate ownership, including property management, leasing, marketing, financing, accounting, legal, and construction and development management;

our access to development, redevelopment, acquisition and leasing opportunities as a result of our extensive experience and significant working relationships with major West Coast property owners, corporate tenants, municipalities and landowners given our ~~approximately~~over 70-year presence in the West Coast markets;

our active development program and our ~~extensive~~ future development pipeline of undeveloped land sites (see “Item 7:7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Factors That May Influence Future Results of Operations” for additional information pertaining to the Company’s in-process ~~near-term~~ and future development pipeline);

our capital recycling program (see “Item 7:7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources of the Operating Partnership” for additional information pertaining to the Company’s capital recycling program and related property and land dispositions);

our ability to capitalize on inflection points in a real estate cycle to add quality assets to our portfolio at substantial discounts to long-term value, through either acquisition, development or redevelopment; and

our strong financial position that has and will continue to allow us to pursue attractive acquisition and development and redevelopment opportunities.

“Net Operating Income” subsequent to the adoption of Financial Standards Accounting Board Accounting Standards Codification 842 (“Topic 842”) is defined as consolidated operating revenues (rental income and other property income) less consolidated operating expenses (property expenses, real estate taxes and ground leases). Prior to the adoption of Topic 842 we defined Net Operating Income as consolidated operating revenues (rental income, tenant reimbursements and other property income) less consolidated operating expenses (property expenses, real estate taxes, provision for bad debts and ground leases). “FFO” is Funds From Operations available to common stockholders and common unitholders calculated in accordance with the ~~white paper~~2018 Restated White Paper on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). ~~See~~(See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Results of Operations” and “—Non-GAAP Supplemental Financial Measures: Funds From Operations” for a reconciliation of these measures to generally accepted accounting principles (“GAAP”) net income available to common stockholders.)

Operating Strategies. We focus on enhancing long-term growth in Net Operating Income and FFO from our properties by:

maximizing cash flow from our properties through active leasing, early renewals and effective property management;

structuring leases to maximize returns;

managing portfolio credit risk through effective underwriting, including the use of credit enhancements and interests in collateral to mitigate portfolio credit risk;

managing operating expenses through the efficient use of internal property management, leasing, marketing, financing, accounting, legal, and construction and development management functions;

maintaining and developing long-term relationships with a diverse tenant base;

continuing to effectively manage capital improvements to enhance our properties’ competitive advantages in their respective markets and improve the efficiency of building systems;

continuing to expand our management team with individuals who have extensive regional and product-type experience and are highly knowledgeable in their respective markets and product types; and

attracting and retaining motivated employees by providing financial and other incentives to meet our operating and financial goals.

Development and Redevelopment Strategies. We and our predecessors have developed office properties primarily located in California since 1947. As of December 31, ~~2016,~~2019, we had ~~three~~two projects in the tenant improvement phase totaling approximately ~~1.1~~846,000 square feet of office and retail space and six projects under construction totaling approximately 2.3 million square feet ~~237~~of office space and 564 residential ~~units and 96,000 square feet of retail space under construction. As of December 31, 2016,~~units. In addition, our ~~near-term and~~ future development pipeline was comprised of ~~seven~~five potential development sites representing approximately 5461 gross acres of undeveloped land on which we believe we have the potential to develop over ~~4.8~~6.0 million square feet of office, life science, laboratory, residential and retail space, depending upon economic conditions. Our strategy with respect to development is to:

~~maintain~~own land sites in highly populated, amenity rich locations that are attractive to a ~~disciplined approach by commencing development when appropriate based on market conditions, favoring pre-leasing, developing in stages or phasing, and cost control;~~broad array of tenants;

be the premier provider of modern and collaborative office and mixed-use projects on the West Coast with a focus on design and environment;

maintain a disciplined approach by commencing development when appropriate based on market conditions, focusing on pre-leasing, developing in stages or phasing, and cost control;

reinvest capital from dispositions of selective assets into new ~~state-of-the-market~~state-of-the-art development and acquisition opportunities with higher cash flow and rates of ~~return;~~return or future redevelopment;

execute on our development projects under construction and ~~our near-term and~~ future development pipeline, including expanding entitlements; and

evaluate redevelopment opportunities in supply-constrained markets because such efforts generally achieve similar returns to new development with reduced entitlement risk and shorter construction periods.

Redevelopment opportunities are those projects in which we spend significant development and construction costs on existing or acquired buildings pursuant to a formal plan, the intended result of which is a higher economic return on the property. We may engage in the additional development or redevelopment of office, life science and mixed-use properties when market conditions support a favorable risk-adjusted return on such development or redevelopment. We expect that our significant working relationships with tenants, municipalities and landowners on the West Coast will give us further access to development and redevelopment opportunities. We cannot ensure that we will be able to successfully develop or redevelop any of our properties or that we will have access to additional development or redevelopment opportunities.

Acquisition Strategies. We believe we are well positioned to acquire opportunistic properties and development and redevelopment opportunities as the result of our extensive experience, strong financial position and ability to access capital. We continue to focus on growth opportunities in West Coast markets populated by knowledge and creative based tenants in a variety of industries, including technology, media, healthcare, life sciences, entertainment and professional services. Against the backdrop of market volatility, we expect to manage a strong balance sheet, execute on our development program and selectively evaluate opportunities that add immediate Net Operating Income to our portfolio or play a strategic role in our future growth and that:

provide attractive yields and significant potential for growth in cash flow from property operations;

present growth opportunities in our existing or other strategic markets; and

demonstrate the potential for improved performance through intensive management, repositioning, capital investment and leasing that should result in increased occupancy and rental revenues.

Financing Strategies. Our financing policies and objectives are determined by our board of directors. Our goal is to limit our dependence on leverage and maintain a conservative ratio of debt-to-total market capitalization. As of December 31, ~~2016,~~2019, our total debt as a percentage of total market capitalization was ~~24.5%~~28.3%, ~~and our total debt and liquidation value of our preferred equity as a percentage of total market capitalization~~which was ~~26.5%, both of which were~~ calculated based on the quoted closing price per share of the Company’s common stock of ~~$73.22~~$83.90 on December ~~30, 2016~~31, 2019 (see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources of the Company —Capitalization” for additional information). Our financing strategies include:

maintaining financial flexibility, including a low secured to unsecured debt ratio;

maximizing our ability to access a variety of both public and private capital sources;

maintaining a staggered debt maturity schedule in which the maturity dates of our debt are spread over several years to limit risk exposure at any particular point in the capital and credit market cycles;

completing financing in advance of the need for capital;

managing interest rate exposure by generally maintaining a greater amount of fixed-rate debt as compared to variable-rate debt; and

maintaining our credit ratings.

We utilize multiple sources of capital, including borrowings under our unsecured ~~line of~~revolving credit facility, unsecured term loan facility, proceeds from the issuance of public or private debt or equity securities and other bank and/or institutional borrowings and our capital recycling program, including strategic venture sources. There can be no assurance that we will be able to obtain capital as needed on terms favorable to us or at all. ~~See~~(See the discussion under the caption “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Factors That May Influence Future Results of Operations” and “Item 1A. Risk Factors.”)

Sustainability Strategies. Our longstanding leadership in sustainability in real estate is globally recognized, and we have committed to achieving carbon neutral operations by year-end 2020. Our vision is a resilient portfolio that minimizes the environmental impact of the development and operation of our buildings while maximizing the health and productivity of our tenants, employees and communities as well as our financial returns. Management and our board of directors, through the Corporate Social Responsibility and Sustainability Committee established in April 2018, oversee and advance the Company’s corporate social responsibility and sustainability initiatives. They recognize that community engagement and sustainable operations benefit all of our constituencies and are key to preserving our Company’s value and credibility.

As a result of our commitment to sustainability, we have been ranked first in sustainability performance in North America in the Listed Office category by the Global Real Estate Sustainability Benchmark (“GRESB”) six times and have also earned the highly competitive GRESB “Green Star” designation in each of the last seven years for ranking

~~Sustainability Strategies.~~

in the top 25% of companies worldwide in sustainability performance. We ~~make~~have been recognized with the US EPA ENERGY STAR^® Partner of the Year Sustained Excellence Award for the last five years, NAREIT’s Leader in the Light Award in the Listed Office category for the last six years and NAREIT’s Leader in the Light Most Innovative award in 2018. For excellence in ~~sustainability~~creating a ~~core competence by:~~diverse and inclusive culture, we are listed on the Bloomberg Gender Equality Index, which measures companies on female leadership and talent pipeline, equal pay and gender pay parity, inclusive culture, sexual harassment policies and pro-women brand.

~~managing~~We manage our properties to offer the maximum degree of utility and operational efficiency to our tenants. We offer tenant sustainability programs focused on helping our tenants reduce their energy and water consumption and increase their recycling diversion rates. ~~Many of our assets are in zones impacted by California’s drought, and as such face the risk of increased water costs and fines for high consumption.~~ We have mitigated these risks through comprehensive, proactive water reductions throughout our portfolio, including domestic fixture upgrades, cooling tower optimizations, a comprehensive leak detection program, and irrigation systems retrofits. We also incorporate green lease language into 100% of our new leases, including a cost recovery clause for resource-efficiency related capital expenditures in full-service gross leases, which seek to align tenant and landlord interests on energy, water and waste efficiency. Green leases (also known as aligned leases, high performance leases or energy efficient leases) aim to align the financial and energy incentives of building owners and tenants so they can work together to save money, conserve resources and ensure the efficient operation of buildings. We ~~were honored in 2014 to be part of the inaugural class of Green Lease Leaders,~~have won the Institute for Market ~~Transformation's~~Transformation’s (“~~IMT's”~~IMT’s”) ~~program to encourage green leasing in real estate. In 2016, IMT honored us again~~

~~with two~~ Green Lease Leaders ~~Team Transaction awards.~~award four times. Energy ~~and~~consumption, water consumption, and greenhouse gas (“GHG”) emissions data for the ~~last three audited years~~periods indicated based on the most recent available information, assured by DNV GL Business Assurance USA, Inc., are as follows:

Energy consumption:^*

Year⁽¹⁾
Energy Consumption Data Coverage as % of Floor Area⁽²⁾
Total Energy Consumed by Portfolio Area with Data Coverage (MWh) ⁽³⁾
% of Energy Generated From Renewable Resources
Like-for-Like Change in Energy Consumption of Portfolio Area with Data Coverage⁽⁴⁾
% of Eligible Portfolio that has Obtained an Energy Rating and is Certified to ENERGY STAR
2015 92 % 273,381
3 % (5 )% 65 %
2014 88 % 267,391
5 % (2 )% 56 %
2013 84 % 261,191
3 % (2 )% 53 %



Year⁽¹⁾	Energy Consumption Data Coverage as % of Total Floor Area⁽²⁾		Total Energy Consumed by Floor Area with Data Coverage (MWh) ⁽³⁾	% of Energy Generated From Renewable Sources ⁽⁴⁾		Like-for-Like Change in Energy Consumption of Floor Area with Data Coverage⁽⁵⁾		% of Eligible Portfolio that has Obtained an Energy Rating and is Certified to ENERGY STAR⁽⁶⁾
2018	98	%	299,510	6	%	(2	)%	77	%
2017	96	%	309,248	5	%	(1	)%	73	%
2016	95	%	381,295	3	%	(2	)%	69	%

Water consumption:^*

Year⁽¹⁾
Water Withdrawal Data Coverage as a % of Total Floor Area⁽⁵⁾
Total Water Withdrawn by Portfolio Area (kgal)⁽⁶⁾
Like-for-like Change in Water Withdrawn for Portfolio Area with Data Coverage⁽⁴⁾
2015 94 % 832,737
(11 )%
2014 92 % 950,357
(2 )%
2013 89 % 900,809
1 %



Year⁽¹⁾	Water Withdrawal Data Coverage as a % of Total Floor Area⁽⁷⁾		Total Water Withdrawn by Portfolio (m3)⁽⁸⁾	Like-for-like Change in Water Withdrawn for Floor Area with Data Coverage⁽⁵⁾
2018	96	%	980,859	5	%
2017	98	%	960,920	—	%
2016	90	%	856,290	(2	)%

GHG Emissions:^*



Year ⁽¹⁾	Scope 1 GHG Data Coverage as a % of Total Floor Area ⁽⁹⁾		Scope 1 GHG Emissions (Tonnes CO2) ⁽¹⁰⁾	Like-for-like Change in Scope 1 GHG Emissions Data⁽⁵⁾
2018	99	%	3,908	(4	)%
2017	100	%	4,120	6	%
2016	97	%	4,059	N/A



Year⁽¹⁾	Scope 2 Location-Based GHG Data Coverage as a % of Total Floor Area ⁽¹¹⁾		Scope 2 Location-Based GHG Emissions (Tonnes CO2) ⁽¹²⁾	Like-for-like Change in Scope 2 Location-Based GHG Emissions Data ⁽⁵⁾
2018	99	%	33,207	(6	)%
2017	99	%	36,504	(10	)%
2016	97	%	44,145	N/A



Year⁽¹⁾	Scope 2 Market-Based GHG Data Coverage as a % of Total Floor Area ^(11)(13)		Scope 2 Market-Based GHG Emissions (Tonnes CO2) ^(12)(13)	Like-for-like Change in Scope 2 Market-Based GHG Emissions Data ⁽⁵⁾
2018	99	%	30,439	(12	)%
2017	99	%	35,375	N/A

________________________

Energy consumption, water consumption and GHG emissions data was assured by way of a Type 2, moderate level assurance assessment, using the AA1000AS (2008) assurance standard in connection with the assurance of the content of our sustainability report by DNV GL Business Assurance USA, Inc. GHG emissions reporting follows the World Business Council for Sustainable Development (WBSCD)/World Resources Institute (WRI) Greenhouse Gas Protocol.


(1)	Full ~~2016~~2019 calendar year energy, water and ~~water~~GHG emissions data is not available until after March 30, ~~2017. 2015 is the most recent year for which full energy and water data is available and verified by a third party.~~2020.

(2)

Percentage based on gross square footage of portfolio floor area with complete energy consumption data coverage as of the end of the applicable year. Floor area is considered to have complete energy consumption data coverage when energy consumption data (i.e., energy types and amounts consumed) is obtained by the Company for all types of energy consumed in the relevant floor area during the fiscal year, regardless of when such data was obtained.

(3)

~~The scope of energy~~Energy includes energy purchased from sources external to the Company and its tenants or produced by the Company or its tenants themselves (self-generated) and energy from all sources, including direct fuel usage, purchased electricity, and heating, cooling and steam energy. Total energy consumption based on floor area with complete energy consumption data coverage as of the end of the applicable year.

(4)

~~Data reported in MWh on~~Renewable sources include renewable energy the Company directly produced and renewable energy the Company purchased if purchased through a ~~like-for-like comparison excludes assets~~renewable power purchase agreement that explicitly includes renewable energy certificates (“RECs”) or Guarantees of Origin (“GOs”), a Green-e Energy Certified utility or supplier program or other green power products that explicitly include RECs or GOs or for which ~~have been acquired, disposed, under development or have been largely refurbished over~~Green-e Energy Certified RECs are paired with grid electricity. Percentage is based total energy consumption during the ~~past twenty-four months.~~applicable year.


(5)	Data reported on a like-for-like comparison excludes assets that have been acquired or disposed over the past twenty-four months as of the end of the applicable year.


(6)	Eligible portfolio represents our office and residential properties that have had 50% or greater occupancy for 12 consecutive months at any point during the applicable year. Percentage is based on rentable square footage of our eligible portfolio that has obtained an energy rating and is certified to ENERGY STAR® as of the end of the applicable year.

(7)

Percentage based on gross square footage of portfolio floor area with complete water withdrawal data coverage as of the end of the applicable year. Floor area is considered to have complete water withdrawal data coverage when water withdrawal data (i.e., amounts withdrawn) is obtained by the ~~registrant in~~Company for the relevant floor area during the fiscal year, regardless of when such data was obtained.

~~(6)~~(8)

Water sources include surface water (including water from wetlands, rivers, lakes and oceans), groundwater, rainwater collected directly and stored by the ~~registrant,~~Company, wastewater obtained from other entities, municipal water supplies or supply from other water utilities. Total water withdrawal based on floor area with complete water withdrawal data coverage as of the end of the applicable year.


(9)	Percentage based on gross square footage of portfolio floor area with complete Scope 1 GHG emissions data coverage as of the end of the applicable year. Floor area is considered to have complete Scope 1 GHG emissions data coverage when GHG emission data (i.e., amounts emitted) is obtained by the Company for the relevant floor area during the fiscal year, regardless of when such data was obtained.


(10)	Scope 1 emissions represent those produced by consuming onsite natural gas procured by the Company.


(11)	Percentage based on gross square footage of portfolio floor area with complete Scope 2 GHG emissions data coverage as of the end of the applicable year. Floor area is considered to have complete Scope 2 GHG emissions data coverage when GHG emission data is obtained by the Company for the relevant floor area during the fiscal year, regardless of when such data was obtained.


(12)	Scope 2 emissions represent those produced by consuming onsite electricity procured by the Company.


(13)	We began collecting market-based Scope 2 emissions data in 2017.

~~building~~We build our current development projects to Leadership in Energy and Environmental Design (“LEED”) specifications. All of our office development projects are ~~now~~ designed to achieve LEED certification, either LEED Platinum or ~~Gold;~~Gold.

We are actively pursuing LEED certification for approximately ~~1.1~~2.3 million square feet of office and life science space under construction. In addition, an analysis of energy and water performance is included in our standard due diligence process for acquisitions, and reducing energy use year over year is a comprehensive goal of our operational strategy. This is accomplished through systematic energy auditing, mechanical, lighting and other building upgrades, optimizing operations and engaging tenants. During the past few years, we have significantly enhanced the sustainability profile of our portfolio, ending ~~2016~~2019 with ~~51%~~64% of our properties LEED certified and ~~69%~~70% of our eligible properties ENERGY STAR ~~certified. During~~ ~~2016~~,certified (in each case as a percentage of our total or eligible rentable square feet as of December 31, 2019).

We identify climate change as a risk to our business, an opportunity for long-term value creation and a key driver in long-term strategic business decisions. These risks and opportunities include transitional risks such as policy, market, technology and reputational concerns, as well as physical risks, and are a focus area for the ~~Company was recognized for our sustainability efforts with multiple industry leadership awards, including NAREIT’s 2016 Office Leader in~~board of directors and management. Climate-related risks and opportunities are governed by the ~~Light Award~~board of directors through the Corporate Social Responsibility and ~~ENERGY STAR Partner~~Sustainability Committee (the “Committee”). In 2018, the Committee endorsed the

recommendations of the ~~Year Sustained Excellence award. The Company was also recognized by the Global Real Estate Sustainability Benchmark as the North American leader in sustainability~~Task Force on Climate-related Financial Disclosure (TCFD) and tasked management with assessing and reporting against climate related risk for the ~~third year in~~Company. Recognizing the importance of reducing the Company’s greenhouse gas impact on the environment, we have committed to achieving carbon neutral operations by December 31, 2020. This means that the entirety of our scope 1 and scope 2 emissions will be offset by this date through a ~~row,~~combination of energy efficiency measures and ~~was ranked first among 178 North American participants across all asset types;~~

both onsite and offsite renewables. This exceeds our carbon reduction goals previously validated by Science-Based Targets. Science-Based Targets is a collaboration between the Carbon Disclosure Project, the United Nations Global Compact, the World Resources Institute and the World Wide Fund for Nature, which independently assesses and approves the carbon reduction goals of companies.

Significant Tenants

As of December 31, ~~2016~~,2019, our 15 largest tenants in terms of annualized base rental revenues represented approximately ~~37.3%~~49.6%of our total annualized base rental revenues, defined as annualized monthly contractual rents from existing tenants as of December 31, ~~2016~~.2019. 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.

For further information on our 15 largest tenants and the composition of our tenant base, see “Item 2. Properties —Significant Tenants.”

Competition

We compete with several developers, owners, operators and acquirers of office, undeveloped land and other commercial real estate, including mixed-use and residential real estate, many of which own properties similar to ours in the same submarkets in which our properties are located. For further discussion of the potential impact of competitive conditions on our business, see “Item 1A. Risk Factors.”

Segment and Geographic Financial Information

During ~~2016~~2019 and ~~2015~~2018, we had one reportable segment, our office properties segment. For information about our office property revenues and long-lived assets and other financial information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Results of Operations.”

As of December 31, ~~2016~~,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 ~~twelve~~eight office properties, one development project under construction and one recently acquired future development project located in the state of Washington. As of December 31, ~~2016~~,2019, all of our properties and development projects were 100% owned, excluding four office properties owned by three consolidated property partnerships and ~~a project~~two development projects held in ~~a VIE~~VIEs to facilitate potential future Section 1031 Exchanges, which have been consolidated for financial reporting purposes (see Note 2 “Basis of Presentation and Significant Accounting Policies” to our consolidated financial statements included in this report for further information).

Employees

As of December 31, ~~2016~~2019, we employed ~~245~~267 people through the Operating Partnership, ~~KSLLC,~~Kilroy Services, LLC, and Kilroy Realty TRS, Inc. We believe that relations with our employees are good.

Environmental Regulations and Potential Liabilities

Government ~~Regulation~~Regulations Relating to the Environment. Many laws and governmental regulations relating to the environment are applicable to our properties, and changes in these laws and regulations, or their interpretation by agencies and the courts, occur frequently and may adversely affect us.

Existing conditions at some of our properties. Independent environmental consultants have conducted Phase I or similar environmental site assessments on all of our properties. We generally obtain these assessments prior to the

acquisition of a property and may later update them as required for subsequent financing of the property, if a property is slated for disposition, or as requested by a tenant. Consultants are required to perform Phase I assessments to American Society for Testing and Materials standards then-existing for Phase I site assessments and typically include a historical review, a public records review, a visual inspection of the surveyed site, and the issuance of a written report. These assessments do not generally include any soil ~~samplings~~or groundwater sampling or subsurface investigations; however, if a Phase 1I does recommend that soil or groundwater samples be taken or other subsurface investigations take place, we generally perform such recommended actions. Depending on the age of the property, the Phase I may have included an assessment of asbestos-containing materials or a separate hazardous materials survey may have been conducted. For properties where ~~asbestos-~~

~~containing~~asbestos-containing materials were identified or suspected, an operations and maintenance plan was generally prepared and implemented.

Historical operations at or near some of our properties, including the presence of underground or above ground storage tanks, various sites uses that involved hazardous substances, the landfilling of hazardous substances and solid waste, and migration of contamination from other sites, may have caused soil or groundwater contamination. In some instances, the prior owners of the affected properties conducted remediation of known contamination in the soils on our properties, we are required to conduct further environmental clean-up and environmental closure activities at certain properties, and residual contamination could pose environmental, health, and safety risks if not appropriately addressed. We may need to investigate or remediate contaminated soil, soil gas, landfill gas, and groundwater, and we may also need to conduct landfill closure and post-closure activities, including, for example, the implementation of groundwater and methane monitoring systems and impervious cover, and the costs of such work could exceed projected or budgeted amounts. To protect the health and safety of site occupants and others, we may be required to ~~conduct further clean-up~~implement and operate safeguards, including, for example, vapor intrusion mitigation systems and building protection systems to address methane. We may need to modify our methods of construction or face increased construction costs as a result of environmental conditions, and we may face obligations under agreements with governmental authorities with respect to the ~~soil at these properties.~~ management of such environmental conditions. If releases from our sites migrate offsite, or if our site redevelopment activities cause or contribute to a migration of hazardous substances, neighbors or others could make claims against us, such as for property damage, personal injury, or cost recovery.

As of December 31, ~~2016,~~2019, we had accrued environmental remediation liabilities of approximately ~~$25.1~~$80.7 million recorded on our consolidated balance sheets in connection with certain of our in-process and future development ~~projects and recent development acquisitions.~~projects. The accrued environmental remediation liabilities represent the remaining costs we estimate we will incur ~~when we commence~~prior to and during the development process at various development acquisition sites. These estimates, which we developed with the assistance of a third party ~~expert,~~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 ~~properties as~~buildings at these sites. It is possible that we could incur additional environmental remediation costs in connection with these ~~recent~~ development ~~acquisitions.~~projects. However, ~~given we are in the early stages of development on certain of these projects,~~ potential additional environmental costs ~~are not~~cannot be reasonably ~~estimable~~estimated at this ~~time.~~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. See Note 18 “Commitments and Contingencies” to our consolidated financial statements included in this report for additional information.

Other than the accrued environmental liabilities recorded in connection with certain of our development projects, we are not aware of any such condition, liability, or concern by any other means that would give rise to material environmental ~~liability.~~liabilities. However, our assessments may have failed to reveal all environmental conditions, liabilities, or compliance concerns; there may be material environmental conditions, liabilities, or compliance concerns that arose at a property after the review was completed; future laws, ordinances, or regulations may impose material additional environmental liability; and environmental conditions at our properties may be affected in the future by tenants, third parties, or the condition of land or operations near our properties, such as the presence of underground storage tanks or migrating plumes. We cannot be certain that costs of future environmental compliance will not have an adverse effect on our financial condition, results of operations, cash flow, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to security holders.

Use of hazardous materials by some of our tenants. Some of our tenants handle hazardous substances and wastes on our properties as part of their routine operations. Environmental laws and regulations may subject these tenants,

and potentially us, to liability resulting from such activities. We generally require our tenants in their leases to comply with these environmental laws and regulations and to indemnify us for any related liabilities. As of December 31, ~~2016,~~2019, other than routine cleaning materials, approximately ~~5-8%~~2-4% of our tenants handled hazardous substances and/or wastes on approximately 1-3% of the aggregate square footage of our properties as part of their routine operations. These tenants are primarily involved in the life sciences business. The hazardous substances and wastes are primarily comprised of diesel fuel for emergency generators and small quantities of lab and light manufacturing chemicals including, but not limited to, alcohol, ammonia, carbon dioxide, cryogenic gases, dichlorophenol, methane, naturalyte acid, nitrogen, nitrous oxide, and oxygen which are routinely used by life science companies. We are not aware of any material noncompliance, liability, or claim relating to hazardous or toxic substances or petroleum products in connection with any of our properties, and management does not believe that on-going activities by our tenants will have a material adverse effect on our operations.

Costs related to government regulation and private litigation over environmental matters. Under applicable environmental laws and regulations, we may be liable for the costs of removal, remediation, or disposal of certain hazardous or toxic substances present or released on our properties. These laws could impose liability without regard to whether we are responsible for, or even knew of, the presence or release of the hazardous materials. Government investigations and remediation actions may have substantial costs, and the presence or release of hazardous substances on a property could result in governmental clean-up actions, personal injury actions, or similar claims by private plaintiffs.

Potential environmental liabilities may exceed our environmental insurance coverage limits, transactional indemnities or holdbacks. We carry what we believe to be commercially reasonable environmental insurance. Our environmental insurance policies are subject to various terms, conditions and exclusions. Similarly, in connection with some transactions we obtain environmental indemnities and holdbacks that may not be honored by the indemnitors, may be less than the resulting liabilities or may otherwise fail to address the liabilities adequately. Therefore, we cannot provide any assurance that our insurance coverage or transactional indemnities will be sufficient or that our liability,

if any, will not have a material adverse effect on our financial condition, results of operations, cash flows, quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to security holders.

Litigation

In 2017, lawsuits were filed in San Francisco County Superior Court alleging vertical and differential settlement at the Millennium Tower property located at 301 Mission Street in San Francisco, California. The Millennium Tower is not owned by the Company but located in proximity to one of the Company’s properties located at 350 Mission Street. The lawsuits allege that conduct of various entities, including those affiliated with other neighboring properties, contributed to the settlement of the Millennium Tower. Two defendants asserted cross-claims for equitable indemnification against certain of the Company’s entities in connection with the development and construction-related activities at the Company’s 350 Mission Street property. One of those parties has voluntarily dismissed its cross claims against the Company’s entities. In August 2019, all parties to the lawsuits, including the Company’s entities, reached a settlement in-principle and agreed to stay the litigation pending the negotiation and execution of global settlement documentation. If such settlement documentation is not executed in accordance with the procedural timeline established by the parties to the lawsuit (as the same may be extended), the stay may be lifted. The Company continues to dispute the allegations and deny responsibility for the claims alleged in the lawsuits.

ITEM 1A. RISK FACTORS

The following section sets forth material factors that may adversely affect our business and operations. The following factors, as well as the factors discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Factors That May Influence Future Results of Operations” and other information contained in this report, should be considered in evaluating us and our business.

Risks Related to our Business and Operations

Global market, economic and geopolitical conditions may adversely affect our business, results of operations, liquidity and financial condition and those of our tenants. Our business may be adversely affected by global market, economic and geopolitical conditions, including general global economic and political uncertainty and dislocations in the credit markets. ~~Concern about continued stability of the economy, political landscape~~If these conditions become more volatile or worsen, our and credit markets generally, and the strength of counterparties specifically, may lead lenders and institutional investors to reduce or, in some cases, cease to provide funding to borrowers. Volatility in the U.S. and international capital markets, political and geopolitical uncertainty, and concern over a return to recessionary conditions in global economies, and in the California economy in particular, may adversely affect our tenant’s business, results of operations, liquidity and financial condition and those of our tenants may be adversely affected as a result of the ~~business, results of operations, liquidity and~~following consequences, among others:

the financial condition of our ~~tenants. In addition, if these~~tenants, many of which are technology; life science and healthcare; finance, insurance and real estate; media and professional business and other service firms, may be adversely affected, which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or for other reasons;

significant job losses in the financial and professional services industries may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted;

our ability to obtain financing on terms and conditions ~~continue~~that we find acceptable, or ~~worsen, they~~at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from our acquisition and development activities and increase our future interest expense;

reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the ~~ability~~availability of ~~our tenants~~unsecured loans; and

one or more lenders under the Operating Partnership’s unsecured revolving credit facility could refuse to ~~timely refinance maturing liabilities~~fund their financing commitment to us or could fail and ~~access~~we may not be able to replace the ~~capital markets to meet liquidity needs.~~financing commitment of any such lenders on favorable terms, or at all.

All of our properties are located in California and greater Seattle, Washington and we may therefore be susceptible to adverse economic conditions and regulations, as well as natural disasters, in those areas. Because all of our properties are concentrated in California and greater Seattle, we may be exposed to greater economic risks than if we owned a more geographically dispersed portfolio. Further, within California, our properties are concentrated in Greater Los Angeles, ~~Orange County,~~ San Diego County and the San Francisco Bay Area, exposing us to risks associated with those specific areas. We are susceptible to adverse developments in the economic and regulatory environments of California and greater Seattle (such as periods of economic slowdown or recession, business layoffs or downsizing, industry slowdowns, relocations of businesses, increases in real estate and other taxes, costs of complying with governmental regulations or increased regulation and other factors), as well as adverse weather conditions and natural disasters that occur in those areas (such as earthquakes, wind, landslides, droughts, fires and other events). For example, many of our assets are in zones that have been impacted by drought and, as such, face the risk of increased water costs and potential fines and/or penalties for high consumption. In addition, California is also regarded as more litigious and more highly regulated and taxed than many other states, which may reduce demand for office space in California.

Any adverse developments in the economy or real estate market in California and the surrounding region, or in greater Seattle or any decrease in demand for office space resulting from the California or greater Seattle regulatory or business environment could impact our ability to generate revenues sufficient to meet our operating expenses or other obligations, which would adversely impact our financial condition, results of operations, cash flows, the quoted trading price of our securities and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.

Our performance and the market value of our securities are subject to risks associated with our investments in real estate assets and with trends in the real estate industry. Our economic performance and the value of our real estate assets and, consequently the market value of the Company’s securities, are subject to the risk that our properties may not generate revenues sufficient to meet our operating expenses or other obligations. A deficiency of this nature would adversely impact our financial condition, results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.

Events and conditions applicable to owners and operators of real estate that are beyond our control and could impact our economic performance and the value of our real estate assets may include:

local oversupply or reduction in demand for office, mixed-use or other commercial space, which may result in decreasing rental rates and greater concessions to tenants;

inability to collect rent from tenants;

vacancies or inability to rent space on favorable terms or at all;

inability to finance property development and acquisitions on favorable terms or at all;

increased operating costs, including insurance premiums, utilities and real estate taxes;

costs of complying with changes in governmental regulations;

the relative illiquidity of real estate investments;

declines in real estate asset valuations, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing;

changing submarket demographics;

changes in space utilization by our tenants due to technology, economic conditions and business culture;

the development of harmful mold or other airborne toxins or contaminants that could damage our properties or expose us to third-party liabilities; and

property damage resulting from seismic activity or other natural disasters.

We depend upon significant tenants, and the loss of a significant tenant could adversely affect our financial condition, results of operations, ability to borrow funds and cash flows. As of December 31, ~~2016~~2019, our 15 largest tenants represented approximately ~~37.3%~~49.6% of total annualized base rental revenues. See further discussion on the composition of our tenants by industry and our largest tenants under “Item 2. Properties —Significant Tenants.”

Our financial condition, results of operations, ability to borrow funds and cash flows would be adversely affected if any of our significant tenants fails to renew its lease(s), renew its lease(s) on terms less favorable to us, or becomes bankrupt or insolvent or otherwise unable to satisfy its lease obligations.

Downturn in tenants’ businesses may reduce our revenues and cash flows. For the year ended December 31, ~~2016~~2019, we derived approximately ~~98.9%~~98.7% of our revenues from rental ~~income and tenant reimbursements.~~income. A tenant may experience a downturn in its business, which may weaken its financial condition and result in its failure to make timely rental payments or result in defaults under our leases. In the event of default by a tenant, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment.

The bankruptcy or insolvency of a major tenant also may adversely affect the income produced by our properties. If any tenant becomes a debtor in a case under federal bankruptcy law, we cannot evict the tenant solely because of the bankruptcy. In addition, the bankruptcy court might permit the tenant to reject and terminate its lease with us. Our

claim against the tenant for unpaid and future rent could be subject to a statutory cap that might be substantially less than the remaining rent actually owed under the lease. Therefore, our claim for unpaid rent would likely not be paid in full. Any losses resulting from the bankruptcy of any of our existing tenants could adversely impact our financial condition, results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.

A large percentage of our tenants operate in a concentrated group of industries and downturns in these industries could adversely affect our financial condition, results of operations and cash flows. As of December 31, ~~2016~~,2019, as a percentage of our annualized base rental revenue ~~42%~~for the stabilized portfolio, 51% of our tenants operated in the technology industry, ~~16%~~15% in the life science and health care industries, ~~12%~~13% in the media industry, 8% in the finance, insurance and real estate industries, ~~10% in the media industry,~~

9%5% in the professional, business and other services industries and ~~11%~~8% in other industries. As we continue our development and potential acquisition activities in markets populated by knowledge and creative based tenants in the technology and media industries, our tenant mix could become more concentrated, further exposing us to risks associated with those industries. For a further discussion of the composition of our tenants by industry, see “Item 2. Properties —Significant Tenants.” An economic downturn in any of these industries, or in any industry in which a significant number of our tenants currently or may in the future operate, could negatively impact the financial condition of such tenants and cause them to fail to make timely rental payments or default on lease obligations, fail to renew their leases or renew their leases on terms less favorable to us, become bankrupt or insolvent, or otherwise become unable to satisfy their obligations to us. As a result, a downturn in an industry in which a significant number of our tenants operate could adversely affect our financial conditions, result of operations and cash flows.

We may be unable to renew leases or re-lease available space. Most of our income is derived from the rent earned from our tenants. We had office space representing approximately ~~4.0%~~5.4% of the total square footage of our stabilized office properties that was not occupied as of December 31, ~~2016~~.2019. In addition, leases representing approximately ~~8.2%~~7.7% and ~~10.4%~~6.8% of the leased rentable square footage of our properties are scheduled to expire in ~~2017~~2020 and ~~2018,~~2021, respectively. Of the leases scheduled to expire in 2020 and 2021, 28% and 21% of the rentable square footage scheduled to expire was re-leased, respectively, as of December 31, 2019. Above market rental rates on some of our properties may force us to renew or re-lease expiring leases at rates below current lease rates. We cannot provide any assurance that leases will be renewed, available space will be re-leased or that our rental rates will be equal to or above the current rental rates. If the average rental rates for our properties decrease, existing tenants do not renew their leases, or available space is not re-leased, our financial condition, results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders could be adversely affected. For additional information on our scheduled lease expirations, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Factors That May Influence Future Results of Operations.”

We are subject to governmental regulations that may affect the development, redevelopment and use of our properties. Our properties are subject to regulation under federal laws, such as the Americans with Disabilities Act of 1990 (the “ADA”), pursuant to which all public accommodations must meet federal requirements related to access and use by disabled persons, and state and local laws addressing earthquake, fire and life safety requirements. Although we believe that our properties substantially comply with requirements under applicable governmental regulations, none of our properties have been audited or investigated for compliance by any regulatory agency. If we were not in compliance with material provisions of the ADA or other regulations affecting our properties, we might be required to take remedial action, which could include making modifications or renovations to our properties. Federal, state, or local governments may also enact future laws and regulations that could require us to make significant modifications or renovations to our properties. If we were to incur substantial costs to comply with the ADA or any other regulations, our financial condition, results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders could be adversely affected.

Our properties are subject to land use rules and regulations that govern our development, redevelopment and use of our properties, such as Title 24 of the California Code of Regulations (“Title 24”), which prescribes building energy efficiency standards for residential and nonresidential buildings in the State of California. If we were not in compliance with material provisions of Title 24 or other regulations affecting our properties, we might be required to take remedial action, which could include making modifications or renovations to our properties. Changes in the existing land use rules and regulations and approval process that restrict or delay our ability to develop, redevelop or use our properties ~~(such~~

(such as potential restrictions on the use and/or density of new developments, water use and other uses and activities) or that prescribe additional standards could have an adverse effect on our financial position, results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.

We may not be able to meet our debt service obligations. As of December 31, ~~2016,~~2019, we had approximately ~~$2.3~~$3.6 billion aggregate principal amount of indebtedness, of which ~~$7.3~~$5.1 million in principal payments will be paid during the year ended December 31, ~~2017, including $1.2 million that was repaid at par on January 31, 2017.~~2020. Our total debt ~~and preferred equity~~ at December 31, ~~2016~~2019 represented ~~26.5%~~28.3% of our total market capitalization (which we define as the aggregate of our long-term debt ~~liquidation value of our preferred equity,~~ and the market value of the Company’s common stock and the Operating Partnership’s common units of limited partnership interest, or common ~~units)~~units, based on the closing price per share of the Company’s common stock as of that date). For the calculation of our market capitalization and additional information on debt maturities, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources of the

Company —Capitalization” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources of the Operating Partnership —Liquidity Uses.”

Our ability to make payments on and to refinance our indebtedness and to fund our operations, working capital, and capital expenditures, depends on our ability to generate cash flow in the future. Our cash flow is subject to general economic, industry, financial, competitive, operating, legislative, regulatory, environmental and other factors, many of which are beyond our control.

The instruments and agreements governing some of our outstanding indebtedness (including borrowings under the Operating Partnership’s unsecured revolving credit facility, unsecured term loan facility and ~~unsecured term loan)~~note purchase agreements) contain provisions that require us to repurchase for cash or repay that indebtedness under specified circumstances or upon the occurrence of specified events (including upon the acquisition by any person or group of more than a specified percentage of the aggregate voting power of all the Company’s issued and outstanding voting stock, upon certain changes in the composition of ~~control~~a majority of the ~~Company)~~members of the Company’s board of directors, if the Company or one of its wholly-owned subsidiaries ceases to be the sole general partner of the Operating Partnership or if the Company ceases to own, directly or indirectly, at least 60% of the voting equity interests in the Operating Partnership), and our future debt agreements and debt securities may contain similar provisions or may require that we repay or repurchase or offer to repurchase for cash the applicable indebtedness ~~for cash~~ under specified circumstances or upon the occurrence of specified changes of control of the Company or the Operating Partnership or other events. We may not have sufficient funds to pay our indebtedness when due (including upon any such required repurchase, repayment or offer to repurchase), and we may not be able to arrange for the financing necessary to make those payments or repurchases on favorable terms or at all. In addition, our ability to make required payments on our indebtedness when due (including upon any such required repurchase, repayment or offer to repurchase) may be limited by the terms of other debt instruments or agreements. Our failure to pay amounts due in respect of any of our indebtedness when due ~~may~~would generally constitute an event of default under the instrument governing that indebtedness, which could permit the holders of that indebtedness to require the immediate repayment of that indebtedness in full and, in the case of secured indebtedness, could allow them to sell the collateral securing that indebtedness and use the proceeds to repay that indebtedness. Moreover, any acceleration of or default in respect of any of our indebtedness could, in turn, constitute an event of default under other debt instruments or agreements, thereby resulting in the acceleration and required repayment of that other indebtedness. Any of these events could materially adversely affect our ability to make payments of principal and interest on our indebtedness when due and could prevent us from making those payments altogether.

We cannot assure you that our business will generate sufficient cash flow from operations or that future sources of cash will be available to us in an amount sufficient to enable us to pay amounts due on our indebtedness or to fund our other liquidity needs, including cash distributions to stockholders necessary to maintain the Company’s REIT qualification. Additionally, if we incur additional indebtedness in connection with future acquisitions or for any other purpose, our debt service obligations could increase.

We may need to refinance all or a portion of our indebtedness on or before maturity. Our ability to refinance our indebtedness or obtain additional financing will depend on, among other things:

•our financial condition, results of operations and market conditions at the time; and

•restrictions in the agreements governing our indebtedness.

As a result, we may not be able to refinance our indebtedness on commercially reasonable terms or at all. If we do not generate sufficient cash flow from operations, and additional borrowings or refinancings or proceeds of asset sales or other sources of cash are not available to us, we may not have sufficient cash to enable us to meet all of our obligations. Accordingly, if we cannot service our indebtedness, we may have to take actions such as seeking additional equity financing, delaying capital expenditures, or entering into strategic acquisitions and alliances. Any of these events or circumstances could have a material adverse effect on our financial condition, results of operations, cash flows, the trading price of our securities and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders. In addition, foreclosures could create taxable income without accompanying cash proceeds, which could require us to borrow or sell assets to raise the funds necessary to pay amounts due on our indebtedness and to meet the REIT distribution requirements discussed below, even if such actions are not on favorable terms.

The covenants in the agreements governing the Operating Partnership’s unsecured revolving credit facility, unsecured term loan facility and ~~unsecured term loan~~note purchase agreements may limit our ability to make distributions to the holders of our common stock. The Operating Partnership’s ~~$600.0~~$750.0 million unsecured revolving credit facility, $150.0 million unsecured term loan facility and ~~$39.0 million unsecured term loan~~note purchase agreements contain financial covenants that could limit the amount of distributions payable by us on our common stock and any preferred ~~stock.~~stock we may issue in the future. We rely on cash distributions we receive from the Operating Partnership to pay distributions on our common stock and any preferred stock we may issue in the future and to satisfy our other cash needs, and the unsecured revolving credit facility, unsecured term loan facility and unsecured term loan provide that the Operating Partnership may not, in any year, make partnership distributions to us or other holders of its partnership interests in an aggregate amount in excess of the greater of:

~~95% of the Operating Partnership’s consolidated funds from operations (as defined in the~~needs. The agreements governing the unsecured revolving credit facility, the unsecured term loan facility and the note purchase agreements provide that, if the Operating Partnership fails to pay any principal of, or interest on, any borrowings or other amounts payable under such agreement when due or during any other event of default under such revolving credit facility, loan facility and the unsecured ~~term loan) for such year; and~~

~~an amount which results~~private placement notes, the Operating Partnership may make only those partnership distributions that result in distributions to us ~~(excluding any preferred partnership distributions to the extent the same have been deducted from consolidated funds from operations (as so defined) for such year)~~ in an amount sufficient to permit us to ~~pay dividends~~make distributions to our stockholders that we reasonably believe are necessary to (a) maintain our qualification as a REIT for federal and state income tax purposes and (b) avoid the payment of federal or state income or excise tax.

In addition, the agreements governing the unsecured revolving credit facility, unsecured term loan facility and unsecured term loan each provides that, if the Operating Partnership fails to pay any principal of or interest on any borrowings or other amounts payable under such agreement when due, the Operating Partnership may make only those partnership distributions that result in distributions to us in an amount sufficient to permit us to make distributions to our stockholders that we reasonably believe are necessary to maintain our status as a REIT for federal and state income tax purposes. Any limitation on our ability to make distributions to our stockholders, whether as a result of these provisions in the unsecured revolving credit facility, the unsecured term loan facility, ~~unsecured term loan~~the note purchase agreements or otherwise, could have a material adverse effect on the market value of our common stock.

A downgrade in our credit ratings could materially adversely affect our business and financial condition. The credit ratings assigned to the Operating Partnership’s debt securities and ~~our~~any preferred stock we may issue in the future could change based upon, among other things, our results of operations and financial condition. These ratings are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any rating will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. Moreover, these credit ratings do not apply to our common stock and are not recommendations to buy, sell or hold our common stock or any other securities. If any of the credit rating agencies that have rated the Operating Partnership’s debt securities or ~~our~~any preferred stock we may issue in the future downgrades or lowers its credit rating, or if any credit rating agency indicates that it has placed any such rating on a so-called “watch list” for a possible downgrading or lowering or otherwise indicates that its outlook for that rating is negative, it could have a material adverse effect on our costs and availability of capital, which could in turn have a material adverse effect on our financial condition, results of operations, cash flows, the trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.

We face significant competition, which may decrease the occupancy and rental rates of our properties. We compete with several developers, owners and operators of office, undeveloped land and other commercial real estate, including mixed-use and residential real estate, many of which own properties similar to ours in the same submarkets in which our properties are located but which have lower occupancy rates than our properties. Therefore, our competitors have an incentive to decrease rental rates until their available space is leased. If our competitors offer space at rental rates below the rates currently charged by us for comparable space, we may be pressured to reduce our rental rates below those currently charged in order to retain tenants when our tenant leases expire. As a result, our financial condition, results of operations, cash flow, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders may be adversely affected.

In order to maintain the quality of our properties and successfully compete against other properties, we must periodically spend money to maintain, repair and renovate our properties, which reduces our cash flows. If our properties are not as attractive to current and prospective tenants in terms of rent, services, condition or location as properties owned by our competitors, we could lose tenants or suffer lower rental rates. As a result, we may from time to time be required to make significant capital expenditures to maintain the competitiveness of our properties. There can be no assurances that any such expenditure would result in higher occupancy or higher rental rates, or deter existing tenants from relocating to properties owned by our competitors.

Potential casualty losses, such as earthquake losses, may adversely affect our financial condition, results of operations and cash flows. We carry comprehensive liability, fire, extended coverage, rental loss, and terrorism insurance covering all of our properties. Management believes the policy specifications and insured limits are appropriate given the relative risk of loss, the cost of the coverage and industry practice. We do not carry insurance for generally uninsurable losses such as loss from riots or acts of God. In addition, all of our properties are located in earthquake-prone areas.

We carry earthquake insurance on our properties in an amount and with deductibles that management believes are commercially reasonable. However, the amount of our earthquake insurance coverage may not be sufficient to cover losses from earthquakes. We may also discontinue earthquake insurance on some or all of our properties in the future if the cost of premiums for earthquake insurance exceeds the value of the coverage discounted for the risk of loss. If we experience a loss that is uninsured or which exceeds policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. Further, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if the properties were irreparable.

We may not be able to rebuild our existing properties to their existing specifications if we experience a substantial or comprehensive loss of such properties. In the event that we experience a substantial or comprehensive loss of one of our properties, we may not be able to rebuild such property to its existing specifications. Further, reconstruction or improvement of such property could potentially require significant upgrades to meet zoning and building code requirements or be subject to environmental and other legal restrictions.

Our business is subject to risks associated with climate change and our sustainability strategies. Climate change ~~may adversely affect our business.~~ ~~To the extent that climate change does occur, we may experience~~could trigger extreme weather and changes in precipitation, temperature, and ~~temperature,~~air quality, all of which may result in physical damage to, or a decrease in demand for, our properties located in the areas affected by these conditions. Should the impact of climate change be ~~material in nature~~severe or occur for lengthy periods of time, our financial condition or results of operations would be adversely affected. ~~In addition,~~

Recognizing the importance of climate change and reducing our greenhouse gas impact on the environment, our sustainability strategies include a commitment to achieving carbon neutral operations by December 31, 2020. This means that the entirety of our scope 1 and scope 2 emissions will be offset by this date through a combination of energy efficiency measures and both onsite and offsite renewables. Scope 1 emissions represent those produced by onsite natural gas consumption procured by us, and Scope 2 emissions represent those produced by onsite electricity consumption procured by us.Our own efforts to reduce our greenhouse gas impact on the environment and/or comply with changes in federal and state ~~legislation~~laws and ~~regulation~~regulations on climate change could result in ~~increased~~significant capital expenditures to improve the energy efficiency of our existing properties or properties we may acquire. Changes to such law and regulations could also result in ~~order~~increased operating costs at our properties (for example, through increased utility costs). Moreover, if we are unable to achieve carbon neutral operations by our targeted date or comply with laws and regulations on climate change, our reputation among our tenants and investors may be damaged and we may incur fines and/or penalties.

Our properties are located in West Coast markets of the United States. To the extent that climate change impacts changes in weather patterns, our markets could experience increases in extreme weather and rising sea levels. For example, many of our assets are in zones that have been impacted by drought and, as such, ~~regulations.~~face the risk of increased water costs and potential fines and/or penalties for high consumption. We endeavor to mitigate these risks through comprehensive, proactive water reduction efforts throughout our portfolio, including domestic fixture upgrades, cooling tower optimizations, a comprehensive leak detection program and irrigation systems retrofits. We also incorporate green lease language into 100% of our new leases, including a cost recover clause for resource-efficiency related capital expenditures in full-service gross leases, which aim to align our and our tenant’s interests on energy, water and waste efficiency. In addition, we are building our current development projects to LEED specifications, and all of our office

development projects are now designed to achieve LEED certification, either LEED Platinum or Gold. However, there can be no assurances that we will successfully mitigate the risk of increased water costs and potential fines and/or penalties for high consumption or that we will be able to fully recoup any capital expenditures we incur in connection with our green leases. Moreover, there can be no assurance that our development projects will be able to achieve the anticipated LEED certifications or that any of our sustainability strategies will result in reduced operating costs, higher occupancy or higher rental rates or deter our existing tenants from relocating to properties owned by our competitors. Over time, these conditions could result in declining demand for space at our properties or in our inability to operate the buildings as currently intended or at all. Climate change may also have indirect effects on our business by increasing the cost of, or decreasing the availability of, property insurance on terms we find acceptable or at all, or by increasing the cost of energy or water. There can be no assurance that climate change will not have a material adverse effect on our properties, operations or business.

We are subject to environmental and health and safety laws and regulations, and any costs to comply with, or liabilities arising under, such laws and regulations could be material. As an owner, operator, manager, acquirer and developer of real properties, we are subject to environmental and health and safety laws and regulations. Certain of these laws and regulations impose joint and several liability, without regard to fault, for investigation and clean-up costs on current and former owners and operators of real property and persons who have disposed of or released hazardous substances into the environment. At some of our properties, there are asbestos-containing materials, or tenants routinely handle hazardous substances as part of their operations. In addition, historical operations and conditions, including the presence of underground storage tanks, various site uses that involved hazardous substances, the landfilling of hazardous substances and solid waste, and migration of contamination from other sites, have caused soil or groundwater contamination at or near some of our properties. Although we believe that the prior owners of the affected properties or other persons may have conducted remediation of known contamination at many of these properties, not all such contamination has been remediated, ~~and~~ further clean-up or environmental closure activities at certain of these properties is or may be ~~required.~~required, and residual contamination could pose environmental, health, and safety risks if not appropriately addressed. We may need to investigate or remediate contaminated soil, soil gas, landfill gas, and groundwater, and we may also need to conduct landfill closure and post-closure activities, including, for example, the implementation of groundwater and methane monitoring systems and impervious cover, and the costs of such work could exceed projected or budgeted amounts. To protect the health and safety of site occupants and others, we may be required to implement and operate safeguards, including, for example, vapor intrusion mitigation systems and building protection systems to address methane. We may need to modify our methods of construction or face increased construction costs as a result of environmental conditions, and we may face obligations under agreements with governmental authorities with respect to the management of such environmental conditions. If releases from our sites migrate offsite, or if our site redevelopment activities cause or contribute to a migration of hazardous substances, neighbors or others could make claims against us, such as for property damage, personal injury, cost recovery, or natural resources damage. As of December 31, ~~2016,~~2019, we had accrued environmental remediation liabilities of approximately ~~$25.1~~$80.7 million recorded on our consolidated balance sheets in connection with certain of our in-process and future development ~~projects and recent development acquisitions.~~projects. The accrued environmental remediation liabilities represent the costs we estimate we will incur when we commence development at various development acquisition sites. These estimates, which we developed with the assistance of a third party ~~expert,~~experts, consist primarily of the removal of contaminated soil, performing environmental closure activities, construction 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 office properties as these sites. It is possible that we could incur additional environmental remediation costs in connection with ~~these recent~~future development ~~acquisitions.~~projects. However, ~~given we are in the early stages of development on certain of these projects,~~ potential additional environmental costs ~~are not~~cannot be reasonably ~~estimable~~estimated at this ~~time.~~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. Unknown or unremediated contamination or ~~the~~ compliance with existing or new environmental or health and safety laws and regulations could require us to incur costs or liabilities that could be material. See “Item 1. Business —Environmental Regulations and Potential ~~Liabilities.”~~Liabilities” and Note 18 “Commitments and Contingencies” to our consolidated financial statements included in this report.

We may be unable to complete acquisitions and successfully operate acquired properties. We continually evaluate the market of available properties and may continue to acquire office or mixed-use properties and undeveloped land when strategic opportunities exist. Our ability to acquire properties on favorable terms and successfully operate them is subject to various risks, including the following:

we may potentially be unable to acquire a desired property because of competition from other real estate investors with significant capital, including both publicly traded and private REITs, institutional investment funds and other real estate investors;

even if we are able to acquire a desired property, competition from other real estate investors may significantly increase the purchase price;

even if we enter into agreements for the acquisition of a desired property, we may be unable to complete such acquisitions because they remain subject to customary conditions to closing, including the completion of due diligence investigations to management’s satisfaction;

we may be unable to finance acquisitions on favorable terms or at all;

we may spend more than budgeted amounts in operating costs or to make necessary improvements or renovations to acquired properties;

we may lease acquired properties at economic lease terms different than projected;

we may acquire properties that are subject to liabilities for which we may have limited or no recourse; and

we may be unable to complete an acquisition after making a nonrefundable deposit and incurring certain other acquisition-related costs.

If we cannot finance property acquisitions on favorable terms or operate acquired properties to meet financial expectations, our financial condition, results of operations, cash flows, the quoted trading price of our securities and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders could be adversely affected.

There are significant risks associated with property acquisition, development and redevelopment. We may be unable to successfully complete and operate acquired, developed and redeveloped properties, and it is possible that:

we may be unable to lease acquired, developed or redeveloped properties on lease terms projected at the time of acquisition, development or redevelopment or within budgeted timeframes;

the operating expenses at acquired, developed or redeveloped properties may be greater than projected at the time of acquisition, development or redevelopment, resulting in our investment being less profitable than we expected;

we may not commence or complete development or redevelopment properties on schedule or within budgeted amounts or at all;

we may not be able to develop or redevelop the estimated square footage and other features of our development and redevelopment properties;

we may suspend development or redevelopment projects after construction has begun due to changes in economic conditions or other factors, and this may result in the write-off of costs, payment of additional costs or increases in overall costs when the development or redevelopment project is restarted;

we may expend funds on and devote management’s time to acquisition, development or redevelopment properties that we may not complete and as a result we may lose deposits or fail to recover expenses already incurred;

we may encounter delays or refusals in obtaining all necessary zoning, land use, and other required entitlements, and building, occupancy, and other required governmental permits and authorizations;

we may encounter delays or unforeseen cost increases associated with building materials or construction services resulting from trade tensions, disruptions, tariffs, duties or restrictions or an outbreak of an epidemic or pandemic;

we may encounter delays, refusals, unforeseen cost increases and other impairments resulting from third-party litigation; and

we may fail to obtain the financial results expected from properties we acquire, develop or redevelop.

If one or more of these events were to occur in connection with our acquired properties, undeveloped land, or development or redevelopment properties under construction, we could be required to recognize an impairment loss. These events could also have an adverse impact on our financial condition, results of operations, cash flow, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.

While we historically have acquired, developed and redeveloped office properties in California markets, over the past few years we have acquired properties in greater Seattle, where we currently have ~~twelve~~eight properties, one development project under construction and one recently acquired future development project, and may in the future acquire, develop or redevelop properties for other uses and expand our business to other geographic regions where we expect the development or acquisition of property to result in favorable risk-adjusted returns on our investment. Presently, we do not possess the same level of familiarity with other outside markets, which could adversely affect our ability to acquire, develop or redevelop properties or to achieve expected performance.

We face risks associated with the development of mixed-use commercial properties. We are currently developing, and in the future may develop, properties either alone or through joint ventures that are known as “mixed-use” developments. This means that in addition to the development of office space, the project may also include space for residential, retail or other commercial purposes. Generally, we have less experience developing and managing non-office real estate. As a result, if a development project includes non-office space, we may develop that space ourselves or seek to partner with a third-party developer with more experience. If we do not partner with such a developer, or if we choose to develop the space ourselves, we would be exposed to specific risks associated with the development and ownership of non-office real estate. In addition, if we elect to participate in the development through a joint venture, we may be exposed to the risks associated with the failure of the other party to complete the development as expected, which could require that we identify another joint venture partner and/or complete the project ourselves (including providing any necessary financing). In the case of residential properties, these risks include competition for prospective tenants from other operators whose properties may be perceived to offer a better location or better amenities or whose rent may be perceived as a better value given the quality, location and amenities that the tenant seeks. With residential properties, we will also compete against apartments, condominiums and single-family homes that are for sale or rent. Because we have less experience with residential properties, we may retain third parties to manage these properties. If we decide to wholly own a non-office project and hire a third-party manager, we could be dependent on that party and its key personnel to provide services to us, and we may not find a suitable replacement if the management agreement is terminated, or if key personnel leave or otherwise become unavailable to us.

Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers' financial condition, and disputes between us and our co-venturers and could expose us to potential liabilities and losses. In addition to the 100 First LLC and 303 Second LLC strategic ventures ~~formed during 2016~~ and the Redwood City Partners, LLC venture, ~~formed during 2013,~~ we may continue to co-invest in the future with third parties through partnerships, joint ventures or other entities, or through acquiring non-controlling interests in, or sharing responsibility for, managing the affairs of a property, partnership, joint venture or other entity, which may subject us to risks that may not be present with other methods of ownership, including the following:

we would not be able to exercise sole decision-making authority regarding the property, partnership, joint venture or other entity, which would allow for impasses on decisions that could restrict our ability to sell or transfer our interests in such entity or such entity’s ability to transfer or sell its assets;

partners or co-venturers might become bankrupt or fail to fund their share of required capital contributions, which could delay construction or development of a property or increase our financial commitment to the

partnership or joint venture;

partners or co-venturers may pursue economic or other business interests, policies or objectives that are competitive or inconsistent with ours;

if we become a limited partner or non-managing member in any partnership or limited liability company, and such entity takes or expects to take actions that could jeopardize our status as a REIT or require us to pay tax, we may be forced to dispose of our interest in such entity;

disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business; and

we may, in certain circumstances, be liable for the actions of our third-party partners or co-venturers.

We own certain properties subject to ground leases and other restrictive agreements that limit our uses of the properties, restrict our ability to sell or otherwise transfer the properties and expose us to the loss of the properties if such agreements are breached by us, terminated or not renewed. As of December 31, ~~2016,~~2019, we owned ~~thirteen~~fourteen office buildings, located on various land parcels and in various regions, which we lease individually on a long-term basis. As of December 31, ~~2016,~~2019, we had approximately2.0 million aggregate rentable square feet, or ~~14.4%~~15.2% of our total stabilized portfolio, of rental space located on these leased parcels and we may in the future invest in additional properties that are subject to ground leases or other similar restrictive arrangements. Many of these ground leases and other restrictive agreements impose significant limitations on our uses of the subject property, restrict our ability to sell or otherwise transfer our interests in the property or restrict our leasing of the property. These restrictions may limit our ability to timely sell or exchange the properties, impair the properties’ value or negatively impact our ability to find suitable tenants for the properties. In addition, if we default under the terms of any particular lease, we may lose the ownership rights to the property subject to the lease. Upon expiration of a lease, we may not be able to renegotiate a new lease on favorable terms, if at all. The loss of the ownership rights to these properties or an increase of rental expense could have an adverse effect on our financial condition, results of operations, cash flow, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.

Real estate assets are illiquid, and we may not be able to sell our properties when we desire. Our investments in our properties are relatively illiquid, limiting our ability to sell our properties quickly in response to changes in economic or other conditions. In addition, the Code generally imposes a 100% prohibited transaction tax on the Company on profits derived from sales of properties held primarily for sale to customers in the ordinary course of business, which effectively limits our ability to sell properties other than on a selected basis. These restrictions on our ability to sell our properties could have an adverse effect on our financial condition, results of operations, cash flow, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.

We may invest in securities related to real estate, which could adversely affect our ability to pay dividends and distributions to our security holders. We may purchase securities issued by entities that own real estate and may, in the future, also invest in mortgages. In general, investments in mortgages are subject to several risks, including:

borrowers may fail to make debt service payments or pay the principal when due;

the value of the mortgaged property may be less than the principal amount of the mortgage note securing the property; and

interest rates payable on the mortgages may be lower than our cost for the funds used to acquire these mortgages.

Owning these securities may not entitle us to control the ownership, operation and management of the underlying real estate. In addition, we may have no control over the distributions with respect to these securities, which could adversely affect our ability to pay dividends and distributions to our security holders.

We face risks associated with short-term liquid investments. From time to time, we have significant cash balances that we invest in a variety of short-term investments that are intended to preserve principal value and maintain a high degree of liquidity while providing current income. These investments may include (either directly or indirectly):

direct obligations issued by the U.S. Treasury;

obligations issued or guaranteed by the U.S. government or its agencies;

taxable municipal securities;

obligations (including certificates of deposits) of banks and thrifts;

commercial paper and other instruments consisting of short-term U.S. dollar denominated obligations issued by corporations and banks;

repurchase agreements collateralized by corporate and asset-backed obligations;

both registered and unregistered money market funds; and

other highly rated short-term securities.

Investments in these securities and funds are not insured against loss of principal. Under certain circumstances we may be required to redeem all or part of our investment, and our right to redeem some or all of our investment may be delayed or suspended. In addition, there is no guarantee that our investments in these securities or funds will be redeemable at par value. A decline in the value of our investment or a delay or suspension of our right to redeem may have a material adverse effect on our results of operations or financial condition.

Future terrorist activity or engagement in war by the United States may have an adverse effect on our financial condition and operating results. Terrorist attacks in the United States and other acts of terrorism or war, may result in declining economic activity, which could harm the demand for and the value of our properties. In addition, the public perception that certain locations are at greater risk for attack, such as major airports, ports and rail facilities, may decrease the demand for and the value of our properties near these sites. A decrease in demand could make it difficult for us to renew or re-lease our properties at these sites at lease rates equal to or above historical rates. Terrorist activities also could directly impact the value of our properties through damage, destruction, or loss, and the availability of insurance for these acts may be less, and cost more, which could adversely affect our financial condition. To the extent that our tenants are impacted by future attacks, their businesses similarly could be adversely affected, including their ability to continue to honor their existing leases.

Terrorist acts and engagement in war by the United States also may adversely affect the markets in which our securities trade and may cause further erosion of business and consumer confidence and spending, and may result in increased volatility in national and international financial markets and economies. Any one of these events may cause a decline in the demand for our office leased space, delay the time in which our new or renovated properties reach stabilized occupancy, increase our operating expenses, such as those attributable to increased physical security for our properties, and limit our access to capital or increase our cost of raising capital.

The enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) will subject us to substantial additional federal regulation. There are significant corporate governance and executive compensation-related requirements that have been, and will in the future be, imposed on publicly-traded companies under the Dodd-Frank Act. Several of these provisions require the SEC to adopt additional rules and regulations in these areas. For example, the Dodd-Frank Act requires publicly-traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments, heightens certain independence standards for compensation advisers and authorizes the SEC to promulgate rules that would allow stockholders to nominate their own candidates for board seats using a registrant’s proxy materials.payments. Our efforts to comply with these requirements have resulted in, and are likely to continue to result in, an increase in expenses and a diversion of management’s time from other business activities. In addition, if stockholders do not vote to approve our executive compensation practices and/or our equity plan amendments, these actions may interfere with our ability to attract and retain key personnel who are essential to our future success. Provisions of the Dodd-Frank Act that directly affect other participants in the real estate and capital markets, such as banks, investment funds and interest rate hedge providers,

could also have indirect, but material, impacts on our business that cannot now be predicted. In addition, in February 2017, the U.S. President ordered the Secretary of the U.S. Treasury to review certain existing rules and regulations, such as those promulgated under the Dodd-Frank Act; however, the implications of that review are not yet known and none of the rules and regulations promulgated under the Dodd-Frank Act have been modified or rescinded as of the date of this report. Given the uncertainty associated with both the results of the existing Dodd-Frank Act requirements and the manner in which additional provisions of the Dodd-Frank Act will be implemented by various regulatory agencies and through regulations, the full extent of the impact of such requirements on our operations is unclear. Accordingly, the changes resulting from the Dodd-Frank Act may impact the profitability of business activities,

require changes to certain business practices, or otherwise adversely affect our financial condition, results of operations, cash flows, the quoted trading price of our securities and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.

Our property taxes could increase due to reassessment or property tax rate changes. We are required to pay ~~some~~ state and local taxes on our properties. In addition, the real property taxes on our properties may increase as our properties are reassessed by taxing authorities or as property tax rates change. For example, under a current California law commonly referred to as “Proposition 13,” property tax reassessment generally occurs as a result of a “change in ownership” of a property, as ~~specially~~specifically defined for purposes of those rules. Because the property taxing authorities may not determine whether there has been a “change in ownership” or the actual reassessed value of a property for a period of time after a transaction has occurred, we may not know the impact of a potential reassessment for a considerable amount of time following a particular ~~transaction.~~transaction or construction of a new property. Therefore, the amount of property taxes we are required to pay could increase substantially from the property taxes we currently pay or have paid in the past, including on a retroactive basis. In addition, from time to time voters and lawmakers have announced initiatives to repeal or amend Proposition 13 to eliminate its application to commercial property and/or introduce split tax roll legislation. Such initiatives, if successful, would increase the assessed value and/or tax rates applicable to commercial property in California, including our properties. An increase in the assessed value of our properties or our property tax rates could adversely impact our financial condition, results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.

Unfavorable resolution of litigation matters and disputes could have a material adverse effect on our financial condition.From time to time, we are involved in legal proceedings, lawsuits and other claims. We may also be named as defendants in lawsuits allegedly arising out of our actions or the actions of our operators, ~~and~~vendors, contractors, tenants or other contractual parties in which such ~~operators and tenants~~parties have agreed to indemnify, defend and hold us harmless from and against various claims, litigation and liabilities arising in connection with their respective ~~businesses.~~businesses and/or added as an additional insured under certain insurance policies. An unfavorable resolution of ~~litigation~~any legal proceeding, lawsuit or other claim could have ana negative effect on our financial condition, results of operations, cash flow and the quoted trading price of our ~~securities, and our ability to satisfy our debt service obligations and our ability to pay dividends and distributions to our security holders.~~securities. Regardless of its outcome, ~~litigation~~legal proceedings, lawsuits and other claims may result in substantial costs and expenses and significantly divert the attention of our management. There can be no assurance that we will be able to prevail ~~in,~~ or achieve a favorable settlement or outcome. There can also be no assurance that our insurance or the insurance and/or any contractual indemnities of ~~litigation.~~our operators, vendors, contractors, tenants or other contractual parties will be enough to cover all of our defense costs or any resulting liabilities. In addition, litigation, government proceedings or environmental matters could lead to increased costs or interruption of our normal business operations.

Our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or internal control over financial reporting. The design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent all errors, misstatements or misrepresentations. While management will continue to review the effectiveness of our disclosure controls and procedures and internal control over financial reporting, there can be no guarantee that our internal control over financial reporting will be effective in accomplishing all control objectives all of the time. Deficiencies, including any material weakness, in our internal control over financial reporting that may occur in the future could result in misstatements of our results of operations, restatements of our financial statements, or otherwise adversely impact our financial condition, results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.

We face risks associated with security breaches through cyber attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology (IT) networks and related systems. We face risks associated with security breaches, whether through cyber attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization, and other significant disruptions of our IT networks and related systems. The risk of a security breach or disruption, particularly through cyber attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Our IT networks and related systems are essential to the operation of our business and our ability to perform day-to-day operations (including managing our building systems), and, in some cases, may be critical to the operations of certain of our tenants. There can be no assurance that our efforts to maintain the security and integrity of these types of IT networks and related systems will be effective or that attempted security breaches or

disruptions would not be successful or damaging. ~~A security breach~~Like other businesses, we have been and expect to continue to be subject to unauthorized access, mishandling or misuse, computer viruses or malware, cyber attacks and other events of varying degrees. Historically, these events have not adversely affected our operations or business and were not individually or in the aggregate material.

However, in the future, events such as these or other significant ~~disruption~~disruptions involving our IT networks and related systems could, among other things:

result in unauthorized access to, destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise valuable information of ours or others, including personally identifiable and account information that could be used to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes;

result in unauthorized access to or changes to our financial accounting and reporting systems and related data;

result in the theft of funds;

result in our inability to maintain building systems relied on by our tenants;

require significant management attention and resources to remedy any damage that ~~result;~~results;

subject us to regulatory penalties or claims for breach of contract, damages, credits, penalties or terminations of leases or other agreements; or

damage our reputation among our tenants and investors.

These events could have an adverse impact on our financial condition, results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.

An increase in interest rates could increase our interest costs on variable rate debt and new debt and could adversely affect our ability to refinance existing debt, conduct development, redevelopment and acquisition activity and recycle capital. As of December 31, ~~2016~~2019, we had an unsecured revolving credit facility and an unsecured term loan facility bearing interest at variable rates on any amounts drawn and outstanding. These facilities comprised approximately ~~8.1%~~11.0% of our total outstanding debt ~~was~~at December 31, 2019 and were subject to variable interest rates and therefore subject to interest rate risk. In addition, ~~we have an unsecured revolving credit facility bearing interest at a variable rate on all amounts drawn on the facility and~~ we may incur additional variable rate debt in the future. If interest rates increase, so could our interest costs for any variable rate debt and for new debt. This increased cost could make the financing of any development, redevelopment and acquisition activity costlier. Rising interest rates could also limit our ability to refinance existing debt when it matures or cause us to pay higher interest rates upon refinancing and increase interest expense on refinanced indebtedness. In addition, an increase in interest rates could decrease the amount third parties are willing to pay for our assets, thereby limiting our ability to recycle capital and our portfolio promptly in response to changes in economic or other conditions.

We manage a portion of our exposure to interest rate risk by accessing debt with staggered maturities, and we may in the future mitigate this risk through the use of derivative instruments, including interest rate swap agreements or

other interest rate hedging agreements, including swaps, caps and floors. While these agreements are intended to lessen the impact of rising interest rates on us, they also expose us to the risks that counter parties may fail to honor their obligations, that we could incur significant costs associated with the settlement of these agreements, that the amount of income we earn from hedging transactions may be limited by federal tax provisions governing REITs, that these agreements may cause us to pay higher interest rates on our debt obligations than would otherwise be the case and that underlying transactions could fail to qualify as highly-effective cash flow hedges under the accounting guidance. As a result, failure to hedge effectively against interest rate risk, if we choose to engage in such activities, could adversely affect our financial condition, results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.

The trading price of our common stock may fluctuate significantly. The trading price of our common stock may fluctuate significantly. BetweenJanuary 1, ~~2016~~ 2019andFebruary ~~13, 2017,~~7, 2020, the closing sale price of ~~KRC’s~~Company’s common stock on the New York Stock Exchange, or the NYSE, ranged from~~$47.38~~ a low of $61.44 to ~~$76.88~~a high of $85.25 per share. The trading price of our common stock may fluctuate in response to many factors, including:

actual or anticipated variations in our operating results, funds from operations, cash flows, liquidity or distributions;

our ability to successfully execute on our development ~~program;~~plans;

our ability to successfully complete acquisitions and operate acquired properties;

earthquakes;

changes in our earnings estimates or those of analysts;

publication of research reports about us, the real estate industry generally or the office and residential sectors in which we operate;

the failure to maintain our current credit ratings or comply with our debt covenants;

increases in market interest ~~rates that lead purchasers of our common stock to demand a higher dividend yield;~~rates;

changes in market valuations of similar companies;

adverse market reaction to any debt or equity securities we may issue or additional debt we incur in the future;

additions or departures of key management personnel;

actions by institutional ~~stockholders;~~investors;

speculation in the press or investment community;

high levels of volatility in the credit or equity markets;

general market and economic conditions; and

the realization of any of the other risk factors included in this report.

Many of the factors listed above are beyond our control. These factors may cause the trading price of our common stock to decline, regardless of our financial ~~performance and~~ condition, ~~and~~results of operations, business or prospects. ~~It is impossible to provide any assurance~~We cannot assure you that the trading price of our common stock or the amount of dividends we pay on our common stock will not decline in the future, and it may be difficult for ~~holders~~investors to resell shares of our common stock at prices they find attractive, or at all.

Changes in accounting pronouncements could adversely affect our operating results, in addition to the reported financial performance of our tenants. Uncertainties posed by various initiatives of accounting standard-setting by the Financial Accounting Standards Board (“FASB”) and the SEC, which establish and govern accounting standards for U.S. companies, may change the financial accounting and reporting standards or their interpretation and application of these standards that govern the preparation of our financial statements, including the adoption of the lease accounting standard.

Proposed and/or future changes in accounting standards could have a material impact on our reported financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in potentially material restatements of prior period financial statements. Similarly, these changes could have a material impact on our tenants’ reported financial condition or results of operations or could impact our tenants’ business decisions in leasing real estate.

We face risks associated with our tenants and contractual counterparties being designated “Prohibited Persons” by the Office of Foreign Assets Control. Pursuant to Executive Order 13224 and other laws, the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”) maintains a list of persons designated as terrorists or who are otherwise blocked or banned (“Prohibited Persons”). OFAC regulations and other laws prohibit conducting business or engaging in transactions with Prohibited Persons (the “OFAC Requirements”). Certain of our loan and other agreements require us to comply with OFAC Requirements. Our leases and other agreements, in general, require

the other party to comply with OFAC Requirements. If a tenant or other party with whom we contract is placed on the OFAC list, we may be required by the OFAC Requirements to terminate the lease or other agreement. Any such termination could result in a loss of revenue or a damage claim by the other party that the termination was wrongful.

The actual density of our undeveloped land holdings and/or any particular land parcel may not be consistent with our potential density estimates. As of December 31, ~~2016,~~2019, we estimate that our ~~seven potential~~five future development sites, representing approximately 5461 gross acres of undeveloped land, provide more than ~~4.8~~6.0 millionsquare feet of potential density. We caution you not to place undue reliance on the potential density estimates for our undeveloped land holdings and/or any particular land parcel because they are based solely on our estimates, using data currently available to us, and our business plans as of December 31, ~~2016.~~2019. The actual density of our undeveloped land holdings and/or any particular land parcel may differ substantially from our estimates based on numerous factors, including our inability to obtain necessary zoning, land use and other required entitlements, as well as building, occupancy and other required governmental permits and authorizations, and changes in the entitlement, permitting and authorization processes that restrict or delay our ability to develop, redevelop or use undeveloped land holdings at anticipated density levels. Moreover, we may strategically choose not to develop, redevelop or use our undeveloped land holdings to their maximum potential density or may be unable to do so as a result of factors beyond our control, including our ability to obtain capital on terms that are acceptable to us, or at all, to fund our development and redevelopment activities. We can provide no assurance that the actual density of our undeveloped land holdings and/or any particular land parcel will be consistent with our potential density estimates. For additional information on our development program, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Factors That May Influence Future Results of Operations.”

Loss of our key personnel could harm our operations and financial performance and adversely affect the quoted trading price of our securities. The leadership and performance of our executive and senior officers play a key role in the success of the Company. They are integral to the Company’s success for many reasons, including that each has a strong national or regional reputation in our industry and investment community. In addition, they have significant relationships with investors, lenders, tenants and industry personnel, which benefit the Company.

Risks Related to Our Organizational Structure

~~Loss of our key personnel could harm our operations and financial performance and adversely affect the quoted trading price of our securities.~~ The leadership and performance of our executive and senior officers play a key role in the success of the Company. They are integral to the Company’s success for many reasons, including that each has a strong national or regional reputation in our industry and investment community. In addition, they have significant relationships with investors, lenders, tenants and industry personnel, which benefit the Company.

Our growth depends on external sources of capital that are outside of our control and the inability to obtain capital on terms that are acceptable to us, or at all, could adversely affect our financial condition and results of operations. The Company is required under the Code to distribute at least 90% of its taxable income (subject to certain adjustments and excluding any net capital gain), and the Operating Partnership is required to make distributions to the Company to allow the Company to satisfy these REIT distribution requirements. Because of these distribution requirements, the Operating Partnership is required to make distributions to the Company, and we may not be able to fund future capital needs, including any necessary acquisition financing, from operating cash flow. Consequently, management relies on

third-party sources of capital to fund our capital needs. We may not be able to obtain financing on favorable terms or at all. Any additional debt we incur will increase our leverage. Access to third-party sources of capital depends, in part, on general market conditions and the availability of credit, the market’s perception of our growth potential, our current and expected future earnings, our cash flows and cash distributions and the quoted trading price of our securities. If we cannot obtain capital from third-party sources, our financial condition, results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders may be adversely affected.

Ourcommon limited partners have limited approval rights, which may prevent us from completing a change of control transaction that may be in the best interests of all our security holders. The Company may not withdraw as the Operating Partnership’s general partner or transfer its general partnership interest in the Operating Partnership without the approval of the holders of at least 60% of the units representing common limited partnership interests, including the common units held by the Company in its capacity as the Operating Partnership’s general partner. In addition, the Company may not engage in a merger, consolidation or other combination or the sale of substantially all of its assets or such similar transaction, without the approval of the holders of 60% of the common units, including the common units held by the Company in its capacity as the Operating Partnership’s general partner. The right of our common limited partners to vote on these transactions could limit our ability to complete a change of control transaction that might otherwise be in the best interest of all our security holders.

In certain circumstances, our limited partners must approve our dissolution and the disposition of properties contributed by the limited partners. For as long as limited partners own at least 5% of all of the Operating Partnership’s partnership interests, we must obtain the approval of limited partners holding a majority of the units representing common limited partnership interests before we may dissolve. As of December 31, ~~2016~~2019, limited partners owned approximately ~~2.5%~~1.9% of the Operating Partnership’s partnership interests, of which ~~0.8%~~0.7% was owned by John Kilroy. In addition, we agreed to use commercially reasonable efforts to minimize the tax consequences to certain common limited partners resulting from the repayment, refinancing, replacement, or restructuring of debt, or any sale, exchange, or other disposition of any of our other assets. The exercise of one or more of these approval rights by the limited partners could delay or prevent us from completing a transaction that may be in the best interest of all our security holders.

The Chairman of our board of directors and our President and Chief Executive Officer has substantial influence over our affairs.John Kilroy is the Chairman of our board of directors and our President and Chief Executive Officer. John Kilroy beneficially owned, as of December 31, ~~2016~~2019, approximately 1.5% of the total outstanding shares of our common stock. The percentage of outstanding shares of common stock beneficially owned includes ~~108,545~~274,256 shares of common stock, ~~482,450~~499,245 restricted stock units (“RSUs”) that were vested and held by John Kilroy at December 31, ~~2016,~~2019, and assumes the exchange into shares of our common stock of the 783,192 common units of the Operating Partnership held by John Kilroy (which may be exchanged for an equal number of shares of our common stock).

Pursuant to the Company’s charter, no stockholder may own, actually or constructively, more than 7.0% (by value or by number of shares, whichever is more restrictive) of our outstanding common stock without obtaining a waiver from the board of directors. The board of directors has waived the ownership limits with respect to John Kilroy, members of his family and some of their affiliated entities. These named individuals and entities may own either actually or constructively, in the aggregate, up to 19.6% of our common stock, excluding Operating Partnership units that are exchangeable into shares of our common stock. Consequently, John Kilroy has substantial influence over the Company, and because the Company is the manager of the Operating Partnership, over the Operating Partnership, and could exercise his influence in a manner that is not in the best interest of our stockholders, noteholders or unitholders. Also, John Kilroy may, in the future, have a substantial influence over the outcome of any matters submitted to our stockholders or unitholders for approval.

There are restrictions on the ownership of the Company’s capital stock that limit the opportunities for a change of control at a premium to existing security holders. Provisions of the Maryland General Corporation Law, the Company’s charter and bylaws and the Operating Partnership’s partnership agreement may delay, deter, or prevent a change of control of the Company, or the removal of existing management. Any of these actions might prevent our security holders from receiving a premium for their shares of common stock or common units over the then-prevailing market price of the shares of our common stock.

In order for the Company to qualify as a REIT under the Code, its stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other than the first year for which an election to be a REIT has been made) or during a proportionate part of a shorter taxable year. Also, not more than 50% of the value of the outstanding shares of the Company’s stock may be owned, actually or constructively, by five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year (other than the first year for which an election to be a REIT has been made). The Company’s charter contains restrictions on the ownership and transfer of its capital stock that are intended to assist the Company in complying with these requirements and continuing to qualify as a REIT. No single stockholder may own, either actually or constructively, absent a waiver from the board of directors, more than 7.0% (by value or by number of shares, whichever is more restrictive) of the Company’s outstanding common stock. Similarly, absent a waiver from the board of directors, no single holder of the Company’s 6.875% Series G Cumulative Redeemable Preferred stock (the “Series G Preferred Stock”) may actually or constructively own more than 9.8% (by value or by number of shares, whichever is more restrictive) of the Company’s Series G Preferred Stock; and no single holder of the Company’s 6.375% Series H Cumulative Redeemable Preferred stock (the “Series H Preferred Stock”) may actually or constructively own more than 9.8% (by value or by number of shares, whichever is more restrictive) of the Company’s Series H Preferred Stock.

The constructive ownership rules under the Code are complex and may cause stock owned actually or constructively by a group of related individuals and/or entities to be owned constructively by one individual or entity. As a result, the acquisition of less than the applicable ownership limit of a particular class of the Company’s capital stock could,

nevertheless, cause that individual or entity, or another individual or entity, to constructively own stock in excess of, and thereby subject such stock to, the applicable ownership limit.

The board of directors may waive the ownership limits if it is satisfied that the excess ownership would not jeopardize the Company’s REIT status and if it believes that the waiver would be in our best interest. The board of directors has waived the ownership limits with respect to John Kilroy, members of his family and some of their affiliated entities. These named individuals and entities may own either actually or constructively, in the aggregate, up to 19.6% of our outstanding common stock, excluding common units that are exchangeable into shares of common stock.

If anyone acquires shares in excess of any ownership limits without a waiver, the transfer to the transferee will be void with respect to the excess shares, the excess shares will be automatically transferred to a trust for the benefit of a qualified charitable organization, and the purported transferee or owner will have no rights with respect to those excess shares.

The Company’s charter contains provisions that may delay, deter or prevent a change of control transaction. The following provisions of the Company’s charter may delay or prevent a change of control over us, even if a change of control might be beneficial to our security holders, deter tender offers that may be beneficial to our security holders, or limit security holders’ opportunity to receive a potential premium for their shares and/or units if an investor attempted to gain shares beyond the Company’s ownership limits or otherwise to effect a change of control:

the Company’s charter authorizes the board of directors to issue up to 30,000,000 shares of the Company’s preferred stock, including convertible preferred stock, without stockholder approval. The board of directors may establish the preferences, rights and other terms, including the right to vote and the right to convert into common stock any shares issued. The issuance of preferred stock could delay or prevent a tender offer or a change of control even if a tender offer or a change of control was in our security holders’ interest. As of December 31, 2016, 8,000,000 shares of the Company’s preferred stock were issued and outstanding, consisting of 4,000,000 shares of the Company’s Series G Preferred Stock and 4,000,000 shares of the Company’s Series H Preferred Stock;interest; and

the Company’s charter states that any director, or the entire board of directors, may be removed from office at any time, but only for cause and then only by the affirmative vote of the holders of at least two thirds of the votes of the Company’s capital stock entitled to be cast in the election of directors.

The board of directors may change investment and financing policies without stockholder or unitholder approval. Our board of directors determines our major policies, including policies and guidelines relating to our acquisition, development and redevelopment activities, leverage, financing, growth, operations, indebtedness, capitalization and distributions to our security holders. Our board of directors may amend or revise these and other policies and guidelines from time to time without stockholder or unitholder approval. Accordingly, our stockholders and unitholders will have limited control over changes in our policies and those changes could adversely impact our financial condition, results of operations, cash flows, the quoted trading price of our securities, and our ability to satisfy our debt service obligations and to pay dividends and distributions to our security holders.

We are not limited in our ability to incur debt. Our financing policies and objectives are determined by the board of directors. Our goal is to limit our dependence on leverage and maintain a conservative ratio of debt to total market capitalization. However, our organizational documents do not limit the amount or percentage of indebtedness, funded

or otherwise, that we may incur. As of December 31, ~~2016,~~2019, we had approximately ~~$2.3~~$3.6 billion aggregate principal amount of indebtedness outstanding, which represented ~~24.5%~~28.3% of our total market capitalization. ~~Our total debt and the liquidation value of our preferred equity as a percentage of total market capitalization was approximately 26.5% as of December 31, 2016.~~ See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources of the Company —Capitalization” for a calculation of our market capitalization. These ratios may be increased or decreased without the consent of our unitholders or stockholders. Increases in the amount of debt outstanding would result in an increase in our debt service costs, which could adversely affect cash flow and our ability to pay dividends and distributions to our security holders. Higher leverage also increases the risk of default on our obligations and limits our ability to obtain additional financing in the future.

We may issue additional common units and shares of capital stock without unitholder or stockholder approval, as applicable, which may dilute unitholder or stockholder investment. The Company may issue shares of our common stock, preferred stock or other equity or debt securities without stockholder approval, including the issuance of shares to satisfy REIT dividend distribution requirements. Similarly, the Operating Partnership may offer its common or preferred units for contributions of cash or property without approval by our stockholders or the Operating Partnership’s unitholders. Existing security holders have no preemptive rights to acquire any of these securities, and any issuance of equity securities under these circumstances may dilute a unitholder's or stockholder's investment.

The market price of our common stock may be adversely affected by future offerings of debt and equity securities by us or the Operating Partnership. In the future, we may increase our capital resources by offering our debt securities and preferred stock, the Operating Partnership’s debt securities and equity securities and our or the Operating Partnership’s other borrowings. Upon our liquidation, dissolution or winding-up, holders of such debt securities, our preferred stock and Operating Partnership’s equity securities, and lenders with respect to other borrowings by us and the Operating Partnership, will be entitled to receive distributions of our available assets prior to the holders of our common stock and it is possible that, after making distributions on these other securities and borrowings, no assets would be available for distribution to holders of our common stock. In addition, the Operating Partnership’s debt and equity securities and borrowings are structurally senior to our common stock, our debt securities and borrowings are senior in right of payment to our common stock, and ~~our outstanding preferred stock has and~~ any preferred stock we may issue in the future may have a preference over our common stock, and all payments (including dividends, principal and interest) and liquidating distributions on such securities and borrowings could limit our ability to pay dividends or make other distributions to the holders of our common stock. Because any decision to issue securities and make borrowings in the future will depend on market conditions and other factors, some of which may be beyond our control, we cannot predict or estimate the amount, timing or nature of our or the Operating Partnership’s future offerings or borrowings. Such future offerings or borrowings may reduce the market price of our common stock.

Sales of a substantial number of shares of the Company’s securities, or the perception that this could occur, could result in decreasing the quoted trading price per share of the Company’s common stock and of the Operating Partnership’s publicly-traded notes. Management cannot predict whether future issuances of shares of the Company’s common stock, or the availability of shares for resale in the open market will result in decreasing the market price per share of the Company’s common stock. As of December 31, ~~2016, 93,219,439~~2019, 106,016,287shares of the Company’s common stock ~~and 8,000,000 shares of the Company’s preferred stock, consisting of 4,000,000 shares of Series G Preferred Stock and 4,000,000 shares of Series H Preferred Stock,~~ were issued and outstanding.

As of December 31, ~~2016,~~2019, the Company had reserved for future issuance the following shares of common stock: ~~2,381,543~~2,023,287 shares issuable upon the exchange, at the Company’s option, of the Operating Partnership’s common units; ~~1.3~~approximately 0.4 million shares remained available for grant under our 2006 Incentive Award Plan (see Note 15 ~~“Shared-Based~~“Share-Based Compensation” to our consolidated financial statements included in this report); ~~1,395,189~~approximately 1.6 million shares issuable upon settlement of time-based RSUs; ~~659,051~~a maximum of 1.6 million shares contingently issuable upon settlement of RSUs subject to the achievement of market and/or performance conditions; and ~~314,500~~9,000 shares issuable upon exercise of outstanding options. The Company has a currently effective registration statement registering ~~8,320,000~~9.2 million shares of our common stock for possible issuance under our 2006 Incentive Award Plan. The Company has a currently effective registration statement registering 1,649,760 shares of our common stock for possible issuance to and resale by certain holders of the Operating Partnership’s common units. That registration statement also registers 94,441 shares of common stock held by John Kilroy for possible resale. In addition, as of December 31, 2019, various forward equity sale agreements remain to be settled for 3,147,110 shares of common stock sold by financial institutions acting as forward purchasers. Consequently, if and when the shares are issued, they may be freely traded in the public markets. The Company has a currently effective registration statement registering a total of up to 9,236,100 shares of our common stock (subject to certain anti-dilution and other potential adjustments) issuable upon conversion of our Series G preferred stock and Series H preferred stock following a “Change of Control” (as defined in the terms of the Series G preferred stock and Series H preferred stock, respectively) of the Company, and, if and when issued, will generally be freely tradable in the public markets. Consequently, if and when the shares are issued or sold under these registration statements, they will be freely tradable in the public markets.

Risks Related to Taxes and the Company’s Status as a REIT

Loss of the Company’s REIT status would have significant adverse consequences to us and the value of the Company’s common stock. The Company currently operates in a manner that is intended to allow it to qualify as a REIT for federal income tax purposes under the Code. If the Company were to lose its REIT status, the Company would face adverse tax consequences that would substantially reduce the funds available for distribution to its stockholders for each of the years involved because:

the Company would not be allowed a deduction for dividends paid to its stockholders in computing the Company’s taxable income and would be subject to federal income tax at regular corporate rates;

the Company could be subject to ~~the federal alternative minimum tax and possibly~~ increased state and local taxes; and

unless entitled to relief under statutory provisions, the Company could not elect to be taxed as a REIT for four taxable years following the year during which the Company was disqualified.

In addition, if the Company failed to qualify as a REIT, it would not be required to make distributions to its stockholders. As a result of all these factors, the Company’s failure to qualify as a REIT also could impair our ability to expand our business and raise capital, and could adversely affect the value and quoted trading price of the Company’s common stock.

Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The complexity of these provisions and of the applicable Treasury regulations that have been promulgated under the Code is greater in the case of a REIT that, like the Company, holds its assets through a partnership. The determination of various factual matters and circumstances not entirely within our control may affect the Company’s ability to continue to qualify as a REIT. For example, to qualify as a REIT, at least 95% of the Company’s gross income in any year must be derived from qualifying sources. Also, the Company must make distributions to its stockholders aggregating annually at least 90% of the Company’s net taxable income (subject to certain adjustments and excluding any net capital gains). In addition, legislation, new regulations, administrative interpretations or court decisions may adversely affect the Company’s security holders or the Company’s ability to qualify as a REIT for federal income tax purposes or the desirability of an investment in a REIT relative to other investments. Although management believes that we are organized and operate in a manner to permit the Company to continue to qualify as a REIT, we cannot provide assurances that the Company has qualified or will continue to qualify as a REIT for tax purposes. We have not requested and do not plan to request a ruling from the Internal Revenue Service (“IRS”) regarding the Company’s qualification as a REIT.

To maintain the Company’s REIT status, we may be forced to borrow funds during unfavorable market conditions. To qualify as a REIT, the Company generally must distribute to its stockholders at least 90% of the Company’s net taxable income each year (subject to certain adjustments and excluding any net capital gains), and the Company will be subject to regular corporate income taxes to the extent that it distributes less than 100% of its net capital gains or distributes at least 90%, but less than 100%, of its net taxable income each year. In addition, the Company will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions it pays in any calendar year are less than the sum of 85% of its ordinary income, 95% of its net capital gains, and 100% of its undistributed income from prior years. To maintain the Company’s REIT status and avoid the payment of federal income and excise taxes, the Operating Partnership may need to borrow funds and distribute or loan the proceeds to the Company so it can meet the REIT distribution requirements even if the then-prevailing market conditions are not favorable for these borrowings. These borrowing needs could result from differences in timing between the actual receipt of income and inclusion of income for federal income tax purposes, or the effect of nondeductible capital expenditures, the creation of reserves or required debt or amortization payments.

If a transaction intended to qualify as a Section 1031 Exchange is later determined to be taxable or if we are unable to identify and complete the acquisition of a suitable replacement property to effect a Section 1031 Exchange, we may face adverse consequences, and if the laws applicable to such transactions are amended or repealed, we may not be able to dispose of properties on a tax deferred basis. When possible, we dispose of properties in transactions that are

intended to qualify as Section 1031 Exchanges. It is possible that the qualification of a transaction as a Section 1031 Exchange could be successfully challenged and determined to be currently taxable or that we may be unable to identify

and complete the acquisition of a suitable replacement property to effect a Section 1031 Exchange. In such case, our taxable income and earnings and profits would increase. This could increase the dividend income to our stockholders by reducing any return of capital they received. In some circumstances, we may be required to pay additional dividends or, in lieu of that, corporate income tax, possibly including interest and penalties. As a result, we may be required to borrow funds in order to pay additional dividends or taxes and the payment of such taxes could cause us to have less cash available to distribute to our stockholders. In addition, if a Section 1031 Exchange were later to be determined to be taxable, we may be required to amend our tax returns for the applicable year in question, including any information reports we sent our stockholders. Moreover, itunder the Tax Cuts and Jobs Act (the “2017 Tax Legislation”), for exchanges completed after December 31, 2017, unless the property was disposed of or received in the exchange on or before such date, Section 1031 of the Code permits exchanges of real property only.It is possible that additional legislation could be enacted that could further modify or repeal the laws with respect to Section 1031 Exchanges, which could make it more difficult or not possible for us to dispose of properties on a tax deferred basis.

Dividends payable by REITs, including us, generally do not qualify for the reduced tax rates available for some dividends. “Qualified dividends” payable to U.S. stockholders that are individuals, trusts and estates generally are subject to tax at preferential rates. Subject to limited exceptions, dividends payable by REITs are not eligible for these reduced rates and are taxable at ordinary income tax rates. The more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including the shares of our capital stock. However, non-corporate stockholders, including individuals, generally may deduct up to 20% of dividends from a REIT, other than capital gain dividends and dividends treated as qualified dividend income, for taxable years beginning after December 31, 2017 and before January 1, 2026.

The tax imposed on REITs engaging in “prohibited transactions” may limit our ability to engage in transactions which would be treated as sales for federal income tax purposes. A REIT’s net income from prohibited transactions is subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. Although we do not intend to hold any properties that would be characterized as held for sale to customers in the ordinary course of our business, unless a sale or disposition qualifies under certain statutory safe harbors, such characterization is a factual determination and no guarantee can be given that the IRS would agree with our characterization of our properties or that we will always be able to make use of the available safe harbors.

Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive investments. To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our capital stock. If we fail to comply with one or more of the asset tests at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. In order to meet these tests, we may be required to forego investments we might otherwise make or to liquidate otherwise attractive investments. Thus, compliance with the REIT requirements may hinder our performance and reduce amounts available for distribution to our stockholders.

Legislative or regulatory action could adversely affect our stockholders or us. In recent years, numerous legislative, judicial and administrative changes have been made to the federal income tax laws applicable to investments in REITs and similar entities. Additional changes to tax laws are likely to continue to occur in the future, and any such changes may adversely impact our ability to qualify as a REIT, our tax treatment as a REIT, our ability to comply with contractual obligations or the tax treatment of our stockholders and limited partners. Also, the law relating to the tax treatment of other entities, or an investment in other entities, could change, making an investment in such other entities more attractive relative to an investment in a REIT.

The 2017 Tax Legislation has significantly changed the U.S. federal income taxation of U.S. businesses and their owners, including REITs and their stockholders. Changes made by the 2017 Tax Legislation that could affect us and our stockholders include:

temporarily reducing individual U.S. federal income tax rates on ordinary income; the highest individual U.S. federal income tax rate has been reduced from 39.6% to 37% for taxable years beginning after December 31, 2017 and before January 1, 2026;

permanently eliminating the progressive corporate tax rate structure, which previously imposed a maximum corporate tax rate of 35%, and replacing it with a flat corporate tax rate of 21%;

permitting a deduction for certain pass-through business income, including dividends received by our stockholders from us that are not designated by us as capital gain dividends or qualified dividend income, which will allow individuals, trusts, and estates to deduct up to 20% of such amounts for taxable years beginning after December 31, 2017 and before January 1, 2026;

reducing the highest rate of withholding with respect to our distributions to non-U.S. stockholders that are treated as attributable to gains from the sale or exchange of U.S. real property interests from 35% to 21%;

limiting our deduction for net operating losses arising in taxable years beginning after December 31, 2017 to 80% of REIT taxable income determined without regard to the dividends paid deduction;

generally limiting the deduction for net business interest expense in excess of 30% of a business’ “adjusted taxable income,” except for taxpayers (including most equity REITs) that engage in certain real estate businesses and elect out of this rule (provided that such electing taxpayers must use an alternative depreciation system with longer depreciation periods);

eliminating the corporate alternative minimum tax, for taxable years after December 31, 2017;

requiring us to take into account certain income no later than when we take it into account on applicable financial statements, even if the financial statements take such income into account before it accrues under otherwise applicable Code rules; and

repealing the performance-based compensation exception to the $1 million deduction limit on executive compensation and expanding the scope of employees to whom the limit applies.

The legislation is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the U.S. Treasury Department and IRS, any of which could lessen or increase the impact of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities. While some of the changes made by the tax legislation may adversely affect us in one or more reporting periods and prospectively, other changes may be beneficial on a going forward basis.


ITEM 1B.	UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

General

Our stabilized portfolio of operating properties was comprised of the following properties at December 31, ~~2016~~:2019:

Number of
Buildings

Rentable
Square Feet

Number of
Tenants

Percentage
Occupied
Percentage Leased
Stabilized Office Properties 108
14,025,856
549
96.0 % 97.0 %



	Number of Buildings	Rentable Square Feet	Number of Tenants	Percentage Occupied		Percentage Leased
Stabilized Office Properties	112	13,475,795	451	94.6	%	97.0	%

Number of
Buildings Number of Units
Percentage
Occupied
Percentage Leased
Stabilized Residential Property 1
200
46.0 % 56.5 %



	Number of Buildings	Number of Units	2018 Average Occupancy
Stabilized Residential Property	1	200	82.4	%

Our stabilized portfolio includes all of our properties with the exception of development and redevelopment properties currently committed for construction, under construction or ~~committed for construction, “lease-up”~~in the tenant improvement phase, undeveloped land, recently completed residential properties not yet stabilized and real estate assets held for ~~sale and undeveloped land.~~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 ~~“lease-up”~~ properties in the tenant improvement phase as office and retail properties that we ~~recently developed~~are developing or ~~redeveloped that have not yet~~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 ~~and are within~~or one year ~~following~~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.

2019.



	Number of Properties/Projects	Estimated Rentable Square Feet ⁽¹⁾ / Units
In-process development projects - tenant improvement⁽²⁾	2	846,000
In-process development projects - under construction ⁽³⁾	6	2,291,000
Completed residential development project ⁽⁴⁾	1	237 units

~~_______________~~________________________


(1)	~~See Note 4 “Dispositions and Real Estate Assets Held for Sale” to our consolidated financial statements included in this report for additional information.~~Estimated rentable square feet upon completion.


(2)	~~Estimated rentable~~Includes 96,000 square feet ~~upon completion. See “Item 7. Management’s Discussion and Analysis~~ of ~~Financial Condition and Results of Operations —Factors That May Influence Future Results of Operations —Completed, In-Process and Future Development Pipeline” for more information.~~retail space.


(3)	~~Development~~In addition to the estimated office and life science rentable square feet noted above, development projects under construction also include ~~96,000 square feet of retail space and 237~~564 residential units.


(4)	Represents recently completed residential units ~~in addition to the estimated office rentable square feet noted above.~~not yet stabilized.

California through subsidiary REITs (see Note 11 “Noncontrolling Interests on the Company’s Consolidated Financial Statements” and Note 12 “Noncontrolling Interests on the Operating Partnership’s Consolidated Financial Statements” to our consolidated financial statements included in this report for additional information). The third property partnership, Redwood City Partners, LLC (“Redwood LLC”) owned two office properties in Redwood City, California.

We own our interests in all of our real estate assets through the Operating Partnership and the Finance Partnership. All our properties are held in fee, except for the ~~thirteen~~fourteen office buildings that are held subject to five long-term ground

leases for the land (see Note 18 “Commitments and Contingencies” to our consolidated financial statements included in this report for additional information regarding our ground lease obligations).

In general, the office properties are leased to tenants on a full service gross, modified gross or triple net basis. Under a full service gross lease, we are obligated to pay the tenant’s proportionate share of real estate taxes, insurance and operating expenses up to the amount incurred during the tenant’s first year of occupancy (“Base Year”) or a negotiated amount approximating the tenant’s pro-rata share of real estate taxes, insurance and operating expenses (“Expense Stop”). The tenant pays its pro-rata share of increases in expenses above the Base Year or Expense Stop. A modified gross lease is similar to a full service gross lease, except tenants are obligated to pay their proportionate share of certain operating expenses, usually electricity, directly to the service provider. In addition, some office properties, primarily in the greater Seattle region and certain properties in certain submarkets in San Francisco, are leased to tenants on a triple net basis, pursuant to which the tenants pay their proportionate share of real estate taxes, operating costs and utility costs.

We believe that all of our properties are well maintained and do not require significant capital improvements. As of December 31, ~~2016~~2019, we managed all of our office properties through internal property managers.

Office Properties

The following table sets forth certain information relating to each of the stabilized office properties owned as of December 31, ~~2016.~~2019.


Property Location		No. of Buildings	Year Built/ Renovated	Rentable Square Feet	Percentage Occupied at 12/31/2016 ⁽¹⁾		Annualized Base Rent (in $000’s) ⁽²⁾		Annualized Rent Per Square Foot ⁽²⁾			No. of Buildings	Year Built/ Renovated	Rentable Square Feet	Percentage Occupied at 12/31/2019 ⁽¹⁾		Annualized Base Rent (in $000’s) ⁽²⁾	Annualized Rent Per Square Foot ⁽²⁾
Los Angeles and Ventura Counties
23925 Park Sorrento, Calabasas, California	⁽³⁾	1	2001	11,789	100.0	%	$	421	$	35.72
23975 Park Sorrento, Calabasas, California	⁽³⁾	1	2002	104,797	100.0	%	3,675		35.99
24025 Park Sorrento, Calabasas, California	⁽³⁾	1	2000	108,670	97.4	%	3,818		36.08
2829 Townsgate Road, Thousand Oaks, California	⁽³⁾	1	1990	84,098	100.0	%	2,351		27.95
Greater Los Angeles											Greater Los Angeles
3101-3243 La Cienega Boulevard Culver City, California											⁽³⁾	19	2008-2017	151,908	100.0	%	6,853	45.11
2240 E. Imperial Highway, El Segundo, California	⁽⁴⁾	1	1983/ 2008	122,870	100.0	%	3,950		32.15		⁽⁴⁾	1	1983/ 2008	122,870	100.0	%	3,950	32.15
2250 E. Imperial Highway, El Segundo, California	⁽⁷⁾	1	1983	298,728	100.0	%	9,523		32.01		⁽⁵⁾	1	1983	298,728	100.0	%	10,206	34.31
2260 E. Imperial Highway, El Segundo, California	⁽⁴⁾	1	1983/ 2012	298,728	100.0	%	10,510		35.18		⁽⁴⁾	1	1983/ 2012	298,728	100.0	%	10,510	35.18
909 Sepulveda Blvd., El Segundo, California	⁽³⁾	1	1972/ 2005	244,136	93.8	%	6,325		29.10
999 Sepulveda Blvd., El Segundo, California	⁽³⁾	1	1962/ 2003	128,588	95.4	%	3,133		26.58
909 N. Pacific Coast Highway, El Segundo, California											⁽⁶⁾	1	1972/ 2005	244,136	92.9	%	8,414	37.56
999 N. Pacific Coast Highway, El Segundo, California											⁽⁷⁾	1	1962/ 2003	128,588	93.4	%	3,967	34.37
6115 W. Sunset Blvd., Los Angeles, California	⁽⁵⁾	1	1938/ 2015	26,105	98.4	%	1,566		60.97		⁽⁸⁾	1	1938/ 2015	26,105	100.0	%	1,665	63.78
6121 W. Sunset Blvd., Los Angeles, California	⁽⁵⁾	1	1938/ 2015	91,173	100.0	%	4,133		45.33		⁽³⁾	1	1938/ 2015	91,173	100.0	%	4,612	50.59
1525 N. Gower St., Los Angeles, California											⁽⁴⁾	1	2016	9,610	100.0	%	652	67.88
1575 N. Gower St., Los Angeles, California											⁽⁹⁾	1	2016	251,245	100.0	%	16,170	64.36
1500 N. El Centro Ave., Los Angeles, California											⁽¹⁰⁾	1	2016	104,504	100.0	%	7,104	67.98
6255 Sunset Blvd, Los Angeles, California	⁽⁸⁾	1	1971/ 1999	323,922	99.6	%	12,466		39.99		⁽¹¹⁾	1	1971/ 1999	323,920	96.8	%	14,078	46.27
3750 Kilroy Airport Way, Long Beach, California	⁽³⁾	1	1989	10,457	86.1	%	109		19.95		⁽¹²⁾	1	1989	10,457	100.0	%	92	30.42
3760 Kilroy Airport Way, Long Beach, California											⁽¹⁰⁾	1	1989	165,278	92.5	%	4,876	31.89
3780 Kilroy Airport Way, Long Beach, California											⁽¹⁰⁾	1	1989	221,452	81.5	%	5,708	32.35
3800 Kilroy Airport Way, Long Beach, California											⁽¹⁰⁾	1	2000	192,476	100.0	%	6,202	32.22
3840 Kilroy Airport Way, Long Beach, California											⁽¹⁰⁾	1	1999	136,026	100.0	%	4,882	35.89


Property Location		No. of Buildings	Year Built/ Renovated	Rentable Square Feet	Percentage Occupied at 12/31/2016 ⁽¹⁾		Annualized Base Rent (in $000’s) ⁽²⁾		Annualized Rent Per Square Foot ⁽²⁾			No. of Buildings	Year Built/ Renovated	Rentable Square Feet	Percentage Occupied at 12/31/2019 ⁽¹⁾		Annualized Base Rent (in $000’s) ⁽²⁾		Annualized Rent Per Square Foot ⁽²⁾
3760 Kilroy Airport Way, Long Beach, California	⁽³⁾	1	1989	165,278	100.0	%	5,142		31.11
3780 Kilroy Airport Way, Long Beach, California	⁽³⁾	1	1989	219,745	82.0	%	5,068		28.79
3800 Kilroy Airport Way, Long Beach, California	⁽³⁾	1	2000	192,476	85.8	%	5,234		31.70
3840 Kilroy Airport Way, Long Beach, California	⁽³⁾	1	1999	136,026	100.0	%	4,915		36.13
3880 Kilroy Airport Way, Long Beach, California	⁽⁹⁾	1	1987/ 2013	96,035	100.0	%	2,839		29.56		⁽¹³⁾	1	1987/ 2013	96,035	100.0	%	2,839		29.56
3900 Kilroy Airport Way, Long Beach, California	⁽³⁾	1	1987	129,893	96.1	%	2,996		24.05		⁽¹⁰⁾	1	1987	129,893	91.4	%	3,159		26.65
8560 West Sunset Blvd, West Hollywood, California	⁽³⁾	1	1963/ 2007	71,875	83.9	%	4,222		70.01		⁽¹⁰⁾	1	1963/ 2007	71,875	100.0	%	5,187		72.79
8570 West Sunset Blvd, West Hollywood, California	⁽³⁾	1	2002/ 2007	43,603	78.8	%	1,835		53.42		⁽¹⁴⁾	1	2002/ 2007	43,603	98.1	%	3,610		84.39
8580 West Sunset Blvd, West Hollywood, California	⁽⁵⁾	1	2002/ 2007	7,126	100.0	%	—		—		⁽³⁾	1	2002/ 2007	7,126	100.0	%	—		—
8590 West Sunset Blvd, West Hollywood, California	⁽¹⁰⁾	1	2002/ 2007	56,095	97.3	%	1,901		34.83		⁽³⁾	1	2002/ 2007	56,095	86.8	%	1,492		32.46
12100 W. Olympic Blvd., Los Angeles, California	⁽³⁾	1	2003	152,048	100.0	%	7,204		47.38		⁽¹⁰⁾	1	2003	152,048	87.8	%	8,115		60.78
12200 W. Olympic Blvd., Los Angeles, California	⁽³⁾	1	2000	150,832	94.6	%	4,290		39.67		⁽¹⁰⁾	1	2000	150,832	89.5	%	6,843		68.14
12233 W. Olympic Blvd., Los Angeles, California	⁽¹¹⁾	1	1980/ 2011	151,029	88.2	%	3,757		50.51		⁽¹⁵⁾	1	1980/ 2011	151,029	86.9	%	4,541		60.40
12312 W. Olympic Blvd., Los Angeles, California	⁽⁶⁾	1	1950/ 1997	76,644	100.0	%	4,096		53.44		⁽¹⁶⁾	1	1950/ 1997	76,644	100.0	%	4,096		53.44
1633 26th Street, Santa Monica, California	⁽⁴⁾	1	1972/ 1997	44,915	100.0	%	1,270		28.28		⁽¹⁰⁾	1	1972/ 1997	43,857	34.9	%	819		53.47
2100/2110 Colorado Avenue, Santa Monica, California	⁽³⁾	3	1992/ 2009	102,864	100.0	%	4,357		42.36		⁽¹⁰⁾	3	1992/ 2009	102,864	100.0	%	4,357		42.36
3130 Wilshire Blvd., Santa Monica, California	⁽³⁾	1	1969/ 1998	88,340	68.7	%	2,146		35.34		⁽¹⁰⁾	1	1969/ 1998	90,074	100.0	%	4,091		45.42
501 Santa Monica Blvd., Santa Monica, California	⁽³⁾	1	1974	73,212	77.2	%	2,802		59.57		⁽¹⁷⁾	1	1974	76,803	97.8	%	4,956		65.95
Subtotal/Weighted Average – Los Angeles and Ventura Counties		33		3,812,097	95.0	%	$	126,054	$	36.24		51		4,025,982	95.2	%	$	164,046	$	44.23
Orange County
2211 Michelson, Irvine, California	⁽³⁾	1	2007	271,556	97.8	%	$	9,982	$	38.07
Subtotal/Weighted Average – Orange County		1		271,556	97.8	%	$	9,982	$	38.07
San Diego County
12225 El Camino Real, Del Mar, California	⁽⁴⁾	1	1998	58,401	100.0	%	$	1,965	$	33.64	⁽⁴⁾	1	1998	58,401	100.0	%	$	2,483	$	42.52
12235 El Camino Real, Del Mar, California	⁽⁴⁾	1	1998	53,751	100.0	%	2,470		45.96		⁽⁴⁾	1	1998	53,751	88.9	%	2,225		46.57
12340 El Camino Real, Del Mar, California	⁽¹²⁾	1	2002	87,774	100.0	%	3,501		43.62		⁽¹⁸⁾	1	2002	89,272	50.1	%	1,615		36.11
12348 High Bluff Drive, Del Mar, California											⁽¹⁹⁾	1	1999	38,806	80.8	%	1,298		41.36
12390 El Camino Real, Del Mar, California	⁽⁴⁾	1	2000	72,332	100.0	%	3,069		42.44		⁽⁴⁾	1	2000	70,140	100.0	%	3,318		47.31
12400 High Bluff Drive, Del Mar, California											⁽⁴⁾	1	2004	209,220	100.0	%	10,671		51.00
12770 El Camino Real, Del Mar, California	⁽¹³⁾	1	2016	73,032	—	%	—		—		⁽²⁰⁾	1	2016	73,032	66.1	%	2,222		56.96
12348 High Bluff Drive, Del Mar, California	⁽³⁾	1	1999	38,806	100.0	%	916		31.37
12400 High Bluff Drive, Del Mar, California	⁽⁴⁾	1	2004	209,220	100.0	%	10,671		51.00
12780 El Camino Real, Del Mar, California											⁽¹⁶⁾	1	2013	140,591	100.0	%	7,138		50.77
12790 El Camino Real, Del Mar, California											⁽²¹⁾	1	2013	78,836	71.2	%	2,446		43.58
3579 Valley Centre Drive, Del Mar, California	⁽⁴⁾	1	1999	52,418	100.0	%	2,040		38.91		⁽⁴⁾	1	1999	54,960	100.0	%	2,182		39.70
3611 Valley Centre Drive, Del Mar, California	⁽⁴⁾	1	2000	130,047	100.0	%	5,451		41.92		⁽²²⁾	1	2000	129,656	100.0	%	5,078		39.17
3661 Valley Centre Drive, Del Mar, California											⁽²³⁾	1	2001	128,364	100.0	%	6,025		49.60
3721 Valley Centre Drive, Del Mar, California											⁽²⁴⁾	1	2003	115,193	100.0	%	5,310		46.09
3811 Valley Centre Drive, Del Mar, California											⁽¹⁶⁾	1	2000	112,067	100.0	%	5,199		46.39
13280 Evening Creek Drive South, I-15 Corridor, California											⁽²⁵⁾	1	2008	41,196	100.0	%	1,196		29.04
13290 Evening Creek Drive South, I-15 Corridor, California											⁽⁴⁾	1	2008	61,180	100.0	%	1,453		23.75

Property Location
No. of
Buildings

Year Built/
Renovated

Rentable
Square Feet

Percentage
Occupied at
12/31/2016 ⁽¹⁾

Annualized
Base Rent
(in $000’s) ⁽²⁾

Annualized Rent Per Square Foot ⁽²⁾
3661 Valley Centre Drive,
Del Mar, California
⁽¹⁴⁾
1 2001 128,330
92.5 % 3,561
36.12
3721 Valley Centre Drive,
Del Mar, California
⁽¹⁵⁾
1 2003 115,193
100.0 % 5,309
46.09
3811 Valley Centre Drive,
Del Mar, California
⁽⁶⁾
1 2000 112,067
100.0 % 5,199
46.39
12780 El Camino Real,
Del Mar, California
⁽⁶⁾
1 2013 140,591
100.0 % 6,366
45.28
12790 El Camino Real,
Del Mar, California
⁽⁴⁾
1 2013 78,836
100.0 % 3,275
41.55
13280 Evening Creek Drive South,
I-15 Corridor, California
⁽³⁾
1 2008 41,196
100.0 % 1,078
26.17
13290 Evening Creek Drive South,
I-15 Corridor, California
⁽⁴⁾
1 2008 61,180
100.0 % 1,453
23.75
13480 Evening Creek Drive North,
I-15 Corridor, California
⁽⁴⁾
1 2008 149,817
100.0 % 7,779
51.92
13500 Evening Creek Drive North,
I-15 Corridor, California
⁽⁴⁾
1 2004 147,533
100.0 % 6,286
42.61
13520 Evening Creek Drive North,
I-15 Corridor, California
⁽¹⁶⁾
1 2004 141,128
96.4 % 4,914
36.93
2355 Northside Drive,
Mission Valley, California
⁽³⁾
1 1990 53,610
67.0 % 941
27.36
2365 Northside Drive,
Mission Valley, California
⁽³⁾
1 1990 96,437
83.0 % 2,552
31.88
2375 Northside Drive,
Mission Valley, California
⁽¹⁷⁾
1 1990 51,516
89.4 % 1,380
29.98
2385 Northside Drive,
Mission Valley, California
⁽³⁾
1 2008 89,023
95.7 % 2,682
31.49
2305 Historic Decatur Road,
Point Loma, California
⁽¹⁸⁾
1 2009 103,900
100.0 % 3,694
35.55
10390 Pacific Center Court,
Sorrento Mesa, California
⁽⁶⁾
1 2002 68,400
100.0 % 2,449
35.81
10394 Pacific Center Court,
Sorrento Mesa, California
⁽⁵⁾
1 1995 59,327
100.0 % 1,424
24.00
10398 Pacific Center Court,
Sorrento Mesa, California
⁽⁶⁾
1 1995 43,645
100.0 % 698
15.99
10421 Pacific Center Court,
Sorrento Mesa, California
⁽⁶⁾
1 1995/ 2002 75,899
100.0 % 1,186
15.62
10445 Pacific Center Court,
Sorrento Mesa, California
⁽⁶⁾
1 1995 48,709
100.0 % 936
19.22
10455 Pacific Center Court,
Sorrento Mesa, California
⁽⁵⁾
1 1995 88,577
45.8 % 1,020
25.13
4690 Executive Drive,
UTC, California
⁽³⁾
1 1999 47,846
89.3 % 1,334
31.21
Subtotal/Weighted Average –
San Diego County
31 2,718,541
93.2 % $ 95,599
$ 38.35
San Francisco
4100 Bohannon Drive,
Menlo Park, California
⁽⁵⁾
1 1985 47,379
100.0 % $ 1,719
$ 36.27
4200 Bohannon Drive,
Menlo Park, California
⁽⁵⁾
1 1987 45,451
100.0 % 1,834
40.34
4300 Bohannon Drive,
Menlo Park, California
⁽⁵⁾
1 1988 63,079
100.0 % 2,920
46.30
4400 Bohannon Drive,
Menlo Park, California
⁽⁵⁾
1 1988 48,146
100.0 % 1,593
35.27
4500 Bohannon Drive,
Menlo Park, California
⁽⁵⁾
1 1990 63,078
100.0 % 2,041
32.35
4600 Bohannon Drive,
Menlo Park, California
⁽¹⁹⁾
1 1990 48,147
100.0 % 2,681
55.69
4700 Bohannon Drive,
Menlo Park, California
⁽⁵⁾
1 1989 63,078
100.0 % 2,275
36.07
1290-1300 Terra Bella Avenue,
Mountain View, California
⁽⁵⁾
1 1961 114,175
100.0 % 3,841
33.64



Property Location		No. of Buildings	Year Built/ Renovated	Rentable Square Feet	Percentage Occupied at 12/31/2019 ⁽¹⁾		Annualized Base Rent (in $000’s) ⁽²⁾		Annualized Rent Per Square Foot ⁽²⁾
13480 Evening Creek Drive North, I-15 Corridor, California	⁽⁴⁾	1	2008	154,157	100.0	%	5,201		33.74
13500 Evening Creek Drive North, I-15 Corridor, California	⁽²⁶⁾	1	2004	137,658	43.0	%	2,261		38.23
13520 Evening Creek Drive North, I-15 Corridor, California	⁽²⁷⁾	1	2004	146,701	84.4	%	4,391		36.35
2305 Historic Decatur Road, Point Loma, California	⁽²⁸⁾	1	2009	107,456	100.0	%	3,984		37.08
4690 Executive Drive, UTC, California	⁽¹⁰⁾	1	1999	47,846	91.4	%	1,424		32.58
Subtotal/Weighted Average – San Diego County		21		2,048,483	89.7	%	$	77,120	$	42.41
San Francisco Bay Area
4100 Bohannon Drive, Menlo Park, California	⁽³⁾	1	1985	47,379	100.0	%	$	2,640	$	55.72
4200 Bohannon Drive, Menlo Park, California	⁽³⁾	1	1987	45,451	70.8	%	1,751		54.41
4300 Bohannon Drive, Menlo Park, California	⁽³⁾	1	1988	63,079	48.8	%	1,765		57.35
4400 Bohannon Drive, Menlo Park, California	⁽³⁾	1	1988	48,146	93.3	%	1,567		37.38
4500 Bohannon Drive, Menlo Park, California	⁽³⁾	1	1990	63,078	100.0	%	3,580		56.76
4600 Bohannon Drive, Menlo Park, California	⁽³⁾	1	1990	48,147	100.0	%	2,741		56.92
4700 Bohannon Drive, Menlo Park, California	⁽³⁾	1	1989	63,078	100.0	%	3,513		55.70
1290-1300 Terra Bella Avenue, Mountain View, California	⁽³⁾	1	1961	114,175	100.0	%	5,345		46.80
331 Fairchild Drive, Mountain View, California	⁽¹⁶⁾	1	2013	87,147	100.0	%	4,185		48.03
680 E. Middlefield Road, Mountain View, California	⁽¹⁶⁾	1	2014	170,090	100.0	%	7,729		45.44
690 E. Middlefield Road, Mountain View, California	⁽¹⁶⁾	1	2014	170,823	100.0	%	7,763		45.44
1701 Page Mill Road, Palo Alto, California	⁽³⁾	1	2015	128,688	100.0	%	8,461		65.75
3150 Porter Drive, Palo Alto, California	⁽³⁾	1	1998	36,897	100.0	%	2,051		55.59
900 Jefferson Avenue, Redwood City, California	⁽³⁾	1	2015	228,505	100.0	%	13,670		59.82
900 Middlefield Road, Redwood City, California	⁽³⁾	1	2015	118,764	100.0	%	6,983		59.05
100 Hooper Street, San Francisco, California	⁽³⁾	1	2018	394,340	87.6	%	22,386		64.83
100 First Street, San Francisco, California	⁽²⁹⁾	1	1988	467,095	97.5	%	30,153		69.13
201 Third Street, San Francisco, California	⁽³⁰⁾	1	1983	346,538	99.2	%	23,142		68.24
250 Brannan Street, San Francisco, California	⁽⁴⁾	1	1907/ 2001	100,850	100.0	%	10,323		102.36
301 Brannan Street, San Francisco, California	⁽⁴⁾	1	1909/ 1989	82,834	100.0	%	7,580		91.51
303 Second Street, San Francisco, California	⁽³¹⁾	1	1988	784,658	78.8	%	46,549		75.61
333 Brannan Street, San Francisco, California	⁽³²⁾	1	2016	185,602	100.0	%	18,138		97.73
345 Brannan Street, San Francisco, California	⁽⁴⁾	1	2015	110,050	99.7	%	10,815		98.55
350 Mission Street, San Francisco, California	⁽³⁾	1	2016	455,340	99.7	%	24,076		53.09
360 Third Street, San Francisco, California	⁽⁴⁾	1	2013	429,796	100.0	%	30,687		71.82

Property Location
No. of
Buildings

Year Built/
Renovated

Rentable
Square Feet

Percentage
Occupied at
12/31/2016 ⁽¹⁾

Annualized
Base Rent
(in $000’s) ⁽²⁾

Annualized Rent Per Square Foot ⁽²⁾
331 Fairchild Drive,
Mountain View, California
⁽⁶⁾
1 2013 87,147
100.0 % 4,186
48.03
680 E. Middlefield Road,
Mountain View, California
⁽⁶⁾
1 2014 170,090
100.0 % 7,729
45.44
690 E. Middlefield Road,
Mountain View, California
⁽⁶⁾
1 2014 170,823
100.0 % 7,763
45.44
1701 Page Mill Road,
Palo Alto, California
⁽⁵⁾
1 2015 128,688
100.0 % 8,461
65.75
3150 Porter Drive,
Palo Alto, California
⁽⁶⁾
1 1998 36,897
100.0 % 2,051
55.59
900 Jefferson Avenue,
Redwood City, California
⁽⁵⁾
1 2015 228,505
100.0 % 13,670
59.82
900 Middlefield Road,
Redwood City, California
⁽⁵⁾
1 2015 118,764
97.3 % 6,835
59.38
303 Second Street,
San Francisco, California
⁽²⁰⁾
1 1988 740,047
95.2 % 36,952
52.67
100 First Street,
San Francisco, California
⁽²¹⁾
1 1988 467,095
91.3 % 21,648
53.21
250 Brannan Street,
San Francisco, California
⁽⁴⁾
1 1907/ 2001 95,008
100.0 % 5,413
56.98
201 Third Street,
San Francisco, California
⁽²²⁾
1 1983 346,538
90.4 % 17,202
55.81
301 Brannan Street,
San Francisco, California
⁽⁴⁾
1 1909/ 1989 74,430
100.0 % 4,092
54.98
360 Third Street,
San Francisco, California
⁽²³⁾
1 2013 429,796
100.0 % 21,594
50.35
333 Brannan Street,
San Francisco, California
⁽⁴⁾
1 2016 185,602
98.1 % 14,827
81.44
350 Mission Street,
San Francisco, California
⁽⁵⁾
1 2016 455,340
98.0 % 23,450
52.78
1310 Chesapeake Terrace,
Sunnyvale, California
⁽⁵⁾
1 1989 76,244
100.0 % 2,369
31.08
1315 Chesapeake Terrace,
Sunnyvale, California
⁽⁵⁾
1 1989 55,635
100.0 % 1,424
25.60
1320-1324 Chesapeake Terrace,
Sunnyvale, California
⁽⁵⁾
1 1989 79,720
100.0 % 2,421
30.36
1325-1327 Chesapeake Terrace,
Sunnyvale, California
⁽⁵⁾
1 1989 55,383
100.0 % 1,234
22.29
505 N. Mathilda Avenue,
Sunnyvale, California
⁽⁵⁾
1 2014 212,322
100.0 % 9,449
44.50
555 N. Mathilda Avenue,
Sunnyvale, California
⁽⁵⁾
1 2014 212,322
100.0 % 9,449
44.50
605 N. Mathilda Avenue,
Sunnyvale, California
⁽⁵⁾
1 2014 162,785
100.0 % 7,245
44.50
599 N. Mathilda Avenue,
Sunnyvale, California
⁽⁵⁾
1 2000 75,810
100.0 % 2,203
29.04
Subtotal/Weighted Average –
San Francisco
31 5,157,524
97.6 % $ 250,571
$ 50.13
Greater Seattle
601 108th Avenue NE,
Bellevue, Washington
⁽²⁴⁾
1 2000 488,470
99.6 % $ 17,222
$ 35.77
10900 NE 4th Street,
Bellevue, Washington
⁽³⁾
1 1983 416,755
95.4 % 14,375
36.29
10210 NE Points Drive,
Kirkland, Washington
⁽⁵⁾
1 1988 84,641
100.0 % 2,146
25.36
10220 NE Points Drive,
Kirkland, Washington
⁽⁵⁾
1 1987 49,851
100.0 % 1,291
26.14
10230 NE Points Drive,
Kirkland, Washington
⁽⁵⁾
1 1990 98,982
100.0 % 2,783
28.54
3933 Lake Washington Blvd NE,
Kirkland, Washington
⁽⁵⁾
1 1993 46,450
81.7 % 1,043
27.48
837 N. 34th Street,
Lake Union, Washington
⁽⁵⁾
1 2008 111,580
76.2 % 2,748
32.34


Property Location		No. of Buildings	Year Built/ Renovated	Rentable Square Feet	Percentage Occupied at 12/31/2016 ⁽¹⁾		Annualized Base Rent (in $000’s) ⁽²⁾		Annualized Rent Per Square Foot ⁽²⁾			No. of Buildings	Year Built/ Renovated	Rentable Square Feet	Percentage Occupied at 12/31/2019 ⁽¹⁾		Annualized Base Rent (in $000’s) ⁽²⁾		Annualized Rent Per Square Foot ⁽²⁾
345 Oyster Point Boulevard, South San Francisco, California											⁽³⁾	1	2001	40,410	100.0	%	2,192		54.24
347 Oyster Point Boulevard, South San Francisco, California											⁽³⁾	1	1998	39,780	100.0	%	2,158		54.24
349 Oyster Point Boulevard, South San Francisco, California											⁽³⁾	1	1999	65,340	100.0	%	3,371		51.60
505 N. Mathilda Avenue, Sunnyvale, California											⁽³⁾	1	2014	212,322	100.0	%	9,449		44.50
555 N. Mathilda Avenue, Sunnyvale, California											⁽³⁾	1	2014	212,322	100.0	%	9,449		44.50
599 N. Mathilda Avenue, Sunnyvale, California											⁽³⁾	1	2000	76,031	100.0	%	3,610		47.48
605 N. Mathilda Avenue, Sunnyvale, California											⁽³⁾	1	2014	162,785	100.0	%	7,244		44.50
Subtotal/Weighted Average – San Francisco												32		5,599,540	95.0	%	$	335,066	$	63.39
Greater Seattle
601 108th Avenue NE, Bellevue, Washington											⁽³³⁾	1	2000	488,470	97.1	%	$	17,779	$	37.90
10900 NE 4th Street, Bellevue, Washington											⁽³⁴⁾	1	1983	428,557	96.7	%	14,937		36.18
837 N. 34th Street, Lake Union, Washington											⁽³⁾	1	2008	112,487	91.8	%	3,655		35.40
701 N. 34th Street, Lake Union, Washington	⁽⁵⁾	1	1998	138,994	98.7	%	4,654		33.92		⁽³⁾	1	1998	141,860	97.5	%	5,130		37.08
801 N. 34th Street, Lake Union, Washington	⁽⁶⁾	1	1998	169,412	100.0	%	4,423		26.11		⁽¹⁶⁾	1	1998	169,412	100.0	%	5,789		34.17
320 Westlake Terry Avenue North, Lake Union, Washington	⁽⁵⁾	1	2007	184,643	100.0	%	6,331		34.29
320 Westlake Avenue North, Lake Union, Washington											⁽³⁾	1	2007	184,644	100.0	%	8,232		44.58
321 Terry Avenue North, Lake Union, Washington	⁽⁵⁾	1	2013	135,755	100.0	%	4,465		32.89		⁽³⁾	1	2013	135,755	100.0	%	5,713		42.09
401 Terry Avenue North, Lake Union, Washington	⁽⁶⁾	1	2003	140,605	100.0	%	6,207		44.15		⁽¹⁶⁾	1	2003	140,605	100.0	%	7,008		49.84
Subtotal/Weighted Average – Greater Seattle		12		2,066,138	97.2	%	$	67,688	$	33.85		8		1,801,790	97.7	%	$	68,243	$	38.91
TOTAL/WEIGHTED AVERAGE		108		14,025,856	96.0	%	$	549,894	$	41.56		112		13,475,795	94.6	%	$	644,475	$	51.28

_________________


(1)	Based on all leases at the respective properties in effect as of December 31, ~~2016.~~2019. Includes month-to-month leases as of December 31, ~~2016.~~2019.

(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 to 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 December 31, ~~2016.~~2019. Includes 100% of annualized base rent of consolidated property partnerships.


(3)	For these properties, the leases are written on a ~~full service gross~~triple net basis.


(4)	For these properties, the leases are written on a modified gross basis.


(5)	For ~~these properties, the leases are written on a triple net basis.~~


~~(6)~~	~~For these properties, the leases are written on a modified net basis.~~


~~(7)~~	~~For~~ this property, leases of approximately ~~246,000~~263,000 rentable square feet are written on a modified gross basis and approximately ~~53,000~~36,000 rentable square feet are written on a full service gross basis.


~~(8)~~(6)	For this property, leases of approximately ~~306,000 rentable square feet are written on a full service gross basis and approximately 16,000 rentable square feet are written on a triple net basis.~~


~~(9)~~	~~For this property, leases of approximately 46,000 rentable square feet are written on a modified net basis and approximately 50,000 rentable square feet are written on a full service gross basis.~~


~~(10)~~	~~For this property, leases of approximately 49,000~~222,000 rentable square feet are written on a full service gross basis and approximately 5,000 rentable square feet are written on a triple net basis.


~~(11)~~(7)	For this property, leases of approximately 111,000 rentable square feet are written on a full service gross basis and approximately 9,000 rentable square feet are written on a gross basis.


(8)	For this property, leases of approximately 15,000 rentable square feet are written on a ~~full service gross~~triple net basis, approximately ~~93,000 rentable square feet are written on a modified gross basis and approximately 25,000~~6,000 rentable square feet are written on a gross ~~basis.~~


~~(12)~~	~~For this property, leases of approximately 78,000 rentable square feet are written on a modified gross~~ basis, and approximately ~~10,000~~5,000 rentable square feet are written on a full service gross basis.


~~(13)~~	~~These properties are vacant.~~


~~(14)~~(9)	For this property, leases of approximately ~~33,000 rentable square feet are written on a full service gross basis, and approximately 85,000~~236,000 rentable square feet are written on a modified gross ~~basis.~~


~~(15)~~	~~For this property, leases of approximately 23,000 rentable square feet are written on a full service gross~~ basis and approximately ~~92,000 rentable square feet are written on a modified gross basis.~~


~~(16)~~	~~For this property, leases of approximately 19,000 rentable square feet are written on a full service gross basis and approximately 117,000 rentable square feet are written on a modified gross basis.~~


~~(17)~~	~~For this property, leases of approximately 29,000 rentable square feet are written on a gross basis and approximately 17,000~~15,000 rentable square feet are written on a full service gross basis.


~~(18)~~(10)	For these properties, the leases are written on a full service gross basis.


(11)	For this property, leases of approximately ~~82,000~~294,000 rentable square feet are written on a full service gross basis, approximately 17,000 rentable square feet are written on a triple net basis and approximately 5,000 rentable square feet are written on a modified gross basis.


(12)	For this property, leases of approximately 6,000 rentable square feet are written on a full service gross basis and approximately ~~22,000~~4,000 rentable square feet are written on a modified gross basis.


(13)	For this property, leases of approximately 50,000 rentable square feet are written on a full service gross basis and approximately 46,000 rentable square feet are written on a modified net basis.


(14)	For this property, leases of approximately 29,000 rentable square feet are written on a full service gross basis and approximately 13,000 rentable square feet are written on a triple net basis.


(15)	For this property, leases of approximately 105,000 rentable square feet are written on a modified gross basis, approximately 19,000 rentable square feet are written on a gross basis and approximately 8,000 rentable square feet are written on a full service gross basis.


(16)	For these properties, the leases are written on a modified net basis.


(17)	For this property, leases of approximately 71,000 rentable square feet are written on a full service gross basis and approximately 4,000 rentable square feet are written on a triple net basis.


(18)	For this property, leases of approximately 23,000 rentable square feet are written on a modified gross basis and approximately 21,000 rentable square feet are written on a full service gross basis.


(19)	For this property, leases of approximately ~~20,000 rentable square feet are written on a gross basis and approximately~~ 29,000 rentable square feet are written on a ~~triple net~~full service gross basis and approximately 3,000 rentable square feet are written on a modified gross basis.


(20)	For this property, leases of approximately ~~458,000~~70,000 rentable square feet are written on a full service gross basis ~~approximately 24,000 rentable square feet are written on a triple net basis, approximately 38,000 rentable square feet are written on a gross basis~~ and approximately ~~185,000~~3,000 rentable square feet are written on a modified gross basis.


(21)	For this property, leases of approximately ~~84,000~~49,000 rentable square feet are written on a modified gross basis and approximately ~~334,000~~7,000 rentable square feet are ~~written on a full service gross basis and approximately 8,000 rentable square feet is~~ written on a triple net basis.


(22)	For this property, leases of approximately ~~322,000~~125,000 rentable square feet are written on a modified gross basis and approximately 5,000 rentable square feet are written on a full service gross ~~basis, approximately 12,000 rentable square feet are written on a triple net basis, and approximately 8,000 rentable square feet are written on a modified net~~ basis.


(23)	For this property, leases of approximately ~~390,000~~80,000 rentable square feet are written on a modified gross basis and approximately 48,000 rentable square feet are written on a full service gross basis.


(24)	For this property, leases of approximately 92,000 rentable square feet are written on a modified gross basis and approximately 24,000 rentable square feet are written on a full service gross basis.


(25)	For this property, leases of approximately 37,000 rentable square feet are written on a full service gross basis and approximately ~~3,000~~4,000 rentable square feet are written on a modified gross basis.


(26)	For this property, leases of approximately 57,000 rentable square feet are written on a full service gross basis and approximately 2,000 rentable square feet are written on a modified gross basis.


(27)	For this property, leases of approximately 88,000 rentable square feet are written on a modified gross basis and approximately 35,000 rentable square feet are written on a full service gross basis.


(28)	For this property, leases of approximately 81,000 rentable square feet are written on a full service gross basis, approximately 23,000 rentable square feet are written on a gross basis and approximately 4,000 rentable square feet are written on a modified gross basis.


(29)	For this property, leases of approximately 210,000 rentable square feet are written on a modified gross basis, approximately 164,000 rentable square feet are written on a full service gross basis, approximately 73,000 rentable square feet are written on a gross basis, and approximately 8,000 rentable square feet are written on a triple net basis.


~~(24)~~(30)	For this property, leases of approximately ~~480,000~~196,000 rentable square feet are written on a full service gross basis, approximately 135,000 rentable square feet are written on a modified gross basis, and approximately 13,000 rentable square feet are written on a triple net basis.


(31)	For this property, leases of approximately 557,000 rentable square feet are written on a modified gross basis, approximately 86,000 rentable square feet are written on a full service gross basis, approximately 39,000 rentable square feet are written on a gross basis and approximately 24,000 rentable square feet are written on a triple net basis.


(32)	For this property, leases of approximately 182,000 rentable square feet are written on a modified gross basis and approximately 4,000 rentable square feet are written on a triple net basis.


(33)	For this property, leases of approximately 462,000 rentable square feet are written on a triple net basis, approximately 7,000 rentable square feet are written on a modified gross basis and approximately 5,000 rentable square feet is written on a full service gross basis.


(34)	For this property, leases of approximately 275,000 rentable square feet are written on a triple net basis and approximately ~~6,000~~139,000 rentable square feet are written on a ~~modified~~full service gross basis.

~~Completed~~

Stabilized Office Development Projects and Completed Residential Development Projects ~~in Lease-Up~~

During the year ended December 31, ~~2016, we added~~2019, the following ~~development projects~~property was added to our stabilized portfolio of operating properties:

Construction Period
Stabilized Office Projects Start Date Completion Date Stabilization Date Rentable Square Feet
Office % Committed⁽¹⁾
350 Mission Street,
San Francisco, California
4Q 2012 3Q 2015 2Q 2016 455,340
100.0 %
333 Brannan Street,
San Francisco, California
4Q 2013 3Q 2015 2Q 2016 185,602
100.0 %
The Heights at Del Mar
Del Mar, California 4Q 2014 4Q 2015 4Q 2016 73,000
65.0 %
TOTAL: 713,942
96.0 %

Construction Period

Stabilized Office Development Project

Location

Start Date

Completion
Date

Stabilization Date

Rentable
Square Feet

Office % Occupied

100 Hooper⁽¹⁾

San Francisco

4Q 2016

2Q 2018

2Q 2019

394,340

100%

_______________________

(1)

~~Committed space refers to executed leases or letters~~The project is comprised of ~~intent. Commitments not supported~~311,859 square feet of office and 82,481 square feet of PDR space. The office component is 100% occupied by ~~executed leases are not binding obligations~~Adobe Systems, Inc. and ~~there can be no assurance that they will result in executed leases on~~ the ~~terms contemplated or at all.~~PDR component is 86% leased and 41% occupied.

During the year ended December 31, 2019, we completed construction on the first phase of the following residential development project:

Construction Period
Stabilized Residential Project Start Date Completion Date Number of Units
Percentage
Leased
Columbia Square Residential 3Q 2013 2Q 2016 200
56.5 %

~~As of December 31, 2016, the following property was in “lease-up”:~~

Construction Period
Lease-up Projects Start Date Completion Date Estimated Stabilization Date Rentable Square Feet
Office % Committed⁽¹⁾
Columbia Square Phase 2 - Office
Hollywood, California
3Q 2013 1Q 2016 1Q 2017 377,000
86.0 %



		Construction Period
Completed Residential Project	Location	Start Date	Completion Date	Number of Units	% Leased ⁽¹⁾

One Paseo - Residential Phase I	Del Mar	4Q 2016	3Q 2019	237	66%

_______________________


(1)	~~Committed space refers to executed leases or letters~~The % leased is as of ~~intent. Commitments not supported by executed leases are not binding obligations and there can be no assurance that they will result in executed leases on~~ the ~~terms contemplated or at all.~~date of this report.

In-Process ~~Near-Term~~Development Projects and Future Development Pipeline

The following ~~table sets~~tables set forth certain information relating to our in-process development pipeline as of December 31, ~~2016~~.2019.

Estimated Construction Period Estimated Stabilization Date Estimated Rentable Square Feet Office % Leased
In-Process Development Projects Start Date Completion Date

UNDER CONSTRUCTION:
Office
The Exchange on 16th ⁽¹⁾
2Q 2015 3Q 2017 3Q 2018 700,000
—%
100 Hooper ⁽²⁾
4Q 2016 1Q 2018 1Q 2019 400,000
66%
SUBTOTAL: 1,100,000
20%

Mixed-Use
One Paseo - Phase I (Retail and Residential) ⁽³⁾
4Q 2016 2Q 2018 2Q 2019 96,000 Retail
N/A
237 Units

Location

Construction Start Date

Estimated Stabilization Date⁽²⁾

Estimated Rentable Square Feet

Total Project % Leased

Total Project % Occupied

TENANT IMPROVEMENT⁽¹⁾

Office

San Francisco Bay Area

The Exchange on 16th⁽³⁾

San Francisco

2Q 2015

3Q 2020

750,000

100%

82%

Mixed-Use

San Diego County

One Paseo - Retail

Del Mar

4Q 2016

1Q 2020

96,000

100%

89%

TOTAL:

846,000

100%

83%

_______________________


(1)	Represents ~~timing, estimated rentable square feet~~projects that have reached cold shell condition and ~~total estimated investment~~are ready for ~~multi-tenant office project.~~tenant improvements, which may require additional major base building construction before being placed in service.

(2)

~~The project is comprised of approximately 314,000 square feet of~~For office and ~~86,000 square feet~~retail, represents the earlier of ~~production, distribution~~anticipated 95% occupancy date or one year from substantial completion of base building components. For multi-phase projects, interest and repair (“PDR”) space. The Company entered into a long term lease with Adobe Systems Inc. for 207,000 square feet of office space which was approximately 66% of the office component at December 31, 2016, As of the date of this filling the office component of thecarry cost capitalization may cease and recommence driven by various factors, including tenant improvement construction and other tenant related timing or project ~~was 100% pre-leased to Adobe Systems Inc. The Company intends to develop an adjacent 50,000 square foot building located at 150 Hooper with a total estimated investment of approximately $21.0 million.~~scope.

(3)

In ~~July 2016,~~the latter half of the second quarter of 2019, the Company ~~received final entitlement approval for this project. Development for this project will occur in phases.~~delivered and commenced revenue recognition on Phase I ~~includes site work~~of the Exchange on 16th, representing approximately 52% of the 750,000 square foot development project. During the fourth quarter of 2019, the Company delivered and ~~related infrastructure for~~commenced revenue recognition on Phase II, representing approximately 30% of the ~~entire project, as well as 237 residential units and approximately 96,000 square feet of retail space.~~project.



		Construction Start Date	Estimated Stabilization Date ⁽¹⁾	Estimated Rentable Square Feet	Office % Leased
UNDER CONSTRUCTION	Location	Construction Start Date	Estimated Stabilization Date ⁽¹⁾	Estimated Rentable Square Feet	Office % Leased

Office/Life Science
San Francisco Bay Area
Kilroy Oyster Point - Phase I	South San Francisco	1Q 2019	4Q 2021	656,000	100%
San Diego County
9455 Towne Center Drive⁽²⁾	University Towne Center	1Q 2019	1Q 2021	160,000	100%
Greater Seattle
333 Dexter	South Lake Union	2Q 2017	3Q 2022	635,000	100%
Mixed-Use
Greater Los Angeles
Netflix // On Vine - Office	Hollywood	1Q 2018	1Q 2021	355,000	100%
Living // On Vine - Residential	Hollywood	4Q 2018	4Q 2020	193 Resi Units	N/A
San Diego County
2100 Kettner	Little Italy	3Q 2019	1Q 2022	200,000	—%
One Paseo - Residential Phases II and III⁽³⁾	Del Mar	4Q 2016	2Q 2020	371 Resi Units	N/A
One Paseo - Office	Del Mar	4Q 2018	2Q 2021	285,000	80%

TOTAL:					89%

_______________________


(1)	For office and retail, represents the earlier of anticipated 95% occupancy date or one year from substantial completion of base building components. For multi-phase projects, interest and carry cost capitalization may cease and recommence driven by various factors, including tenant improvement construction and other tenant related timing or project scope.


(2)	In December 2019, the Company executed a long-term lease with a major technology company for 100% of the project.


(3)	Phase I of the project, comprised of 237 units, was completed mid-September 2019.

The following table sets forth certain information relating to our ~~near-term and~~ future development pipeline as of December 31, ~~2016~~.2019.



~~Location~~Future Development Pipeline	Location	Approx. Developable Square Feet ⁽¹⁾
~~NEAR-TERM DEVELOPMENT PIPELINE~~:

~~333 Dexter~~ ⁽²⁾	~~South Lake Union~~	~~700,000~~
~~Academy Project~~	~~Hollywood~~	~~545,000~~
~~One Paseo - Phases II and III~~ ⁽³⁾	~~Del Mar~~	~~640,000~~
~~TOTAL:~~		~~1,885,000~~
San Diego County
~~FUTURE DEVELOPMENT PIPELINE:~~

~~Flower Mart~~	~~San Francisco~~	~~TBD~~
~~9455 Towne Centre Drive~~	~~San Diego~~	~~150,000~~
~~Pacific Corporate Center – Lot 8~~	~~Sorrento Mesa~~	~~170,000~~
Santa Fe Summit – Phases II and III	56 Corridor	600,000 - 650,000
1335 Broadway & 901 Park Boulevard	East Village	TBD
San Francisco Bay Area
Kilroy Oyster Point - Phases II - IV	South San Francisco	1,750,000 - 1,900,000
Flower Mart	SOMA	2,300,000
Greater Seattle
Seattle CBD Project	Seattle CBD	TBD

_______________________


(1)	~~Approximate~~The developable square feet and scope of projects could change materially from estimated data provided due to one ofor more of the following: any significant changes in the economy, market conditions, our markets, tenant requirements and demands, construction costs, new ~~office~~ supply, regulatory and entitlement processes or project design.


~~(2)~~	~~Consists of four adjacent parcels in the South Lake Union submarket of Seattle.~~


~~(3)~~	In July 2016, the Company received final entitlement approval for this project. Development for this project will occur in phases. Phases II and III, comprised of office and residential, will commence subject to market conditions and economic factors.

Significant Tenants

The following table sets forth information about our 15 largest tenants based upon annualized base rental revenues, as defined below, as of December 31, ~~2016~~.

2019.

Tenant Name
Annualized Base Rental Revenue⁽¹⁾⁽²⁾

Percentage of Total Annualized Base Rental Revenue⁽¹⁾
Lease Expiration Date
(in thousands)
LinkedIn Corporation $ 28,344
5.1%
Various ⁽⁴⁾
salesforce.com, inc ⁽³⁾
24,183
4.4%
Various ⁽⁵⁾
DIRECTV, LLC 22,467
4.1% September 2027
Box, Inc. 22,441
4.1%
Various ⁽⁶⁾
Synopsys, Inc. 15,492
2.8% August 2030
Bridgepoint Education, Inc. 15,066
2.7%
Various ⁽⁷⁾
Dropbox, Inc. 14,827
2.7% August 2027
Delta Dental of California 10,313
1.9% May 2018
AMN Healthcare, Inc. 9,001
1.6% July 2027
Concur Technologies 8,852
1.6% December 2025
Biotech/Healthcare Industry Tenant 8,461
1.5% September 2029
Riot Games, Inc. 6,817
1.2%
Various⁽⁸⁾
Zenefits Insurance Service 6,756
1.2%
Various ⁽⁹⁾
Adobe Systems, Inc. 6,596
1.2%
Various ⁽¹⁰⁾
Group Health Cooperative 6,372
1.2% September 2017
Total $ 205,988
37.3%



Tenant Name	Region	Annualized Base Rental Revenue⁽¹⁾⁽²⁾		Percentage of Total Annualized Base Rental Revenue⁽¹⁾	Lease Expiration Date
		(in thousands)
Dropbox, Inc.⁽³⁾	San Francisco Bay Area	$	45,709	7.1%	November 2033
GM Cruise, LLC	San Francisco Bay Area	36,337		5.6%	November 2031
LinkedIn Corporation / Microsoft Corporation	San Francisco Bay Area	29,752		4.6%	Various (4)
Adobe Systems, Inc.	San Francisco Bay Area / Greater Seattle	27,897		4.3%	Various (5)
salesforce.com, inc.	San Francisco Bay Area	24,076		3.7%	Various (6)
DIRECTV, LLC	Greater Los Angeles	23,152		3.6%	September 2027
Box, Inc.	San Francisco Bay Area	22,441		3.5%	Various (7)
Okta, Inc.	San Francisco Bay Area	17,122		2.7%	October 2028
Riot Games, Inc.	Greater Los Angeles	15,514		2.4%	Various (8)
Synopsys, Inc.	San Francisco Bay Area	15,492		2.4%	August 2030
Viacom International, Inc.	Greater Los Angeles	13,718		2.1%	December 2028
DoorDash, Inc.	San Francisco Bay Area	13,531		2.1%	January 2032
Amazon.com	Greater Seattle	12,397		1.9%	February 2030
Nektar Therapeutics, Inc.	San Francisco Bay Area	12,297		1.9%	January 2030
Concur Technologies	Greater Seattle	10,643		1.7%	Various (9)
Total		$	320,078	49.6%

_______________________

(1)

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 December 31, ~~2016.~~2019.


(2)	Includes 100% of the annualized base rental revenues of consolidated property partnerships.


(3)	During the year ended December 31, 2019, the Company completed construction and commenced revenue recognition on its lease with Dropbox, Inc. for the first two phases of The ~~Company has entered into leases with various affiliates~~Exchange on 16th, which represent approximately 80% of the ~~tenant.~~750,000 square foot development project located in San Francisco’s Mission Bay district.


(4)	The LinkedIn Corporation / Microsoft Corporation leases, which contribute ~~$2.2~~$3.6 million and ~~$26.1~~$26.2 million, expire in ~~July 2019~~October 2024 and September 2026, respectively.


(5)	The ~~salesforce.com, inc~~Adobe Systems Inc. leases, which contribute ~~$0.4~~$1.1 million, ~~$0.4~~$5.8 million, and ~~$23.4~~$21.0 million, expire in June 2027, July 2031 and August ~~2017, August 2018~~2031, respectively.


(6)	The salesforce.com, inc. leases, which contribute $0.6 million and $23.5 million, expire in May 2031 and September 2032, respectively.


~~(6)~~(7)	The Box, Inc. leases, which contribute ~~$2.1~~$2.0 million and $20.4 million, expire in August 2021 and June 2028, respectively.


~~(7)~~	~~The Bridgepoint Education Inc. leases, which contribute $1.0 million, $6.3 million and $7.8 million, expire in February 2017, July 2018 and September 2018, respectively.~~


(8)	The Riot Games ~~Inc.~~ leases, which contribute ~~$0.1~~$2.1 million, ~~$1.6~~$5.7 million, and ~~$5.1~~$7.7 million, expire in ~~September~~November 2020, ~~November 2020,~~March 2023, and November 2024, respectively.


(9)	The ~~Zenefits Insurance Service~~Concur Technologies leases, which contribute ~~$0.7~~$1.8 million and ~~$6.1~~$8.8 million, expire in ~~January 2017~~April 2025 and ~~March 2023, respectively.~~


~~(10)~~	~~The Adobe Systems, Inc. leases, which contribute $4.4 million and $2.2 million, expire in July 2020 and May 2021,~~December 2025, respectively.

The following pie chart sets forth the composition of our tenant base by industry and as a percentage of our annualized base rental revenue based on the North American Industry Classification System as of December 31, ~~2016.~~2019.

Our West Coast markets are dynamic and populated with innovative and creative tenants, including but not limited to technology, entertainment and digital media. While technology companies comprise 51% of our office portfolio base rent, technology is a broad concept that encompasses diverse industries including software, social media, hardware, cloud computing, internet media and technology services.

Lease Expirations

The following table sets forth a summary of our office lease expirations for each of the next ten years beginning with ~~2017,~~2020, assuming that none of the tenants exercise renewal options or termination rights. See further discussion of our lease expirations under “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Factors that May Influence Future Results of Operations”.

Lease Expirations


Year of Lease Expiration	# of Expiring Leases	Total Square Feet	% of Total Leased Square Feet		Annualized Base Rent (000’s)^{(1) (2)}		% of Total Annualized Base Rent⁽¹⁾		Annualized Rent per Square Foot ⁽¹⁾		# of Expiring Leases	Total Square Feet	% of Total Leased Square Feet		Annualized Base Rent (000’s)^{(1) (2)}		% of Total Annualized Base Rent ⁽¹⁾		Annualized Rent per Square Foot ⁽¹⁾
2017	107	1,077,323	8.2	%	$	40,929	7.4	%	$	37.99
2018	82	1,392,576	10.4	%	55,896		10.2	%	40.14
2019	103	1,680,867	12.7	%	60,869		11.1	%	36.21
2020	104	2,041,185	15.5	%	78,506		14.3	%	38.46
2021	85	1,103,693	8.4	%	46,873		8.5	%	42.47
2020⁽³⁾											82	965,896	7.7	%	$	42,648	6.6	%	$	44.15
2021 ⁽³⁾											80	843,494	6.8	%	36,461		5.6	%	43.23
2022	43	594,164	4.5	%	25,055		4.5	%	42.17		62	749,273	6.0	%	32,488		5.1	%	43.36
2023	30	713,976	5.4	%	33,851		6.1	%	47.41		77	1,227,648	9.7	%	64,992		10.1	%	52.94
2024	25	711,568	5.4	%	28,854		5.2	%	40.55		56	998,249	8.0	%	47,378		7.4	%	47.46
2025	8	101,642	0.8	%	4,688		0.9	%	46.12		40	595,671	4.8	%	28,654		4.4	%	48.10
2026	19	1,309,958	9.9	%	50,320		9.2	%	38.41		29	1,472,010	11.8	%	64,970		10.1	%	44.14
2027 and beyond	22	2,477,604	18.8	%	124,053		22.6	%	50.07
2027											26	1,213,390	9.7	%	49,585		7.7	%	40.86
2028											19	913,920	7.3	%	57,213		8.9	%	62.60
2029											9	735,331	5.9	%	41,517		6.4	%	56.46
2030 and beyond											35	2,811,792	22.3	%	178,569		27.7	%	63.51
Total⁽³⁾⁽⁴⁾	628	13,204,556	100.0	%	$	549,894	100.0	%	$	41.64	515	12,526,674	100.0	%	$	644,475	100.0	%	$	51.45

_______________________

(1)

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. Amounts represent percentage of total portfolio annualized contractual base rental revenue.


(2)	Includes 100% of annualized based rent of consolidated property partnerships.


(3)	Adjusting for leasing transactions executed as of December 31, 2019 but not yet commenced, the 2020 and 2021 expirations would be reduced by 267,449 and 173,267 square feet, respectively.


(4)	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 December 31, ~~2016~~2019, space leased under month-to-month leases, storage leases, vacant space and future lease renewal options not executed as of December 31, ~~2016.~~2019.

Secured Debt

As of December 31, ~~2016,~~2019, the Operating Partnership had ~~five~~two outstanding mortgage notes payable which were secured by certain of our properties. Our secured debt represents an aggregate principal indebtedness of approximately ~~$469.8~~$259.5 million. See additional information regarding our secured debt in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Liquidity Sources,” Notes 8 and 9 to our consolidated financial statements and Schedule III—Real Estate and Accumulated Depreciation included ~~with~~in this report. Management believes that, as of December 31, ~~2016~~2019, the value of the properties securing the applicable secured obligations in each case exceeded the principal amount of the outstanding obligation.


ITEM 3.	LEGAL PROCEEDINGS

We and our properties are subject to routine litigation incidental to our business. These matters are generally covered by insurance. As of December 31, ~~2016~~2019, we are not a defendant in, and our properties are not subject to, any legal proceedings that we believe, if determined adversely to us, would have a material adverse effect upon our financial condition, results of operations, or cash flows.


ITEM 4.	MINE SAFETY DISCLOSURES

None.

PART II


ITEM 5.	MARKET FOR KILROY REALTY CORPORATION’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “KRC.” As of the date this report was filed, there were approximately 93 108registered holders of the Company’s common stock. The following table illustrates ~~high, low, and closing prices by quarter, as well as~~ dividends declared during ~~2016~~2019 and ~~2015~~2018 as reported on the NYSE.


2016	High		Low		Close		Per Share Common Stock Dividends Declared
2019									Per Share Common Stock Dividends Declared
First quarter	$	62.94	$	47.38	$	61.87	$	0.3500	$	0.4550
Second quarter	66.29		59.89		66.29		0.3750		0.4850
Third quarter	73.73		66.06		69.35		0.3750		0.4850
Fourth quarter⁽¹⁾	76.88		66.73		73.22		2.2750		0.4850
2015	High		Low		Close		Per Share Common Stock Dividends Declared
2018									Per Share Common Stock Dividends Declared
First quarter	$	78.86	$	70.48	$	76.17	$	0.3500	$	0.4250
Second quarter	77.92		67.15		67.15		0.3500		0.4550
Third quarter	73.45		63.41		65.16		0.3500		0.4550
Fourth quarter	69.92		62.83		63.28		0.3500		0.4550

~~_______________~~


~~(1)~~	~~Includes a special cash dividend of $1.90 per share of common stock that was paid on January 13, 2017.~~

The Company pays distributions to common stockholders quarterly each January, April, July and October, at the discretion of the board of directors. Distribution amounts depend on our FFO, financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the board of directors deems relevant.

The table below reflects our purchases of equity securities during the three month period leading up to December 31, ~~2016~~2019.

Period Total Number of Shares (or Units) Purchased Average Price Paid per Share (or Units) Total Number of Shares (or Units) 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
October 1 - October 31, 2016 —
$ —
—
—
November 1 - November 30, 2016 —
$ —
—
—
December 1 - December 31, 2016 (19,264 )
⁽¹⁾
$ 75.54
—
—
Total (19,264 ) $ 75.54
—
—



Period	Total Number of Shares (or Units) Purchased ⁽¹⁾	Average Price Paid per Share (or Units)		Total Number of Shares (or Units) 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
October 1 - October 31, 2019	125	$	82.08	—	—
November 1 - November 30, 2019	215	83.07		—	—
December 1 - December 31, 2019	2,906	84.12		—	—
Total	3,246	$	83.97	—	—

_______________

(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.

MARKET FOR KILROY REALTY, L.P.’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

There is no established public trading market for the Operating Partnership’s common units. As of the date this report was filed, there were 2220 holders of record of common units (including through the Company’s general partnership interest).

The following table reports the distributions per common unit declared during the years ended December 31, ~~2016~~2019 and ~~2015~~2018.


2016	Per Unit Common Unit Distribution Declared
First quarter	$	0.3500
Second quarter	0.3750
Third quarter	0.3750
Fourth quarter⁽¹⁾	2.2750
2015	Per Unit Common Unit Distribution Declared
2019			Per Unit Common Unit Distribution Declared
First quarter	$	0.3500	$	0.4550
Second quarter	0.3500		0.4850
Third quarter	0.3500		0.4850
Fourth quarter	0.3500		0.4850
2018			Per Unit Common Unit Distribution Declared
First quarter			0.4250
Second quarter			0.4550
Third quarter			0.4550
Fourth quarter			0.4550

~~_______________~~


~~(1)~~	~~Includes a special cash distribution of $1.90 per common unit that was paid on January 13, 2017.~~

During ~~2016~~2019 and ~~2015~~2018, the Operating Partnership redeemed ~~250,933~~2,000 and ~~39,425~~51,906 common units, respectively, for the same number of shares of the Company’s common stock.

On March 11, 2016, the Operating Partnership issued 867,701 common units to an unrelated third party in connection with the Operating Partnership’s acquisition of the 610-620 Brannan St. project, a development opportunity in the SOMA submarket of San Francisco, California. Each common unit was valued at $55.36, which was based on a trailing ten-day average of the closing quoted price per share of the Company’s common stock, par value $.01 per share, as reported on the New York Stock Exchange, as calculated in accordance with the Partnership Agreement. Subject to certain limitations, the common units are redeemable for cash or, at the Company’s option, exchangeable for shares of the Company’s common stock beginning 12 months after the initial issuance of the common units. This issuance of the common units described above was exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance on Section 4(a)(2) of the Securities Act, as transactions by an issuer not involving a public offering.

PERFORMANCE GRAPH

The following line graph compares the change in cumulative stockholder return on shares of the Company’s common stock to the cumulative total return of the NAREIT All Equity REIT Index, the Standard & Poor’s 500 Stock Index, and the SNL US REIT Office Index for the five-year period ended December 31, ~~2016~~2019. We include an additional index, the SNL US REIT Office Index, to the performance graph since management believes it provides additional information to investors about our performance relative to a more specific peer group. The SNL US REIT Office Index is a published and widely recognized index that comprises 2722 office equity REITs, including us. The graph assumes the investment of $100 in us and each of the indices on December 31, ~~2011~~2014 and, as required by the SEC, the reinvestment of all distributions. The return shown on the graph is not necessarily indicative of future performance.


ITEM 6.	SELECTED FINANCIAL DATA – KILROY REALTY CORPORATION

The following tables set forth selected consolidated financial and operating data on ana historical basis for the Company. The following data should be read in conjunction with our financial statements and notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this report.

The consolidated balance sheet data as of December 31, ~~2016~~2019, 2018, 2017 and ~~2015~~2016 and the consolidated statement of operations data for all periods presented, and the consolidated statement of cash flows data for the years ended December 31, ~~2016,~~ ~~2015~~2019, 2018 and ~~2014~~2017 have been derived from the historical consolidated financial statements of Kilroy Realty Corporation audited by an independent registered public accounting firm. The consolidated balance sheet data as of December 31, ~~2014~~, ~~2013~~ ~~and~~ ~~2012~~2015 and the consolidated statement of ~~operations~~cash flows data for the years ended December 31, ~~2013~~2016 and ~~2012~~2015 have been derived from the historical consolidated financial statements of Kilroy Realty Corporation and adjusted ~~to present the income from operating properties that were sold through the year ended December 31, 2014, as income from discontinued operations, and adjusted~~ for the impact of subsequent accounting changes requiring retrospective application, if any. Effective January 1, 2015, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2014-08 (see Note 2 “Basis of Presentation and Significant Accounting Policies” to our consolidated financial statements included in this report for additional information). On January 1, 2016, the Company adopted FASB ASU No. 2015-03 and 2015-15 which requires deferred financing costs, except costs paid for the unsecured line of credit, to be reclassified as a reduction to the debt liability balance instead of being reported as an asset as historically presented. As a result, total assets and total debt have been adjusted from prior amounts reported to reflect this change for all periods presented.

Kilroy Realty Corporation Consolidated

(in thousands, except share, per share, square footage and occupancy data)


	Year Ended December 31,											Year Ended December 31,
	2016		2015		2014		2013		2012			2019		2018		2017		2016		2015
Statements of Operations Data:
Total revenues from continuing operations	$	642,572	$	581,275	$	521,725	$	457,111	$	373,318		$	837,454	$	747,298	$	719,001	$	642,572	$	581,275
Income (loss) from continuing operations	303,798		238,604		59,313		14,935		(5,475		)
Income from discontinued operations⁽¹⁾	—		—		124,495		29,630		282,576
Income from continuing operations												215,229		277,926		180,615		303,798		238,604
Net income available to common stockholders	280,538		220,831		166,969		30,630		249,826			195,443		258,415		151,249		280,538		220,831
Per-Share Data:
Per Share Data:
Weighted average shares of common stock outstanding – basic	92,342,483		89,854,096		83,090,235		77,343,853		69,639,623			103,200,568		99,972,359		98,113,561		92,342,483		89,854,096
Weighted average shares of common stock outstanding – diluted	93,023,034		90,395,775		84,967,720		77,343,853		69,639,623			103,849,168		100,482,365		98,727,331		93,023,034		90,395,775
Income (loss) from continuing operations available to common stockholders per share of common stock – basic	$	3.00	$	2.44	$	0.52	$	0.00	$	(0.40	)
Income (loss) from continuing operations available to common stockholders per share of common stock – diluted	$	2.97	$	2.42	$	0.51	$	0.00	$	(0.40	)
Income from continuing operations available to common stockholders per share of common stock – basic												$	1.87	$	2.56	$	1.52	$	3.00	$	2.44
Income from continuing operations available to common stockholders per share of common stock – diluted												$	1.86	$	2.55	$	1.51	$	2.97	$	2.42
Net income available to common stockholders per share – basic	$	3.00	$	2.44	$	1.99	$	0.37	$	3.56		$	1.87	$	2.56	$	1.52	$	3.00	$	2.44
Net income available to common stockholders per share – diluted	$	2.97	$	2.42	$	1.95	$	0.37	$	3.56		$	1.86	$	2.55	$	1.51	$	2.97	$	2.42
Dividends declared per share⁽²⁾	$	3.375	$	1.400	$	1.400	$	1.400	$	1.400
Dividends declared per share⁽¹⁾												$	1.910	$	1.790	$	1.650	$	3.375	$	1.400

________________________

(1)

The Company adopted FASB ASU No. 2014-08 effective January 1, 2015 (see Note 2 “Basis of Presentation and Significant Accounting Policies” to our consolidated financial statements included in this reportDividends declared for additional information). As a result, results of operations for properties classified as held for sale and/or disposed of subsequent to January 1, 2015 are presented in continuing operations. Prior to January 1, 2015, properties classified as held for sale and/or disposed of are presented in discontinued operations.


~~(2)~~	~~The~~the year ended December 31, 2016 includes a special dividend of $1.90 per share of common stock that was paid on January 13, 2017.


	December 31,															December 31,
	2016			2015			2014			2013			2012			2019			2018			2017			2016			2015
Balance Sheet Data:
Total real estate held for investment, before accumulated depreciation and amortization	$	7,060,754		$	6,328,146		$	6,057,932		$	5,264,947		$	4,757,394		$	9,628,773		$	8,426,632		$	7,417,777		$	7,060,754		$	6,328,146
Total assets ⁽¹⁾	6,706,633			5,926,430			5,621,262			5,099,417			4,603,488
Total assets ^{(1) (2)}																8,900,094			7,765,707			6,802,838			6,706,633			5,926,430
Total debt⁽¹⁾	2,320,123			2,225,469			2,456,939			2,193,327			2,028,339			3,552,778			2,932,601			2,347,063			2,320,123			2,225,469
Total preferred stock	192,411			192,411			192,411			192,411			192,411			—			—			—			192,411			192,411
Total noncontrolling interests⁽²⁾⁽³⁾	216,322			63,620			57,726			54,848			46,303			277,348			271,354			259,523			216,322			63,620
Total equity ⁽²⁾⁽³⁾	3,759,317			3,234,586			2,723,936			2,516,160			2,235,933			4,570,858			4,201,261			3,960,316			3,759,317			3,234,586
Other Data:
Funds From Operations ^{(3) (4)}	$	333,742		$	316,612		$	250,744		$	218,621		$	165,455
Funds From Operations ^{(4) (5)}																$	418,478		$	360,491		$	346,787		$	333,742		$	316,612
Cash flows provided by (used in):
Operating activities	$	345,054		$	272,008		$	245,253		$	240,576		$	180,724		$	386,521		$	410,043		$	347,012		$	345,054		$	272,008
Investing activities(6)	(635,435		)	(262,752		)	(501,436		)	(506,520		)	(706,506		)	(1,228,279		)	(808,915		)	(359,102		)	(579,420		)	(337,241		)
Financing activities	427,291			23,471			244,587			284,621			537,705			747,068			503,108			(171,241		)	427,291			23,471
Office Property Data: ⁽⁵⁾
Rentable square footage	14,025,856			13,032,406			14,096,617			12,736,099			13,249,780			13,475,795			13,232,580			13,720,597			14,025,856			13,032,406
Occupancy	96.0		%	94.8		%	94.4		%	93.4		%	92.8		%	94.6		%	94.4		%	95.2		%	96		%	94.8		%
Residential Property Data: ⁽⁵⁾
Number of units	200			N/A			N/A			N/A			N/A			200			200			200			200			N/A
Occupancy	46.0		%	N/A			N/A			N/A			N/A
Average occupancy ⁽⁷⁾																82.4		%	79.7		%	70.2		%	46.0		%	N/A


ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Forward-Looking Statements

Statements contained in this “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are not historical facts may be forward-looking statements. Forward-looking statements ~~including~~include, among other things, statements or information concerning our plans, objectives, capital resources, portfolio performance, results of operations, projected future occupancy and rental rates, lease expirations, debt maturities, potential investments, strategies such as capital recycling, development and redevelopment activity, projected construction costs, projected construction commencement and completion dates, projected square footage of ~~office~~ space that could be constructed on undeveloped land that we own, projected rentable square footage of or number of units in properties under construction or in the development pipeline, anticipated proceeds from capital recycling activity or other dispositions and anticipated dates of those activities or dispositions, projected increases in the value of properties, dispositions, future executive incentive compensation, pending, potential or proposed acquisitions,plans to grow our Net Operating Income and FFO, our ability to re-lease properties at or above current market rates, anticipated market conditions and demographics and other forward-looking financial data, as well as the discussion in “—Factors That May Influence Future Results of ~~Operations”,~~Operations,” “—Liquidity and Capital Resource of the ~~Company”,~~Company,” and “—Liquidity and Capital Resources of the Operating Partnership.” Forward-looking statements can be identified by the use of words such as “believes,” “expects,” “projects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” and the negative of these words and phrases and similar expressions that do not relate to historical matters. Forward-looking statements are based on our current expectations, beliefs and assumptions, and are not guarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult to predict, many of which are outside of our control. Accordingly, actual performance, results and events may vary materially from those indicated or implied in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results or events. Numerous factors could cause actual future performance, results and events to differ materially from those indicated in the forward-looking statements, including, among others:

global market and general economic conditions and their effect on our liquidity and financial conditions and those of our tenants;

adverse economic or real estate conditions generally, and specifically, in the States of California and Washington;

risks associated with our investment in real estate assets, which are illiquid, and with trends in the real estate industry;

defaults on or non-renewal of leases by tenants;

any significant downturn in tenants’ businesses;

our ability to re-lease property at or above current market rates;

costs to comply with government regulations, including environmental ~~remediation;~~remediations;

the availability of cash for distribution and debt service and exposure to risk of default under debt obligations;

increases in interest rates and our ability to manage interest rate exposure;

the availability of financing on attractive terms or at all, which may adversely impact our future interest expense and our ability to pursue development, redevelopment and acquisition opportunities and refinance existing debt;

a decline in real estate asset valuations, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing, and which may result in write-offs or impairment charges;

significant competition, which may decrease the occupancy and rental rates of properties;

potential losses that may not be covered by insurance;

the ability to successfully complete acquisitions and dispositions on announced terms;

the ability to successfully operate acquired, developed and redeveloped properties;

the ability to successfully complete development and redevelopment projects on schedule and within budgeted amounts;

delays or refusals in obtaining all necessary zoning, land use and other required entitlements, governmental permits and authorizations for our development and redevelopment properties;

increases in anticipated capital expenditures, tenant improvement and/or leasing costs;

defaults on leases for land on which some of our properties are located;

adverse changes to, or enactment or implementations of, tax laws or other applicable laws, regulations or ~~legislation;~~legislation, as well as business and consumer reactions to such changes;

risks associated with joint venture investments, including our lack of sole decision-making authority, our reliance on co-venturers’ financial condition and disputes between us and our co-venturers;

environmental uncertainties and risks related to natural disasters; and

our ability to maintain our status as a REIT.

The factors included in this report are not exhaustive and additional factors could adversely affect our business and financial performance. For a discussion of additional ~~risk~~ factors that could materially adversely affect the Company’s and the Operating Partnership’s business and financial performance, see the ~~factors included in this report under the caption~~discussion below as well as “Item 1A. Risk Factors,” and in our other filings with the SEC. All forward-looking statements are based on ~~currently~~information that was available ~~information~~ and speak only as of the ~~date of this report.~~dates on which they were made. We assume no obligation to update any forward-looking statement that becomes untrue because of subsequent events, new information or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws.

Company Overview

We are a self-administered 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. We own our interests in all of our real ~~estate assets~~properties through the Operating Partnership and the Finance Partnership and generally conduct substantially all of our operations through the Operating Partnership. We owned ~~a 97.5%~~an approximate 98.1% and ~~98.1%~~98.0% general partnership interest in the Operating Partnership as of December 31, ~~2016~~2019 and ~~2015~~,2018, respectively. All of our properties are held in fee except for the ~~thirteen~~fourteen office buildings that are held subject to long-term ground leases for the land (see Note 18 “Commitments and Contingencies”

to our consolidated financial statements included in this report for additional information regarding our ground lease obligations).

~~2016~~2019 Operating and Development Highlights

~~2016~~2019 was ~~an exceptional~~a terrific year ~~with strong results~~ across ~~all areas of~~the Company. We achieved another Company record in annual leasing and continued to create value in our ~~business. We~~operating and development platforms that we believe ~~our strong leasing performance, continued execution of our development program with focus~~will drive future earnings and ~~discipline, maintenance of our strong balance sheet and availability to capital, and success with our capital recycling program, continues to position us well for sustained long-term~~dividend growth.

Leasing. During ~~2016~~,2019, we executed new and renewal leases totaling ~~1.3~~1.8 millionsquare feet within our stabilized portfolio with an increase in GAAP rents of ~~30.2%~~52.3% and an increase in cash rents of ~~13.4%,~~29.6%. Our stabilized office portfolio was 94.6% occupied and ~~99,000~~97.0% leased as of December 31, 2019. We also signed approximately 1.7 million square feet of leases ~~within our “lease-up” portfolio. Our efforts over the past few years have increased the occupancy~~ in our ~~stabilized office~~development portfolio ~~to 96.0% as of December 31, 2016, up from 94.8% as of~~ ~~December 31, 2015~~.

Development. ~~During~~ ~~2016, we~~We continued to execute on our development program ~~delivering projects and commencing construction on new~~during 2019. We added one completed development ~~projects. In~~ ~~2016, we~~project to our stabilized three development projects, 350 Mission Street and 333 Brannan Street in San Francisco, California, and The Heights at Del Mar in San Diego, California, totaling 713,942 square feet of office space that was 96% committed to preeminent technology tenants, including salesforce.com, inc. and Dropbox, Inc. We define committed space as space that is subject to an executed lease or letter of intent. Commitments not supported by executed leases are not binding obligations and there can be no assurance that they will result in executed leases on the terms contemplated or at all. These three projects represent a total investment of approximately $424.3 million. In addition, at December 31, 2016, we had one project, Columbia Square Phase 2 - Office, in Hollywood, California, in “lease-up” which was 86% committed. We alsoportfolio, completed construction on ~~our Columbia Square - Residential project, in Hollywood, California, comprised of 200~~237 residential units, ~~that were 57% leased as~~commenced revenue recognition on the first two phases of ~~December 31, 2016. We also acquired~~ a ~~1.75 acre~~ development ~~site immediately adjacent to our Flower Mart~~ project in the ~~SOMA submarket of San Francisco (see Note 3 “Acquisitions”~~tenant improvement phase, had one development project progress from the under construction phase to ~~our consolidated financial statements included in this report for more information).~~

~~Also during~~ ~~2016, we~~the tenant improvement phase, commenced construction on 100 Hooper, an approximately 400,000 square foot project in San Francisco, California, and One Paseo Phase I (Retail and Residential), which includes an estimated 96,000 square feet of retail space and 237 residential units as well as the total project’s overall infrastructure and site work. Including the two projects we commenced construction on in ~~2016~~, as of December 31, 2016, the Company had three development projects under construction comprised of approximately 1.1 million square feet of office space, 237 residential units, and 96,000 square feet of retail space, representing a total estimated investment of approximately $980.0 million. The total estimated investment of the three projects ~~includes lease commissions~~ and ~~excludes tenant improvement overages. Scheduled completion dates range through 2018.~~acquiredtwo development sites in two transactions for approximately $173.0 million. See “—Factors that May Influence Future ~~Operations—Completed, In-Process and Future Development Pipeline”~~Operations” for additional ~~information.~~information regarding our development program.

~~Operating Property Acquisitions.~~ ~~We remain a disciplined buyer of office properties and development opportunities~~

~~and continue to focus on value-add opportunities in West Coast markets populated by knowledge and creative based~~

~~tenants in a variety of industries, including technology, media, health care, life sciences, entertainment and professional services. During~~ ~~2016~~, we acquired one office building in Mountain View, a four building office and retail complex in Hollywood and two office buildings in Palo Alto comprising approximately 458,459 rentable square feet in three separate transactions for a total purchase price of approximately $394.6 million. The two acquired office buildings in Palo Alto are subject to a long term ground lease expiring in December 2067 (see Note 3 “Acquisitions” to our consolidated financial statements included in this report for more information).

Capital Recycling ~~Program/Strategic Ventures~~Program. We have continued to utilize our capital recycling program to provide additional capital to finance development expenditures, fund potential acquisitions, repay long-term debt and for other general corporate purposes. Our general strategy is to target the disposition of ~~mature~~non-core properties or those that have limited upside for us and redeploy the capital into acquisitions and/or development projects where we can ~~add~~create additional value to generate higher returns (see “—Factors that May Influence Future Operations” for additional information).

In connection with this strategy, during ~~2016~~,2019, we ~~completed the sale of six office buildings and five undeveloped land parcels to unaffiliated third parties in five separate transactions for~~generated gross sales proceeds totaling approximately $133.8 million through the sale of two office buildings.

Operating Property Acquisitions. We remain a disciplined and opportunistic buyer of office properties and development opportunities and continue to focus on value-add opportunities in West Coast markets populated by knowledge and creative based tenants in a variety of industries, including technology, media, health care, life sciences, entertainment and professional services companies. During 2019, we acquired a 19-building creative office campus in Culver City, California in one transaction totaling 151,908 square feet of space for a total cash purchase price of approximately $186.0 million.

~~$330.7~~

2019 Financing Highlights

In 2019, we raised approximately $500.0 million in new debt and settled the 2018 forward equity sale agreements by issuing 5,000,000 shares of common stock for net proceeds of $354.3 million. In addition, we executed forward equity sale agreements to sell 3,147,110 shares of common stock under our at-the-market stock offering program, which we expect to fully settle in ~~January 2017 we completed~~ the ~~sale~~first quarter of ~~one operating property that was held for sale~~2020 through the first quarter of 2021 at ~~December 31, 2016 for total gross proceeds of $12.1 million.~~

~~Also during~~ ~~2016, we entered into agreements with Norges Bank Real Estate Management (“NBREM”) whereby NBREM invested, through REIT subsidiaries,~~this time. Refer to our 2019 Financing Highlights in ~~two existing wholly-owned companies that each owned an office property located in San Francisco, California. Based on a gross valuation~~“—Liquidity and Capital Resources of the ~~two properties of approximately $1.2 billion, NBREM contributed a total of $452.9 million~~Operating Partnership” for a ~~44% common equity interest~~list of financing transactions completed in ~~the two companies, which was net of approximately $55.3 million of its proportionate share~~2019 and Notes 9 and 13, “Secured and Unsecured Debt of the ~~existing mortgage~~Operating Partnership” and “Stockholders’ Equity of the Company,” respectively, to our consolidated financial statements included in this report for additional information regarding our debt ~~as well as a working~~and capital ~~contribution of $5.0 million.~~market activity.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting periods.

Certain accounting policies are considered to be critical accounting policies. Critical accounting policies are those policies that require our management team to make significant estimates and/or assumptions about matters that are

uncertain at the time the estimates and/or assumptions are made or where we are required to make significant judgments and assumptions with respect to the practical application of accounting principles in our business operations. Critical accounting policies are by definition those policies that are material to our financial statements and for which the impact of changes in estimates, assumptions, and judgments could have a material impact to our financial statements.

The following critical accounting policies discussion reflects what we believe are the most significant estimates, assumptions, and judgments used in the preparation of our consolidated financial statements. This discussion of our critical accounting policies is intended to supplement the description of our accounting policies in the footnotes to our consolidated financial statements and to provide additional insight into the information used by management when evaluating significant estimates, assumptions, and judgments. For further discussion of our significant accounting policies, see Note 2 “Basis of Presentation &and Significant Accounting Policies” to our consolidated financial statements included in this report.

~~Rental~~ Revenue Recognition

Rental revenue for office and retail operating properties is our principal source of revenue. We recognize revenue from base rent, additional rent (which consists of amounts due from tenants for common area maintenance, real estate taxes and other recoverable costs), 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.

Base Rent

The timing of when we commence rental revenue recognition for office and retail properties depends largely on our conclusion as to whether we are or the tenant is the owner for accounting purposes of tenant improvements at the leased property. When we conclude that we are the owner of tenant improvements for accounting purposes, we record the cost to construct the tenant improvements as an asset and we commence rental revenue recognition when the tenant takes possession of or controls the finished space, which is ~~typically~~generally when ~~the~~tenant improvements being recorded as our ~~asset~~assets are substantially complete. In certain instances, when we conclude that the tenant is the owner of certain tenant improvements for accounting purposes, rental revenue recognition begins when the tenant takes possession or controls the physical use of the leased space, which may occur in phases or for an entire building or project. The determination of who owns the tenant improvements is made on a lease-by-lease basis and has a significant effect on the timing of commencement of revenue recognition.

The determination of whether we are or the tenant is the owner of tenant improvements for accounting purposes is subject to significant judgment. In making that determination, we consider numerous factors and perform a detailed evaluation of each individual lease. No one factor is determinative in reaching a conclusion. The factors we evaluate include but are not limited to the following:

whether the lease agreement requires landlord approval of how the tenant improvement allowance is spent prior to installation of the tenant improvements;

whether the lease agreement requires the tenant to provide evidence to the landlord supporting the cost and what the tenant improvement allowance was spent on prior to payment by the landlord for such tenant improvements;

whether the tenant improvements are unique to the tenant or reusable by other tenants;

whether the tenant is permitted to alter or remove the tenant improvements without the consent of the landlord or without compensating the landlord for any lost utility or diminution in fair value; and

whether the ownership of the tenant improvements remains with the landlord or remains with the tenant at the end of the lease term.

~~In addition, we also record the cost of certain tenant improvements paid for or reimbursed by tenants when~~When we conclude that we are the owner of ~~such~~ tenant improvements for accounting purposes using the factors discussed ~~above. For these tenant-funded tenant improvements,~~above, we record the ~~amount funded~~cost to construct the tenant improvements, including costs paid for or reimbursed by the tenants, as ~~deferred revenue, which is amortized and recognized as rental revenue over the term of the related lease beginning upon substantial completion of the leased premises.~~a capital asset. During the years ended December 31, ~~2016,~~ ~~2015~~,2019, 2018, and ~~2014~~,2017, we capitalized ~~$22.3~~$12.0 million, ~~$22.8~~$22.5 million and ~~$49.8~~$22.0 million, respectively, of tenant-funded tenant improvements. The amount of tenant-funded tenant improvements recorded in any given year varies based upon the mix of specific leases executed and/or commenced during the reporting period. For these tenant-funded tenant improvements, we record the ~~years ended December 31, 2016,~~ ~~2015, and~~ ~~2014, we recognized $13.2 million, $13.3 million and $11.0 million, respectively, of non-cash rental revenue related to the amortization of~~amount funded by or reimbursed by tenants as deferred revenue, ~~recorded in connection with tenant-funded tenant improvements.~~

When we conclude that we are not the owner and the tenant is the owner of certain tenant improvements for accounting purposes, we record our contribution towards those improvements as a lease incentive, which is amortized and recognized as ~~a reduction to~~ rental ~~revenue~~income on a straight-line basis over the term of the related lease ~~and rental revenue recognition begins when~~beginning upon substantial completion of the leased premises. The determination of who owns the tenant ~~takes possession of or controls the space.~~

~~Our determination as to whether we are or the tenant is the owner of tenant~~ improvements ~~for accounting purposes is made on a lease-by-lease basis and~~ has a significant impact on the amount of non-cash rental revenue that we record related to the amortization of deferred revenue for tenant-funded tenant improvements. For the years ended December 31, 2019, 2018, and 2017, we recognized $19.2 million, $18.4 million and $16.8 million, respectively, of non-cash rental revenue related to the amortization of deferred revenue recorded in connection with tenant-funded tenant improvements.

When we conclude that the tenant is the owner of certain tenant improvements for accounting purposes, we record our contribution towards those tenant-owned improvements as a lease incentive, which is included in deferred leasing costs and ~~also has~~acquisition-related intangible assets, net on our consolidated balance sheets and amortized as a ~~significant effect~~reduction to rental revenue on a straight-line basis over the ~~timing~~term of ~~commencement of revenue recognition.~~the related lease.

For residential properties, we commence revenue recognition upon ~~occupancy of the premises by the tenant.~~lease commencement. Residential rental revenue is recognized on a straight-line basis over the term of the related lease, net of any concessions.

~~Tenant Reimbursement Revenue~~

Additional Rent - Reimbursements from ~~tenants consist~~Tenants

Additional rent, consisting of amounts due from tenants for common area maintenance, real estate taxes, and other recoverable costs, ~~including capital expenditures.~~ are recognized in rental income in the period the recoverable costs are incurred. Prior to the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-02 “Leases (Topic 842)” (“Topic 842”) on January 1, 2019, such amounts were recognized in revenue as tenant reimbursements. Additional rent 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, with the corresponding expense recognized in property expenses or real estate taxes. Prior to the adoption of Topic 842, recoverable costs were generally recognized and recorded on a gross basis when we were the primary obligor with respect to purchasing goods and services from third-party suppliers, had discretion in selecting the supplier, and had credit risk.

Calculating ~~tenant reimbursement revenue~~additional rent requires an in-depth analysis of the complex terms of each underlying lease. Examples of judgments and estimates used when determining the amounts recoverable include:

estimating the final expenses, net of accruals, that are recoverable;

estimating the fixed and variable components of operating expenses for each building;

conforming recoverable expense pools to those used in establishing the base year or base allowance for the applicable underlying lease; and

concluding whether an expense or capital expenditure is recoverable pursuant to the terms of the underlying lease.

During the year, we accrue estimated ~~tenant reimbursement revenue~~additional rent in the period in which the ~~tenant reimbursable~~recoverable costs are incurred based on our best estimate of the amounts to be recovered. Throughout the year, we perform analyses to properly match ~~tenant reimbursement revenue~~additional rent with reimbursable costs incurred to date. Additionally, during the fourth quarter of each year, we perform preliminary reconciliations and accrue additional ~~tenant reimbursement revenue~~rent or refunds. Subsequent to year end, we perform final detailed reconciliations and analyses on a lease-by-lease basis and bill or refund each tenant for any cumulative annual

adjustments in the first and second quarters of each year for the previous year’s activity. Our historical experience for the years ended December 31, ~~2015~~2018 and ~~2014~~2017 has been that

our final reconciliation and billing process resulted in final amounts that approximated the total annual ~~tenant reimbursement revenues~~additional rent recognized.

Uncollectible Lease Receivables and Allowances for ~~Uncollectible Current~~ Tenant ~~Receivables~~ and Deferred Rent Receivables

~~Tenant receivables~~We carry our current and deferred rent receivables ~~are carried~~ net of allowances for amounts that may not be collected. Prior to the adoption of Topic 842 on January 1, 2019, the allowances were increased or decreased through provision for ~~uncollectible current tenant receivables~~bad debts on our consolidated statements of operations. Upon the adoption of Topic 842 on January 1, 2019, the allowances are increased or decreased through rental income, and deferred rent receivables. Current tenant receivables consist primarily of amounts due for contractual lease payments and reimbursements of common area maintenance expenses, property taxes, and other costs recoverable from tenants. Deferred rent receivables represent the amount by which the cumulative straight-line rental revenue recorded to date exceeds cash rents billed to date under the lease agreement. As of December 31, 2016 and ~~2015~~, current receivables were carried net of an allowance for uncollectible tenant receivables of $1.7 million and $2.1 million, respectively, for each period and deferred rent receivables were carried net of an allowance for deferred rent of $1.5 million~~and $1.9 million, respectively.~~

~~Management’s~~our determination of the adequacy of the ~~allowance~~Company’s allowances for ~~uncollectible~~ tenant receivables ~~and~~includes a binary assessment of whether or not substantially all of the ~~allowance for deferred rent receivables is performed~~amounts due under a tenant’s lease agreement are probable of collection. Such assessment involves using a methodology that incorporates a specific identification analysis and an aging analysis and considers the current economic and business environment. This determination requires significant judgment and estimates about matters that are uncertain at the time the estimates are made, including the creditworthiness of specific tenants, specific industry trends and conditions, and general economic trends and conditions. Since these factors are beyond our control, actual results can differ from our estimates, and such differences could be material. For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For leases 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.

For tenant and deferred rent receivables associated with leases whose rents are deemed probable of collection, we may record an allowance under other authoritative GAAP using a methodology that incorporates a specific identification analysis and an aging analysis and considers the current economic and business environment. This determination requires significant judgment and estimates about matters that are uncertain at the time the estimates are made, including the creditworthiness of specific tenants, specific industry trends and conditions, and general economic trends and conditions. Since these factors are beyond our control, actual results can differ from our estimates, and such differences could be material. Tenant and deferred rent receivables deemed probable of collection are carried net of allowances for uncollectible accounts, with increases or decreases in the allowances recorded through rental income on our consolidated statements of operations. Prior to the adoption of Topic 842 on January 1, 2019, the allowances were increased or decreased through provision for bad debts on our consolidated statements of operations.

Current tenant receivables consist primarily of amounts due for contractual lease payments and reimbursements of common area maintenance expenses, property taxes, and other costs recoverable from tenants. With respect to the allowance for uncollectible tenant receivables, the specific identification methodology analysis relies on factors such as the age and nature of the receivables, the payment history and financial condition of the tenant, our assessment of the tenant’s ability to meet its lease obligations, and the status of negotiations of any disputes with the tenant.

Deferred rent receivables represent the amount by which the cumulative straight-line rental revenue recorded to date exceeds cash rents billed to date under the lease agreement. With respect to the allowance for deferred rent receivables, given the longer-term nature of these receivables, the specific identification methodology analysis evaluates each of our significant tenants and any tenants on our internal watchlist and relies on factors such as each tenant’s financial condition and its ability to meet its lease obligations. We evaluate our reserve levels quarterly based on changes in the financial condition of tenants and our assessment of the tenant’s ability to meet its lease obligations, overall economic conditions, and the current business environment.

For the years ended December 31, ~~2016,~~ ~~2015~~2019, 2018 and ~~2014~~,2017, we recorded a total ~~provision~~allowance for ~~bad debts~~uncollectible accounts for both current tenant receivables and deferred rent receivables of approximately ~~0.0%~~0.3%, ~~0.1%~~0.4% and ~~0.0%~~0.5%, respectively, of ~~rental revenue. Our historical experience has been that actual write-offs of current tenant receivables and deferred rent receivables has approximated the provision for bad debts recorded~~total revenues. In addition, for the years ended December 31, ~~2016,~~ ~~2015~~2019 and ~~2014~~.2018, we recorded an additional provision for uncollectible accounts of approximately 0.1% and 0.4%, respectively, of total revenues related to a note receivable. In the event our estimates were not accurate and we had to change our allowances by 1% of revenue from continuing operations, the potential impact to our net income available to common stockholders would be approximately ~~$6.4~~$8.4 million, ~~$5.8~~$7.5 million and ~~$5.2~~$7.2 million for the years ended December 31, ~~2016,~~ ~~2015~~2019, 2018 and ~~2014~~,2017, respectively.

Acquisitions

WeAcquisitions of operating properties and development and redevelopment opportunities generally do not meet the definition of a business and are accounted for as asset acquisitions, as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. For these asset acquisitions, we record the acquired tangible and intangible assets and assumed liabilities ~~of acquisitions of all operating properties~~based on each asset’s and ~~those development and redevelopment opportunities that meet the accounting criteria to be accounted for as business combinations at~~liability’s relative fair value at the acquisition ~~date.~~ date of the total purchase price plus any capitalized acquisition costs.

We assess and consider fair value based on estimated cash flow projections that utilize available market information and discount and/or capitalization rates that we deem appropriate. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. The acquired assets and assumed liabilities for an operating property acquisition generally include but are not limited to: land and improvements, buildings and improvements, construction in progress and identified tangible and intangible assets and liabilities associated with in-place leases, including tenant improvements, leasing costs, value of above-market and below-market operating leases and ground leases, acquired in-place lease values and tenant relationships, if any.

The fair value of land and improvements is derived from comparable sales of land and improvements within the same submarket and/or region. The fair value of buildings and improvements, tenant improvements and leasing costs ~~are based upon~~considers the value of the property as if it was vacant as well as current ~~market~~ replacement costs and other relevant market rate information.

The fair value of the above-market or below-market component of an acquired in-place operating lease is based upon the present value (calculated using a market discount rate) of the difference between (i) the contractual rents to be paid pursuant to the lease over its remaining non-cancellable lease term and (ii) management’s estimate of the rents that would be paid using fair market rental rates and rent escalations at the date of acquisition measured over the remaining non-cancellable term of the lease for above-market operating leases and the initial non-cancellable term plus the term of any below-market fixed rate renewal options, if applicable, for below-market operating leases. The amounts recorded for above-market operating leases are included in deferred leasing costs and acquisition-related intangible assets, net on the balance sheet and are amortized on a straight-line basis as a reduction of rental income over the remaining term of the applicable leases. The amounts recorded for below-market operating leases are included in deferred revenue and acquisition-related liabilities, net on the balance sheet and are amortized on a straight-line basis as an increase to rental income over the remaining term of the applicable leases plus the term of any below-market fixed rate renewal options, if applicable. Our below-market operating leases generally do not include fixed rate or below-market renewal options. If a lease were to be terminated or if termination were determined to be likely prior to its contractual expiration (for example resulting from bankruptcy), amortization of the related above-market or below-market lease intangible would be accelerated.

The fair value of acquired in-place leases is derived based on management’s assessment of lost revenue and costs incurred for the period required to lease the “assumed vacant” property to the occupancy level when purchased. This fair value is based on a variety of considerations including, but not necessarily limited to: (1) the value associated with avoiding the cost of originating the acquired in-place leases; (2) the value associated with lost revenue related to tenant reimbursable operating costs estimated to be incurred during the assumed lease-up period; and (3) the value associated with lost rental revenue from existing leases during the assumed lease-up period. Factors ~~considered by us~~we consider in performing these analyses include an estimate of the carrying costs during the expected lease-up periods, current market conditions, and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses, and estimates of lost rental revenue during the expected lease-up periods based on current market demand at market rates. In estimating costs to execute similar leases, we consider leasing commissions, legal and other related expenses. The amount recorded for acquired in-place leases is included in deferred leasing costs and acquisition-related intangible assets, net on the balance sheet and amortized as an increase to depreciation and amortization expense over the remaining term of the applicable leases. If a lease were to be terminated or if termination were determined to be likely prior to its contractual expiration (for example resulting from bankruptcy), amortization of the related unamortized in-place lease intangible would be accelerated.

The determination of the fair value of any debt assumed in connection with a property acquisition is estimated by discounting the future cash flows using interest rates available for the issuance of debt with similar terms and remaining maturities.

The determination of the fair value of the acquired tangible and intangible assets and assumed liabilities of acquisitions requires us to make significant judgments and assumptions about the numerous inputs discussed above. The use of different assumptions in these fair value calculations could significantly affect the reported amounts of the allocation of our acquisition related assets and liabilities and the related depreciation and amortization expense recorded for such assets and liabilities. In addition, because the value of above and below market leases are amortized as either a reduction or increase to rental income, respectively, our judgments for these intangibles could have a significant impact on our reported rental revenues and results of operations.

~~Costs directly~~Transaction costs associated with ~~all operating property~~our acquisitions ~~and those development and redevelopment acquisitions that meet the accounting criteria to be accounted for as business combinations are expensed as incurred. During the years ended December 31, 2016,~~ ~~2015, and~~ ~~2014~~, we expensed $1.9 million, $0.5 million and $1.5 million of acquisition costs respectively, based on the level of our acquisition activity during those years. Our acquisition expenses are directly related to our acquisition activity and if our acquisition activity was to increase or decrease, so would our acquisition costs.

We record development acquisitions that do not meet the accounting criteria to be accounted for as business combinations and the subsequent acquisition of the fee interest in land and improvements underlying our properties at the purchase price paid. Costs directly associated with development acquisitions accounted for as asset acquisitions

are capitalized as part of the ~~cost~~purchase price of the acquisition. During the years ended December 31, ~~2016,~~ ~~2015~~,2019, 2018 and ~~2014~~,2017, we capitalized ~~$0.5~~$1.6 million, ~~$1.1~~$3.8 million, and ~~$4.5~~$4.6 million, respectively, of ~~such~~ acquisition costs.

Evaluation of Asset Impairment

We evaluate our real estate assets for potential impairment whenever events or changes in circumstances indicate that the carrying amount of a given asset may not be recoverable. We evaluate our real estate assets for impairment on a property-by-property basis. Indicators we use to determine whether an impairment evaluation is necessary include:

low occupancy levels, forecasted low occupancy levels or near term lease expirations at a specific property;

current period operating or cash flow losses combined with a historical pattern or future projection of potential continued operating or cash flow losses at a specific property;

deterioration in rental rates for a specific property as evidenced by sudden significant rental rate decreases or continuous rental rate decreases over numerous quarters, which could signal a continued decrease in future cash flow for that property;

deterioration of a given rental submarket as evidenced by significant increases in market vacancy and/or negative absorption rates or continuous increases in market vacancy and/or negative absorption rates over numerous quarters, which could signal a decrease in future cash flow for properties within that submarket;

significant increases in property sales yields, continuous increases in property sales yields over several quarters, or recent property sales at a loss within a given submarket, each of which could signal a decrease in the market value of properties;

significant change in strategy or use of a specific property or any other event that could result in a decreased holding period, including classifying a property as held for sale, or significant development delay;

evidence of material physical damage to the property; and

default by a significant tenant when any of the other indicators above are present.

When we evaluate for potential impairment our real estate assets to be held and used, we first evaluate whether there are any indicators of impairment. If any impairment indicators are present for a specific real estate asset, we then perform an undiscounted cash flow analysis and compare the net carrying amount of the real estate asset to the real estate asset’s estimated undiscounted future cash flow over the anticipated holding period. If the estimated undiscounted future cash flow is less than the net carrying amount of the real estate asset, we perform an impairment loss calculation to determine if the fair value of the real estate asset less estimated costs to sell, is less than the net carrying value of the real estate asset. We also perform an impairment loss calculation for real estate assets held for sale to determine if the fair value of the real estate asset, less estimated costs to sell, is less than the net carrying value of the real estate asset. Our impairment loss calculation compares the net carrying amount of the real estate asset to the real estate asset’s estimated fair value, which may be based on estimated discounted future cash flow calculations or third-party valuations or appraisals. We recognize an impairment loss if the amount of the asset’s net carrying amount exceeds the asset’s

estimated fair ~~value less costs to sell.~~value. If we recognize an impairment loss, the estimated fair value of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis ~~will~~would be depreciated (amortized) over the remaining useful life of that asset. If a real estate asset is designated as real estate held for sale, it is carried at the lower of the net carrying value or estimated fair value less costs to sell, and depreciation ceases.

Our undiscounted cash flow and fair value calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flow and property fair values, including determining our estimated holding period and selecting the discount or capitalization rate that reflects the risk inherent in future cash flow. Estimating projected cash flow is highly subjective as it requires assumptions related to future rental rates, tenant allowances, operating expenditures, property taxes, capital improvements, and occupancy levels. We are also required to make a number of assumptions relating to future economic and market events and prospective operating trends. Determining the appropriate capitalization rate also requires significant judgment and is typically based on many factors including the prevailing rate for the market

or submarket, as well as the quality and location of the properties. Further, capitalization rates can fluctuate resulting from a variety of factors in the overall economy or within regional markets. If the actual net cash flow or actual market capitalization rates significantly differ from our estimates, the impairment evaluation for an individual asset could be materially affected.

For each property where such an indicator occurred and/or for properties within a given submarket where such an indicator occurred, we completed an impairment evaluation. After completing this process, we determined that for each of the operating properties evaluated, undiscounted cash flows over the holding period were in excess of carrying value and, therefore, we did not record any impairment losses for these properties.

Cost Capitalization and Depreciation

We capitalize costs associated with development and redevelopment activities, capital improvements, and tenant improvements, ~~and leasing activities,~~ including internal compensation costs. For the years ended December 31, 2019, 2018 and 2017, we capitalized $25.6 million, $24.2 million and $23.2 million, respectively, of internal costs to our qualifying development projects. In addition, for development and redevelopment projects, we also capitalize the following costs during periods in which activities necessary to prepare the project for its intended use are in progress: interest costs based on the weighted average interest rate of our outstanding indebtedness for the period, real estate taxes and insurance. ~~For the years ended December 31, 2016,~~ ~~2015~~ ~~and~~ ~~2014, we capitalized $19.0 million, $15.2 million and $11.4 million, respectively, of internal costs to our qualifying development projects.~~

Amounts capitalized are depreciated or amortized over estimated useful lives determined by management. We depreciate buildings and improvements based on the estimated useful life of the asset, and we amortize tenant improvements ~~and leasing costs~~ over the shorter of the estimated useful life or estimated remaining life of the related lease. All capitalized costs are depreciated or amortized using the straight-line method.

Determining whether expenditures meet the criteria for capitalization and the assignment of depreciable lives requires management to exercise significant judgment. Expenditures that meet one or more of the following criteria generally qualify for capitalization:

provide benefit in future periods;

extend the useful life of the asset beyond our original estimates; and

increase the quality of the asset beyond our original estimates.

Our historical experience has demonstrated that we have not had material write-offs of assets and that our depreciation and amortization estimates have been reasonable and appropriate.

Share-Based Incentive Compensation Accounting

At December 31, ~~2016,~~2019, the Company had one share-based incentive compensation plan, the Kilroy Realty 2006 Incentive Award Plan, which is described more fully in Note 15 “Share-Based Compensation” to our consolidated financial statements included in this report. The Executive Compensation Committee determines compensation for ~~Executive Officers.~~executive officers, as defined in Rule 16 under the Exchange Act. Compensation cost for all share-based awards, including options, requires an estimate of fair value on the grant date and compensation cost is recognized on a straight-line basis over the service vesting period, which represents the requisite service period. The grant date fair value for compensation programs that contain market conditions, like modifiers based on total stockholder return (a “market condition”), are performed using complex pricing valuation models that require the input of assumptions, including judgments to estimate expected stock price volatility, expected life, and forfeiture rate. Specifically, the grant date fair value of share-based compensation programs that include market conditions are calculated using a Monte Carlo simulation pricing model and the grant date fair value of stock option grants are calculated using the Black-Scholes valuation model. Additionally, certain of our market condition share-based compensation programs also contain pre-defined financial performance conditions, including FFO per share, FAD per share growth, and debt to EBITDA ratio goals ~~(a “performance condition”)~~ which can impact the number of restricted stock units ultimately earned. This variability relating to the level of the performance condition achieved requires management’s judgment and estimates, which impacts compensation cost recognized for these awards during the performance period. As of December 31, ~~2016,~~2019, the performance condition for ~~all~~certain of our outstanding market condition ~~share based~~share-based compensation programs ~~have~~has been met and compensation cost for these awards is no longer variable. ~~Although~~For these awards, although the number of restricted stock units ultimately earned remains variable subject to the ultimate achievement level of the market condition, compensation cost is no longer variable for these awards as the market condition was already taken into consideration as part of the grant date fair value calculation. As of December 31, 2019, there are certain outstanding share-based compensation awards where the performance conditions have not all yet been met. For these awards, compensation cost and the number of restricted stock units ultimately earned remains variable and compensation cost for these awards is recorded based the estimated level of achievement of the performance conditions through the requisite service period. Changes to compensation cost resulting from changes in the estimated level of achievement of the performance conditions are recorded as cumulative adjustments in the period the change in the estimated level of achievement of the performance conditions is determined.

For the years ended December 31, ~~2016, 2015,~~2019, 2018, and ~~2014~~2017 we recorded approximately ~~$16.6~~$18.1 million, ~~$11.5~~$23.5 million, and ~~$8.1~~$14.5 million, respectively, of compensation cost related to programs that were subject to such valuation models. If the valuation of the grant date fair value for such programs changed by 10%, the potential impact to our net income available to common stockholders would be approximately ~~$1.4~~$1.6 million, ~~$1.0~~$2.0 million, and ~~$0.8~~$1.1 million for the years ended December 31, ~~2016, 2015,~~2019, 2018, and ~~2014~~,2017, respectively.

Factors That May Influence Future Results of Operations

Development Program

We believe that a portion of our long-term future growth will continue to come from the completion of our in-process development projects ~~stabilization of recently completed development projects,~~ and, subject to market conditions, executing on our ~~near-term and~~ future development pipeline, including expanding entitlements. Over the past several years, we increased our focus on development opportunities and expanded our ~~near-term and~~ future development pipeline through targeted acquisitions of development opportunities on the West Coast. This includes the acquisitions of two development sites in two separate transactions for a total cash purchase price of approximately $173.0 million in 2019, as discussed in “—Acquisitions” below.

We have a proactive planning process by which we continually evaluate the size, timing, costs and scope of our development program and, as necessary, scale activity to reflect the economic conditions and the real estate fundamentals that exist in our submarkets. We expect to execute on our development program with prudence and will be pursuing opportunities with attractive economic returns in strategic locations with proximity to public transportation or transportation access and retail amenities and in markets with strong fundamentals and visible demand. We plan to develop in phases as appropriate and we generally favor starting projects ~~that are pre-leased.~~with pre-leasing activity, as appropriate.

~~Completed~~

Stabilized Development Projects

In ~~2016~~,During the year ended December 31, 2019, we added the following ~~projects~~project to our stabilized portfolio:

~~350 Mission Street,~~100 Hooper, SOMA, San Francisco, California, which we ~~acquired~~commenced construction on in ~~October 2012 and was stabilized in March~~November 2016. This ~~development~~ project ~~has~~encompasses 311,859 square feet of office and 82,481 square feet of production, distribution and repair (“PDR”) space spanning two buildings with a total estimated investment of approximately ~~$277.8 million and encompasses approximately 455,340 rentable square feet.~~$275.0 million. The office ~~component~~portion of ~~this~~the project is 100% leased ~~to salesforce.com, inc.~~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 cash rents on the remaining phases will commence through the second quarter of 2020.

~~333 Brannan Street, SOMA,~~Completed Residential Development Projects

During the year ended December 31, 2019, we completed the first phase of the following residential development project:

One Paseo (Residential Phase I) - Del Mar, San Diego, California. We commenced construction on the first phase of the residential component of this mixed-use project in December 2016, which includes 237 residential units. The total estimated investment for this phase of the residential component of the project is approximately $145.0 million. As of the date of this report, 66% of the units have been leased.

In-Process Development Projects - Tenant Improvement

As of December 31, 2019, the following development projects were in the tenant improvement phase:

The Exchange on 16th, Mission Bay, San Francisco, ~~California, which we acquired~~California. We commenced construction on this project in ~~July 2012~~June 2015. This project totals approximately 750,000 gross rentable square feet consisting of 738,000 square feet of office space and ~~was stabilized in March 2016. This development project has~~12,000 square feet of retail space at a total estimated investment of ~~approximately $101.5 million and~~

~~encompasses approximately185,602 rentable square feet.~~$585.0 million. The office ~~component of~~space in the project is 100% leased to Dropbox, Inc.

~~The Heights at Del Mar, Del Mar, California, a 73,000 square foot office project that has a total estimated investment of approximately $45.0 million. The building core~~ During the year ended December 31, 2019, we completed construction and ~~shell~~commenced revenue recognition on the first phase of the project ~~were completed~~in the second quarter of 2019 and on the second phase of the project in the fourth quarter of ~~2015. As~~2019, totaling approximately 82% of ~~December 31, 2016,~~the project. The remaining space is currently expected to stabilize in the third quarter of 2020. Cash rents on the project ~~was65% committed and was moved from “lease-up”~~will continue to commence through the ~~stabilized portfolio in the fourth~~first quarter of ~~2016 since~~2020.

One Paseo (Retail) - Del Mar, San Diego, California. We commenced construction on the ~~project had reached one year from building shell substantial completion.~~

~~Columbia Square - Residential, Hollywood, California, the 21-story residential~~retail component of ~~the Columbia Square~~this mixed-use project in December 2016, which is comprised of ~~200 units, is a mix~~approximately 96,000 square feet of high-end long-term rentals and extended stay apartment homes and has a total estimated investment of approximately $160.0 million. As of December 31, 2016, the project was 57% leased. Construction on the project was completed in the second quarter of 2016.

~~Projects in~~ “~~Lease-Up~~”

~~As of December 31, 2016, we had one office development project in the “lease-up” phase.~~

Columbia Square Phase 2 - Office, Hollywood, California, located in the heart of Hollywood, California, two blocks from the corner of Sunset Boulevard and Vine Street. This project is comprised of three buildings totaling approximately 377,000 rentable square feetretail space with a total estimated investment of ~~$230.0~~$100.0 million. ~~The building core and shell~~As of the date of this report, the retail space of the project ~~were completed in the first quarter of 2016. The~~was 100% leased and 89% occupied. This project ~~is currently 86% committed and74%occupied and is expected to~~will be added to ~~the~~our stabilized portfolio in the first quarter of ~~2017.~~

2020.

In-Process Development Projects - Under Construction

As of December 31, ~~2016,~~2019, we had ~~three~~six projects in our in-process development pipeline that were under construction.

~~The Exchange on 16th, Mission Bay,~~Kilroy Oyster Point (Phase I), South San Francisco, ~~California, which~~California. In March 2019, we ~~acquired in May 2014 and~~ commenced construction on Phase I of this 39-acre life science campus situated on the waterfront in ~~June 2015.~~South San Francisco. This ~~project is currently anticipated to encompass~~first phase encompasses approximately ~~700,000 gross rentable~~656,000 square feet of office space ~~in four buildings~~ at a total estimated investment of ~~approximately $485.0~~$570.0 million. ~~Construction is~~In 2019, we executed two 12-year leases for 100% of Phase I of the project. We currently ~~in process and the building and core shell are estimated~~expect this project to ~~be completed~~stabilize in the ~~second half~~fourth quarter of ~~2017. The timing, estimated gross rentable square feet and total estimated investment are for a multi-tenant office project.~~2021.

~~100 Hooper,~~9455 Towne Centre Drive, University Towne Center, San ~~Francisco, California, which~~Diego, California. In March 2019, we ~~acquired in July 2015 and~~ commenced construction on ~~in November 2016. This~~this project ~~is fully entitled for~~which totals approximately ~~314,000~~160,000 square feet of office space at a total estimated investment of $110.0 million. In December 2019, we executed a long-term lease with a major technology company for 100% of the project. We currently expect this project to stabilize in the first quarter of 2021.

Netflix & Living // On Vine, Hollywood, 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 ~~86,000~~355,000 square feet of ~~PDR~~office space ~~configured in two, four-story buildings. The~~for a total estimated ~~cost for~~investment of $300.0 million. The office space of this project is ~~approximately $270.0~~100% leased to Netflix, Inc. We commenced construction on the residential component of the project in December 2018, which encompasses 193 residential units at a total estimated investment of $195.0 million. ~~Construction is~~We currently expect this project to stabilize in ~~process~~the first quarter of 2021, and the ~~core and shell of the project~~residential component is currently expected to be completed in the ~~first half~~fourth quarter of ~~2018. The~~2020.

333 Dexter, South Lake Union, Seattle, Washington. We commenced construction on this project in June 2017. This project encompasses approximately 635,000 square feet of office ~~portion of the project was 66% pre-leased to Adobe Systems Inc.~~space at December 31, 2016 and is currently 100% pre-leased to Adobe Systems Inc as of the date of this filing. In connection with 100 Hooper, the Company also intends to develop an adjacent 50,000 square foot PDR space located at 150 Hooper with a total estimated investment of ~~approximately $21.0~~$410.0 million.

~~One Paseo - Phase I (Retail and Residential), San Diego, California, which~~ During the year ended December 31, 2019, we ~~acquired in November 2007 and commenced construction on in December 2016. Phase I~~executed a lease for 100% of ~~this mixed-use~~the project includes site work and related infrastructure for the entire project, as well as 237 residential units and approximately 96,000 square feet of retail space. The total estimated investment for this project is approximately $225.0 million.with a Fortune 50 publicly traded company. Construction is currently in ~~process~~progress and the project is currently ~~expected~~estimated to ~~be completed~~move into the tenant improvement phase in the first quarter of 2020 and stabilize in the second ~~quarter~~half of ~~2019.~~

2022.

•

One Paseo (Residential Phases II and III and Office) - Del Mar, San Diego, California. We commenced construction on the residential component of this mixed-use project in December 2016 of which Phases II and III comprise 371 residential units. The total estimated investment for Phases II and III of the residential component of the project is approximately $230.0 million. Phases II and III are expected to be completed and delivered in phases during the first half of 2020. We commenced construction on the office component of the project in December 2018, which encompasses 285,000square feet of office space at a total estimated investment of $205.0 million. As of the date of this report, the office component of the project was 80% leased. We currently expect the project to stabilize in the second quarter of 2021.

2100 Kettner, Little Italy, San Diego, California. We commenced construction on this project in September 2019. This project is comprised of approximately 200,000 square feet of office space for a total estimated investment of $140.0 million.

~~Near-Term and~~ Future Development Pipeline

As of December 31, ~~2016,~~2019, our ~~near-term~~future development pipeline included ~~three additional undeveloped land holdings~~five future projects located in ~~various submarkets in~~Greater Seattle, the San Francisco Bay Area and San Diego County ~~Greater Seattle and Los Angeles~~ with an aggregate cost basis of approximately ~~$274.1~~$985.7 million, at which we believe we could develop ~~approximately 1.9~~more than 6.0 million rentable square feet atfor a total estimated investment of ~~over $1.2~~approximately $5.0 billion to $7.0 billion, depending on successfully obtaining entitlements and market conditions.

The following table sets forth information about our ~~near-term~~future development ~~pipeline as of the date of this report.~~

pipeline.

Near-Term Development Pipeline ⁽¹⁾
Location
Potential Start Date ⁽²⁾
Approx. Developable Square Feet Total Estimated Investment
Total Costs as of 12/31/2016 ⁽³⁾
(in millions)

333 Dexter ⁽⁴⁾
South Lake Union 2017 700,000 $ 385
$ 73.5
Academy Project Hollywood 2017 545,000 390
73.5
One Paseo - Phases II and III ⁽⁵⁾
Del Mar TBD 640,000 440
127.1

Total Near-Term Development Pipeline 1,885,000 $ 1,215
$ 274.1



Future Development Pipeline	Location	Approx. Developable Square Feet ⁽¹⁾	Total Costs as of 12/31/2019 ($ in millions)⁽²⁾

San Diego County
Santa Fe Summit – Phases II and III	56 Corridor	600,000 - 650,000	$	80.4
1335 Broadway & 901 Park Boulevard	East Village	TBD	45.1
San Francisco Bay Area
Kilroy Oyster Point - Phase II - IV	South San Francisco	1,750,000 - 1,900,000	330.5
Flower Mart	SOMA	2,300,000	392.3
Greater Seattle
Seattle CBD Project	Seattle CBD	TBD	137.4
TOTAL:			$	985.7

________________________


(1)	~~Project timing, costs,~~The developable square feet and scope of projects could change materially from estimated data provided due to one ofor more of the following: any significant changes in the economy, market conditions, our markets, tenant requirements and demands, construction costs, new ~~office~~ supply, regulatory and entitlement processes ~~and~~or project design.


(2)	Potential start dates assume successfully obtaining all entitlements and approvals necessary to commence construction. Actual commencement is subject to extensive consideration of market conditions and economic factors.


~~(3)~~	Represents cash paid and costs incurred, including accrued liabilities in accordance with GAAP, as of December 31, ~~2016.~~


~~(4)~~	~~Consists of four adjacent parcels in the South Lake Union submarket of Seattle.~~

~~(5)~~

In July 2016, the Company received final entitlement approval for this project. Development for this project will occur in phases. Phase I includes the project's overall infrastructure and site work, 237 residential units and approximately 96,000 square feet of retail space. Phases II and III, comprised of office and residential, will commence subject to market conditions and economic factors.2019.

As of December 31, 2016, our longer term future development pipeline included additional undeveloped land holdings located in various submarkets in San Diego County and San Francisco Bay Area with an aggregate cost basis of approximately $302.2 million, at which we believe we could develop more than 2.5 million rentable square feet, depending on successfully obtaining entitlements and market conditions.

~~Increases~~Fluctuations in our development activities could cause ~~an increase~~fluctuations in the average development asset balances qualifying for interest and other ~~carry~~carrying cost and internal cost capitalization in future periods. During the years ended December 31, ~~2016~~2019 and ~~2015,~~2018, we capitalized interest on in-process development projects and future development pipeline projects with an average aggregate cost basis of approximately ~~$1.1~~$2.0 billion and $1.6 billion, respectively, as it was determined these projects qualified for interest and other ~~carry~~carrying cost capitalization under GAAP. For the years ended December 31, ~~2016~~2019 and ~~2015,~~2018, we capitalized ~~$49.5~~$81.2 million and ~~$52.0~~$68.1 million, respectively, of interest to our qualifying development projects. For the years ended December 31, ~~2016~~2019 and ~~2015,~~2018, we capitalized ~~$19.0~~$25.6 million and ~~$15.2~~$24.2 million, respectively, of internal costs to our qualifying redevelopment and development projects.

~~Acquisitions~~. During the year ended December 31, 2016, we acquired seven buildings in three transactions for an aggregate purchase price of approximately $394.6 million, and one land parcel for $31.0 million in cash and the issuance of 867,701 common units in the Operating Partnership valued at approximately $48.0 million. We incurred $2.4 million in seller transaction costs related to these acquisitions. During 2015, we acquired two development opportunities in two transactions for a total cash purchase price of approximately $127.5 million. We generally finance our acquisitions through proceeds from the issuance of debt and equity securities, borrowings under our unsecured revolving credit facility, proceeds from our capital recycling program, the assumption of existing debt and cash flows from operations.

As part of our growth strategy, which is highly dependent on market conditions and business cycles, among other factors, we continue to evaluate strategic opportunities and remain a disciplined buyer of development and redevelopment opportunities as well as value-add operating properties. We continue to focus on growth opportunities in West Coast markets populated by knowledge and creative based tenants in a variety of industries, including technology, media, healthcare, life sciences, entertainment and professional services. Against the backdrop of market volatility,

we expect to manage a strong balance sheet, execute on our development program and selectively evaluate opportunities that either add immediate Net Operating Income to our portfolio or play a strategic role in our future growth.

We cannot provide assurance that we will enter into any agreements to acquire properties, or undeveloped land, or that the potential acquisitions contemplated by any agreements we may enter into in the future will be completed. In addition, acquisitions are subject to various risks and uncertainties and we may be unable to complete an acquisition after making a nonrefundable deposit or incurring acquisition-related costs.

Capital Recycling Program. We continuously evaluate opportunities for the potential disposition of non-core properties and undeveloped land in our portfolio or the formation of strategic ventures with the intent of recycling the proceeds generated into capital used to fund new operating and development acquisitions, to finance development and redevelopment expenditures, to repay long-term debt and for other general corporate purposes. As part of this strategy, we attempt to enter into Section 1031 Exchanges and other tax deferred transaction structures, when possible, to defer some or all of the taxable gains on the sales, if any, for federal and state income tax purposes. See the “Liquidity and Capital Resources of the Operating Partnership – Liquidity Sources” section for further ~~information regarding~~discussion of our capital recycling ~~strategy.~~activities.

In connection with our capital recycling strategy, during ~~2016~~,2019, we completed the sale of ~~six~~two office properties ~~and five undeveloped land parcels~~ to unaffiliated third parties for total gross sales proceeds of ~~$330.7~~$133.8 million. ~~In addition, in January 2017~~During 2018, we completed the sale of ~~one operating property that was held for sale at December 31, 2016 for total gross proceeds of $12.1 million.~~ ~~During 2015, we completed the sale of ten~~11 office properties ~~and one undeveloped land parcel~~ to unaffiliated third parties for total gross sales proceeds of ~~$335.2~~$373.0 million.

~~Also during~~ ~~2016~~, we entered into agreements with NBREM whereby NBREM invested, through REIT subsidiaries, in two existing wholly-owned companies that each owned an office property located in San Francisco, California. Based on a gross valuation of the two properties of approximately $1.2 billion, NBREM contributed a total of $452.9 million for a 44% common equity interest in the two companies, which was net of approximately $55.3 million of its proportionate share of the existing mortgage debt, as well as a working capital contribution of $5.0 million. See Note 11 “Noncontrolling Interests on the Company’s Consolidated Financial Statements” to our consolidated financial statements included in this report for additional information.

The timing of any potential future disposition or strategic venture transactions will depend on market conditions and other factors, including but not limited to our capital needs and our ability to defer some or all of the taxable gains on the sales. We cannot assure that we will dispose of any additional properties, enter into any additional strategic ventures, or that we will be able to identify and complete the acquisition of a suitable replacement property to effect a Section 1031 Exchange or be able to use other tax deferred structures in connection with our strategy. See the “Liquidity and Capital Resources of the Operating Partnership – Liquidity Sources” section for further information.

Acquisitions. As part of our growth strategy, which is highly dependent on market conditions and business cycles, among other factors, we continue to evaluate strategic opportunities and remain a disciplined buyer of development and redevelopment opportunities as well as value-add operating properties. We continue to focus on growth opportunities in West Coast markets populated by knowledge and creative based tenants in a variety of industries, including technology, media, healthcare, life sciences, entertainment and professional services. Against the backdrop of market volatility, we expect to manage a strong balance sheet, execute on our development program and selectively evaluate opportunities that either add immediate Net Operating Income to our portfolio or play a strategic role in our future growth.

During the year ended December 31, 2019, we acquired a 19-building creative office campus and two development sites in three transactions for a total cash purchase price of $359.0 million. During the year ended December 31, 2018, we acquired four office buildings in two transactions for a total cash purchase price of $257.0 million and a 39-acre development site for approximately $308.2 million. We generally finance our acquisitions through proceeds from the issuance of debt and equity securities, borrowings under our unsecured revolving credit facility, proceeds from our capital recycling program, the assumption of existing debt and cash flows from operations.

Incentive Compensation. Our Executive Compensation Committee determines compensation, including cash bonuses and equity incentives, for our executive ~~officers.~~officers, as defined in Rule 16 under the Exchange Act. For ~~2016,~~2019, the annual cash bonus program was structured to allow the Executive Compensation Committee to evaluate a variety of key quantitative and qualitative metrics at the end of the year and make a determination based on the Company’s and

management’s overall performance. Our Executive Compensation Committee also grants equity incentive awards from time to time that include performance-based and/or market-measure based vesting requirements ~~and/or~~and time-based vesting requirements. As a result, accrued incentive compensation and compensation expense for future awards may be affected by our operating and development performance, financial results, stock price, performance against applicable performance-based vesting goals, market conditions, liquidity measures, and other factors. Consequently, we cannot predict the amounts that will be recorded in future periods related to such incentive compensation.

As of December 31, ~~2016,~~2019, there was approximately ~~$29.6~~$50.5 million of total unrecognized compensation cost related to outstanding nonvested shares of restricted common stock ~~RSUs~~ and ~~stock options~~RSUs issued under share-based compensation arrangements. Those costs are expected to be recognized over a weighted-average period of ~~1.8~~2.1 years. The ~~$29.6~~$50.5 million of unrecognized compensation cost does not reflect the future compensation cost for any potential share-based awards that may be issued subsequent to December 31, ~~2016.~~2019. Share-based compensation expense for potential future awards could

be affected by our operating and development performance, financial results, stock price, performance against applicable performance-based vesting goals, market conditions and other factors.

~~Leasing Activity and Changes in Rental Rates~~. The amount of net rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space, newly developed or redeveloped properties, newly acquired properties with vacant space, and space available from unscheduled lease terminations. The amount of rental income we generate also depends on our ability to maintain or increase rental rates in our submarkets. Negative trends in one or more of these factors could adversely affect our rental income in future periods. The following tables set forth certain information regarding leasing activity for our stabilized portfolio during the ~~year~~ ~~ended~~ ~~December 31, 2016~~.

Information on Leases Commenced and Executed

Leasing Activity and Changes in Rental Rates. The amount of net rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space, newly developed or redeveloped properties, newly acquired properties with vacant space, and space available from unscheduled lease terminations. The amount of rental income we generate also depends on our ability to maintain or increase rental rates in our submarkets. Negative trends in one or more of these factors could adversely affect our rental income in future periods. The following tables set forth certain information regarding leasing activity for our stabilized portfolio during the year ended December 31, 2019.

For Leases Commenced



	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	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)
Year Ended December 31, 2019	70	58	1,440,649	867,514	35.5	%	$	50.49	$	6.45	41.1	%	18.4	%	94

For Leases Executed ⁽⁹⁾

1st & 2nd Generation ⁽¹⁾

2nd Generation ⁽¹⁾

Number of
Leases ⁽²⁾

Rentable
Square Feet ⁽²⁾

TI/LC per
Sq. Ft. ⁽³⁾

Changes in
Rents ⁽⁴⁾⁽⁵⁾

Changes in
Cash Rents ⁽⁶⁾

Retention Rates ⁽⁷⁾

Weighted Average Lease Term (in months)
New Renewal New Renewal
Year Ended December 31, 2016 86
63
585,637
476,011
$ 38.78
24.4 % 11.9 % 47.9 % 66

~~For Leases Executed~~ ⁽⁸⁾

1st & 2nd Generation ⁽¹⁾

2nd Generation ⁽¹⁾

Number of Leases ⁽²⁾

Rentable Square Feet ⁽²⁾

TI/LC per Sq. Ft. ⁽³⁾

Changes in
Rents ⁽⁴⁾⁽⁵⁾

Changes in
Cash Rents ⁽⁶⁾

Weighted Average Lease Term
(in months)
New Renewal New Renewal
Year Ended December 31, 2016 81
63
799,255
476,011
$ 50.60
30.2 % 13.4 % 80



	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	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)
Year Ended December 31, 2019	70	58	964,247	867,514	$	59.01	$	8.64	52.3	%	29.6	%	82

_______________________


(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.


~~(2)~~(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.


~~(3)~~(4)	~~Amounts~~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 exclude tenant-funded tenant improvements.


~~(4)~~(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.

~~(5)~~(7)

Excludes commenced and executed leases of approximately ~~169,837~~355,829 and ~~157,531~~215,640 rentable square feet, respectively, for the year ended December 31, ~~2016~~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.


~~(6)~~(8)	Calculated as the change between stated ~~cash~~ 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.


~~(7)~~	~~Calculated as the percentage of space either renewed or expanded into by existing tenants or subtenants at lease expiration.~~


~~(8)~~(9)	For the year ended December 31, ~~2016, 20~~2019, 34 new leases totaling ~~437,592~~644,176 rentable square feet were signed but not commenced as of December 31, ~~2016.~~2019.

As of December 31, ~~2016,~~2019, we believe that the weighted average cash rental rates for our total stabilized portfolio, ~~including recently acquired operating properties,~~ are approximately ~~17%~~20% below the current average market rental ~~rates, although individual~~rates. Individual properties within any particular submarket presently may be leased either above, below, or at the current market rates within that submarket, and the average rental rates for individual submarkets may be above, below, or at the average cash rental rate of our portfolio.

In general, market rental rates have continued to increase over the last several quarters in the majority of our submarkets but in certain markets the pace of rental rate growth is starting to moderate. Our rental rates and occupancy are impacted by general economic conditions, including the pace of regional economic growth and access to capital. Therefore, we cannot give any assurance that leases will be renewed or that available space will be re-leased at rental

rates equal to or above the current market rates. Additionally, decreased demand and other negative trends or unforeseeable events that impair our ability to timely renew or re-lease space could have further negative effects on our future financial condition, results of operations, and cash flows.

Scheduled Lease Expirations. The following ~~table sets~~tables set forth certain information regarding our lease expirations for our stabilized portfolio for the next five years and by region for the next two years.

Lease Expirations ⁽¹⁾

Year of Lease Expiration
Number of
Expiring
Leases
Total Square Feet % of Total Leased Sq. Ft.
Annualized Base Rent ⁽²⁾

% of Total Annualized Base Rent⁽²⁾

Annualized Base Rent per Sq. Ft. ⁽²⁾
2017 107
1,077,323
8.2 % $ 40,929
7.4 % $ 37.99
2018 82
1,392,576
10.4 % 55,896
10.2 % 40.14
2019 103
1,680,867
12.7 % 60,869
11.1 % 36.21
2020 104
2,041,185
15.5 % 78,506
14.3 % 38.46
2021 85
1,103,693
8.4 % 46,873
8.5 % 42.47
Total 481
7,295,644
55.2 % $ 283,073
51.5 % $ 38.80



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⁾
2020⁽⁴⁾	82	965,896	7.7	%	$	42,648	6.6	%	$	44.15
2021⁽⁴⁾	80	843,494	6.8	%	36,461		5.6	%	43.23
2022	62	749,273	6.0	%	32,488		5.1	%	43.36
2023	77	1,227,648	9.7	%	64,992		10.1	%	52.94
2024	56	998,249	8.0	%	47,378		7.4	%	47.46
Total	357	4,784,560	38.2	%	$	223,967	34.8	%	$	46.81



Year	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⁾
2020 ⁽⁴⁾	Greater Los Angeles	49	434,475	3.5	%	$	18,226	2.8	%	$	41.95
	San Diego	16	203,510	1.6	%	8,266		1.3	%	40.62
	San Francisco Bay Area	14	241,096	1.9	%	13,662		2.1	%	56.67
	Greater Seattle	3	86,815	0.7	%	2,494		0.4	%	28.73
	Total	82	965,896	7.7	%	$	42,648	6.6	%	$	44.15

2021 ⁽⁴⁾	Greater Los Angeles	46	285,425	2.4	%	$	11,636	1.8	%	$	40.77
	San Diego	14	289,457	2.3	%	11,635		1.8	%	40.20
	San Francisco Bay Area	11	239,259	1.9	%	12,245		1.9	%	51.18
	Greater Seattle	9	29,353	0.2	%	945		0.1	%	32.19
	Total	80	843,494	6.8	%	$	36,461	5.6	%	$	43.23

________________________


(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 December 31, ~~2016~~2019, space leased under month-to-month leases, storage leases, vacant space and future lease renewal options not executed as of December 31, ~~2016.~~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 December 31, 2019 but not yet commenced, the 2020 and 2021 expirations would be reduced by 267,449 and 173,267 square feet, respectively.

In addition to the ~~0.6~~0.7 millionrentable square feet, or ~~4.0%~~5.4%, of currently available space in our stabilized portfolio, leases representing approximately ~~8.2%~~7.7% and ~~10.4%~~6.8% of the occupied square footage of our stabilized portfolio are scheduled to expire during ~~2017~~2020 and ~~2018,~~2021, respectively. The leases scheduled to expire in ~~2017~~2020 and ~~2018~~2021 represent approximately ~~2.5~~1.8 million rentable square feet, or ~~17.6%~~12.2%, of our total annualized base rental revenue. ~~We believe that the weighted average cash rental rates are approximately 8% under the current average market rental rates for leases scheduled to expire during 2017 and 2018, although individual~~Individual properties within any particular submarket presently may be leased either above, below, or at the current quoted market rates within that ~~submarket, and the average rental rates for individual submarkets may be above, below, or at the average cash rental rate of our overall portfolio.~~submarket. Our ability to re-lease available space depends upon both general market conditions and the market conditions in the specific regions in which individual properties are located.

Approximately 1.0 million rentable square feet, or 6.6%, of our total annualized base rental revenue, and 0.8 million rentable square feet, or 5.6% of our total annualized base rental revenue, is scheduled to expire in 2020 and 2021, respectively. As of December 31, 2019, we had executed leases for 0.3 million and 0.2 million rentable square feet of the expiring 1.0 million and 0.8 million rentable square feet in 2020 and 2021, respectively. For the 0.3 million leased rentable square feet of 2020 expirations, we believe that the weighted average cash rental rates are approximately 20.0% below market. We believe the weighted average cash rental rates for the remaining 0.7 millionexpiring rentable feet in 2020 are approximately 20% below current average market rental rates. For the 0.2 millionleased rentable square

feet of 2021 expirations, we believe that the weighted average cash rental rates are approximately 75% below market. We believe the weighted average cash rental rates for the remaining 0.6 millionexpiring rentable feet are approximately 25% below current average market rental rates.

Stabilized Portfolio Information

As of December 31, ~~2016~~,2019, our stabilized portfolio was comprised of ~~108~~112 office properties encompassing an aggregate of approximately ~~14.0~~13.5 million rentable square feet and 200 residential ~~units.~~units at our residential tower in Hollywood, California. Our stabilized portfolio includes all of our properties with the exception of development and redevelopment properties currently committed for construction, under construction or ~~committed for construction, “lease-up”~~in the tenant improvement phase, undeveloped land, recently completed residential properties not yet stabilized and real estate assets held for ~~sale and undeveloped land.~~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 ~~“lease-up”~~ properties in the tenant improvement phase as office and retail properties that we ~~recently developed~~are developing or ~~redeveloped that have not yet~~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 ~~and are within~~or one year ~~following~~from the date of the cessation of major base building construction activities. Costs capitalized to construction in progress for development and redevelopment properties are transferred to land and improvements, buildings and improvements, and deferred leasing costs on our consolidated balance sheets as the historical cost of the property as the projects are placed in service.

We did not have any redevelopment or held for sale properties at December 31, 2019. Our stabilized portfolio also excludes our ~~near-term and~~ future development pipeline, which as of December 31, ~~2016~~2019 was comprised of ~~seven~~five potential development sites, representing approximately 5461 gross acres of undeveloped land on which we believe we have the potential to develop ~~over 4.8~~more than 6.0 million rentable square feet, ~~of office space,~~ depending upon economic conditions.

As of December 31, ~~2016~~,2019, the following properties were excluded from our stabilized portfolio:

Number of
Properties/Projects

Estimated Office Rentable
Square Feet
Properties held for sale ⁽¹⁾
1 67,995
Development project in “lease-up”⁽²⁾
1 377,000
Development projects under construction ^{(2) (3)}
3 1,100,000



	Number of Properties/Projects	Estimated Rentable Square Feet ⁽¹⁾ /Units
In-process development projects - tenant improvement ⁽²⁾	2	846,000
In-process development projects - under construction ⁽³⁾	6	2,291,000
Completed residential development project⁽⁴⁾	1	237 units

~~_______________~~________________________


(1)	~~See Note 4 “Dispositions and Real Estate Assets Held for Sale” to our consolidated financial statements included in this report for additional information.~~


~~(2)~~	Estimated rentable square feet upon completion.


~~(3)~~(2)	~~Development projects under construction also include~~Includes 96,000 square feet of retail ~~space and 237 residential units in~~space.


(3)	In addition to the estimated office rentable square feet noted ~~above.~~above, development projects under construction also include 564 residential units.


(4)	Represents recently completed residential units not yet stabilized.

The following table reconciles the changes in the rentable square feet in our stabilized office portfolio of operating properties from December 31, ~~2015~~2018 to December 31, ~~2016~~:2019:


	Number of Buildings		Rentable Square Feet		Number of Buildings		Rentable Square Feet
Total as of December 31, 2015	101		13,032,406
Total as of December 31, 2018					94		13,232,580
Acquisitions⁽¹⁾	7		458,459		19		151,908
Completed development properties placed in-service	3		713,974		1		377,152
Dispositions and properties held for sale at December 31, 2016 ⁽²⁾	(3	)	(204,903	)
Dispositions					(2	)	(355,654	)
Remeasurement	—		25,920		—		69,809
Total as of December 31, 2016⁽³⁾	108		14,025,856
Total as of December 31, 2019⁽¹⁾					112		13,475,795

________________________


(1)	~~Excludes 2016 undeveloped land acquisitions.~~


~~(2)~~	~~Excludes dispositions of properties held for sale as of December 31, 2015.~~


~~(3)~~	Includes four properties owned by consolidated property partnerships (see Note 2 “Basis of Presentation and Significant Accounting Policies” to our consolidated financial statements included in this report for additional information).

Occupancy Information

The following table sets forth certain information regarding our stabilized ~~office~~ portfolio:

Stabilized Portfolio Occupancy


Region	Number of Buildings	Rentable Square Feet	Occupancy at ⁽¹⁾						Number of Buildings	Rentable Square Feet	Occupancy at ⁽¹⁾
Region	Number of Buildings	Rentable Square Feet	12/31/2016		12/31/2015		12/31/2014		Number of Buildings	Rentable Square Feet	12/31/2019		12/31/2018		12/31/2017
Los Angeles and Ventura Counties	33	3,812,097	95.0	%	95.1	%	92.8	%
Greater Los Angeles									51	4,025,982	95.2	%	95.1	%	93.3	%
Orange County	1	271,556	97.8	%	94.0	%	98.7	%	—	—	N/A		89.6	%	86.6	%
San Diego County	31	2,718,541	93.2	%	89.6	%	90.9	%	21	2,048,483	89.7	%	89.3	%	97.4	%
San Francisco Bay Area	31	5,157,524	97.6	%	98.1	%	97.3	%	32	5,599,540	95.0	%	96.4	%	96.1	%
Greater Seattle	12	2,066,138	97.2	%	95.1	%	98.1	%	8	1,801,790	97.7	%	93.6	%	95.4	%
Total Stabilized Portfolio	108	14,025,856	96.0	%	94.8	%	94.4	%
Total Stabilized Office Portfolio									112	13,475,795	94.6	%	94.4	%	95.2	%


ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary market risk we face is interest rate risk. We seek to mitigate this risk by following established risk management policies and procedures. These policies include maintaining prudent amounts of debt, including a greater amount of fixed-rate debt as compared to variable-rate debt in our portfolio, and may include the periodic use of derivative instruments. As of December 31, ~~2016~~2019 and ~~2015,~~2018, we did not have any interest-rate sensitive derivative assets or liabilities. Information about our changes in interest rate risk exposures from December 31, ~~2015~~2018 to December 31, ~~2016~~2019 is incorporated herein by reference from “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources of the Operating Partnership.”

~~Market~~Interest Rate Risk

As of December 31, ~~2016, approximately 8.1%~~2019, 11.0% of our total outstanding debt of ~~$2.3~~$3.6 billion (before the effects of debt discounts ~~premiums~~ and deferred financing costs) was subject to variable interest rates. The remaining ~~91.9%~~89.0% bore interest at fixed rates. All of our interest rate sensitive financial instruments are held for purposes other than trading purposes. In general, interest rate fluctuations applied to our variable-rate debt will impact our future earnings and cash flows. Conversely, interest rate fluctuations applied to our fixed-rate debt will generally not impact our future earnings and cash flows, unless such instruments mature or are otherwise terminated and need to be refinanced. However, interest rate fluctuations will impact the fair value of the fixed-rate debt instruments.

We generally determine the fair value of our secured debt, unsecured ~~revolving credit facility, unsecured term loan facility~~debt, and unsecured ~~term loan~~line of credit by performing discounted cash flow analyses using an appropriate market discount rate. We calculate the market rate by obtaining period-end treasury rates for maturities that correspond to the maturities of our fixed-rate debt and then adding an appropriate credit spread based on information obtained from third-party financial institutions. We calculate the market rate of our unsecured revolving credit facility and unsecured term loan facility by obtaining the period-end LIBOR rate and then adding an appropriate credit spread based on information obtained from third-party financial institutions. These credit spreads take into account factors, including but not limited to, our credit profile, the tenure of the debt, amortization period, whether the debt is secured or unsecured, and the loan-to-value ratio of the debt to the ~~collateral.~~collateral, amongst other factors. These calculations are significantly affected by the assumptions used, including the discount rate, credit spreads and estimates of future cash flow. We calculate the market rate of our unsecured revolving credit facility and unsecured term loan facility by obtaining the period-end London Interbank Offered Rate (“LIBOR”) and then adding an appropriate credit spread based on our credit ratings, and the amended terms of our unsecured revolving credit facility and unsecured term loan facility agreement. We determine the fair value of each of our publicly traded unsecured senior notes based on their quoted trading price at the end of the reporting period, if such prices are available. See Note 19 “Fair Value Measurements and Disclosures” and Note 2 ~~"Basis~~“Basis of Presentation and Significant Accounting ~~Policies"~~Policies” in the consolidated financial statements included in this report for additional information on the fair value of our financial assets and liabilities as of December 31, ~~2016~~2019 and December 31, ~~2015~~.2018.

~~As of~~ At December 31, ~~2016~~,2019, the total outstanding balance of our variable-rate debt was comprised of borrowings on our unsecured ~~term loan~~revolving facility of $245.0 million and unsecured term loan facility of ~~$189.0~~$150.0 million, which were indexed to LIBOR plus a spread of ~~1.15%~~1.00% (weighted average interest rate of~~1.85%~~ 2.76%). and LIBOR plus a spread of 1.10% (weighted average interest rate of 2.85%), respectively. As of December 31, ~~2015,~~2018, the total outstanding balance of our variable-rate debt was comprised of borrowings on our unsecured ~~term loan~~revolving credit facility of $45.0 million and unsecured term loan facility of ~~$189.0~~$150.0 million, which were indexed to LIBOR plus a spread of ~~1.15%~~1.00% (weighted average interest rate of ~~1.40%~~3.48%). and LIBOR plus a spread of 1.10% (weighted average interest rate of 3.49%), respectively. Assuming no changes in the outstanding balance of our existing variable-rate debt as of December 31, ~~2016 and 2015,~~2019, a 100 basis point increase in the LIBOR rate would ~~increase~~have increased our projected annual interest expense, before the effect of capitalization, by approximately ~~$1.9~~$4.0 million.

The total carrying value of our fixed-rate debt was approximately ~~$2.1~~$3.2 billion and ~~$2.0~~$2.7 billion as of December 31, ~~2016~~2019 and ~~2015,~~2018, respectively. The total estimated fair value of our fixed-rate debt was approximately ~~$2.2~~$3.4 billionand ~~$2.1~~$2.7 billion as of December 31, ~~2016~~2019 and ~~2015,~~2018, respectively. For sensitivity purposes, a 100 basis point increase in the discount rate equates to a decrease in the total fair value of our fixed-rate debt of approximately ~~$114.7~~$203.3 million,or ~~5.3%~~6.0%, as of December 31, ~~2016~~.2019. Comparatively, a 100 basis point increase in the discount rate equates to a decrease in the total fair value of our fixed-rate debt of approximately ~~$117.1~~$165.3 million, or ~~5.6%~~6.1%, as of December 31, ~~2015.~~2018.

In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to LIBOR for use in derivatives and other financial contracts that are currently indexed to LIBOR. ARRC has proposed a paced market transition plan to SOFR from LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to LIBOR. As our variable-rate debt is indexed to LIBOR, we are monitoring this activity and evaluating the related risks.


ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the index included at Item 15. “Exhibits and Financial Statement Schedules.”


ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.


ITEM 9A.	CONTROLS AND PROCEDURES

Kilroy Realty Corporation

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is processed, recorded, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures as of December 31, ~~2016~~2019, the end of the period covered by this report. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded, as of that time, ~~that our~~the disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There have been no changes that occurred during the fourth quarter of the most recent year covered by this report in the Company’s internal control over financial reporting identified in connection with the evaluation referenced above that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements.

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is supported by written policies and procedures and by an appropriate segregation of responsibilities and duties. The Company has used the criteria set forth in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission to assess our internal control over financial reporting. Based upon this assessment, management concluded that internal control over financial reporting operated effectively as of December 31, ~~2016~~2019.

Deloitte & Touche LLP, the Company’s independent registered public accounting firm, has audited the Company’s financial statements and has issued a report on the effectiveness of the Company’s internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors ~~and Stockholders~~ of

Kilroy Realty Corporation

~~Los Angeles, California~~

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Kilroy Realty Corporation and subsidiaries (the “Company”) as of December 31, ~~2016~~,2019, based on criteria established in Internal Control –- Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway ~~Commission.~~ Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our report dated February 13, 2020, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States).~~PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of ~~the~~its inherent limitations, of internal control over financial reporting ~~including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud~~ may not ~~be prevented~~prevent or ~~detected on a timely basis.~~detect misstatements. Also, projections of any evaluation of ~~the~~ effectiveness ~~of the internal control over financial reporting~~ to future periods are subject to the risk that ~~the~~ controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

~~In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of~~ ~~December 31, 2016, based on the criteria established in~~ ~~Internal Control – Integrated Framework (2013)~~ ~~issued by the Committee of Sponsoring Organizations of the Treadway Commission.~~

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2016, of the Company and our report dated February 14, 2017 expressed an unqualified opinion on those financial statements and financial statement schedules.

/s/ DELOITTE & TOUCHE LLP

Los Angeles, California

February ~~14, 2017~~13, 2020

Kilroy Realty, L.P.

The Operating Partnership maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in ~~our~~the Operating Partnership’s reports under the Exchange Act, is processed, recorded, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer of its general partner, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), the Operating Partnership carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer of its general partner, of the effectiveness of the design and operation of the disclosure controls and procedures as of December 31, ~~2016~~,2019, the end of the period covered by this report. Based on the foregoing, the Chief Executive Officer and Chief Financial Officer of its general partner concluded, as of that time, ~~that~~ the ~~Operating Partnership’s~~ disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There have been no changes that occurred during the fourth quarter of the most recent year covered by this report in the Operating Partnership’s internal control over financial reporting identified in connection with the evaluation referenced above that ~~has~~have materially affected, or isare reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Internal control over financial reporting is a process designed by, or under the supervision of, the Chief Executive Officer and Chief Financial Officer of the Operating Partnership’s general partner and effected by the board of directors, management, and other personnel of its general partner to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements.

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is supported by written policies and procedures and by an appropriate segregation of responsibilities and duties. The Operating Partnership has used the criteria set forth in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission to assess our internal control over financial reporting. Based upon this assessment, management concluded that internal control over financial reporting operated effectively as of December 31, ~~2016~~.2019.

Deloitte & Touche LLP, the Operating Partnership’s independent registered public accounting firm, has audited the Operating Partnership’s financial statements and has issued a report on the effectiveness of the Operating Partnership’s internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of

Kilroy Realty, L.P.

~~Los Angeles, California~~

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Kilroy Realty, L.P. and subsidiaries (the “Operating Partnership”) as of December 31, ~~2016~~,2019, based on criteria established in Internal Control –- Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway ~~Commission.~~ Commission (COSO). In our opinion, the Operating Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019, of the Operating Partnership and our report dated February 13, 2020, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Operating Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Operating Partnership’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Definition and Limitations of Internal Control over Financial Reporting

~~In our opinion, the Operating Partnership maintained, in all material respects, effective internal control over financial reporting as of~~ ~~December 31, 2016, based on the criteria established in~~ ~~Internal Control – Integrated Framework (2013)~~ ~~issued by the Committee of Sponsoring Organizations of the Treadway Commission.~~

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2016, of the Operating Partnership and our report dated February 14, 2017 expressed an unqualified opinion on those financial statements and financial statement schedules.

/s/ DELOITTE & TOUCHE LLP

Los Angeles, California

February ~~14, 2017~~13, 2020


ITEM 9B.	OTHER INFORMATION

Not applicable.

PART III


ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by Item 10 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting presently scheduled to be held in May ~~2017~~.2020.


ITEM 11.	EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting presently scheduled to be held in May ~~2017~~.2020.


ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 12 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting presently scheduled to be held in May ~~2017~~.2020.


ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by Item 13 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting presently scheduled to be held in May ~~2017~~.2020.


ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 14 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting presently scheduled to be held in May ~~2017~~.2020.

PART IV


ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) and (2) Financial Statements and Schedules

The following consolidated financial information is included as a separate section of this annual report on Form 10-K:



Report of Independent Registered Public Accounting Firm – Kilroy Realty Corporation	F - 2
Consolidated Balance Sheets as of December 31, ~~2016~~2019 and ~~2015~~2018 – Kilroy Realty Corporation	F - 34
Consolidated Statements of Operations for the Years ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014~~2017 – Kilroy Realty Corporation	F - 45
Consolidated Statements of Equity for the Years ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014~~2017 – Kilroy Realty Corporation	F - 56
Consolidated Statements of Cash Flows for the Years ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014~~2017 – Kilroy Realty Corporation	F - 67
Report of Independent Registered Public Accounting Firm – Kilroy Realty, L.P.	~~F - 7~~
~~Consolidated Balance Sheets as of December 31, 2016 and 2015 – Kilroy Realty, L.P.~~	F - 8
Consolidated Balance Sheets as of December 31, 2019 and 2018 – Kilroy Realty, L.P.	F - 9
Consolidated Statements of Operations for the Years ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014~~2017 – Kilroy Realty, L.P.	F - 910
Consolidated Statements of Capital for the Years ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014~~2017 – Kilroy Realty, L.P.	F - 1011
Consolidated Statements of Cash Flows for the Years ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014~~2017 – Kilroy Realty, L.P.	~~F - 11~~
~~Notes to Consolidated Financial Statements~~	F - 12
Notes to Consolidated Financial Statements	F - 13
Schedule II – Valuation and Qualifying Accounts	F - 6364
Schedule III – Real Estate and Accumulated Depreciation	F - 6465

All other schedules are omitted because the required information is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements and notes thereto.

(3) Exhibits



Exhibit Number		Description
3.(i)1		Kilroy Realty Corporation Articles of Restatement (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2012)
3.(i)2		Certificate of Limited Partnership of Kilroy Realty, L.P. (previously filed by Kilroy Realty, L.P., as an exhibit to the General Form for Registration of Securities on Form 10 as filed with the Securities and Exchange Commission on August 18, 2010)
3.(i)3		Amendment to the Certificate of Limited Partnership of Kilroy Realty, L.P. (previously filed by Kilroy Realty, L.P., as an exhibit to the General Form for Registration of Securities on Form 10 as filed with the Securities and Exchange Commission on August 18, 2010)
3.(i)4		Articles Supplementary ~~designating Kilroy Realty Corporation’s 6.875%~~reclassifying shares of the Series G ~~Cumulative Redeemable~~ Preferred Stock of the Company (previously filed by Kilroy Realty Corporation as an exhibit on Form ~~8-A as filed with the Securities and Exchange Commission on March 22, 2012)~~
~~3.(i)5~~		~~Articles Supplementary designating Kilroy Realty Corporation’s 6.375% Series H Cumulative Redeemable Preferred Stock (previously filed by Kilroy Realty Corporation on Form 8-A~~8-K as filed with the Securities and Exchange Commission on August ~~10, 2012)~~23, 2017)
3.(i)5		Articles Supplementary reclassifying shares of the Series H Preferred Stock of the Company (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on August 23, 2017)
3.(ii)1		Fifth Amended and Restated Bylaws of Kilroy Realty Corporation (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on February 1, 2017)



~~Exhibit~~ ~~Number~~		~~Description~~
3.(ii)2		Seventh Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P. dated August 15, 2012, as amended (previously filed by Kilroy Realty Corporation on Form 10-Q for the quarter ended June 30, 2014)
4.(vi)1*		Description of Capital Stock of Kilroy Realty Corporation
4.(vi)2*		Description of Common Units Representing Limited Partnership Interests of Kilroy Realty, L.P.
4.1		Kilroy Realty Corporation Form of Certificate for Common Stock (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Amendment No. 3 to Form S-11 (No. 333-15553))
4.2		Specimen Certificate for Kilroy Realty Corporation’s 6.875% Series G Cumulative Redeemable Preferred Stock (previously filed by Kilroy Realty Corporation on Form 8-A as filed with the Securities and Exchange Commission on March 22, 2012)
~~4.3~~		Specimen Certificate for Kilroy Realty Corporation’s 6.375% Series H Cumulative Redeemable Preferred Stock (previously filed by Kilroy Realty Corporation on Form 8-A as filed with the Securities and Exchange Commission on August 10, 2012)
~~4.4~~		Registration Rights Agreement, dated January 31, 1997 (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Amendment No. 3 to Form S-11 (No. 333-15553))
~~4.5~~4.3		Form of Certificate for Partnership Units of Kilroy Realty, L.P. (previously filed by Kilroy Realty, L.P., as an exhibit to the General Form for Registration of Securities on Form 10 as filed with the Securities and Exchange Commission on August 18, 2010)
~~4.6~~4.4		Indenture, dated May 24, 2010, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. Bank National Association, as trustee, including the form of 6.625% Senior Notes due 2020 and the form of the related guarantee (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on May 25, 2010)
~~4.7~~		Officers’ Certificate pursuant to Sections 101, 201, 301 and 303 of the Indenture dated March 1, 2011, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. Bank National Association, as trustee, establishing a series of securities entitled “4.800% Notes due 2018,” including the form of 4.800% Notes due 2018 and the form of related guarantee (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on July 6, 2011)
~~4.8~~		Registration Rights Agreement, dated July 31, 2012 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2012)
~~4.9~~4.5		Officers’ Certificate pursuant to Sections 101, 201, 301 and 303 of the Indenture dated March 1, 2011, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. Bank National Association, as trustee, establishing a series of securities entitled “3.800% Notes due 2023,” including the form of 3.800% Notes due 2023 and the form of related guarantee (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on January 14, 2013)
~~4.10~~ 4.6		Indenture, dated March 1, 2011, by and among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. Bank National Association, as trustee (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit to the Registration Statement on Form S-3 as filed with the Securities and Exchange Commission on October 2, 2013)
~~4.11~~4.7		Supplemental Indenture, dated July 5, 2011, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. Bank National Association, as trustee (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit to the Registration Statement on Form S-3 as filed with the Securities and Exchange Commission on October 2, 2013)
~~4.12~~4.8		Officers’ Certificate pursuant to Sections 102, 201, 301 and 303 of the Indenture dated March 1, 2011, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. Bank National Association, as trustee, establishing a series of securities entitled “4.25% Senior Notes due 2029,” including the form of 4.25% Senior Notes due 2029 and the form of related guarantee (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on August 6, 2014)



~~Exhibit~~ ~~Number~~ 4.9		~~Description~~
~~4.13~~		Officers’ Certificate, dated September 16, 2015, pursuant to Sections 102, 201, 301 and 303 of the Indenture dated March 1, 2011, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. Bank National Association, as trustee, establishing a series of securities entitled “4.375% Senior Notes due 2025,” including the form of 4.375% Senior Notes due 2025 and the form of related guarantee (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on September 16, 2015)
~~4.14~~4.10		Officers’ Certificate, dated December 11, 2017, pursuant to Sections 102, 201, 301 and 303 of the Indenture dated March 1, 2011, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. Bank National Association, as trustee, establishing a series of securities entitled “3.450% Senior Notes due 2024,” including the form of 3.450% Senior Notes due 2024 and the form of related guarantee (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on December 11, 2017)
4.11		Officers’ Certificate, dated November 29, 2018, pursuant to Sections 102, 201, 301 and 303 of the Indenture dated March 1, 2011, as amended and supplemented, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. Bank National Association, as trustee, establishing a series of securities entitled “4.750% Senior Notes due 2028,” including the form of 4.750% Senior Note due 2028 and the form of related guarantee (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P., as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on November 29, 2018)



4.12		Officers’ Certificate, dated September 17, 2019, pursuant to Sections 102, 201, 301 and 303 of the Indenture dated March 1, 2011, as amended and supplemented, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and U.S. Bank National Association, as trustee, establishing a series of securities entitled “3.050% Senior Notes due 2030,” including the form of 3.050% Senior Note due 2030 and the form of related guarantee (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on September 17, 2019)
4.13		The Company is party to agreements in connection with long-term debt obligations, none of which individually exceeds ten percent of the total assets of the Company on a consolidated basis. Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Company agrees to furnish copies of these agreements to the Commission upon request
10.1		Pledge Agreement by and among Kilroy Realty, L.P., John B. Kilroy, Sr., John B. Kilroy, Jr. and Kilroy Industries (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Amendment No. 3 to Form S-11 (No. 333-15553))
10.2†		1997 Stock Option and Incentive Plan of the Registrant and Kilroy Realty, L.P. (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Amendment No. 3 to Form S-11 (No. 333-15553))
10.3		License Agreement by and among the Registrant and the other persons named therein (previously filed by Kilroy Realty Corporation as an exhibit to the Registration Statement on Amendment No. 4 to Form S-11 (No. 333-15553))
10.4†		Form of Restricted Stock Award Agreement (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on February 8, 2007)
10.5†		Kilroy Realty Corporation Stock Award Deferral Program (previously filed by Kilroy Realty Corporation as an exhibit to Form 8-K as filed with the Securities and Exchange Commission on January 2, 2008)
10.6†		Form of Indemnification Agreement of Kilroy Realty Corporation with certain officers and directors (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2009)
~~10.7~~10.7†		Deed of Trust, Security Agreement and Fixture Filing, dated January 12, 2011, executed by Kilroy Realty 303, LLC (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on January 13, 2011)
~~10.8~~		Guaranty, dated January 12, 2011, executed by Kilroy Realty, L.P. (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on January 13, 2011)
~~10.9~~		Unsecured Indemnity Agreement, dated January 12, 2011, executed by Kilroy Realty 303, LLC (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit on Form 8−K as filed with the Securities and Exchange Commission on January 13, 2011)
~~10.10†~~		Kilroy Realty Corporation Form of Stock Option Grant Notice and Stock Option Agreement (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on February 24, 2012)
~~10.11†~~10.8†		Amended and Restated Employment Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and John B. Kilroy, Jr. (previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on April 4, 2012)
~~10.12†~~		Noncompetition Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and John B. Kilroy, Jr. (previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on April 4, 2012)
~~10.13~~		~~Term Loan Agreement, dated March 29, 2012 (previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on April 2, 2012)~~
~~10.14~~		~~First Amendment to Term Loan Agreement, dated November 28, 2012 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2012)~~
~~10.15~~		~~Promissory Note, dated June 28, 2012 (previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on July 5, 2012)~~
~~10.16~~		Loan Agreement, dated June 28, 2012, by and between KR MML 12701, LLC and Massachusetts Mutual Life Insurance Company (previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on July 5, 2012)



~~Exhibit~~ ~~Number~~		~~Description~~
~~10.17~~		Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (Irvine) for 2211 Michelson Drive, Irvine, California, dated June 28, 2012 (previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on July 5, 2012)
~~10.18~~		Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing (Santa Monica) for 2100-2110 Colorado Avenue, Santa Monica, California, dated June 28, 2012 (previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on July 5, 2012)
~~10.19~~		~~Recourse Guaranty Agreement, dated June 28, 2012 (previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on July 5, 2012)~~
~~10.20~~		~~Environmental Indemnification Agreement, dated June 28, 2012 (previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on July 5, 2012)~~
~~10.21†~~		Kilroy Realty Corporation 2006 Incentive Award Plan Restricted Stock Unit Agreement by and between Kilroy Realty Corporation and Jeffrey C. Hawken, dated April 4, 2013 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2013)
~~10.22†~~		Kilroy Realty Corporation 2006 Incentive Award Plan Restricted Stock Unit Agreement by and between Kilroy Realty Corporation and John Kilroy, Jr., dated March 30, 2012 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2013)
~~10.23†~~		Form of Restricted Stock Unit Agreement (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2013)
~~10.24†~~10.9†		Form of Stock Award Deferral Program Restricted Stock Unit Agreement (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2013)
~~10.25†~~10.10†		Form of Performance-Vest Restricted Stock Unit Agreement (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2014)
~~10.26†~~10.11†		Form of Restricted Stock Unit Agreement (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2014)
~~10.27†~~10.12†		Form of Restricted Stock Unit Agreement for Non-Employee Members of the Board of Directors (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2014)
~~10.28†~~10.13†		~~Kilroy Realty 2006 Incentive Award Plan (previously filed by Kilroy Realty Corporation on Form 8-K as filed with the Securities and Exchange Commission on May 21, 2015)~~
~~10.29~~		~~Amended and Restated Revolving Credit Agreement, dated June 23, 2014 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2014)~~
~~10.30~~		~~Amended and Restated Guaranty, dated June 23, 2014 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended June 30, 2014)~~
~~10.31~~		~~Term Loan Agreement, dated July 31, 2014 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended September 30, 2014)~~
~~10.32~~		~~Guaranty, dated July 31, 2014 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended September 30, 2014)~~
~~10.33~~		Sales Agreement, dated December 12, 2014, between Kilroy Realty Corporation, Kilroy Realty, L.P. and RBC Capital Markets, LLC (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on December 12, 2014)
~~10.34~~		Sales Agreement, dated December 12, 2014, between Kilroy Realty Corporation, Kilroy Realty, L.P. and Jefferies LLC (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on December 12, 2014)
~~10.35~~		Sales Agreement, dated December 12, 2014, between Kilroy Realty Corporation, Kilroy Realty, L.P. and KeyBanc Capital Markets Inc. (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on December 12, 2014)
~~10.36~~		Sales Agreement, dated December 12, 2014, between Kilroy Realty Corporation, Kilroy Realty, L.P. and BNP Paribas Securities Corp. (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on December 12, 2014)



~~Exhibit~~ ~~Number~~		~~Description~~
~~10.37~~		Sales Agreement, dated December 12, 2014, between Kilroy Realty Corporation, Kilroy Realty, L.P. and J.P. Morgan Securities LLC (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on December 12, 2014)
~~10.38~~		Sales Agreement, dated December 12, 2014, between Kilroy Realty Corporation, Kilroy Realty, L.P. and Barclays Capital Inc. (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on December 12, 2014)
~~10.39†~~		Form of Performance-Vest Restricted Stock Unit Agreement (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2015)
~~10.40†~~10.14†		Form of Restricted Stock Unit Agreement (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2015)
~~10.41†~~10.15†		Form of Restricted Stock Unit Agreement for Non-Employee Members of the Board of Directors (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2015)
~~10.42†~~10.16†		Amended and Restated Employment Agreement and Non-Competition Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C. Hawken effective as of December 31, 2015 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-K for the year ended December 31, 2015)


~~10.43†~~
10.17†		Confidential Separation Agreement and Release of Claims by and between Kilroy Realty Corporation, ~~Director Compensation Policy~~Kilroy Realty, L.P. and Stephen A. Rosetta effective as of ~~January 1, 2016~~August 26, 2019 (previously filed by Kilroy Realty Corporation as an exhibit on Form ~~10-K~~10-Q for the ~~year~~quarter ended ~~December 31, 2015)~~September 30, 2019)
~~10.44†~~10.18†		Extension of Employment Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C. Hawken effective as of February 28, 2019 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2019)
10.19†*		Extension of Employment Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C. Hawken effective as of January 31, 2020
10.20†		Kilroy Realty Corporation 2006 Incentive Award Plan Restricted Stock Unit Agreement by and between Kilroy Realty Corporation and Jeffrey C. Hawken, dated January 9, 2016 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2016)
~~10.45†~~10.21†		Amended and Restated Employment Agreement and Non-Competition Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and Tyler H. Rose effective as of January 28, 2016 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2016)
~~10.46†~~10.22†		Amended and Restated Employment Agreement and Non-Competition Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and Justin W. Smart effective as of January 28, 2016 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2016)
~~10.47~~10.23†		Kilroy Realty Corporation Director Compensation Policy effective as of April 1, 2018 (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended March 31, 2018.
10.24†		Employment Agreement, as amended and restated December 27, 2018, by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and John B. Kilroy, Jr. (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P., as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on December 31, 2018)
10.25†		Kilroy Realty Corporation 2006 Incentive Award Plan Restricted Stock Unit Agreement by and between Kilroy Realty Corporation and John B. Kilroy, Jr., dated December 27, 2018 (with retirement as to Time-Based RSUs) (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P., as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on December 31, 2018)
10.26†		Kilroy Realty Corporation 2006 Incentive Award Plan Restricted Stock Unit Agreement by and between Kilroy Realty Corporation and John B. Kilroy, Jr., dated December 27, 2018 (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P., as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on December 31, 2018)
10.27†		Form of Restricted Stock Unit Agreement for 2006 Incentive Award Plan
10.28		Note Purchase Agreement dated September 14, 2016 (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on September 14, 2016)
10.48*10.29		Amendment to ~~Sales~~Note Purchase Agreement dated ~~September 29, 2016, between~~May 11, 2018 (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P., as an exhibit on Form 8-K as filed with the Securities and ~~RBC Capital Markets, LLC~~Exchange Commission on May 14, 2018)
10.49*10.30		~~Amendment to Sales Agreement, dated September 29, 2016, between Kilroy Realty Corporation, Kilroy Realty, L.P. and Jefferies LLC~~
10.50*		~~Amendment to Sales Agreement, dated September 29, 2016, between Kilroy Realty Corporation, Kilroy Realty, L.P. and KeyBanc Capital Markets Inc.~~
10.51*		~~Amendment to Sales Agreement, dated September 29, 2016, between Kilroy Realty Corporation, Kilroy Realty, L.P. and BNP Paribas Securities Corp.~~
10.52*		~~Amendment to Sales Agreement, dated September 29, 2016, between Kilroy Realty Corporation, Kilroy Realty, L.P. and J.P. Morgan Securities LLC~~
10.53*		~~Amendment to Sales Agreement, dated September 29, 2016, between Kilroy Realty Corporation, Kilroy Realty, L.P. and Barclays Capital Inc.~~
~~10.54~~		Form of Time Sharing Agreement of Kilroy Realty, L.P. (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for the quarter ended September 30, 2016)
10.55†*10.31		Promissory Note, dated November 29, 2016 (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P., as an exhibit on Form 10-K for the year ended December 31, 2017)
10.32		Loan Agreement, dated November 29, 2016, by and between KR WMC, LLC and Massachusetts Mutual Life Insurance Company (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P., as an exhibit on Form 10-K for the year ended December 31, 2017)
10.33		Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated November 29, 2016 (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P., as an exhibit on Form 10-K for the year ended December 31, 2017)
10.34		Assignment of Leases and Rents, dated November 29, 2016 (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P., as an exhibit on Form 10-K for the year ended December 31, 2017)



10.35		Recourse Guaranty Agreement, dated November 29, 2016 (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P., as an exhibit on Form 10-K for the year ended December 31, 2017)
10.36		Environmental Indemnification Agreement, dated November 29, 2016 (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P., as an exhibit on Form 10-K for the year ended December 31, 2017)
10.37†		Kilroy Realty Corporation 2007 Deferred Compensation Plan, as amended and restated effective January 1, 2017 (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P., as an exhibit on Form 10-K for the year ended December 31, 2016)
12.1*10.38		~~Statement of Computation of Consolidated Ratio of Earnings to Fixed Charges and Consolidated Ratio of Earnings to Combined Fixed Charges and Preferred Dividends of~~ General Partner Guaranty Agreement, dated February 17, 2017 (previously filed by Kilroy Realty Corporation

and Kilroy Realty, L.P., as an exhibit on Form 10-Q for the quarter ended March 31, 2017)



~~Exhibit~~ ~~Number~~ 10.39†		~~Description~~ Kilroy Realty 2006 Incentive Award Plan (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on May 23, 2017)
12.2*10.40		~~Statement~~ Second Amended and Restated Credit Agreement dated as of ~~Computation of Consolidated Ratio of Earnings to Fixed Charges of~~July 24, 2017 (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P., as an exhibit on Form 10-Q for the quarter ended June 30, 2017)
10.41		Second Amended and Restated Guaranty dated as of July 24, 2017 (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P., as an exhibit on Form 10-Q for the quarter ended on June 30, 2017)
10.42		Note Purchase Agreement dated May 11, 2018 (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P., as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on May 14, 2018)
10.43		Sales Agreement, dated June 5, 2018, between and among Kilroy Realty Corporation, Kilroy Realty, L.P. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Jefferies LLC, J.P. Morgan Securities LLC, Raymond James & Associates, Inc., RBC Capital Markets, LLC, Scotia Capital (USA) Inc. and SMBC Nikko Securities America, Inc. as Agents, and the Forward Purchasers (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P., as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on June 5, 2018)
21.1*		List of Subsidiaries of Kilroy Realty Corporation
21.2*		List of Subsidiaries of Kilroy Realty, L.P.
23.1*		Consent of Deloitte & Touche LLP for Kilroy Realty Corporation
23.2*		Consent of Deloitte & Touche LLP for Kilroy Realty, L.P.
24.1*		Power of Attorney (included on the signature page of this Form 10-K)
31.1*		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Kilroy Realty Corporation
31.2*		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Kilroy Realty Corporation
31.3*		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Kilroy Realty, L.P.
31.4*		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Kilroy Realty, L.P.
32.1*		Section 1350 Certification of Chief Executive Officer of Kilroy Realty Corporation
32.2*		Section 1350 Certification of Chief Financial Officer of Kilroy Realty Corporation
32.3*		Section 1350 Certification of Chief Executive Officer of Kilroy Realty, L.P.
32.4*		Section 1350 Certification of Chief Financial Officer of Kilroy Realty, L.P.
101.1		The following Kilroy Realty Corporation and Kilroy Realty, L.P. financial information for the year ended December 31, ~~2016,~~2019, formatted in inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Changes in Equity, (iv) Consolidated Statements of Capital, (v) Consolidated Statements of Cash Flows and (vi) Notes to the Consolidated Financial ~~Statements.~~Statements⁽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.

104

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Kilroy Realty Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February ~~14, 2017.~~13, 2020.



	KILROY REALTY CORPORATION

	By		/s/ ~~Heidi R. Roth~~ Merryl E. Werber
			~~Heidi R. Roth~~Merryl E. Werber ~~Executive~~Senior Vice President, Chief Accounting Officer and Controller

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that we, the undersigned directors and officers of Kilroy Realty Corporation, do hereby severally constitute and appoint John Kilroy, Jeffrey C. Hawken, Tyler H. Rose and ~~Heidi R. Roth,~~Merryl E. Werber, and each of them, as our true and lawful attorneys-in-fact and agents, each with full powers of substitution, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys-in-fact and agents, or any of them, may deem necessary or advisable to enable Kilroy Realty Corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically, but without limitation, the power and authority to sign for us or any of us, in our names in the capacities indicated below, any and all amendments hereto; and we do each hereby ratify and confirm all that said attorneys-in-fact and agents or their substitutes, or any one of them, shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



Name	Title	Date

/s/ John Kilroy	Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)	February ~~14, 2017~~13, 2020
John Kilroy
/s/ Tyler H. Rose	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	February ~~14, 2017~~13, 2020
Tyler H. Rose
/s/ ~~Heidi R. Roth~~Merryl E. Werber	~~Executive~~Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)	February ~~14, 2017~~13, 2020
~~Heidi R. Roth~~Merryl E. Werber
/s/ Edward F. Brennan, PhD	Director	February ~~13, 2017~~12, 2020
Edward F. Brennan, PhD
/s/ Jolie Hunt	Director	February ~~13, 2017~~12, 2020
Jolie Hunt
/s/ Scott S. Ingraham	Director	February ~~13, 2017~~12, 2020
Scott S. Ingraham
/s/ Gary R. Stevenson	Director	February ~~13, 2017~~12, 2020
Gary R. Stevenson
/s/ Peter B. Stoneberg	Director	February ~~13, 2017~~12, 2020
Peter B. Stoneberg

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Kilroy Realty, L.P. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February ~~14, 2017.~~13, 2020.



	KILROY REALTY, L.P.

	By		/s/ ~~Heidi R. Roth~~Merryl E. Werber
			~~Heidi R. Roth~~ ~~Executive~~Merryl E. Werber Senior Vice President, Chief Accounting Officer and Controller

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that we, the undersigned directors and officers of Kilroy Realty Corporation, as sole general partner and on behalf of Kilroy Realty, L.P., do hereby severally constitute and appoint John Kilroy, Jeffrey C. Hawken, Tyler H. Rose and ~~Heidi R. Roth,~~Merryl E. Werber, and each of them, as our true and lawful attorneys-in-fact and agents, each with full powers of substitution, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorneys-in-fact and agents, or any of them, may deem necessary or advisable to enable Kilroy Realty Corporation, as sole general partner and on behalf of Kilroy Realty, L.P., to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically, but without limitation, the power and authority to sign for us or any of us, in our names in the capacities indicated below, any and all amendments hereto; and we do each hereby ratify and confirm all that said attorneys-in-fact and agents or their substitutes, or any one of them, shall do or cause to be done by virtue hereof.



Name	Title	Date

/s/ John Kilroy	Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)	February ~~14, 2017~~13, 2020
John Kilroy
/s/ Tyler H. Rose	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	February ~~14, 2017~~13, 2020
Tyler H. Rose
/s/ ~~Heidi R. Roth~~Merryl E. Werber	~~Executive~~Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)	February ~~14, 2017~~13, 2020
~~Heidi R. Roth~~Merryl E. Werber
/s/ Edward F. Brennan, PhD	Director	February ~~13, 2017~~12, 2020
Edward F. Brennan, PhD
/s/ Jolie Hunt	Director	February ~~13, 2017~~12, 2020
Jolie Hunt
/s/ Scott S. Ingraham	Director	February ~~13, 2017~~12, 2020
Scott S. Ingraham
/s/ Gary R. Stevenson	Director	February ~~13, 2017~~12, 2020
Gary R. Stevenson
/s/ Peter B. Stoneberg	Director	February ~~13, 2017~~12, 2020
Peter B. Stoneberg

106

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, ~~2016~~2019 AND ~~2015~~2018

AND FOR THE THREE YEARS ENDED DECEMBER 31, ~~2016~~2019

TABLE OF CONTENTS



	Page
FINANCIAL STATEMENTS OF KILROY REALTY CORPORATION:
Report of Independent Registered Public Accounting Firm	F - 2
Consolidated Balance Sheets as of December 31, ~~2016~~2019 and ~~2015~~2018	F - 34
Consolidated Statements of Operations for the Years ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014~~2017	F - 45
Consolidated Statements of Equity for the Years ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014~~2017	F - 56
Consolidated Statements of Cash Flows for the Years ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014~~2017	F - 67
FINANCIAL STATEMENTS OF KILROY REALTY, L.P.:
Report of Independent Registered Public Accounting Firm	~~F - 7~~
~~Consolidated Balance Sheets as of December 31, 2016 and 2015~~	F - 8
Consolidated Balance Sheets as of December 31, 2019 and 2018	F - 9
Consolidated Statements of Operations for the Years ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014~~2017	F - 910
Consolidated Statements of Capital for the Years ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014~~2017	F - 1011
Consolidated Statements of Cash Flows for the Years ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014~~2017	F - 1112

Notes to Consolidated Financial Statements for Kilroy Realty Corporation and Kilroy Realty, L.P.	F - 1213
Schedule II – Valuation and Qualifying Accounts for Kilroy Realty Corporation and Kilroy Realty, L.P.	F - 6364
Schedule III – Real Estate and Accumulated Depreciation for Kilroy Realty Corporation and Kilroy Realty, L.P.	F - 6465

F - 1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors ~~and Stockholders~~ of

Kilroy Realty Corporation

~~Los Angeles, California~~

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Kilroy Realty Corporation and subsidiaries (the “Company”) as of December 31, ~~2016~~2019 and ~~2015, and~~2018, the related consolidated statements of operations, equity, and cash flows, for each of the three years in the period ended December 31, ~~2016. Our audits also included~~2019, and the ~~financial statement~~related notes and the schedules listed in the Index at Item ~~15.~~ 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 13, 2020 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements ~~and financial statement schedules~~ are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements ~~and financial statement schedules~~ based on our audits.

We conducted our audits in accordance with the standards of the ~~Public Company Accounting Oversight Board (United States).~~PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material ~~misstatement. An audit includes~~misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence ~~supporting~~regarding the amounts and disclosures in the financial statements. ~~An audit~~Our audits also ~~includes assessing~~included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial ~~statement presentation.~~statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Rental income, deferred revenue and acquisition-related intangible liabilities - Timing of Development Property Revenue Recognition and Ownership of Tenant Improvements - Refer to Notes 2 and 10 to the financial statements

Critical Audit Matter Description

The Company evaluates tenant improvements on a lease-by-lease basis to determine who is the owner of such assets for accounting purposes. When management concludes that the Company is the owner of the tenant improvements, the Company records the cost to construct the tenant improvements as capital assets, and commences rental revenue recognition when the tenant takes possession of or controls the finished space, which is typically when the improvements being recorded as the Company’s asset are substantially complete. When management concludes that the Company is not the owner and the tenant is the owner of certain tenant improvements for accounting purposes, the Company records their contribution towards those tenant-owned improvements as a lease incentive, which is amortized as a reduction to rental revenue on a straight-line basis over the term of the related lease, and rental revenue recognition begins when

the tenant takes possession of or controls the leased space. The determination of whether the Company or tenant is the owner of tenant improvements for accounting purposes is subject to significant judgment, and the commencement of rental revenue recognition depends on the Company’s conclusion as to when the tenant takes possession of or controls the leased space. Control is typically transferred when the Company has completed all of its obligations under the lease agreement in order for the leased space to be used by the tenant as intended. The Company’s determination of whether its obligations have been met and control has been transferred to the tenant can be complex for large development properties.

Given the nature of construction work on large development properties, auditing management’s estimates regarding the commencement of rental revenue recognition, including the determination of the owner of the tenant improvements and when control of the leased space transfers to the tenant, involves especially subjective judgment. Construction for large development properties can include certain tenant improvements that are landlord-owned and others that are tenant-owned improvements, typically dependent upon the judgment of whether the tenant improvements are unique to the tenant or reusable by other tenants at the end of the lease term. Further, large development properties can deliver leased space in phases, resulting in various revenue commencement dates with judgment surrounding when the tenant improvements that are landlord-owned, for a particular phase, are substantially complete.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to determining the ownership of tenant improvements and when control of the leased space transfers to the tenant for development properties, thus the timing of the commencement of rental revenue recognition, included the following, among others:

We tested the effectiveness of controls over revenue recognition, including those over the ownership of tenant improvements and the determination of when the tenant took possession of or controlled the leased space.

We evaluated the reasonableness of management’s conclusions regarding the Company’s ownership of tenant improvements by:


–	Evaluating the Company’s and the tenant’s respective obligations as governed by the lease agreements for selected leases against criteria for establishing ownership.


–	Testing documentation supporting the nature of tenant improvements.


–	Performing on-site inspections of selected development properties to evaluate the nature of tenant improvements, particularly the uniqueness of the improvements.

We evaluated the reasonableness of management’s conclusions regarding the possession of or control of the completed leased space and corresponding commencement of rental revenue recognition for development properties by:


–	Testing documentation from construction contractors, architects, and city building inspection sign offs on temporary certificates of occupancy.


–	Performing on-site inspections of selected development properties near the planned rental revenue recognition commencement date to observe the status of the site and tenant improvements to evaluate whether control of the leased space had been or was ready to be transferred to the tenant.

/s/ DELOITTE & TOUCHE LLP

Los Angeles, California

February 13, 2020

We have served as the Company’s auditor since 1995.

F - 3

KILROY REALTY CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)



	December 31, 2019			December 31, 2018
ASSETS
REAL ESTATE ASSETS (Notes 2, 3 and 4):
Land and improvements	$	1,466,166		$	1,160,138
Buildings and improvements	5,866,477			5,207,984
Undeveloped land and construction in progress	2,296,130			2,058,510
Total real estate assets held for investment	9,628,773			8,426,632
Accumulated depreciation and amortization	(1,561,361		)	(1,391,368		)
Total real estate assets held for investment, net	8,067,412			7,035,264
CASH AND CASH EQUIVALENTS (Note 23)	60,044			51,604
RESTRICTED CASH (Notes 3, 4 and 23)	16,300			119,430
MARKETABLE SECURITIES (Notes 16 and 19)	27,098			21,779
CURRENT RECEIVABLES, NET (Notes 2, 6 and 20)	26,489			20,176
DEFERRED RENT RECEIVABLES, NET (Notes 2, 6 and 20)	337,937			267,007
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 2, 3 and 5)	212,805			197,574
RIGHT OF USE GROUND LEASE ASSETS (Notes 2 and 18)	96,348			—
PREPAID EXPENSES AND OTHER ASSETS, NET (Note 7)	55,661			52,873
TOTAL ASSETS	$	8,900,094		$	7,765,707
LIABILITIES AND EQUITY
LIABILITIES:
Secured debt, net (Notes 8, 9 and 19)	$	258,593		$	335,531
Unsecured debt, net (Notes 8, 9 and 19)	3,049,185			2,552,070
Unsecured line of credit (Notes 8, 9 and 19)	245,000			45,000
Accounts payable, accrued expenses and other liabilities (Note 18)	418,848			374,415
Ground lease liabilities (Notes 2 and 18)	98,400			—
Accrued dividends and distributions (Notes 13 and 28)	53,219			47,559
Deferred revenue and acquisition-related intangible liabilities, net (Notes 3, 5 and 10)	139,488			149,646
Rents received in advance and tenant security deposits	66,503			60,225
Total liabilities	4,329,236			3,564,446
COMMITMENTS AND CONTINGENCIES (Note 18)
EQUITY:
Stockholders’ Equity (Note 13):
Common stock, $.01 par value, 150,000,000 shares authorized, 106,016,287 and 100,746,988 shares issued and outstanding, respectively	1,060			1,007
Additional paid-in capital	4,350,917			3,976,953
Distributions in excess of earnings	(58,467		)	(48,053		)
Total stockholders’ equity	4,293,510			3,929,907
Noncontrolling Interests (Notes 2 and 11):
Common units of the Operating Partnership	81,917			78,991
Noncontrolling interests in consolidated property partnerships	195,431			192,363
Total noncontrolling interests	277,348			271,354
Total equity	4,570,858			4,201,261
TOTAL LIABILITIES AND EQUITY	$	8,900,094		$	7,765,707

See accompanying notes to consolidated financial statements.

F - 4

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)



	Year Ended December 31,
	2019			2018			2017
REVENUES (Note 2):
Rental income	$	826,472		$	656,631		$	633,896
Tenant reimbursements	—			80,982			76,559
Other property income	10,982			9,685			8,546
Total revenues	837,454			747,298			719,001
EXPENSES:
Property expenses (Note 2)	160,037			133,787			129,971
Real estate taxes (Note 2)	78,097			70,820			66,449
Provision for bad debts (Notes 2 and 20)	—			5,685			3,269
Ground leases (Notes 2, 5 and 18)	8,113			6,176			6,337
General and administrative expenses (Note 15)	88,139			90,471			60,581
Leasing costs (Notes 2 and 5)	7,615			—			—
Depreciation and amortization (Notes 2 and 5)	273,130			254,281			245,886
Total expenses	615,131			561,220			512,493
OTHER (EXPENSES) INCOME:
Interest income and other net investment gain (loss) (Note 19)	4,641			(559		)	5,503
Interest expense (Note 9)	(48,537		)	(49,721		)	(66,040		)
Loss on early extinguishment of debt (Note 9)	—			(12,623		)	(5,312		)
Net gain on sales of land (Note 4)	—			11,825			449
Gains on sales of depreciable operating properties (Note 4)	36,802			142,926			39,507
Total other (expenses) income	(7,094		)	91,848			(25,893		)
NET INCOME	215,229			277,926			180,615
Net income attributable to noncontrolling common units of the Operating Partnership (Notes 2 and 11)	(3,766		)	(5,193		)	(3,223		)
Net income attributable to noncontrolling interests in consolidated property partnerships (Notes 2 and 11)	(16,020		)	(14,318		)	(12,780		)
Total income attributable to noncontrolling interests	(19,786		)	(19,511		)	(16,003		)
NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION	195,443			258,415			164,612
Preferred dividends (Note 13)	—			—			(5,774		)
Original issuance costs of redeemed preferred stock and preferred units (Note 13)	—			—			(7,589		)
Total preferred dividends	—			—			(13,363		)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	195,443		$	258,415		$	151,249
Net income available to common stockholders per share – basic (Note 21)	$	1.87		$	2.56		$	1.52
Net income available to common stockholders per share – diluted (Note 21)	$	1.86		$	2.55		$	1.51
Weighted average shares of common stock outstanding – basic (Note 21)	103,200,568			99,972,359			98,113,561
Weighted average shares of common stock outstanding – diluted (Note 21)	103,849,168			100,482,365			98,727,331

See accompanying notes to consolidated financial statements.

F - 5

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands, except share and per share/unit data)



	Preferred Stock			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, 2016	$	192,411		93,219,439		$	932		$	3,457,649		$	(107,997	)	$	3,542,995		$	216,322		$	3,759,317
Net income												164,612			164,612			16,003			180,615
Redemption of Series G & H Preferred stock	(192,411		)									(7,589		)	(200,000		)				(200,000		)
Issuance of common stock				4,662,577		46			326,012						326,058						326,058
Issuance of share-based compensation awards									5,890						5,890						5,890
Non-cash amortization of share-based compensation									26,319						26,319						26,319
Exercise of stock options				285,000		4			12,175						12,179						12,179
Settlement of restricted stock units for shares of common stock				317,848		3			(3		)				—						—
Repurchase of common stock, stock options and restricted stock units				(168,881	)	(2		)	(12,984		)				(12,986		)				(12,986		)
Exchange of common units of the Operating Partnership				304,350		3			10,936						10,939			(10,939		)	—
Contributions from noncontrolling interests in consolidated property partnerships									—						—			54,604			54,604
Distributions to noncontrolling interests in consolidated property partnerships															—			(16,542		)	(16,542		)
Adjustment for noncontrolling interest in the Operating Partnership									(3,502		)				(3,502		)	3,502			—
Preferred dividends and distributions												(5,774		)	(5,774		)				(5,774		)
Dividends declared per share of common stock and common unit ($1.65 per share/unit)												(165,937		)	(165,937		)	(3,427		)	(169,364		)
BALANCE AS OF DECEMBER 31, 2017	—			98,620,333		986			3,822,492			(122,685		)	3,700,793			259,523			3,960,316
Net income												258,415			258,415			19,511			277,926
Issuance of common stock				1,817,195		18			130,675						130,693						130,693
Issuance of share-based compensation awards									3,926						3,926						3,926
Non-cash amortization of share-based compensation									35,890						35,890						35,890
Exercise of stock options				1,000		—			41						41						41
Settlement of restricted stock units for shares of common stock				488,354		4			(4		)				—						—
Repurchase of common stock, stock options and restricted stock units				(231,800	)	(2		)	(16,551		)				(16,553		)				(16,553		)
Exchange of common units of the Operating Partnership				51,906		1			1,961						1,962			(1,962		)	—
Contributions from noncontrolling interests in consolidated property partnerships															—			8,273			8,273
Distributions to noncontrolling interests in consolidated property partnerships															—			(11,803		)	(11,803		)
Adjustment for noncontrolling interest in the Operating Partnership									(1,477		)				(1,477		)	1,477			—
Dividends declared per share of common stock and common unit ($1.79 per share/unit)												(183,783		)	(183,783		)	(3,665		)	(187,448		)
BALANCE AS OF DECEMBER 31, 2018	—			100,746,988		1,007			3,976,953			(48,053		)	3,929,907			271,354			4,201,261
Net income												195,443			195,443			19,786			215,229
Opening adjustment to Distributions in Excess of Earnings upon adoption of ASC 842 (Note 2)												(3,146		)	(3,146		)				(3,146		)
Issuance of common stock (Note 13)				5,000,000		50			353,672						353,722						353,722
Issuance of share-based compensation awards (Note 15)									4,664						4,664						4,664
Non-cash amortization of share-based compensation (Note 15)									32,813						32,813						32,813
Exercise of stock options				16,500		—			703						703						703
Settlement of restricted stock units for shares of common stock (Note 15)				463,276		5			(5		)				—						—
Repurchase and cancellation of common stock, stock options, and restricted stock units (Note 15)				(212,477	)	(2		)	(14,859		)				(14,861		)				(14,861		)
Exchange of common units of the Operating Partnership				2,000		—			78						78			(78		)	—
Distributions to noncontrolling interests in consolidated property partnerships															—			(12,952		)	(12,952		)
Adjustment for noncontrolling interest in the Operating Partnership (Note 2)									(3,102		)				(3,102		)	3,102			—
Dividends declared per share of common stock and common unit ($1.91 per share/unit) (Notes 13 and 28)												(202,711		)	(202,711		)	(3,864		)	(206,575		)
BALANCE AS OF DECEMBER 31, 2019	$	—		106,016,287		$	1,060		$	4,350,917		$	(58,467	)	$	4,293,510		$	277,348		$	4,570,858

See accompanying notes to consolidated financial statements.

F - 6

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



	Year Ended December 31,
	2019			2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	215,229		$	277,926		$	180,615
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of real estate assets and leasing costs	268,045			249,882			241,862
Depreciation of non-real estate furniture, fixtures and equipment	5,085			4,400			4,024
(Recoveries of) provision for bad debts (Notes 2 and 20)	(3,433		)	5,685			3,269
Non-cash amortization of share-based compensation awards (Note 15)	27,007			27,932			19,046
Non-cash amortization of deferred financing costs and net debt discounts	1,427			1,084			3,247
Non-cash amortization of net below market rents (Note 5)	(9,206		)	(9,748		)	(8,528		)
Gains on sales of depreciable operating properties (Note 4)	(36,802		)	(142,926		)	(39,507		)
Non-cash amortization of deferred revenue related to tenant-funded tenant improvements (Note 10)	(19,190		)	(18,429		)	(16,767		)
Straight-line rents	(72,023		)	(26,976		)	(33,275		)
Amortization of the right of use ground lease asset (Note 2)	683			—			—
Loss on early extinguishment of debt (Note 9)	—			12,623			5,312
(Gain) loss on sale of land (Note 4)	—			(11,825		)	(449		)
Net change in other operating assets	(14,476		)	(7,930		)	(17,732		)
Net change in other operating liabilities	24,175			48,345			5,895
Net cash provided by operating activities	386,521			410,043			347,012
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for development properties and undeveloped land	(845,464		)	(489,236		)	(397,440		)
Expenditures for acquisitions of development properties and undeveloped land (Note 3)	(173,291		)	(311,299		)	(19,829		)
Expenditures for acquisitions of operating properties (Note 3)	(186,258		)	(257,340		)	—
Expenditures for operating properties and other capital assets	(147,687		)	(166,440		)	(88,425		)
Net proceeds received from dispositions (Note 4)	124,421			364,300			182,492
Decrease (increase) in acquisition-related deposits	—			36,000			(35,900		)
Proceeds received from repayment of note receivable	—			15,100			—
Net cash used in investing activities	(1,228,279		)	(808,915		)	(359,102		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock (Note 13)	353,722			130,693			326,058
Redemption of Series G and H Preferred stock (Note 13)	—			—			(200,000		)
Net proceeds from the issuance of unsecured debt (Note 9)	499,390			648,537			674,447
Repayments of unsecured debt (Note 9)	—			(261,823		)	(519,024		)
Borrowings on unsecured revolving credit facility	1,110,000			765,000			270,000
Repayments on unsecured revolving credit facility	(910,000		)	(690,000		)	(270,000		)
Borrowings on unsecured debt (Note 9)	—			120,000			—
Principal payments and repayments of secured debt (Note 9)	(76,309		)	(3,584		)	(130,371		)
Financing costs	(6,678		)	(6,262		)	(11,500		)
Repurchase of common stock and restricted stock units (Note 15)	(14,556		)	(16,553		)	(12,986		)
Proceeds from exercise of stock options	703			41			12,179
Contributions from noncontrolling interests in consolidated property partnerships (Note 11)	—			8,273			54,604
Distributions to noncontrolling interests in consolidated property partnerships	(12,952		)	(11,803		)	(16,542		)
Dividends and distributions paid to common stockholders and common unitholders	(196,252		)	(179,411		)	(340,697		)
Dividends and distributions paid to preferred stockholders and preferred unitholders	—			—			(7,409		)
Net cash provided by (used in) financing activities	747,068			503,108			(171,241		)
Net (decrease) increase in cash and cash equivalents and restricted cash	(94,690		)	104,236			(183,331		)
Cash and cash equivalents and restricted cash, beginning of year	171,034			66,798			250,129
Cash and cash equivalents and restricted cash, end of year	$	76,344		$	171,034		$	66,798

See accompanying notes to consolidated financial statements.

F - 7

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of

Kilroy Realty, L.P.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Kilroy Realty, L.P. and subsidiaries (the “Operating Partnership”) as of December 31, 2019 and 2018, the related consolidated statements of operations, capital, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, ~~such consolidated~~the financial statements present fairly, in all material respects, the financial position of ~~Kilroy Realty Corporation~~the Operating Partnership as of December 31, ~~2016~~2019 and ~~2015,~~2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, ~~2016,~~2019, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the ~~Company’s~~Operating Partnership’s internal control over financial reporting as of December 31, ~~2016,~~2019, based on ~~the~~ criteria established in Internal Control –- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February ~~14, 2017~~13, 2020, expressed an unqualified opinion on the ~~Company’s~~Operating Partnership’s internal control over financial reporting.

Basis for Opinion

~~/s/ DELOITTE & TOUCHE LLP~~

~~Los Angeles, California~~

~~February 14, 2017~~

~~KILROY REALTY CORPORATION~~

~~CONSOLIDATED BALANCE SHEETS~~

~~(in thousands, except share data)~~

December 31, 2016 December 31, 2015
ASSETS
REAL ESTATE ASSETS (Notes 2, 3 and 4):
Land and improvements $ 1,108,971
$ 875,794
Buildings and improvements 4,938,250
4,091,012
Undeveloped land and construction in progress 1,013,533
1,361,340
Total real estate assets held for investment 7,060,754
6,328,146
Accumulated depreciation and amortization (1,139,853 ) (994,241 )
Total real estate assets held for investment, net 5,920,901
5,333,905
REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET (Note 4) 9,417
117,666
CASH AND CASH EQUIVALENTS (Notes 4 and 11) 193,418
56,508
RESTRICTED CASH (Note 4) 56,711
696
MARKETABLE SECURITIES (Notes 16 and 19) 14,773
12,882
CURRENT RECEIVABLES, NET (Note 6) 13,460
11,153
DEFERRED RENT RECEIVABLES, NET (Note 6) 218,977
189,704
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 3 and 5) 208,368
176,683
PREPAID EXPENSES AND OTHER ASSETS, NET (Note 7) 70,608
27,233
TOTAL ASSETS $ 6,706,633
$ 5,926,430
LIABILITIES AND EQUITY
LIABILITIES:
Secured debt, net (Notes 8, 9 and 19) $ 472,772
$ 380,835
Unsecured debt, net (Notes 8, 9 and 19) 1,847,351
1,844,634
Accounts payable, accrued expenses and other liabilities (Note 18) 202,391
246,323
Accrued dividends and distributions (Notes 13 and 29) 222,306
34,992
Deferred revenue and acquisition-related intangible liabilities, net (Notes 3, 5 and 10) 150,360
128,156
Rents received in advance and tenant security deposits 52,080
49,361
Liabilities and deferred revenue of real estate assets held for sale (Note 4) 56
7,543
Total liabilities 2,947,316
2,691,844
COMMITMENTS AND CONTINGENCIES (Note 18)

EQUITY (Notes 11 and 13):
Stockholders’ Equity:
Preferred Stock, $.01 par value, 30,000,000 shares authorized,
6.875% Series G Cumulative Redeemable Preferred stock, $.01 par value,
4,600,000 shares authorized, 4,000,000 shares issued and outstanding ($100,000
liquidation preference)
96,155
96,155
6.375% Series H Cumulative Redeemable Preferred stock, $.01 par value,
4,000,000 shares authorized, issued and outstanding ($100,000 liquidation preference)
96,256
96,256
Common stock, $.01 par value, 150,000,000 shares authorized,
93,219,439 and 92,258,690 shares issued and outstanding, respectively
932
923
Additional paid-in capital 3,457,649
3,047,894
Distributions in excess of earnings (107,997 ) (70,262 )
Total stockholders’ equity 3,542,995
3,170,966
Noncontrolling Interests:
Common units of the Operating Partnership (Note 11) 85,590
57,100
Noncontrolling interests in consolidated property partnerships (Notes 2 and 11) 130,732
6,520
Total noncontrolling interests 216,322
63,620
Total equity 3,759,317
3,234,586
TOTAL LIABILITIES AND EQUITY $ 6,706,633
$ 5,926,430

~~See accompanying notes to consolidated financial statements.~~

~~KILROY REALTY CORPORATION~~

~~CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~(in thousands, except share and per share data)~~

Year Ended December 31,
2016 2015 2014
REVENUES:
Rental income $ 574,413
$ 525,355
$ 466,328
Tenant reimbursements 61,079
53,774
46,717
Other property income (Notes 18 and 20) 7,080
2,146
8,680
Total revenues 642,572
581,275
521,725
EXPENSES:
Property expenses 113,932
105,378
100,514
Real estate taxes 55,206
50,223
45,197
Provision for bad debts —
545
58
Ground leases (Notes 5 and 18) 3,439
3,096
3,075
General and administrative expenses 57,029
48,265
46,152
Acquisition-related expenses 1,902
497
1,479
Depreciation and amortization (Notes 2 and 5) 217,234
204,294
202,417
Total expenses 448,742
412,298
398,892
OTHER (EXPENSES) INCOME:
Interest income and other net investment gains (losses) (Note 19) 1,764
243
561
Interest expense (Note 9) (55,803 ) (57,682 ) (67,571 )
Total other (expenses) income (54,039 ) (57,439 ) (67,010 )
INCOME FROM CONTINUING OPERATIONS BEFORE GAINS ON SALES OF REAL ESTATE 139,791
111,538
55,823
Net (loss) gain on sales of land (Note 4) (295 ) 17,116
3,490
Gains on sales of depreciable operating properties (Note 4) 164,302
109,950
—
INCOME FROM CONTINUING OPERATIONS 303,798
238,604
59,313
DISCONTINUED OPERATIONS (Note 21)
Income from discontinued operations —
—
2,573
Net gain on dispositions of discontinued operations —
—
121,922
Total income from discontinued operations —
—
124,495
NET INCOME 303,798
238,604
183,808
Net income attributable to noncontrolling common units of the Operating Partnership (Notes 2 and 11) (6,635 ) (4,339 ) (3,589 )
Net income attributable to noncontrolling interests in consolidated property partnerships (Notes 2 and 11) (3,375 ) (184 ) —
Total income attributable to noncontrolling interests (10,010 ) (4,523 ) (3,589 )
NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION 293,788
234,081
180,219
PREFERRED DIVIDENDS (NOTE 13) (13,250 ) (13,250 ) (13,250 )
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 280,538
$ 220,831
$ 166,969
Income from continuing operations available to common stockholders per share of
common stock – basic (Note 22)
$ 3.00
$ 2.44
$ 0.52
Income from continuing operations available to common stockholders per share of
common stock – diluted (Note 22)
$ 2.97
$ 2.42
$ 0.51
Net income available to common stockholders per share – basic (Note 22) $ 3.00
$ 2.44
$ 1.99
Net income available to common stockholders per share – diluted (Note 22) $ 2.97
$ 2.42
$ 1.95
Weighted average shares of common stock outstanding – basic (Note 22) 92,342,483
89,854,096
83,090,235
Weighted average shares of common stock outstanding – diluted (Note 22) 93,023,034
90,395,775
84,967,720

~~See accompanying notes to consolidated financial statements.~~

~~KILROY REALTY CORPORATION~~

~~CONSOLIDATED STATEMENTS OF EQUITY~~

~~(in thousands, except share and per share/unit data)~~

Preferred
Stock
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, 2013 $ 192,411
82,153,944
$ 822
$ 2,478,975
$ (210,896 ) $ 2,461,312
$ 54,848
$ 2,516,160
Net income 180,219
180,219
3,589
183,808
Issuance of common stock 1,950,599
20
123,840
123,860
123,860
Issuance of share-based compensation awards —

1,692
1,692
1,692
Non-cash amortization of share-based compensation 14,471
14,471
14,471
Exercise of stock options 495,000
5
21,087
21,092
21,092
Repurchase of common stock and restricted stock units (58,045 ) (3,533 ) (3,533 ) (3,533 )
Settlement of restricted stock units for shares of common stock 141,205
—
(1 ) (1 ) (1 )
Shares of common stock issued in connection with settlement of 4.25% Exchangeable Senior Notes 2,091,323
21
202
223
223
Shares of common stock received in connection with capped call option transactions (515,342 ) (5 ) 5
—
—
Exchange of common units of the Operating Partnership 1,000
28
28
(28 ) —
Adjustment for noncontrolling interest in the Operating Partnership (866 ) (866 ) 866
—
Contribution by noncontrolling interest in consolidated property partnership 977
977
Preferred dividends and distributions (13,250 ) (13,250 ) (13,250 )
Dividends declared per share of common stock and common unit ($1.40 per share/unit) (119,037 ) (119,037 ) (2,526 ) (121,563 )
BALANCE AS OF DECEMBER 31, 2014 192,411
86,259,684
863
2,635,900
(162,964 ) 2,666,210
57,726
2,723,936
Net income 234,081
234,081
4,523
238,604
Issuance of common stock 5,640,033
56
387,342
387,398
387,398
Issuance of share-based compensation awards 1,692
1,692
1,692
Non-cash amortization of share-based compensation 18,869
18,869
18,869
Exercise of stock options 342,000
4
14,569
14,573
14,573
Repurchase of common stock, stock options and restricted stock units (101,389 ) (7,081 ) (7,081 ) (7,081 )
Settlement of restricted stock units for shares of common stock 78,937
—
(1 ) (1 ) (1 )
Exchange of common units of the Operating Partnership 39,425
1,223
1,223
(1,223 ) —
Adjustment for noncontrolling interest in the Operating Partnership (4,619 ) (4,619 ) 4,619
—
Contribution by noncontrolling interest in consolidated property partnership
474
474
Preferred dividends and distributions (13,250 ) (13,250 ) (13,250 )
Dividends declared per share of common stock and common unit ($1.40 per share/unit) (128,129 ) (128,129 ) (2,499 ) (130,628 )
BALANCE AS OF DECEMBER 31, 2015 192,411
92,258,690
923
3,047,894
(70,262 ) 3,170,966
63,620
3,234,586
Net income 293,788
293,788
10,010
303,798
Issuance of common stock (Note 13) 451,398
4
31,113
31,117
31,117
Issuance of share-based compensation awards (Note 15) 1,827
1,827
1,827
Non-cash amortization of share-based compensation (Note 15) 26,624
26,624
26,624
Exercise of stock options (Note 15) 286,500
3
12,205
12,208
12,208
Repurchase of common stock, stock options and restricted stock units (Note 15) (137,126 ) (1 ) (8,874 ) (8,875 ) (8,875 )
Settlement of restricted stock units for shares of common stock (Note 15) 109,044
1
(1 ) —
—
Issuance of common units in connection with acquisition (Note 3) 48,033
48,033
Exchange of common units of the Operating Partnership 250,933
2
8,891
8,893
(8,893 ) —
Initial contributions from noncontrolling interest in consolidated property partnership, net of transaction costs (Note 11) 328,997
328,997
124,452
453,449
Distributions to noncontrolling interests in consolidated property partnerships —
(3,615 ) (3,615 )
Adjustment for noncontrolling interest in the Operating Partnership (Note 2) 8,973
8,973
(8,973 ) —
Preferred dividends and distributions (13,250 ) (13,250 ) (13,250 )
Dividends declared per share of common stock and common unit ($3.375 per share/unit) (Notes 13 and 29) (318,273 ) (318,273 ) (8,312 ) (326,585 )
BALANCE AS OF DECEMBER 31, 2016 $ 192,411
93,219,439
$ 932
$ 3,457,649
$ (107,997 ) $ 3,542,995
$ 216,322
$ 3,759,317

~~See accompanying notes to consolidated financial statements.~~

~~KILROY REALTY CORPORATION~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(in thousands)~~

Year Ended December 31,
2016 2015 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 303,798
$ 238,604
$ 183,808
Adjustments to reconcile net income to net cash provided by operating activities (including discontinued operations):
Depreciation and amortization of real estate assets and leasing costs 213,156
201,482
202,108
Depreciation of non-real estate furniture, fixtures and equipment 4,078
2,812
2,370
Increase in provision for bad debts —
545
58
Non-cash amortization of share-based compensation awards (Note 15) 21,064
15,537
12,095
Non-cash amortization of deferred financing costs and debt discounts and premiums 2,720
1,853
4,315
Non-cash amortization of net below market rents (Note 5) (7,166 ) (8,449 ) (8,328 )
Gains on sales of depreciable operating properties (Note 4) (164,302 ) (109,950 ) —
Gains on sales of discontinued operations (Note 21) —
—
(121,922 )
Loss (gain) on sales of land (Note 4) 295
(17,116 ) (3,490 )
Non-cash amortization of deferred revenue related to tenant-funded tenant improvements (Note 10) (13,244 ) (13,338 ) (10,979 )
Straight-line rents (29,629 ) (44,383 ) (31,782 )
Net change in other operating assets (5,214 ) (8,085 ) 367
Net change in other operating liabilities 19,498
12,496
16,633
Net cash provided by operating activities 345,054

272,008
245,253
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for development properties and undeveloped land (351,012 ) (407,969 ) (417,784 )
Expenditures for acquisitions of development properties and undeveloped land (Note 3) (33,513 ) (139,073 ) (147,182 )
Expenditures for acquisitions of operating properties (Note 3) (393,767 ) —
(204,546 )
Expenditures for operating properties and other capital assets (111,961 ) (99,557 ) (132,080 )
Net proceeds received from dispositions (Notes 4 and 21) 325,031
319,639
427,544
(Increase) decrease in restricted cash (Note 4) (56,015 ) 65,210
(25,405 )
Issuance of notes receivable (Note 7) (16,100 ) (3,000 ) —
Decrease (increase) in acquisition-related deposits 1,902
1,998
(1,983 )
Net cash used in investing activities (635,435 ) (262,752 ) (501,436 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on unsecured revolving credit facility 305,000
250,000
505,000
Repayments on unsecured revolving credit facility (305,000 ) (390,000 ) (410,000 )
Proceeds from the issuance of secured debt (Note 9) 170,000
—
—
Principal payments and repayments of secured debt (Note 9) (74,140 ) (159,766 ) (9,845 )
Net proceeds from the issuance of unsecured debt (Note 9) —
397,776
395,528
Repayments of unsecured debt (Note 9) —
(325,000 ) (83,000 )
Repayments of exchangeable senior notes (Note 9) —
—
(172,500 )
Borrowings on unsecured debt (Note 9) —
—
39,000
Financing costs (2,159 ) (4,814 ) (8,648 )
Net proceeds from issuance of common stock (Note 13) 31,117
387,398
102,229
Proceeds from exercise of stock options (Note 15) 12,208
14,573
21,092
Repurchase of common stock and restricted stock units (Note 13) (8,875 ) (7,081 ) (3,533 )
Contributions from noncontrolling interests in consolidated property partnerships (Notes 2 and 11) 453,449
474
977
Distributions to noncontrolling interests in consolidated property partnerships (3,615 ) —
—
Dividends and distributions paid to common stockholders and common unitholders (137,444 ) (126,839 ) (118,463 )
Dividends and distributions paid to preferred stockholders and preferred unitholders (13,250 ) (13,250 ) (13,250 )
Net cash provided by financing activities 427,291
23,471
244,587
Net increase (decrease) in cash and cash equivalents 136,910
32,727
(11,596 )
Cash and cash equivalents, beginning of year 56,508
23,781
35,377
Cash and cash equivalents, end of year $ 193,418
$ 56,508
$ 23,781

~~See accompanying notes to consolidated financial statements.~~

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

~~To the Partners of~~

~~Kilroy Realty, L.P.~~

~~Los Angeles, California~~

~~We have audited the accompanying consolidated balance sheets of Kilroy Realty, L.P. (the “Operating Partnership”) as of December 31, 2016 and~~ ~~2015~~, and the related consolidated statements of operations, capital, and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements ~~and financial statement schedules~~ are the responsibility of the Operating Partnership’s management. Our responsibility is to express an opinion on the Operating Partnership’s financial statements ~~and financial statement schedules~~ based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

~~In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Kilroy Realty, L.P. as of December 31, 2016 and~~ ~~2015~~, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Operating Partnership’s internal control over financial reporting as of December 31, 2016, based on the criteria established in ~~Internal Control – Integrated Framework (2013)~~ ~~issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated~~ ~~February 14, 2017~~ ~~expressed an unqualified opinion on the Operating Partnership’s internal control over financial reporting.~~

/s/ DELOITTE & TOUCHE LLP

Los Angeles, California

February ~~14, 2017~~13, 2020

We have served as the Operating Partnership’s auditor since 2010.

F - 8

KILROY REALTY, L.P.

CONSOLIDATED BALANCE SHEETS

(in thousands, except unit data)


	December 31, 2016			December 31, 2015			December 31, 2019			December 31, 2018
ASSETS
REAL ESTATE ASSETS (Notes 2, 3 and 4):
Land and improvements	$	1,108,971		$	875,794		$	1,466,166		$	1,160,138
Buildings and improvements	4,938,250			4,091,012			5,866,477			5,207,984
Undeveloped land and construction in progress	1,013,533			1,361,340			2,296,130			2,058,510
Total real estate assets held for investment	7,060,754			6,328,146			9,628,773			8,426,632
Accumulated depreciation and amortization	(1,139,853		)	(994,241		)	(1,561,361		)	(1,391,368		)
Total real estate assets held for investment, net	5,920,901			5,333,905			8,067,412			7,035,264
REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET (Note 4)	9,417			117,666
CASH AND CASH EQUIVALENTS (Notes 4 and 12)	193,418			56,508
RESTRICTED CASH (Note 4)	56,711			696
CASH AND CASH EQUIVALENTS (Note 24)							60,044			51,604
RESTRICTED CASH (Notes 3, 4 and 24)							16,300			119,430
MARKETABLE SECURITIES (Notes 16 and 19)	14,773			12,882			27,098			21,779
CURRENT RECEIVABLES, NET (Note 6)	13,460			11,153
DEFERRED RENT RECEIVABLES, NET (Note 6)	218,977			189,704
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 3 and 5)	208,368			176,683
CURRENT RECEIVABLES, NET (Notes 2, 6 and 20)							26,489			20,176
DEFERRED RENT RECEIVABLES, NET (Notes 2, 6 and 20)							337,937			267,007
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 2, 3 and 5)							212,805			197,574
RIGHT OF USE GROUND LEASE ASSET (Note 2 and 18)							96,348			—
PREPAID EXPENSES AND OTHER ASSETS, NET (Note 7)	70,608			27,233			55,661			52,873
TOTAL ASSETS	$	6,706,633		$	5,926,430		$	8,900,094		$	7,765,707
LIABILITIES AND CAPITAL
LIABILITIES:
Secured debt, net (Notes 9 and 19)	$	472,772		$	380,835		$	258,593		$	335,531
Unsecured debt, net (Notes 9 and 19)	1,847,351			1,844,634			3,049,185			2,552,070
Unsecured line of credit (Notes 9 and 19)							245,000			45,000
Accounts payable, accrued expenses and other liabilities (Note 18)	202,391			246,323			418,848			374,415
Accrued distributions (Notes 14 and 29)	222,306			34,992
Ground lease liabilities (Note 2 and 18)							98,400			—
Accrued distributions (Notes 14 and 28)							53,219			47,559
Deferred revenue and acquisition-related intangible liabilities, net (Notes 3, 5 and 10)	150,360			128,156			139,488			149,646
Rents received in advance and tenant security deposits	52,080			49,361			66,503			60,225
Liabilities and deferred revenue of real estate assets held for sale (Note 4)	56			7,543
Total liabilities	2,947,316			2,691,844			4,329,236			3,564,446
COMMITMENTS AND CONTINGENCIES (Note 18)
CAPITAL (Notes 12 and 14):
Partners’ Capital:
6.875% Series G Cumulative Redeemable Preferred units, 4,000,000 units issued and outstanding ($100,000 liquidation preference)	96,155			96,155
6.375% Series H Cumulative Redeemable Preferred units, 4,000,000 units issued and outstanding ($100,000 liquidation preference)	96,256			96,256
Common units, 93,219,439 and 92,258,690 held by the general partner and 2,381,543 and 1,764,775 held by common limited partners issued and outstanding, respectively	3,431,768			3,031,609
Total Partners’ Capital	3,624,179			3,224,020
CAPITAL:
Common units, 106,016,287 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 14)							4,369,758			4,003,700
Total partners’ capital							4,369,758			4,003,700
Noncontrolling interests in consolidated property partnerships and subsidiaries (Notes 2 and 12)	135,138			10,566			201,100			197,561
Total capital	3,759,317			3,234,586			4,570,858			4,201,261
TOTAL LIABILITIES AND CAPITAL	$	6,706,633		$	5,926,430		$	8,900,094		$	7,765,707

See accompanying notes to consolidated financial statements.

F - 9

KILROY REALTY, L.P.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except unit and per unit data)

Year Ended December 31,
2016 2015 2014
REVENUES:
Rental income $ 574,413
$ 525,355
$ 466,328
Tenant reimbursements 61,079
53,774
46,717
Other property income (Notes 18 and 20) 7,080
2,146
8,680
Total revenues 642,572
581,275
521,725
EXPENSES:
Property expenses 113,932
105,378
100,514
Real estate taxes 55,206
50,223
45,197
Provision for bad debts —
545
58
Ground leases (Notes 5 and 18) 3,439
3,096
3,075
General and administrative expenses 57,029
48,265
46,152
Acquisition-related expenses 1,902
497
1,479
Depreciation and amortization (Notes 2 and 5) 217,234
204,294
202,417
Total expenses 448,742
412,298
398,892
OTHER (EXPENSES) INCOME:
Interest income and other net investment gains (losses) (Note 19) 1,764
243
561
Interest expense (Note 9) (55,803 ) (57,682 ) (67,571 )
Total other (expenses) income (54,039 ) (57,439 ) (67,010 )
INCOME FROM CONTINUING OPERATIONS BEFORE GAINS ON SALES OF REAL ESTATE 139,791
111,538
55,823
Net (loss) gain on sales of land (Note 4) (295 ) 17,116
3,490
Gains on sales of depreciable operating properties (Note 4) 164,302
109,950
—
INCOME FROM CONTINUING OPERATIONS 303,798
238,604
59,313
DISCONTINUED OPERATIONS (Note 21)
Income from discontinued operations —
—
2,573
Net gain on dispositions of discontinued operations —
—
121,922
Total income from discontinued operations —
—
124,495
NET INCOME 303,798
238,604
183,808
Net income attributable to noncontrolling interests in consolidated property partnerships and subsidiaries (Notes 2 and 12) (3,735 ) (467 ) (260 )
NET INCOME ATTRIBUTABLE TO KILROY REALTY, L.P. 300,063
238,137
183,548
PREFERRED DISTRIBUTIONS (NOTE 14) (13,250 ) (13,250 ) (13,250 )
NET INCOME AVAILABLE TO COMMON UNITHOLDERS $ 286,813
$ 224,887
$ 170,298
Income from continuing operations available to common unitholders per unit – basic
(Note 23)
$ 2.99
$ 2.44
$ 0.52
Income from continuing operations available to common unitholders per unit – diluted
(Note 23)
$ 2.96
$ 2.42
$ 0.51
Net income available to common unitholders per unit – basic (Note 23) $ 2.99
$ 2.44
$ 1.99
Net income available to common unitholders per unit – diluted (Note 23) $ 2.96
$ 2.42
$ 1.94
Weighted average common units outstanding – basic (Note 23) 94,771,688
91,645,578
84,894,498
Weighted average common units outstanding – diluted (Note 23) 95,452,239
92,187,257
86,771,983



	Year Ended December 31,
	2019			2018			2017
REVENUES (Note 2):
Rental income	$	826,472		$	656,631		$	633,896
Tenant reimbursements	—			80,982			76,559
Other property income	10,982			9,685			8,546
Total revenues	837,454			747,298			719,001
EXPENSES:
Property expenses (Note 2)	160,037			133,787			129,971
Real estate taxes (Note 2)	78,097			70,820			66,449
Provision for bad debts (Notes 2 and 20)	—			5,685			3,269
Ground leases (Notes 2, 5 and 18)	8,113			6,176			6,337
General and administrative expenses (Note 15)	88,139			90,471			60,581
Leasing costs (Notes 2 and 5)	7,615			—			—
Depreciation and amortization (Notes 2 and 5)	273,130			254,281			245,886
Total expenses	615,131			561,220			512,493
OTHER (EXPENSES) INCOME:
Interest income and other net investment gain (loss) (Note 19)	4,641			(559		)	5,503
Interest expense (Note 9)	(48,537		)	(49,721		)	(66,040		)
Loss on early extinguishment of debt (Note 9)	—			(12,623		)	(5,312		)
Net gain on sales of land (Note 4)	—			11,825			449
Gains on sales of depreciable operating properties (Note 4)	36,802			142,926			39,507
Total other (expenses) income	(7,094		)	91,848			(25,893		)
NET INCOME	215,229			277,926			180,615
Net income attributable to noncontrolling interests in consolidated property partnerships and subsidiaries (Notes 2 and 12)	(16,491		)	(14,716		)	(13,175		)
NET INCOME ATTRIBUTABLE TO KILROY REALTY, L.P.	198,738			263,210			167,440
Preferred distributions (Note 14)	—			—			(5,774		)
Original issuance costs of redeemed preferred units (Note 14)	—			—			(7,589		)
Total preferred distributions	—			—			(13,363		)
NET INCOME AVAILABLE TO COMMON UNITHOLDERS	$	198,738		$	263,210		$	154,077
Net income available to common unitholders per unit – basic (Note 22)	$	1.87		$	2.56		$	1.52
Net income available to common unitholders per unit – diluted (Note 22)	$1.86			$	2.55		$	1.51
Weighted average common units outstanding – basic (Note 22)	105,223,975			102,025,276			100,246,567
Weighted average common units outstanding – diluted (Note 22)	105,872,575			102,535,282			100,860,337

See accompanying notes to consolidated financial statements.

F - 10

KILROY REALTY, L.P.

CONSOLIDATED STATEMENTS OF CAPITAL

(in thousands, except unit and per unit data)


	Partners’ Capital							Total Partners’ Capital				Noncontrolling Interests in Consolidated Property Partnerships and Subsidiaries							Partners’ Capital									Total Partners’ Capital			Noncontrolling Interests in Consolidated Property Partnerships and Subsidiaries
	Preferred Units		Number of Common Units		Common Units						Total Capital				Preferred Units				Number of Common Units			Common Units					Total Capital
BALANCE AS OF DECEMBER 31, 2013	$	192,411	83,959,144		$	2,315,361				$	2,507,772					$	8,388			$	2,516,160
BALANCE AS OF DECEMBER 31, 2016																			$	192,411			95,600,982		$	3,431,768			$	3,624,179		$	135,138		$	3,759,317
Net income																									167,440			167,440			13,175			180,615
Redemption of Series G & H Preferred stock																			(192,411		)				(7,589		)	(200,000		)				(200,000		)
Issuance of common units																							4,662,577		326,058			326,058						326,058
Issuance of share-based compensation awards																									5,890			5,890						5,890
Non-cash amortization of share-based compensation																									26,319			26,319						26,319
Exercise of stock options																							285,000		12,179			12,179						12,179
Settlement of restricted stock units																							317,848		—			—						—
Repurchase of common units and restricted stock units																							(168,881	)	(12,986		)	(12,986		)				(12,986		)
Contributions from noncontrolling interest in consolidated property partnership																															54,604			54,604
Distributions to noncontrolling interests in consolidated property partnerships																															(16,542		)	(16,542		)
Preferred distributions																									(5,774		)	(5,774		)				(5,774		)
Distributions declared per common unit ($1.65 per unit)																									(169,364		)	(169,364		)				(169,364		)
BALANCE AS OF DECEMBER 31, 2017																			—				100,697,526		3,773,941			3,773,941			186,375			3,960,316
Net income					183,548			183,548				260				183,808									263,210			263,210			14,716			277,926
Issuance of common units			1,950,599		123,860			123,860								123,860							1,817,195		130,693			130,693						130,693
Issuance of share-based compensation awards					1,692			1,692								1,692									3,926			3,926						3,926
Non-cash amortization of share-based compensation					14,471			14,471								14,471									35,890			35,890						35,890
Exercise of stock options			495,000		21,092			21,092								21,092							1,000		41			41						41
Settlement of restricted stock units																							488,354		—			—						—
Repurchase of common units and restricted stock units			(58,045	)	(3,533		)	(3,533		)						(3,533		)					(231,800	)	(16,553		)	(16,553		)				(16,553		)
Settlement of restricted stock units			141,205		(1		)	(1		)						(1		)
Shares of common stock issued in connection with settlement of 4.25% Exchangeable Senior Notes			2,091,323		223			223								223
Shares of common stock received in connection with capped call option transactions			(515,342	)				—								—
Contribution by noncontrolling interest in consolidated subsidiary												977				977
Preferred distributions					(13,250		)	(13,250		)						(13,250		)
Distributions declared per common unit ($1.40 per unit)					(121,563		)	(121,563		)						(121,563		)
BALANCE AS OF DECEMBER 31, 2014	192,411		88,063,884		2,521,900			2,714,311				9,625				2,723,936
Contributions from noncontrolling interest in consolidated property partnership																									—			—			8,273			8,273
Distributions to noncontrolling interests in consolidated property partnerships																															(11,803		)	(11,803		)
Distributions declared per common unit ($1.79 per unit)																									(187,448		)	(187,448		)				(187,448		)
BALANCE AS OF DECEMBER 31, 2018																			—				102,772,275		4,003,700			4,003,700			197,561			4,201,261
Net income					238,137			238,137				467				238,604									198,738			198,738			16,491			215,229
Issuance of common units			5,640,033		387,398			387,398								387,398
Issuance of share-based compensation awards					1,692			1,692								1,692
Non-cash amortization of share-based compensation					18,869			18,869								18,869
Exercise of stock options			342,000		14,573			14,573								14,573
Repurchase of common units and restricted stock units			(101,389	)	(7,081		)	(7,081		)						(7,081		)
Settlement of restricted stock units			78,937		(1		)	(1		)						(1		)
Contribution by noncontrolling interest in consolidated subsidiary												474				474
Preferred distributions					(13,250		)	(13,250		)						(13,250		)
Distributions declared per common unit ($1.40 per unit)					(130,628		)	(130,628		)						(130,628		)
BALANCE AS OF DECEMBER 31, 2015	192,411		94,023,465		3,031,609			3,224,020				10,566				3,234,586
Net income					300,063			300,063				3,735				303,798
Opening adjustment to Partners’ Capital upon adoption of ASC 842 (Note 2)																									(3,146		)	(3,146		)				(3,146		)
Issuance of common units (Note 14)			451,398		31,117			31,117								31,117							5,000,000		353,722			353,722						353,722
Issuance of common units in connection with acquisition (Note 3)			867,701		48,033			48,033								48,033
Issuance of share-based compensation awards (Note 15)					1,827			1,827								1,827									4,664			4,664						4,664
Non-cash amortization of share-based compensation (Note 15)					26,624			26,624								26,624									32,813			32,813						32,813
Exercise of stock options (Note 15)			286,500		12,208			12,208								12,208
Repurchase of common units and restricted stock units (Note 15)			(137,126	)	(8,875		)	(8,875		)						(8,875		)
Exercise of stock options																							16,500		703			703						703
Settlement of restricted stock units (Note 15)			109,044		—			—								—							463,276		—			—						—
Initial contributions from noncontrolling interest in consolidated property partnership, net of transaction costs (Note 12)					328,997			328,997				124,452				453,449
Repurchase and cancellation of common units, stock options, and restricted stock units (Note 15)																							(212,477	)	(14,861		)	(14,861		)				(14,861		)
Distributions to noncontrolling interests in consolidated property partnerships												(3,615		)		(3,615		)													(12,952		)	(12,952		)
Preferred distributions					(13,250		)	(13,250		)						(13,250		)
Distributions declared per common unit ($3.375 per unit)					(326,585		)	(326,585		)						(326,585		)
BALANCE AS OF DECEMBER 31, 2016	$	192,411	95,600,982		$	3,431,768		$	3,624,179			$	135,138			$	3,759,317
Distributions declared per common unit ($1.91 per unit) (Notes 14 and 28)																									(206,575		)	(206,575		)				(206,575		)
BALANCE AS OF DECEMBER 31, 2019																			$	—			108,039,574		$	4,369,758		$	4,369,758		$	201,100		$	4,570,858

See accompanying notes to consolidated financial statements.

F - 11

KILROY REALTY, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Year Ended December 31,									Year Ended December 31,
	2016			2015			2014			2019			2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	303,798		$	238,604		$	183,808		$	215,229		$	277,926		$	180,615
Adjustments to reconcile net income to net cash provided by operating activities (including discontinued operations):
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of real estate assets and leasing costs	213,156			201,482			202,108			268,045			249,882			241,862
Depreciation of non-real estate furniture, fixtures and equipment	4,078			2,812			2,370			5,085			4,400			4,024
Increase in provision for bad debts	—			545			58
(Recoveries of) provision for bad debts (Notes 2 and 20)										(3,433		)	5,685			3,269
Non-cash amortization of share-based compensation awards (Note 15)	21,064			15,537			12,095			27,007			27,932			19,046
Non-cash amortization of deferred financing costs and debt discounts and premiums	2,720			1,853			4,315
Non-cash amortization of deferred financing costs and net debt discounts										1,427			1,084			3,247
Non-cash amortization of net below market rents (Note 5)	(7,166		)	(8,449		)	(8,328		)	(9,206		)	(9,748		)	(8,528		)
Gains on sales of depreciable operating properties (Note 4)	(164,302		)	(109,950		)	—			(36,802		)	(142,926		)	(39,507		)
Gains on sales of discontinued operations (Note 21)	—			—			(121,922		)
Loss (gain) on sales of land (Note 4)	295			(17,116		)	(3,490		)
Non-cash amortization of deferred revenue related to tenant-funded tenant improvements (Note 10)	(13,244		)	(13,338		)	(10,979		)	(19,190		)	(18,429		)	(16,767		)
Straight-line rents	(29,629		)	(44,383		)	(31,782		)	(72,023		)	(26,976		)	(33,275		)
Amortization of right of use ground lease assets (Note 2)										683			—			—
Loss on early extinguishment of debt (Note 9)										—			12,623			5,312
(Gain) loss on sale of land (Note 4)										—			(11,825		)	(449		)
Net change in other operating assets	(5,214		)	(8,085		)	367			(14,476		)	(7,930		)	(17,732		)
Net change in other operating liabilities	19,498			12,496			16,633			24,175			48,345			5,895
Net cash provided by operating activities	345,054			272,008			245,253			386,521			410,043			347,012
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for development properties and undeveloped land	(351,012		)	(407,969		)	(417,784		)	(845,464		)	(489,236		)	(397,440		)
Expenditures for acquisitions of development properties and undeveloped land (Note 3)	(33,513		)	(139,073		)	(147,182		)	(173,291		)	(311,299		)	(19,829		)
Expenditures for acquisitions of operating properties (Note 3)	(393,767		)	—			(204,546		)	(186,258		)	(257,340		)	—
Expenditures for operating properties and other capital assets	(111,961		)	(99,557		)	(132,080		)	(147,687		)	(166,440		)	(88,425		)
Net proceeds received from dispositions (Notes 4 and 21)	325,031			319,639			427,544
(Increase) decrease in restricted cash (Note 4)	(56,015		)	65,210			(25,405		)
Issuance of notes receivable (Note 7)	(16,100		)	(3,000		)	—
Net proceeds received from dispositions (Note 4)										124,421			364,300			182,492
Decrease (increase) in acquisition-related deposits	1,902			1,998			(1,983		)	—			36,000			(35,900		)
Proceeds received from repayment of note receivable										—			15,100			—
Net cash used in investing activities	(635,435		)	(262,752		)	(501,436		)	(1,228,279		)	(808,915		)	(359,102		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on unsecured revolving credit facility	305,000			250,000			505,000
Repayments on unsecured revolving credit facilty	(305,000		)	(390,000		)	(410,000		)
Proceeds from the issuance of secured debt (Note 9)	170,000			—			—
Principal payments and repayments of secured debt (Note 9)	(74,140		)	(159,766		)	(9,845		)
Net proceeds from issuance of common units (Note 14)										353,722			130,693			326,058
Redemption of Series G and H Preferred units (Note 14)										—			—			(200,000		)
Net proceeds from the issuance of unsecured debt (Note 9)	—			397,776			395,528			499,390			648,537			674,447
Repayments of unsecured debt (Note 9)	—			(325,000		)	(83,000		)	—			(261,823		)	(519,024		)
Repayments of exchangeable senior notes (Note 9)	—			—			(172,500		)
Borrowings on unsecured revolving credit facility										1,110,000			765,000			270,000
Repayments on unsecured revolving credit facility										(910,000		)	(690,000		)	(270,000		)
Borrowings on unsecured debt (Note 9)	—			—			39,000			—			120,000			—
Principal payments and repayments of secured debt (Note 9)										(76,309		)	(3,584		)	(130,371		)
Financing costs	(2,159		)	(4,814		)	(8,648		)	(6,678		)	(6,262		)	(11,500		)
Net proceeds from issuance of common units (Note 14)	31,117			387,398			102,229
Proceeds from exercise of stock options (Note 15)	12,208			14,573			21,092
Repurchase of common units and restricted stock units (Note 14)	(8,875		)	(7,081		)	(3,533		)
Contributions from noncontrolling interests in consolidated property partnerships (Notes 2 and 12)	453,449			474			977
Repurchase of common units and restricted stock units (Note 15)										(14,556		)	(16,553		)	(12,986		)
Proceeds from exercise of stock options										703			41			12,179
Contributions from noncontrolling interests in consolidated property partnerships (Note 12)										—			8,273			54,604
Distributions to noncontrolling interests in consolidated property partnerships	(3,615		)	—			—			(12,952		)	(11,803		)	(16,542		)
Distributions paid to common unitholders	(137,444		)	(126,839		)	(118,463		)	(196,252		)	(179,411		)	(340,697		)
Distributions paid to preferred unitholders	(13,250		)	(13,250		)	(13,250		)	—			—			(7,409		)
Net cash provided by financing activities	427,291			23,471			244,587
Net increase (decrease) in cash and cash equivalents	136,910			32,727			(11,596		)
Cash and cash equivalents, beginning of year	56,508			23,781			35,377
Cash and cash equivalents, end of year	$	193,418		$	56,508		$	23,781
Net cash provided by (used in) financing activities										747,068			503,108			(171,241		)
Net (decrease) increase in cash and cash equivalents and restricted cash										(94,690		)	104,236			(183,331		)
Cash and cash equivalents and restricted cash, beginning of year										171,034			66,798			250,129
Cash and cash equivalents and restricted cash, end of year										$	76,344		$	171,034		$	66,798

See accompanying notes to consolidated financial statements.

F - 12

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Three Years Ended~~ ~~December 31, 2016~~


1.	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 December 31, ~~2016~~:2019:



	Number of Buildings	Rentable Square Feet (unaudited)	Number of Tenants	Percentage Occupied (unaudited)		Percentage Leased (unaudited)
Stabilized Office Properties	112	13,475,795	451	94.6	%	97.0	%

Number of
Buildings

Rentable
Square Feet (unaudited)

Number of
Tenants

Percentage
Occupied
(unaudited)

Percentage Leased
(unaudited)
Stabilized Office Properties 108
14,025,856
549
96.0 % 97.0 %



	Number of Buildings	Number of Units	2019 Average Occupancy (unaudited)
Stabilized Residential Property	1	200	82.4	%

Number of
Buildings Number of Units
Percentage
Occupied
(unaudited)

Percentage Leased
(unaudited)
Stabilized Residential Property 1
200
46.0 % 56.5 %

During the year ended December 31, ~~2016,~~2019, we added ~~three~~1 completed development ~~projects~~project to our stabilized office portfolio consisting of ~~two projects totaling 640,942 rentable~~394,340 square feet in San Francisco, ~~California and a 73,000 rentable square foot project in Del Mar,~~ California. ~~These three properties were included in our stabilized office portfolio as of December 31, 2016.~~ As of December 31, ~~2016,~~2019, the following properties were excluded from our stabilized portfolio. We did not have any redevelopment properties ~~as of~~or properties held for sale at December 31, ~~2016.~~2019.

F - 13

Number of
Properties/Projects

Estimated Office Rentable
Square Feet (unaudited)
Properties held for sale⁽¹⁾
1 67,995
Development project in “lease-up" ⁽²⁾
1 377,000
Development projects under construction ⁽²⁾⁽³⁾
3 1,100,000

~~_______________~~


~~(1)~~	~~See Note 4 “Dispositions and Real Estate Assets Held for Sale” for additional information.~~


~~(2)~~	~~Estimated rentable square feet upon completion.~~


~~(3)~~	~~Development projects under construction also include~~ ~~96,000~~ ~~square feet of retail space and~~ ~~237~~ ~~residential units in addition to the estimated office rentable square feet noted above.~~

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)



	Number of Properties/Projects	Estimated Rentable Square Feet ⁽¹⁾/ Units (unaudited)
In-process development projects - tenant improvement⁽²⁾	2	846,000
In-process development projects - under construction ⁽³⁾	6	2,291,000
Completed residential development project ⁽⁴⁾	1	237 units

_______________


(1)	Estimated rentable square feet upon completion.


(2)	Includes 96,000 square feet of retail space.


(3)	In addition to the estimated office and life science rentable square feet noted above, development projects under construction also include 564 residential units.


(4)	Represents recently completed residential units not yet stabilized.

Our stabilized portfolio also excludes our ~~near-term and~~ future development pipeline, which as of December 31, ~~2016 is~~2019 was comprised of ~~seven potential~~5 future development sites, representing approximately 54 61gross acres of undeveloped land.

~~Two~~ NaN of the ~~three~~3 consolidated property partnerships, 100 First Street Member, LLC (“100 First LLC”) and 303 Second Street Member, LLC (“303 Second LLC”), each owned ~~one~~1 office property in San Francisco, California through subsidiary REITs. As of December 31, ~~2016,~~2019, the Company owned a 56% common equity interest in both 100 First LLC and 303 Second LLC. The third consolidated property partnership, Redwood City Partners, LLC (“Redwood LLC”) owned ~~two~~2 office properties in Redwood City, California. As of December 31, ~~2016,~~2019, the Company owned an approximate 93% common equity interest in Redwood LLC. The remaining interests in all ~~three~~3 property partnerships were owned by unrelated third parties. (See Note 11 “Noncontrolling Interests on the Company’s Consolidated Financial Statements” and Note 12 “Noncontrolling Interests on the Operating Partnership’s Consolidated Financial Statements” to our consolidated financial statements included in this report for additional information).

As of December 31, ~~2016~~,2019, the Company owned an approximate ~~97.5%~~98.1% common general partnership interest in the Operating Partnership. The remaining approximate ~~2.5%~~1.9% common limited partnership interest in the Operating Partnership as of December 31, ~~2016~~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” ~~(see Note 11 “Noncontrolling Interests on the Company’s Consolidated Financial Statements” for additional information)~~.

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.~~interest in the Finance Partnership. The Operating Partnership owns the remaining 99.0% common limited partnership interest. ~~We conduct substantially all of our development activities through Kilroy Services, LLC (“KSLLC”), which is a wholly owned subsidiary of the Operating Partnership.~~ With the exception of the Operating Partnership and our consolidated property partnerships, all of our subsidiaries are wholly-owned.


2.	Basis of Presentation and Significant Accounting Policies

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, ~~KSLLC,~~ 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, ~~KSLLC,~~ 303 Second LLC, 100 First LLC, Redwood LLC and all of our wholly-owned and controlled ~~subsidiaries of the Operating Partnership.~~subsidiaries. All intercompany balances and transactions have been eliminated in the consolidated financial statements.

Effective January 1, 2016, the Company adopted Financial Accounting Standards Board ("FASB") Accounting Standards Update (“ASU”) No. 2015-03 and No. 2015-15, which requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. However, for line-of-credit arrangements, entities may defer and present debt issuance costs as an asset and amortize the costs ratably over the term of the line of credit arrangement, regardless of whether

F - 14

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~there are any outstanding borrowings on the line of credit arrangement. As a result of our adoption of the guidance, $1.1 million of deferred financing costs as of~~ ~~December 31, 2015~~ ~~were reclassified to reduce secured debt, net and $12.0 million of deferred financing costs as of~~ ~~December 31, 2015~~ ~~were reclassified to reduce unsecured debt, net in the~~ ~~December 31, 2015~~ ~~balances on our consolidated balance sheets. In addition, $4.6 million of deferred financing costs relating to our unsecured line of credit as of~~ ~~December 31, 2015~~ ~~were reclassified to prepaid expenses and other assets, net in the~~ ~~December 31, 2015~~ ~~balances on our consolidated balance sheets. The guidance did not have a material impact on our consolidated financial statements.~~

Partially Owned Entities and Variable Interest Entities

Effective January 1, 2016, the Company adopted FASB ASU No. 2015-02 (“ASU 2015-02”), which amended certain guidance with respect to the evaluation of Variable Interest Entities (“VIEs”) and when a reporting entity is required to consolidate certain legal entities. Specifically, the amendments: (i) modify the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities, (ii) eliminate the presumption that a general partner should consolidate a limited partnership, (iii) affect the consolidation analysis of reporting entities that are involved with VIEs, and (iv) provide a scope exception for certain entities.

Under the new guidance, effective January 1, 2016, the Operating Partnership was determined to be a VIE of the Company as the Operating Partnership is a limited partnership in which the common limited partners do not have substantive kick-out rights or participating rights. However, given that the Company was deemed to be the primary beneficiary of the Operating Partnership because the Company has the ability to control the activities that most significantly impact the Operating Partnership's economic performance, the adoption of this new guidance and the conclusion that the Operating Partnership was a VIE did not have any impact on our consolidated financial statements since the conclusion to consolidate the Operating Partnership still applied. The Operating Partnership was the only new VIE identified as part of the adoption of the guidance as of January 1, 2016.

At December 31, ~~2016~~2019 the consolidated financial statements of the Company included ~~three~~4 VIEs in addition to the Operating Partnership: 2 of the consolidated property partnerships, 100 First LLC, 303 Second ~~LLC; 100 First LLC;~~LLC, and ~~an entity~~2 entities established during the fourth quarter of ~~2016~~2019 to facilitate apotential future Section 1031 ~~Exchange.~~Exchanges. At December 31, ~~2016,~~2019, the Company and the Operating Partnership were determined to be the primary ~~beneficiary~~beneficiaries of these ~~three~~4 VIEs as since we had the ability to control the activities that most significantly impact each of the VIEs’ economic performance. As of December 31, ~~2016,~~2019, the ~~three~~4 VIEs’ total assets, liabilities and noncontrolling ~~interest~~interests included on our consolidated balance sheet were approximately ~~$654.3~~$676.7 million (of which ~~$588.6~~$598.0 million related to real estate held for investment), approximately ~~$166.1~~$40.1 million and approximately ~~$124.3~~$189.6 million, respectively. Revenues, income and net assets generated by ~~303 Second~~100 First LLC and ~~100 First~~303 Second LLC may only be used to settle their contractual obligations, which primarily consist of operating expenses, ~~mortgage debt related payments,~~ capital expenditures and required distributions. ~~In January 2017, the Section 1031 Exchange was successfully completed and the entity established for the 1031 Exchange was no longer a VIE.~~

At December 31, ~~2015~~,2018, the consolidated financial statements of the Company ~~and~~included 3 VIEs in addition to the Operating ~~Partnership included two VIEs in which we were deemed to be~~Partnership: 2 of the ~~primary beneficiary. One VIE, Redwood~~consolidated property partnerships, 100 First LLC ~~was established in the second quarter of 2013 in connection with~~and 303 Second LLC, and an ~~undeveloped land acquisition. During the year ended December 31, 2016, Redwood LLC had a VIE reconsideration event and was determined to no longer be a VIE. The other VIE was~~entity established during the fourth quarter of ~~2015~~2018 to facilitate ~~potential~~a Section 1031 ~~Exchanges~~Exchange. At December 31, 2018, the Company and ~~was terminated during 2016. The~~the Operating Partnership were determined to be the primary beneficiaries of these 3 VIEs since we had the ability to control the activities that most significantly impact each of ~~consolidating~~ the ~~VIEs increased~~VIEs’ economic performance. At December 31, 2018, the ~~Company’s~~3 VIEs’ total assets, liabilities and noncontrolling interests ~~as of December 31, 2015 by~~included on our consolidated balance sheet were approximately ~~$203.3~~$615.4 million (of which ~~$187.3~~$543.9 million related to real estate held for investment on our consolidated balance sheet), approximately ~~$28.8~~$45.1 million and approximately ~~$6.5~~$186.4 million, respectively. In January 2019, the Section 1031 Exchange was successfully completed and the related VIE was terminated.

Our accounting policy is to consolidate entities in which we have a controlling financial interest and significant decision making control over the entity's operations. In determining whether we have a controlling financial interest in a partially owned entity and the requirement to consolidate the accounts of that entity, we consider factors such as ownership interest, board representation, management representation, size of our investment (including loans), authority to control decisions, and contractual and substantive participating rights of the members. In addition to evaluating control rights, we consolidate entities in which the other members have no substantive kick-out rights to remove the Company as the managing member.

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~We also evaluate whether the entity is a variable interest entity and whether we are the primary beneficiary. VIEs are entities~~Entities in which the equity investors do not have sufficient equity at risk to finance their endeavors without additional financial support or the holders of the equity investment at risk do not have a controlling financial ~~interest.~~interest are VIEs. We evaluate whether an entity is a VIE and whether we are the primary beneficiary. We are deemed to be the primary beneficiary of a VIE when we have the power to direct the activities of the VIE that most significantly impact the VIEs’ economic performance and the obligation to absorb losses or receive benefits that could potentially be significant to the VIE.

If the requirements for consolidation are not met, the Company would account for investments under the equity method of accounting if we have the ability to exercise significant influence over the entity. Equity method investments would be initially recorded at cost and subsequently adjusted for our share of net income or loss and cash contributions and distributions each period. The Company did not have any equity method investments at December 31, ~~2016~~2019 or 2018.

Accounting Pronouncements Adopted January 1, 2019

Effective January 1, 2019, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“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.

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KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 FASB Accounting Standards Codification Topic 606 “Revenue from Contracts with Customers” (“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 is 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, base rental revenues, additional rental revenues (which consist of amounts due from tenants for common area maintenance, real estate taxes, and other recoverable costs) 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 year ended December 31, ~~2015~~.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 year ended December 31, 2019, we incurred additional property expenses of $13.9 million 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 year ended December 31, 2019:



	Year Ended
	December 31, 2019
	(in thousands)
Fixed lease payments	$	710,557
Variable lease payments	115,915
Total rental income	$	826,472

Upon the adoption of Topic 842 on January 1, 2019, the method for recognizing revenue includes a binary assessment of whether or not substantially all of the amounts due under a tenant’s lease agreement are probable of collection. For leases that are deemed probable of collection, revenue is recorded on a straight-line basis over the lease term. For leases 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. Refer to our Significant Accounting Policies below for further discussion of our revenue recognition and allowance for uncollectible tenant and deferred rent receivables policies.

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

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KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Company no longer capitalized internal leasing costs and third-party legal leasing costs and instead expensed 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 year ended December 31, 2019, the Company expensed approximately $11.4 million 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.

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 4 existing ground leases which were classified as operating leases. As discussed above, the Company 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. 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 4 existing ground leases was 5.15%. 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 related to our ground leases, refer to Note 18 “Commitments and Contingencies.”

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.

Significant Accounting Policies

Revenue Recognition

Rental revenue for office and retail operating properties is our principal source of revenue. We recognize revenue from base rent, additional rent (which consists of amounts due from tenants for common area maintenance, real estate taxes, and other recoverable costs), 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.

Base Rent

The timing of when we commence rental revenue recognition for office and retail properties depends largely on our conclusion as to whether the Company or the tenant is the owner for accounting purposes of tenant improvements at the leased property. When we conclude that we are the owner of tenant improvements for accounting purposes, we record the cost to construct the tenant improvements as an asset and commence rental revenue recognition when the tenant takes possession of or controls the finished space, which is generally when tenant improvements being recorded

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KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

as our assets are substantially complete. In certain instances, when we conclude that the tenant is the owner of certain tenant improvements for accounting purposes, rental revenue recognition begins when the tenant takes possession or controls the physical use of the leased space, which may occur in phases or for an entire building or project. The determination of who owns the tenant improvements is made on a lease-by-lease basis and has a significant effect on the timing of commencement of revenue recognition.

When we conclude that the Company is the owner of tenant improvements for accounting purposes, 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-funded tenant improvements, we record the amount funded by or reimbursed by tenants as deferred revenue, which is amortized and recognized as rental income on a straight-line basis over the term of the related lease.

When we conclude that the tenant is the owner of certain tenant improvements for accounting purposes, we record our contribution towards those tenant-owned 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 revenue 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.

Additional Rent - Reimbursements from Tenants

Additional rent, consisting of amounts due from tenants for common area maintenance, real estate taxes and other recoverable costs, are recognized in rental income in the period the recoverable costs are incurred. Prior to the adoption of Topic 842, such amounts were recognized in revenue as tenant reimbursements. Additional rent 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, with the corresponding expense recognized in property expenses or real estate taxes. Prior to the adoption of Topic 842, recoverable costs were generally recognized and recorded on a gross basis when we were the primary obligor with respect to purchasing goods and services from third-party suppliers, had discretion in selecting the supplier, and had credit risk.

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 recognized as revenue at the point in time when control of the goods or services transfers to the customer and our performance obligation is satisfied.

Uncollectible Lease Receivables and Allowances for Tenant and Deferred Rent Receivables

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 were increased or decreased through provision for bad debts on our consolidated statements of operations. Upon the adoption of Topic 842 on January 1, 2019, the allowances are increased or decreased through rental income, and our determination of the adequacy of the Company’s allowances for tenant receivables includes a binary assessment of whether or not substantially all of the amounts due under a tenant’s lease agreement are probable of collection. Such assessment involves using a methodology that incorporates a specific identification analysis and an aging analysis and considers the current economic and business environment. This determination requires significant judgment and estimates about matters that are uncertain at the time the estimates are made, including the creditworthiness of specific tenants, specific industry trends and conditions, and general economic trends and conditions. For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For leases 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.

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KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For tenant and deferred rent receivables associated with leases whose rents are deemed probable of collection under Topic 842, we may record an allowance under other authoritative GAAP using a methodology that incorporates a specific identification analysis and an aging analysis and considers the current economic and business environment. This determination requires significant judgment and estimates about matters that are uncertain at the time the estimates are made, including the creditworthiness of specific tenants, specific industry trends and conditions, and general economic trends and conditions. Tenant and deferred rent receivables deemed probable of collection are carried net of allowances for uncollectible accounts, with increases or decreases in the allowances recorded through rental income on our consolidated statements of operations. Prior to the adoption of Topic 842 on January 1, 2019, the allowances were increased or decreased through provision for bad debts on our consolidated statements of operations.

Acquisitions

Acquisitions of operating properties and development and redevelopment opportunities generally do not meet the definition of a business and are accounted for as asset acquisitions, as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. For these asset acquisitions, we record the acquired tangible and intangible assets and assumed liabilities based on each asset’s and liability’s relative fair value at the acquisition date of the total purchase price plus any capitalized acquisition costs. We record the acquired tangible and intangible assets and assumed liabilities of acquisitions of operating properties and development and redevelopment opportunities that meet the accounting criteria to be accounted for as business combinations at fair value at the acquisition date. Transaction costs associated with asset acquisitions are capitalized as part of the purchase price of the acquisition.

The acquired assets and assumed liabilities for an acquisition generally include but are not limited to (i) land and improvements, buildings and improvements, undeveloped land and construction in progress and (ii) identified tangible and intangible assets and liabilities associated with in-place leases, including tenant improvements, leasing costs, value of above-market and below-market operating leases and ground leases, acquired in-place lease values and tenant relationships, if any. Any debt assumed and equity (including common units of the Operating Partnership) issued in connection with a property acquisition is recorded at fair value on the date of acquisition.

The fair value of land and improvements is derived from comparable sales of land and improvements within the same submarket and/or region. The fair value of buildings and improvements, tenant improvements and leasing costs considers the value of the property as if it was vacant as well as current replacement costs and other relevant market rate information.

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KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

balance sheet and are amortized on a straight-line basis as a reduction of rental income over the remaining term of the applicable leases. The amounts recorded for below-market operating leases are included in deferred revenue and acquisition-related intangible liabilities, net on the balance sheet and are amortized on a straight-line basis as an increase to rental income over the remaining term of the applicable leases plus the term of any below-market fixed rate renewal options, if applicable. The amortization of ~~the~~a below-market ground lease obligation is recorded as an increase to ground lease expense in the consolidated statements of operations for the periods presented. The amortization of ~~the~~an above-market ground lease obligation is recorded as a decrease to ground lease expense in the ~~consolidations~~consolidated statements of operations for the periods presented.

The fair value of acquired in-place leases is derived based on our assessment of lost revenue and costs incurred for the period required to lease the “assumed vacant” property to the occupancy level when purchased. The amount recorded for acquired in-place leases is included in deferred leasing costs and acquisition-related intangible assets, net on the balance sheet and amortized as an increase to depreciation and amortization expense over the remaining term of the applicable leases. Fully amortized intangible assets are written off each quarter.

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

We record the acquisition of undeveloped land that does not meet the accounting criteria to be accounted for as business combinations and the subsequent acquisition of the fee interest in land and improvements underlying our properties at the purchase price paid and capitalize the associated acquisition costs. During the years ended December 31, 2016, 2015 and ~~2014~~ ~~we capitalized $0.5 million, $1.1 million and $4.5 million, respectively, in acquisition costs associated with development acquisitions.~~

~~Operating Properties~~Other Property Income

~~Operating properties~~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 ~~generally carried at historical cost less accumulated depreciation. Properties held for sale are reported~~recognized as revenue at the ~~lower~~point in time when control of the ~~carrying value~~goods or services transfers to the ~~fair value less estimated cost~~customer and our performance obligation is satisfied.

Uncollectible Lease Receivables and Allowances for Tenant and Deferred Rent Receivables

We carry our current and deferred rent receivables net of allowances for amounts that may not be collected. Prior to ~~sell. The cost~~the adoption of ~~operating properties includes~~Topic 842 on January 1, 2019, the ~~purchase price~~allowances were increased or ~~development costs~~decreased through provision for bad debts on our consolidated statements of operations. Upon the adoption of Topic 842 on January 1, 2019, the allowances are increased or decreased through rental income, and our determination of the ~~properties. Costs incurred for the renovation and betterment~~adequacy of the ~~operating properties~~Company’s allowances for tenant receivables includes a binary assessment of whether or not substantially all of the amounts due under a tenant’s lease agreement are ~~capitalized to our investment in~~probable of collection. Such assessment involves using a methodology that ~~property. Maintenance~~incorporates a specific identification analysis and ~~repairs~~an aging analysis and considers the current economic and business environment. This determination requires significant judgment and estimates about matters that are ~~charged to expense as incurred.~~

~~When evaluating properties~~uncertain at the time the estimates are made, including the creditworthiness of specific tenants, specific industry trends and conditions, and general economic trends and conditions. For leases that are deemed probable of collection, revenue continues to be ~~held~~recorded on a straight-line basis over the lease term. For leases 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 ~~used for potential impairment, we first evaluate whether there are any indicators of impairment for any of our properties. If any impairment indicators are present for~~deferred rent receivable balances charged as a ~~specific property, we then perform an undiscounted cash flow analysis and compare~~direct write-off against rental income in the ~~net carrying amount~~period of the ~~property to~~change in the property’s estimated undiscounted future cash flow over the anticipated holding period. If the estimated undiscounted future cash flow is less than the net carrying amount of the property, we then perform an impairment loss calculation to determine if the fair value of the property is less than the net carrying value of the property. Our impairment loss calculation compares the net carrying amount of the property to the property’s estimated fair value, which may be based on estimated discounted future cash flow calculations or third-party valuations or appraisals. We would recognize an impairment loss if the asset’s net carrying amount exceeds the asset’s estimated fair value. If we were to recognize an impairment loss, the estimated fair value of the asset (less costs to sell for assets held for sale) would become its new cost basis. For a depreciable long-lived asset, the new cost basis would be depreciated (amortized) over the remaining useful life of that asset.collectability determination.

~~Cost Capitalization~~

All costs clearly associated with the development, redevelopment and construction of a property are capitalized as project costs, including internal compensation costs. In addition, the following costs are capitalized as project costs during periods in which activities necessary to prepare development and redevelopment properties for its intended use are in progress: pre-construction costs essential to the development of the property, interest, real estate taxes and insurance.

For office development and redevelopment properties that are pre-leased, we cease capitalization when revenue recognition commences, which is upon substantial completion of tenant improvements deemed to be the Company's asset for accounting purposes.

For office development and redevelopment properties that are not pre-leased, we may not immediately build out the tenant improvements. Therefore, we cease capitalization when revenue recognition commences upon substantial completion of the tenant improvements deemed to be the Company's asset for accounting purposes, but in any event, no later than one year after the cessation of major construction activities. We also cease capitalization on a development or redevelopment property when activities necessary to prepare the property for its intended use have been suspended.

For office development or redevelopment properties with multiple tenants and staged leasing, we cease capitalization and begin depreciation on the portion of the development or redevelopment property for which revenue recognition has commenced.

~~For residential development properties, we cease capitalization when the property is substantially complete and available for occupancy.~~

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KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~Once major construction activity has ceased~~For tenant and deferred rent receivables associated with leases whose rents are deemed probable of collection under Topic 842, we may record an allowance under other authoritative GAAP using a methodology that incorporates a specific identification analysis and an aging analysis and considers the current economic and business environment. This determination requires significant judgment and estimates about matters that are uncertain at the time the estimates are made, including the creditworthiness of specific tenants, specific industry trends and conditions, and general economic trends and conditions. Tenant and deferred rent receivables deemed probable of collection are carried net of allowances for uncollectible accounts, with increases or decreases in the allowances recorded through rental income on our consolidated statements of operations. Prior to the adoption of Topic 842 on January 1, 2019, the allowances were increased or decreased through provision for bad debts on our consolidated statements of operations.

Current tenant receivables consist primarily of amounts due for contractual lease payments and reimbursements of common area maintenance expenses, property taxes, and other costs recoverable from tenants. With respect to the allowance for uncollectible tenant receivables, the specific identification methodology analysis relies on factors such as the age and nature of the receivables, the payment history and financial condition of the tenant, our assessment of the tenant’s ability to meet its lease obligations, and the ~~development or redevelopment property is~~status of negotiations of any disputes with the tenant.

Deferred rent receivables represent the amount by which the cumulative straight-line rental revenue recorded to date exceeds cash rents billed to date under the lease agreement. With respect to the allowance for deferred rent receivables, given the longer-term nature of these receivables, the specific identification methodology analysis evaluates each of our significant tenants and any tenants on our internal watchlist and relies on factors such as each tenant’s financial condition and its ability to meet its lease obligations. We evaluate our reserve levels quarterly based on changes in the ~~lease-up phase,~~financial condition of tenants and our assessment of the tenant’s ability to meet its lease obligations, overall economic conditions, and the current business environment.

Acquisitions

The acquired assets and assumed liabilities for an acquisition generally include but are not limited to ~~construction in progress are transferred to~~(i) land and improvements, buildings and improvements, undeveloped land and ~~deferred~~construction in progress and (ii) identified tangible and intangible assets and liabilities associated with in-place leases, including tenant improvements, leasing costs, ~~on our consolidated balance sheets as the historical cost~~value of above-market and below-market operating leases and ground leases, acquired in-place lease values and tenant relationships, if any. Any debt assumed and equity (including common units of the ~~property.~~Operating Partnership) issued in connection with a property acquisition is recorded at fair value on the date of acquisition.

~~Depreciation~~The fair value of land and ~~Amortization~~improvements is derived from comparable sales of ~~Buildings~~land and ~~Improvements~~

improvements within the same submarket and/or region. The ~~costs~~fair value of buildings and improvements, ~~and~~ tenant improvements ~~are depreciated using~~and leasing costs considers the straight-line method of accounting over the estimated useful lives set forth in the table below. Depreciation expense for buildings and improvements, including discontinued operations, for the three years ended ~~December 31, 2016~~, ~~2015, and~~ ~~2014~~ ~~was $172.0 million, $159.5 million and $153.8 million, respectively.~~



~~Asset Description~~		~~Depreciable Lives~~
~~Buildings and improvements~~		~~25 – 40 years~~
~~Tenant improvements~~		~~1 – 20 years~~ ⁽¹⁾

~~________________________~~


~~(1)~~	~~Tenant improvements are amortized over the shorter of the lease term or the estimated useful life.~~

~~Real Estate Assets Held for Sale, Dispositions and Discontinued Operations~~

A real estate asset is classified as held for sale when certain criteria are met, including but not limited to the availability of the asset for immediate sale, the existence of an active program to locate a buyer and the probable sale or transfer of the asset within one year. If such criteria are met, we present the applicable assets and liabilities related to the real estate asset held for sale, if material, separately on the balance sheet and we would cease to record depreciation and amortization expense. Real estate assets held for sale are reported at the lower of their carrying value or their estimated fair value less the estimated costs to sell. As of December 31, 2016, we classified one operating property located in San Diego, California as held for sale. As of December 31, 2015, we classified four operating properties and one undeveloped land parcel located in San Diego, California as held for sale.

Effective January 1, 2015, the Company adopted FASB ASU No. 2014-08 (“ASU 2014-08”), which changed the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only property disposals representing a strategic shift that has (or will have) a major effect on an entity's operations and financial results, such as a major line of business, a major geographical area or a major equity investment, are required to be presented as discontinued operations. If we were to determine that the property disposition represents a strategic shift, the revenues, expenses and net gain (loss) on dispositions of the property as if it was vacant as well as current replacement costs and other relevant market rate information.

The fair value of the above-market or below-market component of an acquired in-place operating lease is based upon the present value (calculated using a market discount rate) of the difference between (i) the contractual rents to be paid pursuant to the lease over its remaining non-cancellable lease term and (ii) our estimate of the rents that would be ~~recorded in discontinued operations for all periods presented through~~paid using fair market rental rates and rent escalations at the date of acquisition measured over the remaining non-cancellable term of the lease for above-market operating leases and the initial non-cancellable term plus the term of any below-market fixed rate renewal options, if applicable, ~~disposition. The Company adopted and applied the new guidance on a prospective basis as required by ASU 2014-08. Therefore, properties classified as held~~ for ~~sale and/or disposed of subsequent to January 1, 2015 that~~below-market operating leases. Our below-market operating leases generally do not ~~represent a strategic shift~~include fixed rate or below-market renewal options. The amounts recorded for above-market operating leases are ~~presented~~included in ~~continuing operations for all periods presented. In accordance with this guidance,~~deferred leasing costs and acquisition-related intangible assets, net on the ~~operations of the six properties sold during the~~ ~~year~~ ~~ended December 31, 2016 and the ten properties sold during the~~ ~~year~~ ~~ended December 31, 2015 are presented in continuing operations for the years ended December 31, 2016 and December 31, 2015, respectively.~~

Prior to January 1, 2015, the revenues and expenses of operating properties that have been sold, if material, and the revenues and expenses of operating properties that have been classified as held for sale, if material, are reported in the consolidated statements of operations as discontinued operations for all periods presented through the date of the applicable disposition. The net gains (losses) on disposition of operating properties are reported in the consolidated statements of operations as discontinued operations in the period the properties are sold. In determining whether the revenues, expenses, and net gains (losses) on dispositions of operating properties are reported as discontinued operations, we evaluate whether we have any significant continuing involvement in the operations, leasing, or management of the sold property. If we were to determine that we had any significant continuing involvement, the revenues, expenses and net gain (loss) on dispositions of the operating property would not be recorded in discontinued operations. For the year ended December 31, 2014, discontinued operations includes the net income and gains on all of the properties sold in 2014.

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KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

balance sheet and are amortized on a straight-line basis as a reduction of rental income over the remaining term of the applicable leases. The amounts recorded for below-market operating leases are included in deferred revenue and acquisition-related intangible liabilities, net ~~gains (losses)~~ on ~~dispositions~~the balance sheet and are amortized on a straight-line basis as an increase to rental income over the remaining term of ~~non-depreciable real estate property, including land, are reported~~the applicable leases plus the term of any below-market fixed rate renewal options, if applicable. The amortization of a below-market ground lease obligation is recorded as an increase to ground lease expense in the consolidated statements of operations for the periods presented. The amortization of an above-market ground lease obligation is recorded as ~~gains (losses) on sale of land within continuing operations~~a decrease to ground lease expense in the ~~period the land is sold.~~

~~Revenue Recognition~~

~~We recognize revenue from rent, tenant reimbursements, parking and other revenue once all~~consolidated statements 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) the collectability of the amount is reasonably assured.

Minimum annual rental revenues are recognized in rental revenues on a straight-line basis over the term of the related lease. Rental revenue recognition commences when the tenant takes possession or controls the physical use of the leased space. In orderoperations for the ~~tenant~~periods presented.

The fair value of acquired in-place leases is derived based on our assessment of lost revenue and costs incurred for the period required to ~~take possession,~~lease the ~~leased space must be substantially complete and ready~~“assumed vacant” property to the occupancy level when purchased. The amount recorded for its intended use. In order to determine whether the leased space is substantially 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 of or controls the 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~~acquired in-place leases is included in deferred leasing costs and acquisition-related intangible assets, net on ~~our consolidated~~the balance ~~sheets~~sheet and amortized as ~~a reduction~~an increase to ~~rental income on a straight-line basis~~depreciation and amortization expense over the remaining term of the ~~lease.~~applicable leases. Fully amortized intangible assets are written off each quarter.

For residential properties, we commence revenue recognition upon occupancy of the units by the tenants. 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 as revenue in the period the recoverable costs are incurred. Tenant reimbursements are recognized and recorded on a gross basis, as we are generally the primary obligor with respect to purchasing goods and services from third-party suppliers, have discretion in selecting the supplier, and have credit risk.

Other Property Income

Other property income primarily includes amounts recorded in connection with ~~lease terminations,~~transient daily parking, tenant bankruptcy settlement payments, broken deal income and property damage settlement related payments. ~~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.~~ Other property income also includes miscellaneous income from tenants, ~~such as~~restoration fees ~~related to the restoration of leased premises to their original condition~~ and fees for late rental payments. Amounts recorded within other property income fall within the scope of Topic 606 and are recognized as revenue at the point in time when control of the goods or services transfers to the customer and our performance obligation is satisfied.

Uncollectible Lease Receivables and Allowances for ~~Uncollectible~~ Tenant and Deferred Rent Receivables

We carry our current and deferred rent receivables net of allowances for ~~uncollectible amounts. Our determination~~amounts that may not be collected. Prior to the adoption of Topic 842 on January 1, 2019, the ~~adequacy of these~~ allowances ~~is based primarily upon evaluations of individual receivables, current economic conditions, and other relevant factors. The allowances are~~were increased or decreased through ~~the~~ provision for bad debts on our consolidated statements of operations. Upon the adoption of Topic 842 on January 1, 2019, the allowances are increased or decreased through rental income, and our determination of the adequacy of the Company’s allowances for tenant receivables includes a binary assessment of whether or not substantially all of the amounts due under a tenant’s lease agreement are probable of collection. Such assessment involves using a methodology that incorporates a specific identification analysis and an aging analysis and considers the current economic and business environment. This determination requires significant judgment and estimates about matters that are uncertain at the time the estimates are made, including the creditworthiness of specific tenants, specific industry trends and conditions, and general economic trends and conditions. For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For leases 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.

F - 18

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Acquisitions

The fair value of land and improvements is derived from comparable sales of land and improvements within the same submarket and/or region. The fair value of buildings and improvements, tenant improvements and leasing costs considers the value of the property as if it was vacant as well as current replacement costs and other relevant market rate information.

F - 19

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

balance sheet and are amortized on a straight-line basis as a reduction of rental income over the remaining term of the applicable leases. The amounts recorded for below-market operating leases are included in deferred revenue and acquisition-related intangible liabilities, net on the balance sheet and are amortized on a straight-line basis as an increase to rental income over the remaining term of the applicable leases plus the term of any below-market fixed rate renewal options, if applicable. The amortization of a below-market ground lease obligation is recorded as an increase to ground lease expense in the consolidated statements of operations for the periods presented. The amortization of an above-market ground lease obligation is recorded as a decrease to ground lease expense in the consolidated statements of operations for the periods presented.

Operating Properties

Operating properties are generally carried at historical cost less accumulated depreciation. Properties held for sale are reported at the lower of the carrying value or the fair value less estimated cost to sell. The cost of operating properties includes the purchase price or development costs of the properties. Costs incurred for the renovation and betterment of the operating properties are capitalized to our investment in that property. Maintenance and repairs are charged to expense as incurred.

When evaluating properties to be held and used for potential impairment, we first evaluate whether there are any indicators of impairment for any of our properties. If any impairment indicators are present for a specific property, we then evaluate the regional market conditions that could reasonably affect the property. If there are negative changes and trends in that regional market, we then perform an undiscounted cash flow analysis and compare the net carrying amount of the property to the property’s estimated undiscounted future cash flow over the anticipated holding period. If the estimated undiscounted future cash flow is less than the net carrying amount of the property, we perform an impairment loss calculation to determine if the fair value of the property is less than the net carrying value of the property. Our impairment loss calculation compares the net carrying amount of the property to the property’s estimated fair value, which may be based on estimated discounted future cash flow calculations or third-party valuations or appraisals. We would recognize an impairment loss if the property's net carrying amount exceeds the property's estimated fair value. If we were to recognize an impairment loss, the estimated fair value of the property becomes its new cost basis. For a depreciable long-lived asset, the new cost basis would be depreciated (amortized) over the remaining useful life of that asset.

Cost Capitalization

All costs clearly associated with the development, redevelopment and construction of a property are capitalized as project costs, including internal compensation costs. In addition, the following costs are capitalized as project costs during periods in which activities necessary to prepare development and redevelopment properties for their intended use are in progress: pre-construction costs essential to the development of the property, interest, real estate taxes and insurance.

For office and retail development and redevelopment properties that are pre-leased, we cease capitalization when revenue recognition commences, which is upon substantial completion of tenant improvements deemed to be the Company’s asset for accounting purposes.

For office and retail development and redevelopment properties that are not pre-leased, we may not immediately build out the tenant improvements. Therefore, we cease capitalization when revenue recognition commences upon substantial completion of the tenant improvements deemed to be the Company's asset for accounting purposes, but in any event, no later than one year after the cessation of major construction activities. We also cease capitalization on a development or redevelopment property when activities necessary to prepare the property for its intended use have been suspended.

F - 20

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

For office and retail development or redevelopment properties with multiple tenants and staged leasing, we cease capitalization and begin depreciation on the portion of the development or redevelopment property for which revenue recognition has commenced.

For residential development properties, we cease capitalization when the property is substantially complete and available for occupancy.

Once major base building construction activities have ceased and the development or redevelopment property or phases of the development or redevelopment project is placed in service, which may occur in phases or for an entire building or project, the costs capitalized to construction in progress are transferred to land and improvements, buildings and improvements, and deferred leasing costs on our consolidated balance sheets as the historical cost of the property.

Depreciation and Amortization of Buildings and Improvements

The costs of buildings and improvements and tenant improvements are depreciated using the straight-line method of accounting over the estimated useful lives set forth in the table below. Depreciation expense for buildings and improvements for the three years ended December 31, 2019, 2018, and 2017 was $211.9 million, $198.6 million, and $190.5 million, respectively.



Asset Description		Depreciable Lives
Buildings and improvements		25 – 40 years
Tenant improvements		1 – 20 years ⁽¹⁾

________________________


(1)	Tenant improvements are amortized over the shorter of the lease term or the estimated useful life.

Real Estate Assets Held for Sale, Dispositions and Discontinued Operations

A real estate asset is classified as held for sale when certain criteria are met, including but not limited to the availability of the asset for immediate sale, the existence of an active program to locate a buyer and the probable sale or transfer of the asset within one year. If such criteria are met, we present the applicable assets and liabilities related to the real estate asset, if material, separately on the balance sheet as held for sale and we would cease to record depreciation and amortization expense. Real estate assets held for sale are reported at the lower of their carrying value or their estimated fair value less the estimated costs to sell. As of December 31, 2019 and 2018, we did not have any properties classified as held for sale.

Property disposals representing a strategic shift that have (or will have) a major effect on the Company’s operations and financial results, such as a major line of business, a major geographical area or a major equity investment, are required to be presented as discontinued operations. If we were to determine that a property disposition represents a strategic shift, the revenues, expenses and net gain (loss) on dispositions of the property would be recorded in discontinued operations for all periods presented through the date of the applicable disposition. The operations of the properties sold during the years ended December 31, 2019, 2018 and 2017 are presented in continuing operations as they did not represent a strategic shift in the Company’s operations and financial results.

The net gains (losses) on dispositions of non-depreciable real estate property, including land, are reported in the consolidated statements of operations as gains (losses) on sale of land within continuing operations in the period the land is sold. The net gains (losses) on dispositions of depreciable real estate property are reported in the consolidated statements of operations as gains on sales of depreciable operating properties within continuing operations in the period the land is sold.

Cash and Cash Equivalents

We consider all highly-liquid investments with original maturities of three months or less to be cash equivalents.

Restricted Cash

Restricted cash consists of cash proceeds from dispositions that are temporarily held at qualified intermediaries for purposes of facilitating potential Section 1031 Exchanges and cash held in escrow related to acquisition and

F - 21

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

disposition holdbacks. Restricted cash also includes cash held as collateral to provide credit enhancement for the Operating Partnership’s mortgage debt, including cash reserves for capital expenditures, tenant improvements and property taxes. As of December 31, ~~2016,~~2019, we did not have any restricted cash held at qualified intermediaries for the purpose of facilitating Section 1031 Exchanges. As of December 31, 2018, we had~~$48.4~~ $113.1 millionof restricted cash held at qualified intermediaries for the purpose of facilitating Section 1031 Exchanges. In January ~~2017,~~2019, the Section 1031 Exchange was completed and the cash ~~was~~proceeds were released from the qualified intermediary. ~~As of December 31, 2015, we had no restricted cash held at qualified intermediaries for the purpose of facilitating Section 1031 Exchanges.~~

Marketable Securities / Deferred Compensation Plan

Marketable securities reported in our consolidated balance sheets represent the assets held in connection with the Kilroy Realty Corporation 2007 Deferred Compensation Plan (the “Deferred Compensation Plan”) (see Note 16 “Employee Benefit Plans” for additional information). The Deferred Compensation Plan assets are held in a limited rabbi trust and invested in various mutual and money market funds. As a result, the marketable securities are treated as trading securities for financial reporting purposes and are adjusted to fair value at the end of each accounting period, with the corresponding gains and losses recorded in interest income and other net investment ~~gains.~~gains (losses).

At the time eligible management employees (“Participants”) defer compensation or earn mandatory Company contributions, or if we were to make a discretionary contribution, we record compensation cost and a corresponding deferred compensation plan liability, which is included in accounts payable, accrued expenses, and other liabilities on our consolidated balance sheets. This liability is adjusted to fair value at the end of each accounting period based on the performance of the benchmark funds selected by each Participant, and the impact of adjusting the liability to fair value is recorded as an increase or decrease to compensation cost. The impact of adjusting the deferred compensation plan liability to fair value and the changes in the value of the marketable securities held in connection with the Deferred Compensation Plan generally offset and therefore do not significantly impact net income.

Deferred Leasing Costs

Costs incurred in connection with successful property leasing are capitalized as deferred leasing costs and classified as investing activities in the statement of cash flows. ~~Deferred~~Under Topic 842, initial direct costs 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, subsequent to the adoption of Topic 842 on January 1, 2019, deferred leasing costs consist of leasing commissions paid to external third party brokers and lease incentives, and the Company no longer capitalizes internal leasing costs and third-party legal leasing costs. Prior to the adoption of Topic 842, deferred leasing costs consisted primarily of leasing commissions, lease incentives, legal costs and ~~also include~~ certain internal payroll costs. Deferred leasing costs ~~and lease incentives, which~~ are amortized using the straight-line method of accounting over the lives of the leases which generally range from one to 20 years. We reevaluate the remaining useful lives of leasing costs as the creditworthiness of our tenants and economic and market conditions change. If we determine that the estimated remaining life of a lease has changed, we adjust the amortization period accordingly. Fully amortized deferred leasing costs are written off each quarter.

Deferred Financing Costs

Financing costs related to the origination or assumption of long-term debt are deferred and generally amortized using the straight-line method of accounting, which approximates the effective interest method, over the contractual terms of the applicable financings. Fully amortized deferred financing costs are written off when the corresponding financing is repaid. ~~As of December 31, 2016 and~~ ~~2015~~, our secured debt was reported net of unamortized deferred financing costs of $1.4 million and $1.1 million, respectively, and our unsecured debt was reported net of unamortized deferred financing costs of $10.1 million and$12.0 million, respectively. Deferred financing costs related to our unsecured line of credit were reported in prepaid expenses and other assets net of accumulated amortization of $5.7 million and $4.3 million as of December 31, 2016 and ~~2015, respectively.~~

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Debt Discounts and Premiums

Original issuance debt discounts and discounts/premiums related to recording debt acquired in connection with operating property acquisitions at fair value are generally amortized and accreted on a straight-line basis, which approximates the effective interest method. Discounts are recorded as additional interest expense from date of issuance or acquisition through the contractual maturity date of the related debt. Premiums are recorded as a reduction to interest expense from the date of issuance or acquisition through the contractual maturity date of the related debt. ~~Our secured debt is presented including unamortized premiums of $4.4 million~~and $6.2 million as of December 31, 2016 and 2015, respectively. Our unsecured senior notes are presented net of unamortized discounts of $6.6 million and $7.4 million, as of December 31, 2016 and 2015, respectively.

F - 22

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Noncontrolling Interests - Common Units of the Operating Partnership in the Company's Consolidated Financial Statements

Common units of the Operating Partnership within noncontrolling interests in the Company’s consolidated financial statements represent the common limited partnership interests in the Operating Partnership not held by the Company (“noncontrolling common units”). Noncontrolling common units are presented in the equity section of the Company’s consolidated balance sheets and are reported at their proportionate share of the net assets of the Operating Partnership. Noncontrolling interests with redemption provisions that permit the issuer to settle in either cash or shares of common stock must be further evaluated to determine whether equity or temporary equity classification on the balance sheet is appropriate. Since the common units contain such a provision, we evaluated the accounting guidance and determined that the common units qualify for equity presentation in the Company’s consolidated financial statements. Net income attributable to noncontrolling common units is allocated based on their relative ownership percentage of the Operating Partnership during the reported period. The noncontrolling interest ownership percentage is determined by dividing the number of noncontrolling common units by the total number of common units outstanding. The issuance or redemption of additional shares of common stock or common units results in changes to the noncontrolling interest percentage as well as the total net assets of the Company. As a result, all equity transactions result in an allocation between equity and the noncontrolling interest in the Company’s consolidated balance sheets and statements of equity to account for the changes in the noncontrolling interest ownership percentage as well as the change in total net assets of the Company.

Noncontrolling Interests in Consolidated Property Partnerships

Noncontrolling interests in consolidated property partnerships represent the equity interests held by unrelated third parties in our ~~three~~3 consolidated property partnerships (see Note 11 “Noncontrolling Interests on the Company’s Consolidated Financial Statements” and see Note 12 “Noncontrolling Interests on the Operating Partnership’s Consolidated Financial Statements”). Noncontrolling interests in consolidated property partnerships are not redeemable and are presented as permanent equity in the Company's consolidated balance sheets. We account for the noncontrolling interests in consolidated property partnerships using the hypothetical liquidation at book value (“HLBV”) method to attribute the earnings or losses of the consolidated property partnerships between the controlling and noncontrolling interests. Under the HLBV method, the amounts reported as noncontrolling interests in consolidated property partnerships in the consolidated balance sheets represent the amounts the noncontrolling interests would hypothetically receive at each balance sheet reporting date under the liquidation provisions of the governing agreements assuming the net assets of the consolidated property partnerships were liquidated at recorded amounts and distributed between the controlling and noncontrolling interests in accordance with the governing documents. The net income attributable to noncontrolling interests in consolidated property partnerships in the consolidated statements of operations is associated with the increase or decrease in the noncontrolling interest holders’ contractual claims on the respective entities’ balance sheets assuming a hypothetical liquidation at the end of that reporting period when compared with their claims on the respective entities’ balance sheets assuming a hypothetical liquidation at the beginning of that reporting period, after removing any contributions or distributions.

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~Preferred Partnership Interests on the Operating Partnership’s Consolidated Balance Sheets~~

Preferred partnership interests of the Operating Partnership represent the issued and outstanding 4,000,000 6.875% Series G Cumulative Redeemable Preferred Units (“Series G Preferred Units”) and the 4,000,000 6.375% Series H Cumulative Redeemable Preferred Units (“Series H Preferred Units”) which were outstanding as of December 31, 2016 and 2015.

The Series G and Series H Preferred Units are presented in the permanent equity section of the Operating Partnership’s consolidated balance sheets given that the Series G and Series H Preferred Units may only be redeemed at our option (see Note 14 “Preferred and Common Units of the Operating Partnership”). The Company is the holder of both the Series G and Series H Preferred Units and for each Series G and Series H Preferred Unit the Company has an equivalent number of shares of the Company’s 6.875% Series G Cumulative Redeemable Preferred Stock and shares of the Company’s 6.375% Series H Cumulative Redeemable Preferred Stock publicly issued and outstanding.

Common Partnership Interests on the Operating Partnership’s Consolidated Balance Sheets

The common units held by the Company and the noncontrolling common units held by the common limited partners are both presented in the permanent equity section of the Operating Partnership’s consolidated balance sheets in partners’ capital. The redemption rights of the noncontrolling common units permit us to settle the redemption obligation in either cash or shares of the Company’s common stock at our option (see Note 11 “Noncontrolling Interests on the Company’s Consolidated Financial Statements” for additional information).

Noncontrolling Interests on the Operating Partnership’s Consolidated Financial Statements

Noncontrolling interests in the Operating Partnership’s consolidated financial statements include the ~~non-controlling~~noncontrolling interest in property partnerships (see Note 12 “Noncontrolling Interests on the Operating Partnership’s Consolidated Financial Statements”) and the Company’s 1.0% general partnership interest in the Finance Partnership. The 1.0% general partnership interest in the Finance Partnership noncontrolling interest is presented in the permanent equity section of the Operating Partnership’s consolidated balance sheets given that these interests are not convertible or redeemable into any other ownership interest of the Company or the Operating Partnership.

F - 23

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Equity Offerings

Underwriting commissions and offering costs incurred in connection with common equity offerings and our at-the-market stock offering program (see Note 13 “Stockholders’ Equity of the Company”) are reflected as a reduction of additional paid-in capital. Issuance costs incurred in connection with preferred equity offerings are reflected as a reduction of the carrying value of the preferred equity.

~~The Company records preferred stock issuance costs as a non-cash preferred equity distribution at the time we notify the holders of preferred stock or units~~Sales of our ~~intent~~common stock under forward equity sale agreements (such as those under the forward equity offering executed in August 2018 and those under the 2018 At-The-Market Program, as discussed in Note 13 “Stockholders’ Equity of the Company”) meet the derivatives and hedging guidance scope exception to ~~redeem such shares~~be accounted for as equity instruments based on the following assessment: (i) none of the agreements’ exercise contingencies were based on observable markets or ~~units.~~indices besides those related to the market for our own stock price and operations; and (ii) none of the settlement provisions precluded the agreements from being indexed to our own stock.

The net proceeds from any equity offering of the Company are generally contributed to the Operating Partnership in exchange for a number of common ~~or preferred~~ units equivalent to the number of shares of common ~~or preferred~~ stock issued and are reflected in the Operating Partnership’s consolidated financial statements as an increase in partners’ capital.

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Share-based Incentive Compensation Accounting

Compensation cost for all share-based awards, including options, requires measurement at estimated fair value on the grant date. Compensation cost is recognized on a straight-line basis over the service vesting period, which represents the requisite service ~~period, on a straight-line basis.~~period. The grant date fair value of market measure-based share-based compensation plans are calculated using a Monte Carlo simulation pricing model. The grant date fair value of stock option grants is calculated using the Black-Scholes valuation model. Equity awards settled in cash are valued at the fair value of our common stock on the period end date through the settlement date. Equity awards settled in cash are remeasured at each reporting period and are recognized as a liability in the consolidated balance sheet during the vesting period until settlement. Forfeitures of all share-based awards are recognized when they occur.

For share-based awards in which the performance period precedes the grant date, we recognize compensation cost over the requisite service period, which includes both the performance and service vesting periods, using the accelerated attribution expense method. The requisite service period begins on the date the Executive Compensation Committee authorizes the award and adopts any relevant performance measures.

For ~~programs~~share-based awards with performance-based measures, the total estimated compensation cost is based on our most recent estimate of the probable achievement of the pre-established specific corporate performance measures. These estimates are based on actual results and our latest internal forecasts for each performance measure. For ~~programs~~share-based awards with market measures, the total estimated compensation cost is based on the fair value of the award at the grant date. For ~~programs~~share-based awards with performance-based measures and market measures, the total estimated compensation cost is based on the fair value per share at the grant date multiplied by our most recent estimate of the number of shares to be earned based on actual results and the probable achievement of the pre-established corporate performance measures based on our latest internal forecasts.

In accordance with the provisions of our share-based incentive compensation ~~plans,~~plan, we accept the return of shares of Company common stock, at the current quoted market price, from employees to satisfy minimum statutory tax-withholding requirements related to shares that vested during the period.

For ~~share based~~share-based awards granted by the Company, the Operating Partnership issues a number of common units equal to the number of shares of common stock ultimately granted by the Company in respect of such awards.

Basic and Diluted Net Income Available to Common Stockholders per Share

Basic net income available to common stockholders per share is computed by dividing net income available to common stockholders, after preferred distributions and the allocation of income to participating securities, by the weighted-average number of shares of common stock outstanding for the period. Diluted net income available to

F - 24

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

common stockholders per share is computed by dividing net income available for common stockholders, after preferred distributions and the allocation of income to participating securities, by the sum of the weighted-average number of shares of common stock outstanding for the period plus the assumed exercise of all dilutive securities. The impact of the outstanding common units is considered in the calculation of diluted net income available to common stockholders per share. The common units are not reflected in the diluted net income available to common stockholders per share calculation because the exchange of common units into common stock is on a ~~one~~1 for one basis, and the common units are allocated net income on a per share basis equal to the common stock (see Note 2221 “Net Income Available to Common Stockholders Per Share of the Company”). Accordingly, any exchange would not have any effect on diluted net income (loss) available to common stockholders per share.

Nonvested share-based payment awards (including nonvested restricted stock units (“RSUs”), vested market-measure RSUs and vested dividend equivalents issued to holders of RSUs) containing nonforfeitable rights to dividends or dividend equivalents are accounted for as participating securities and included in the computation of basic and diluted net income available to common stockholders per share pursuant to the two-class method. The dilutive effect of shares issuable under executed forward equity sale agreements and stock options isare reflected in the weighted average diluted outstanding shares calculation by application of the treasury stock method. The dilutive effect of the outstanding nonvested shares of common stock (“nonvested shares”) and RSUs that have not yet been granted but are contingently issuable under the share-based compensation programs is reflected in the weighted average diluted shares calculation by application of the treasury stock method at the beginning of the quarterly period in which all necessary conditions have been satisfied. ~~During the periods exchangeable debt instruments were outstanding prior to their maturity in November 2014, the dilutive effect of the exchangeable debt instruments~~

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

was reflected in the weighted average diluted outstanding shares calculation when the average quoted trading price of the Company’s common stock on the NYSE for the periods exchangeable was above the exchangeable debt exchange prices.

Basic and Diluted Net Income Available to Common Unitholders per Unit

Basic net income available to common unitholders per unit is computed by dividing net income available to common unitholders, after preferred distributions and the allocation of income to participating securities, by the weighted-average number of vested common units outstanding for the period. Diluted net income available to common unitholders per unit is computed by dividing net income available to common unitholders, after preferred distributions and the allocation of income to participating securities, by the sum of the weighted-average number of common units outstanding for the period plus the assumed exercise of all dilutive securities.

The dilutive effect of stock options, outstanding nonvested shares, RSUs, ~~and~~ awards containing nonforfeitable rights to dividend equivalents and shares issuable under executed forward equity sale agreements are reflected in diluted net income available to common unitholders per unit in the same manner as noted above for net income available to common stockholders per share. During the periods exchangeable debt instruments were outstanding prior to their maturity in November 2014, the dilutive effect of the exchangeable debt instruments was reflected in the same manner as noted above for net income available to common stockholders per share.

Fair Value Measurements

The fair ~~value~~values of our financial assets and liabilities are disclosed in Note 19, “Fair Value Measurements and Disclosures,” to our consolidated financial statements. The only financial assets recorded at fair value on a recurring basis in our consolidated financial statements are our marketable securities. We elected not to apply the fair value option for any of our eligible financial instruments or other items.

We determine the estimated fair value of financial assets and liabilities utilizing a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. This hierarchy requires the use of observable market data when available. The following is the fair value hierarchy:


•	Level 1 – quoted prices for identical instruments in active markets;


•	Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and


•	Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

~~Level 1~~F - 25

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – ~~quoted prices for identical instruments in active markets;~~(Continued)

~~Level 2 –~~ quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

~~Level 3 –~~ ~~fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.~~

We determine the fair value for the marketable securities using quoted prices in active markets for identical assets. Our other financial instruments, which are only disclosed at fair value, are comprised of secured debt, unsecured senior notes, unsecured line of credit and unsecured term loan facility.

We generally determine the fair value of our secured debt, unsecured debt, and unsecured line of credit by performing discounted cash flow analyses using an appropriate market discount rate. We calculate the market rate by obtaining period-end treasury rates for maturities that correspond to the maturities of our fixed-rate debt and then adding an appropriate credit spread based on information obtained from third-party financial institutions. These credit spreads take into account factors, including but not limited to, our credit profile, the tenure of the debt, amortization period, whether the debt is secured or unsecured, and the loan-to-value ratio of the debt to the collateral. These calculations are significantly affected by the assumptions used, including the discount rate, credit spreads and estimates of future cash flow. We calculate the market rate of our unsecured line of credit, unsecured term loan facility, and unsecured term loan by obtaining the period-end London Interbank Offered Rate (“LIBOR”) and then adding an appropriate credit

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

spread based on our credit ratings, and the amended terms of our unsecured line of credit, unsecured term loan facility, and unsecured term loan agreement. We determine the fair value of each of our publicly traded unsecured senior notes based on their quoted trading price at the end of the reporting period, if such prices are available.

Carrying amounts of our cash and cash equivalents, restricted cash and accounts payable approximate fair value due to their short-term maturities.

Income Taxes

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code. To qualify as a REIT, we must distribute annually at least 90% of our adjusted taxable income, as defined in the Code, to our stockholders and satisfy certain other organizational and operating requirements. We generally will not be subject to federal income taxes if we distribute 100% of our taxable income for each year to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes (including any applicable alternative minimum tax) on our taxable income at regular corporate rates and we may not be able to qualify as a REIT for four subsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property and to federal income taxes and excise taxes on our undistributed taxable income. We believe that we have met all of the REIT distribution and technical requirements for the years ended December 31, ~~2016,~~ ~~2015~~2019, 2018 and ~~2014~~,2017, and we were not subject to any federal income taxes (see Note 2625 “Tax Treatment of Distributions” for additional information). We intend to continue to adhere to these requirements and maintain the Company’s REIT status. Accordingly, no provision for income taxes has been made in the accompanying financial statements.

In addition, any taxable income from our taxable REIT ~~subsidiary,~~subsidiaries, which ~~was~~were formed in 2002, is2018 and 2019, are subject to federal, state, and local income taxes. For the years ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014~~2017 the taxable REIT ~~subsidiary~~subsidiaries had de minimis taxable income.

Uncertain Tax Positions

We include favorable tax positions in the calculation of tax liabilities if it is more likely than not that our adopted tax position will prevail if challenged by tax authorities.

We evaluated the potential impact of identified uncertain tax positions for all tax years still subject to audit under state and federal income tax law and concluded that we did not have any unrecognized tax benefits or any additional tax liabilities as of December 31, ~~2016~~2019 or ~~2015~~2018. As of December 31, ~~2016,~~2019, the years still subject to audit are~~2012~~ 2015 through ~~2016~~2019 under the California state income tax law and ~~2013~~2016 through ~~2016~~2019 under the federal income tax law.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.

~~Segment~~

F - 26

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Segments

We currently operate in ~~one~~1 operating segment, our office properties segment.

Concentration of Credit Risk

All of our properties and development and redevelopment projects are owned and all of our business is currently conducted in the state of California with the exception of the ownership and operation of ~~twelve~~8 office properties, 1 development project under construction and ~~one near-term~~1 recently acquired future development project located in the state of Washington. The ability of tenants to honor the terms of their leases is dependent upon the economic, regulatory, and social factors affecting the communities in which our tenants operate.

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~As of December 31, 2016, our 15 largest tenants represented approximately 37.3% of total annualized base rental revenues.~~

We have deposited cash with financial institutions that is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per institution. As of December 31, ~~2016~~2019 and ~~2015,~~2018, we had cash accounts in excess of FDIC insured limits.

~~Recently~~Accounting Standards Issued But Not Yet Effective at December 31, 2019

Accounting Pronouncements

On January 5, 2017, the FASB issued ASU No. 2017-01 (“ASU 2017-01”) to amend the guidance for determining whether a transaction involves the purchase or disposal of a business or an asset. The amendments clarify that when substantially all of the fair value of the gross assets acquired or disposed of is concentrated in a single identifiable asset or a group of similar assets, the set of assets and activities is not a business. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and early adoption is permitted for transactions which have not been previously reported in financial statements that have been issued. The Company currently anticipates that it will early adopt the guidance effective Adopted January 1, 2017 and that the guidance will result in acquisitions of operating properties being accounted for as asset acquisitions instead of business combinations. The adoption of this guidance will also change the accounting for the transaction costs for acquisitions of operating properties such that transaction costs will be able to be capitalized as part of the purchase price of the acquisition instead of being expensed as acquisition-related expenses.2020

~~On November 17, 2016, the FASB issued~~ ASU No. 2016-18 (“ASU 2016-18”) to require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and early adoption is permitted. The Company does not currently anticipate that the guidance will have a material impact on our consolidated financial statements or notes to our consolidated financial statements.2016-13 “Financial Instruments - Credit Losses (Topic 326)”

On August 26, 2016, the FASB issued ASU No. 2016-15 (“ASU 2016-15”) to provide guidance for areas where there is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not currently anticipate that the guidance will have a material impact on our consolidated financial statements or notes to our consolidated financial statements.

On June 16, 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”) to amend the accounting for credit losses for certain financial instruments. Under the new guidance, an entity recognizes its estimate of expected credit losses as an allowance, which the FASB believes will result in more timely recognition of such losses. In November 2018, the FASB released ASU No. 2018-19“Codification Improvements to Topic 326, Financial Instruments - 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~~adoption did not ~~currently anticipate that the guidance will~~ have a material impact on ~~our~~the consolidated financial statements or notes to ~~our~~the consolidated financial statements.

ASU No. 2018-13 “Fair Value Measurement (Topic 820)”

On ~~May 9, 2016,~~August 28, 2018, the FASB issued ASU No. ~~2016-12,~~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, which ~~clarifies and provides practical expedients~~the Board finalized on August 28, 2018. The Board used the guidance in the Concepts Statement to improve the effectiveness of ASC 820’s disclosure requirements. ASU 2018-13 is effective for certain aspects of ASU No. 2014-09, which outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers and notes that lease contracts with customers are a scope exception. Public business entities may elect to adopt the amendments as of the original effective date; however, adoption is required for annual reporting periodsfiscal years beginning after December 15, ~~2017.~~2019, including interim periods within those fiscal years. Early adoption is permitted for any eliminated or modified disclosures. The Company is currently conducting its evaluation of the impact of the guidance. More specifically, the Company is evaluating the impact on the timing of gain recognition for dispositions, but currently doesadoption did not believe there will be a material impact to our consolidated financial statements for dispositions given the simplicity of the Company’s historical disposition transactions. In addition, the Company is in the process of evaluating whether the guidance will impact the accounting for tenant reimbursements, but we currently do not believe this will have a material impact on ~~our~~the disclosures in the notes to the 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 adoption did not have a material impact on the consolidated financial statements ~~and~~or notes to ~~our~~the consolidated financial statements.

F - 27

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

On March 30, 2016, the FASB issued ASU No. 2016-09 (“ASU 2016-09”) to amend the accounting guidance for share-based payment accounting. The areas for simplification in ASU 2016-09 involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods and early adoption is permitted. The Company adopted this guidance effective January 1, 2017 and the adoption did not have a material impact on our consolidated financial statements or notes to our consolidated financial statements.

On February 25, 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”) to amend the accounting guidance for leases. The accounting applied by a lessor is largely unchanged under ASU 2016-02. However, the standard requires lessees to recognize lease assets and lease liabilities for leases classified as operating leases on the balance sheet. Lessees will recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it will recognize lease expense for such leases generally on a straight-line basis over the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and early adoption is permitted. The Company is currently conducting its evaluation of the impact of the guidance. The Company currently believes that the adoption of the standard will not have a material impact for leases where it is a lessor. However, for leases where the Company is a lessee, specifically for the Company’s ground leases, the Company has preliminarily concluded that the adoption of the standard will have a material impact on its consolidated balance sheets since both existing ground leases and any future ground leases will be recorded on the Company's consolidated balance sheet as an obligation of the Company. In addition, for new ground leases entered into after the adoption date of the new standard, the Company currently believes such leases may be required to be accounted for as a financing type lease resulting in ground lease expense recorded using the effective interest method instead of on a straight line basis over the term of the lease. The Company currently believes this could have a material impact on the Company’s results of operations if it entered into material new ground leases after the date of adoption since ground lease expense calculated using the effective interest method results in an increased amount of ground lease expense in the earlier years of a ground lease as compared to the current straight line method.

On January 5, 2016, the FASB issued ASU No. 2016-01 (“ASU 2016-01”) to amend the accounting guidance on the classification and measurement of financial instruments. The standard requires that all investments in equity securities, including other ownership interests, are carried at fair value through net income. This requirement does not apply to investments that qualify for equity method accounting or to those that result in consolidation of the investee or for which the entity has elected the predictability exception to fair value measurement. Additionally, the standard requires that the portion of the total fair value change caused by a change in instrument-specific credit risk for financial liabilities for which the fair value option has been elected would be recognized in other comprehensive income. Any accumulated amount remaining in other comprehensive income is reclassified to earnings when the liability is extinguished. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017. The Company does not currently anticipate that the guidance will have a material impact on our consolidated financial statements or notes to our consolidated financial statements.

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~


3.	Acquisitions

Operating Property Acquisitions

During the year ended December 31, ~~2016,~~2019, we acquired the ~~seven~~19-building creative office campus listed below in one transaction from an unrelated third party. During the year ended December 31, 2018, we acquired the 4 operating properties listed below in ~~three~~two transactions ~~with~~from unrelated third parties. ~~We did not acquire any operating properties during the year ended~~ ~~December 31, 2015~~.

Property Date of Acquisition Number of Buildings Rentable Square Feet (unaudited) Occupancy as of December 31, 2016 (unaudited)
Purchase Price (in millions) ⁽¹⁾
2016 Acquisitions
1290-1300 Terra Bella Avenue, Mountain View, CA⁽²⁾
June 8, 2016 1 114,175
100.0% $ 55.4
8560-8590 West Sunset Blvd., West Hollywood, CA ⁽³⁾
December 7, 2016 4 178,699
87.5% 209.2
1701 Page Mill Rd. and 3150 Porter Dr., Palo Alto, CA ⁽⁴⁾
December 19, 2016 2 165,585
100.0% 130.0
Total ⁽⁵⁾
7 458,459
$ 394.6



Property	Date of Acquisition	Number of Buildings	Rentable Square Feet (unaudited)	Occupancy as of December 31, 2019 (unaudited)		Purchase Price (in millions) ⁽¹⁾
2019 Acquisitions
3101-3243 La Cienega Boulevard, Culver City, CA⁽²⁾	October 15, 2019	19	151,908	100.0	%	$	186.0

2018 Acquisitions
345, 347 & 349 Oyster Point Boulevard, South San Francisco, CA	January 31, 2018	3	145,530	100.0	%	$	111.0
345 Brannan Street, San Francisco, CA ⁽³⁾	December 21, 2018	1	110,050	99.7	%	146.0
Total ⁽⁴⁾		4	255,580			$	257.0

________________________


(1)	Excludes acquisition-related ~~costs and non-lease related accrued liabilities assumed. Includes assumed unpaid leasing commissions and tenant improvements.~~costs.


(2)	~~In connection with this acquisition,~~The results of operations for the ~~Company assumed~~ ~~$0.2~~properties acquired during 2019 contributed $3.7 million ~~in accrued liabilities that are not included in the purchase price above.~~ to revenue and a net loss of $0.1 million primarily due to a write-off of lease-related intangible assets as a result of an early lease termination.

(3)

~~This acquisition encompasses a 10-story office tower, three retail buildings, a four-level subterranean parking structure and three billboards. As of~~

At December 31, ~~2016,~~2018, this property was temporarily being held in a separate VIE to facilitate potential Section 1031 Exchanges. During January ~~2017,~~2019, the Company ~~closed out~~completed the Section 1031 Exchange related to this VIE. See Note 2 “Basis of Presentation and Significant Accounting Policies.” In connection with this acquisition, the Company assumed $0.1 million in accrued liabilities that are not included in the purchase price above.


(4)	~~In connection with this acquisition, the Company entered into a long-term ground lease expiring in December 2067.~~


~~(5)~~	The results of operations for the properties acquired during ~~2016~~2018 contributed ~~$5.2~~$8.0 million and $1.7 million to revenue and net income, ~~from continuing operations,~~ respectively, for the year ended December 31, ~~2016.~~2018.

The related assets, liabilities and results of operations of the acquired properties are included in the consolidated financial statements as of the date of acquisition. The following table summarizes the estimated fair values of the assets ~~acquired~~ and liabilities assumed at the respective acquisition dates for our ~~2016~~2019 and 2018 operating property ~~acquisitions:~~

acquisitions, respectively:


Acquisitions	Total 2016 Acquisitions ⁽¹⁾
			Total 2019 Operating Property Acquisitions ⁽¹⁾		Total 2018 Operating Property Acquisitions ⁽²⁾
Assets	(in thousands)
Land and improvements	$	120,110	$	150,561	$	80,269
Buildings and improvements ⁽²⁾	259,301
Deferred leasing costs and acquisition-related intangible assets ⁽³⁾	33,529
Buildings and improvements ⁽³⁾			30,932		172,059
Deferred leasing costs and acquisition-related intangible assets ⁽⁴⁾			12,063		13,593
Right of use ground lease asset ⁽⁵⁾			13,334		—
Total assets acquired	412,940		$	206,890	$	265,921
Liabilities
Accounts payable, accrued expenses and other liabilities	1,122
Deferred revenue and acquisition-related intangible liabilities ⁽⁴⁾	18,050
Acquisition-related intangible liabilities ⁽⁶⁾			$	9,950	$	8,921
Ground lease liability ⁽⁵⁾			10,940		—
Total liabilities assumed	19,172		$	20,890	$	8,921
Net assets and liabilities acquired	$	393,768	$	186,000	$	257,000

~~_______________~~________________________


(1)	The purchase price of the ~~three~~acquisition completed during the year ended December 31, 2019 was less than 10% of the Company’s total assets as of December 31, 2018.


(2)	The purchase price of the 2 acquisitions completed during the year ended December 31, ~~2016~~2018 were individually less than 5% and in aggregate less than 10% of the Company’s total assets as of December 31, ~~2015.~~2017.


~~(2)~~(3)	Represents buildings, building improvements and tenant improvements.

~~(3)~~(4)

~~Represents~~For the 2019 operating property acquisition, represents in-place leases (approximately ~~$27.1~~$9.2 million with a weighted average amortization period of ~~3.9 years), above-market leases (approximately $0.6 million with weighted average amortization period of 15.8~~3.3 years) and leasing commissions (approximately ~~$5.8~~$2.9 million with a weighted average amortization period of ~~5.1~~3.5 years).


~~(4)~~	~~Represents below-market~~ For the 2018 operating property acquisitions, represents in-place leases (approximately ~~$18.1~~$11.8 million with a weighted average amortization period of ~~8.4~~1.3 years) and leasing commissions (approximately $1.8 million with a weighted average amortization period of 6.6 years).

~~Development Project Acquisitions~~

On March 11, 2016, we acquired an approximately 1.75 acre development site located at 610-620 Brannan Street in San Francisco, California from an unrelated third party. This land parcel is immediately adjacent to our Flower Mart

F - 28

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(5)

We evaluated the ground lease assumed in connection with the 2019 operating property acquisition and concluded it met the criteria to be classified as an operating lease. The discount rate used in determining the present value of the minimum future lease payments was 4.79%. The right of use asset ground lease asset is equal to the ground lease liability adjusted for above and below market intangibles and deferred leasing costs. Refer to Note 18 “Commitments and Contingencies” for further discussion of the Company's ground lease obligations.


(6)	For the 2019 operating property acquisition, represents below-market leases (approximately $10.0 million with a weighted average amortization period of 3.5 years). For the 2018 operating property acquisitions, represents below-market leases (approximately $8.9 million with a weighted average amortization period of 9.8 years).

project in the SOMA submarket of San Francisco. The acquisition was funded through $31.0 million in cash and the issuance of 867,701common units in the Operating Partnership valued at approximately $48.0 million (see Note 14). In addition, the Company paid $2.4 million in seller transaction costs and recorded $4.7 million in accrued liabilities in connection with this acquisition. As of ~~December 31, 2016, the underlying assets were included as undeveloped land and construction in progress on our consolidated balance sheets.~~Development Project Acquisitions

During the year ended December 31, ~~2015~~2019, we acquired the following ~~undeveloped land~~development sites ~~listed below~~in two transactions from unrelated third ~~parties:~~

parties. The acquisitions were funded from various sources of liquidity including proceeds from the Company’s unsecured revolving credit facility, the issuance of debt and the settlement of the Company’s 2018 forward equity sales agreements. During the year ended December 31, 2018, we acquired a development site adjacent to the 3 operating properties we acquired in January 2018, from an unrelated third party. The acquisition was funded with proceeds from the Company’s unsecured revolving credit facility and the Company’s at-the-market stock offering program.

Project
Date of
Acquisition
City/Submarket Type
Purchase Price ⁽¹⁾
(in millions)
2015 Acquisitions
333 Dexter ⁽²⁾
February 13, 2015 Seattle, WA Land $ 49.5
100 Hooper ⁽³⁾
July 7, 2015 San Francisco, CA Land 78.0
Total $ 127.5



Project	Date of Acquisition	City/Submarket	Purchase Price (in millions)
2019 Acquisitions
1335 Broadway & 901 Park Boulevard, San Diego, CA⁽¹⁾	August 19, 2019	East Village	$	40.0
Seattle CBD Project ⁽²⁾	December 12, 2019	Seattle CBD	133.0
Total 2019 Acquisitions			$	173.0

2018 Acquisitions
Kilroy Oyster Point⁽³⁾	June 1, 2018	South San Francisco	$	308.2
Total 2018 Acquisitions			$	308.2

~~_______________~~________________________

(1)

~~See Note 18 “Commitments and Contingencies” for additional information on certain~~Excludes acquisition-related costs. In connection with this acquisition, we also recorded $4.0 million in accrued liabilities ~~for these acquisitions.~~and environmental remediation liabilities at the date of acquisition, which are not included in the purchase price above. As of December 31, 2019, the purchase price and our current estimate of assumed liabilities are included in undeveloped land and construction in progress and the assumed liabilities are included in accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets.

(2)

Acquisition comprised of four adjacent parcels in the South Lake Union submarket of Seattle, Washington located at 330 Dexter Avenue North, 333 Dexter Avenue North, 401 Dexter Avenue North, and 400 Aurora Avenue North.Excludes acquisition-related costs. In connection with this acquisition, we also ~~assumed $2.4~~recorded $6.3 million in accrued liabilities and environmental remediation liabilities at the date of acquisition, ~~costs that~~which are not included in the purchase price above. As of December 31, 2019, the purchase price and our current estimate of assumed liabilities are included in undeveloped land and construction in progress and the assumed liabilities are included in accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets. In addition, as of December 31, 2019, the Company had $10.0 million in restricted cash, which is excluded from the purchase price above, related to this acquisition which may be payable to the seller only if certain events occur within three years following the date of acquisition.

(3)

~~Includes the land parcel located at 150 Hooper.~~Excludes acquisition-related costs. In connection with this acquisition, we ~~assumed $4.1~~also recorded $40.6 million in accrued liabilities and environmental remediation liabilities at the date of acquisition, ~~costs that~~which are not included in the purchase price above. As of December 31, 2018, the purchase price and our current estimate of assumed liabilities are included in undeveloped land and construction in progress and the assumed liabilities are included in accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets.

In addition to the acquisitions listed above, during 2019, we acquired an additional land parcel for an existing development project for $99.5 million.

Acquisition Costs

During the years ended December 31, 2019, 2018, and 2017, we capitalized $1.6 million, $3.8 million, and $4.6 million, respectively, of acquisition costs.

F - 29

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

4. Dispositions ~~and Real Estate Assets Held for Sale~~

Operating Property Dispositions

The following table summarizes the operating properties sold during the years ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014~~:2017:

Location Month of Disposition Number of Buildings
Rentable
Square Feet (unaudited)

Sales Price
(in millions) ⁽¹⁾
2016 Dispositions
Torrey Santa Fe Properties⁽²⁾
January 4 465,812
$ 262.3
4930, 4939 & 4955 Directors Place, San Diego, CA ⁽³⁾
July 2 136,908
49.0
Total 2016 Dispositions 6 602,720
$ 311.3

2015 Dispositions
15050 NE 36th Street, Redmond, WA April 1 122,103
$ 51.2
San Diego Properties - Tranches 1 and 2 ⁽⁴⁾
April/July 9 924,291
258.0
Total 2015 Dispositions 10 1,046,394
$ 309.2

2014 Dispositions ⁽⁵⁾

San Diego Properties, San Diego, CA ⁽⁶⁾
January 12 1,049,035
$ 294.7
9785 & 9791 Towne Centre Drive, San Diego, CA June 2 126,000
29.5
111 Pacifica, Irvine, CA September 1 67,496
15.1
4040 Civic Center Drive, San Rafael, CA October 1 130,237
34.9
999 Town & Country Road, Orange, CA

December 1 98,551
25.3
Total 2014 Dispositions 17 1,471,319
$ 399.5



Location	Month of Disposition	Number of Buildings	Rentable Square Feet (unaudited)	Sales Price (in millions) ⁽¹⁾
2019 Dispositions
2829 Townsgate Road, Thousand Oaks, CA	May	1	84,098	$	18.3
2211 Michelson Drive, Irvine, CA	October	1	271,556	115.5
Total 2019 Dispositions		2	355,654	$	133.8

2018 Dispositions
1310-1327 Chesapeake Terrace, Sunnyvale, CA	November	4	266,982	$	160.3
Plaza Yarrow Bay Properties⁽²⁾	November	4	279,924	134.5
23925, 23975, & 24025 Park Sorrento, Calabasas, CA	December	3	225,340	78.2
Total 2018 Dispositions		11	772,246	$	373.0

2017 Dispositions
5717 Pacific Center Boulevard, San Diego, CA	January	1	67,995	$	12.1
Sorrento Mesa and Mission Valley Properties ⁽³⁾	September	10	675,143	174.5
Total 2017 Dispositions		11	743,138	$	186.6

__________________


(1)	Represents gross sales price before ~~the impact of~~ broker commissions and closing costs.


(2)	The ~~Torrey Santa Fe~~Plaza Yarrow Bay Properties include the following properties: ~~7525 Torrey Santa Fe, 7535 Torrey Santa Fe, 7545 Torrey Santa Fe~~10210, 10220 and ~~7555 Torrey Santa Fe. These properties were classified as held for sale at~~ ~~December 31, 2015~~. 10230 NE Points Drive & 3933 Lake Washington Boulevard NE in Kirkland, Washington.


(3)	~~Includes two operating properties totaling 136,908 rentable square feet~~The Sorrento Mesa and Mission Valley Properties includes the following properties: 10390, 10394, 10398, 10421, 10445 and 10455 Pacific Center Court, 2355, 2365, 2375 and 2385 Northside Drive and Pacific Corporate Center - Lot 8, a ~~7.0~~5.0 acre undeveloped land parcel.


~~(4)~~	The San Diego Properties - Tranche 1 includes the following properties: 10770 Wateridge Circle, 6200 Greenwich Drive and 6220 Greenwich Drive. The San Diego Properties - Tranche 2 includes the following properties: 6260 Sequence Drive, 6290, Sequence Drive, 6310 Sequence Drive, 6340 Sequence Drive, 6350 Sequence Drive and 4921 Directors Place.

~~(5)~~

The Company adopted ASU 2014-08 effective January 1, 2015 (see Note 2 “Basis of Presentation and Significant Accounting Policies” for additional information). As a result, results of operations for properties disposed of subsequent of January 1, 2015 are presented in continuing operations because they did not represent strategic shifts. Properties disposed of prior to January 1, 2015 are presented in discontinued operations.


~~(6)~~	The San Diego Properties included the following properties: 10020 Pacific Mesa Boulevard, 6055 Lusk Avenue, 5010 and 5005 Wateridge Vista Drive, 15435 and 15445 Innovation Drive, and 15051, 15073, 15231, 15253, 15333 and 15378 Avenue of Science. These properties were held for sale as of December 31, 2013.

The ~~operations~~total gains on the sales of the ~~six~~operating properties sold during ~~the~~ ~~year~~ ~~ended December 31, 2016 and ten properties sold during the~~ ~~year~~ ~~ended December 31, 2015 are presented in continuing operations for~~ the years ended December 31, ~~2016~~2019, 2018 and ~~December 31, 2015,~~2017 were $36.8 million, $142.9 million and $39.5 million, respectively. ~~For the year ended~~ ~~December 31, 2014, discontinued operations includes the income and gains on all of the properties sold in~~ ~~2014~~ ~~(see Note 2 “Basis of Presentation and Significant Accounting Policies” and Note 21 “Discontinued Operations” for additional information).~~

~~The total gains on sales of the six properties sold during the~~ ~~year~~ ~~ended December 31, 2016 was $164.3 million~~. ~~The total gains on sales of the ten properties sold during the~~ ~~year~~ ~~ended December 31, 2015 was $110.0 million. The total gains on sales of the 17 properties sold during the~~ ~~year~~ ~~ended~~ ~~December 31, 2014~~ ~~was $121.9 million.~~

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~Operating Properties Held for Sale~~

~~As of December 31, 2016 and 2015, the properties listed below were classified as held for sale.~~

Properties Submarket Property Type Number of Buildings Rentable Square Feet (unaudited)
2016 Held for Sale
5717 Pacific Center Drive ⁽¹⁾
Sorrento Mesa Office 1 67,995

2015 Held for Sale
Torrey Santa Fe Properties ⁽²⁾⁽³⁾
Del Mar Office 4 465,812

~~__________________~~


~~(1)~~	~~In January 2017, the Company completed the sale of this property for a total sales price of $12.1 million.~~


~~(2)~~	~~The Torrey Santa Fe Properties include the following properties: 7525 Torrey Santa Fe, 7535 Torrey Santa Fe, 7545 Torrey Santa Fe, and 7555 Torrey Santa Fe.~~


~~(3)~~	~~In January 2016, the Company completed the sale of these properties for a total sales price of $262.3 million.~~

~~The major classes of assets and liabilities of the properties held for sale as of December 31, 2016 and 2015 were as follows:~~

December 31, 2016 December 31, 2015
Real estate assets and other assets held for sale (in thousands)
Land and improvements $ 2,693
$ 10,534
Buildings and improvements 10,500
144,716
Undeveloped land and construction in progress —
4,824
Total real estate held for sale 13,193
160,074
Accumulated depreciation and amortization (3,900 ) (46,191 )
Total real estate held for sale, net 9,293
113,883
Deferred rent receivables, net —
2,500
Deferred leasing costs and acquisition-related intangible assets, net —
1,115
Prepaid expenses and other assets, net 124
168
Real estate and other assets held for sale, net $ 9,417
$ 117,666

Liabilities and deferred revenue of real estate assets held for sale
Secured debt $ —
$ 561
Accounts payable, accrued expenses and other liabilities 56
2,497
Deferred revenue and acquisition-related intangible liabilities, net —
2,899
Rents received in advance and tenant security deposits —
1,586
Liabilities and deferred revenue of real estate assets held for sale $ 56
$ 7,543

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Land Dispositions

~~The following table summarizes the land dispositions completed during the years ended December 31, 2016, 2015 and 2014:~~

Properties Submarket Month of Disposition
Gross Site Acreage
(unaudited)

Sales Price⁽¹⁾
(in millions)
2016 Land Dispositions
Carlsbad Oaks - Lot 7 ⁽²⁾
Carlsbad January 7.6 $ 4.5
Carlsbad Oaks - Lots 4 & 5 Carlsbad June 11.2 6.0
Carlsbad Oaks - Lot 8 Carlsbad June 13.2 8.9
Total 2016 Land Dispositions ⁽³⁾⁽⁴⁾
32.0 $ 19.4

2015 Land Disposition
17150 Von Karman ⁽⁴⁾
Irvine January 8.5 $ 26.0

2014 Land Disposition
10850 Via Frontera ⁽⁴⁾
Rancho Bernardo April 21.0 $ 33.1

~~__________________~~


~~(1)~~	~~Represents gross sales price before the impact of commissions and closing costs.~~


~~(2)~~	~~This land parcel was classified as held for sale as of December 31, 2015.~~


~~(3)~~	~~In connection with these land dispositions, $2.3 million of secured debt was assumed by the buyers. See Note 9 “Secured and Unsecured Debt of the Operating Partnership” for additional information.~~


~~(4)~~	~~The 2016 land dispositions resulted in a net loss on sales of~~ ~~$0.3 million~~ ~~and the 2015 and 2014 land dispositions resulted in gain on sales of $17.3 million and $3.5 million, respectively.~~

~~Land Held for Sale~~

We did not ~~have~~dispose of any land ~~classified as held for sale as of~~parcels during the year ended December 31, ~~2016. As of~~2019. During the year ended December 31, ~~2015,~~2018, in connection with the ~~following~~Plaza Yarrow Bay Properties disposition listed above, we recognized a gain on sale of land ~~parcel was classified as held for sale:~~of $11.8 million. During the year ended December 31, 2017, in connection with the Sorrento Mesa and Mission Valley Properties disposition listed above, we recognized a gain on sale of land of $0.4 million.

Properties Submarket
Gross Site Acreage
(unaudited)
Sales Price
(in millions)
2015 Held for Sale
Carlsbad Oaks - Lot 7 ⁽¹⁾
Carlsbad 7.6 $ 4.5

~~__________________~~


~~(1)~~	~~During the year ended December 31, 2015, the Company recognized a loss relating to selling costs of approximately $0.2 million.~~

Restricted Cash Related to Dispositions

As of December 31, 2016 approximately $48.4 million of net proceeds related to the land and operating property dispositions during the year ended December 31, 2016 were temporarily being held at a qualified intermediary, at our direction, for the purpose of facilitating Section 1031 Exchanges. The cash proceeds were included in restricted cash on the consolidated balance sheet at December 31, 2016. During January 2017, the Section 1031 Exchange was successfully completed and the cash proceeds were released from the qualified intermediary. We did not have any restricted cash related to dispositions or Section 1031 Exchanges as of December 31, ~~2015.~~2019.As of December 31, 2018, approximately $113.1 million of net proceeds related to the operating property dispositions during the year ended December 31, 2018 were temporarily being held at a qualified intermediary at our direction, for the purpose of facilitating a Section 1031 Exchange. The cash proceeds were included in restricted cash on our consolidated balance sheets at December 31, 2018. During January 2019, the Section 1031 Exchange related to this VIE was successfully completed and the cash proceeds were released from the qualified intermediary.

F - 30

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


5.	Deferred Leasing Costs and ~~Acquisition-related~~Acquisition-Related Intangible Assets and Liabilities, net

The following table summarizes our deferred leasing costs and acquisition-related intangible assets (acquired value of leasing costs, above-market operating leases, in-place leases and below-market ground lease obligation) and intangible liabilities (acquired value of below-market operating leases and above-market ground lease obligation) as of December 31, ~~2016~~2019 and ~~2015:~~2018:


	December 31, 2016			December 31, 2015			December 31, 2019			December 31, 2018
	(in thousands)						(in thousands)
Deferred Leasing Costs and Acquisition-related Intangible Assets, net:⁽¹⁾
Deferred leasing costs	$	239,958		$	205,888		$	286,026		$	266,905
Accumulated amortization	(89,633		)	(72,745		)	(100,145		)	(100,805		)
Deferred leasing costs, net	150,325			133,143			185,881			166,100
Above-market operating leases	10,304			10,989			611			2,836
Accumulated amortization	(6,933		)	(6,739		)	(116		)	(2,150		)
Above-market operating leases, net	3,371			4,250			495			686
In-place leases	94,813			72,639			58,076			66,526
Accumulated amortization	(40,593		)	(33,810		)	(31,647		)	(36,174		)
In-place leases, net	54,220			38,829			26,429			30,352
Below-market ground lease obligation	490			490			—			490
Accumulated amortization	(38		)	(29		)	—			(54		)
Below-market ground lease obligation, net(1)	452			461			—			436
Total deferred leasing costs and acquisition-related intangible assets, net	$	208,368		$	176,683		$	212,805		$	197,574
Acquisition-related Intangible Liabilities, net:⁽²⁾
Below-market operating leases	$	69,472		$	53,502		$	51,263		$	53,523
Accumulated amortization	(33,689		)	(27,074		)	(27,171		)	(29,978		)
Below-market operating leases, net	35,783			26,428			24,092			23,545
Above-market ground lease obligation	6,320			6,320			—			6,320
Accumulated amortization	(525		)	(424		)	—			(727		)
Above-market ground lease obligation, net(1)	5,795			5,896			—			5,593
Total acquisition-related intangible liabilities, net	$	41,578		$	32,324		$	24,092		$	29,138

_______________

(1)

~~Excludes deferred leasing costs~~Upon adoption of Topic 842 on January 1, 2019 (refer to Note 2 “Basis of Presentation and ~~acquisition-related intangible assets,~~Significant Accounting Policies”), we no longer separately recognize above or below-market ground lease obligations. Such amounts are reflected in the net ~~related~~book value of the right of use ground lease asset on our consolidated balance sheets. Refer to ~~properties held~~Note 18 “Commitments and Contingencies” for ~~sale as~~further discussion of ~~December 31, 2015.~~our ground lease obligations.


(2)	Included in deferred revenue and acquisition-related intangible liabilities, net in the consolidated balance sheets.

F - 31

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table sets forth amortization related to deferred leasing costs and acquisition-related intangibles for the years ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014, including amounts attributable to discontinued operations for the year ended December 31, 2014.~~2017.


	Year Ended December 31,									Year Ended December 31,
	2016			2015			2014			2019			2018			2017
	(in thousands)									(in thousands)
Deferred leasing costs ⁽¹⁾	$	28,639		$	27,866		$	27,555		$	35,779		$	34,341		$	31,675
Above-market operating leases ⁽²⁾	1,509			2,532			5,303			192			444			2,240
In-place leases ⁽¹⁾	11,676			14,622			21,628			18,615			15,915			18,650
Below-market ground lease obligation ⁽³⁾	8			8			8			—			8			8
Below-market operating leases ⁽⁴⁾	(8,674		)	(10,980		)	(13,238		)	(9,398		)	(10,192		)	(10,768		)
Above-market ground lease obligation ⁽⁵⁾⁽³⁾	(101		)	(101		)	(101		)	—			(101		)	(101		)
Total	$	33,057		$	33,947		$	41,155		$	45,188		$	40,415		$	41,704

_______________


(1)	The amortization of deferred leasing costs and in-place leases is recorded to depreciation and amortization expense and the amortization of lease incentives is recorded as a reduction to rental income in the consolidated statements of operations for the periods presented.


(2)	The amortization of above-market operating leases is recorded as a decrease to rental income in the consolidated statements of operations for the periods presented.

(3)

~~The amortization~~Upon adoption of ~~the~~Topic 842 on January 1, 2019 (refer to Note 2 “Basis of Presentation and Significant Accounting Policies”), we no longer separately recognize above or below-market ground lease ~~obligation is recorded as an increase~~obligations. Refer to Note 18 “Commitments and Contingencies” for further discussion of our ground lease ~~expense in the consolidated statements of operations for the periods presented.~~obligations.


(4)	The amortization of below-market operating leases is recorded as an increase to rental income in the consolidated statements of operations for the periods presented.


~~(5)~~	~~The amortization of the above-market ground lease obligation is recorded as a decrease to ground lease expense in the consolidated statements of operations for the periods presented.~~

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

The following table sets forth the estimated annual amortization expense related to deferred leasing costs and acquisition-related intangibles as of December 31, ~~2016~~2019 for future periods:


Year	Deferred Leasing Costs		Above-Market Operating Leases ⁽¹⁾		In-Place Leases		Below-Market Ground Lease Obligation ⁽²⁾		Below-Market Operating Leases ⁽³⁾			Above-Market Ground Lease Obligation ⁽⁴⁾			Deferred Leasing Costs		Above-Market Operating Leases ⁽¹⁾		In-Place Leases		Below-Market Operating Leases ⁽²⁾
	(in thousands)														(in thousands)
2017	$	29,190	$	1,298	$	18,366	$	8	$	(10,633	)	$	(101	)
2018	25,761		869		13,556		8		(9,116		)	(101		)
2019	21,397		681		8,856		8		(6,519		)	(101		)
2020	16,703		53		5,739		8		(3,676		)	(101		)	30,897		38		11,379		(7,258		)
2021	12,590		53		2,505		8		(1,031		)	(101		)	27,043		38		6,668		(4,543		)
2022															23,642		38		4,001		(3,553		)
2023															19,904		38		1,641		(1,866		)
2024															16,976		38		602		(1,090		)
Thereafter	44,684		417		5,198		412		(4,808		)	(5,290		)	67,419		305		2,138		(5,782		)
Total	$	150,325	$	3,371	$	54,220	$	452	$	(35,783	)	$	(5,795	)	$	185,881	$	495	$	26,429	$	(24,092	)

_______________


(1)	Represents estimated annual amortization related to above-market operating leases. Amounts will be recorded as a decrease to rental income in the consolidated statements of operations.


(2)	Represents estimated annual amortization related to below-market ~~ground lease obligations. Amounts will be recorded as an increase to ground lease expense in the consolidated statements of operations.~~


~~(3)~~	~~Represents estimated annual amortization related to below-market~~ operating leases. Amounts will be recorded as an increase to rental income in the consolidated statements of operations.


~~(4)~~	~~Represents estimated annual amortization related to above-market ground lease obligations. Amounts will be recorded as a decrease to ground lease expense in the consolidated statements of operations.~~

F - 32

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


6.	Receivables

Current Receivables, net

Current receivables, net is primarily comprised of contractual rents and other lease-related obligations due from tenants. The balance consisted of the following as of December 31, ~~2016~~2019 and ~~2015~~:2018:



	December 31, 2019			December 31, 2018
	(in thousands)
Current receivables	$	27,660		$	24,815
Allowance for uncollectible tenant receivables⁽¹⁾	(1,171		)	(4,639		)
Current receivables, net	$	26,489		$	20,176

December 31, 2016 December 31, 2015
(in thousands)
Current receivables $ 15,172
$ 13,233
Allowance for uncollectible tenant receivables (1,712 ) (2,080 )
Current receivables, net $ 13,460
$ 11,153
_______________


(1)	Refer to Note 2 “Basis of Presentation and Significant Accounting Policies” for discussion of our accounting policies related to the allowance for uncollectible tenant receivables and Note 20 “Other Significant Transactions” for additional information regarding changes in our allowance for uncollectible tenant receivables.

Deferred Rent Receivables, net

Deferred rent receivables, net consisted of the following as of December 31, ~~2016~~2019 and ~~2015:~~2018:



	December 31, 2019			December 31, 2018
	(in thousands)
Deferred rent receivables	$	339,489		$	270,346
Allowance for deferred rent receivables ⁽¹⁾	(1,552		)	(3,339		)
Deferred rent receivables, net	$	337,937		$	267,007

December 31, 2016 December 31, 2015
(in thousands)
Deferred rent receivables $ 220,501
$ 191,586
Allowance for deferred rent receivables (1,524 ) (1,882 )
Deferred rent receivables, net⁽¹⁾
$ 218,977
$ 189,704

~~__________________~~_______________


(1)	~~Excludes~~Refer to Note 2 “Basis of Presentation and Significant Accounting Policies” for discussion of our accounting policies related to the allowance for deferred rent receivables and Note 20 “Other Significant Transactions” for additional information regarding changes in our allowance for deferred rent receivables.


7.	Prepaid Expenses and Other Assets, Net

Prepaid expenses and other assets, net consisted of the following at December 31, 2019 and 2018:



	December 31, 2019		December 31, 2018
	(in thousands)
Furniture, fixtures and other long-lived assets, net	$	35,286	$	36,833
Notes receivable⁽¹⁾	1,651		2,113
Prepaid expenses	18,724		13,927
Total prepaid expenses and other assets, net	$	55,661	$	52,873

_______________


(1)	Notes receivable are shown net ~~related to real estate held for sale~~of a valuation allowance of approximately $3.6 millionand $2.9 million as of December 31, ~~2015.~~2019 and 2018, respectively.

F - 33

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


7.	~~Prepaid Expenses and Other Assets, Net~~

~~Prepaid expenses and other assets, net consisted of the following at December 31, 2016 and 2015:~~

December 31, 2016 December 31, 2015
(in thousands)
Furniture, fixtures and other long-lived assets, net $ 40,395
$ 11,324
Notes receivable⁽¹⁾
19,439
3,056
Prepaid expenses 10,774
12,853
Total Prepaid Expenses and Other Assets, Net $ 70,608
$ 27,233

~~_______________~~


~~(1)~~	~~Approximately $15.1 million of our notes receivables are secured by real estate.~~

8. Secured and Unsecured Debt of the Company

In this Note 8, the “Company” refers solely to Kilroy Realty Corporation and not to any of our subsidiaries. The Company itself does not hold any indebtedness. All of our secured and unsecured debt is held directly by the Operating Partnership.

The Company generally guarantees all the Operating Partnership’s unsecured debt obligations including the unsecured revolving credit facility, the $150.0 million unsecured term loan facility and all of the ~~$39.0 million unsecured term loan, the 4.800%~~ unsecured senior notes due in 2018, the 6.625% unsecured senior notes due in 2020, the 3.800% unsecured senior notes due in 2023, the 4.375% unsecured senior notes due in 2025, and the 4.250% unsecured senior notes due in 2029.notes. At December 31, ~~2016~~2019 and ~~2015~~,2018, the Operating Partnership had ~~$1.8~~$3.3 billion and $2.6 billion, respectively, outstanding in total, including unamortized discounts and deferred financing costs, under these unsecured debt obligations.

In addition, although the remaining ~~$0.5~~$0.3 billion ~~and $0.4 billion~~ of the Operating Partnership’s debt as of December 31, ~~2016~~2019 and ~~2015, respectively,~~2018, is secured and non-recourse to the Company, the Company provides limited customary secured debt guarantees for items such as voluntary bankruptcy, fraud, misapplication of payments and environmental liabilities.

Debt Covenants and Restrictions

One of the covenants contained within the unsecured revolving credit facility and the unsecured term loan facility ~~and the unsecured term loan~~ as discussed further below in Note 9 prohibits the Company from paying dividends during an event of default in excess ~~of:~~

~~95%~~ of the Operating Partnership’s consolidated funds from operations (as defined in the agreements governing the unsecured revolving credit facility, unsecured term loan facility and unsecured term loan) for such year; and

an amount which results in distributions to us ~~(excluding any preferred partnership distributions to the extent the same have been deducted from consolidated funds from operations (as so defined) for such year)~~ in an amount sufficient to permit us to pay dividends to our stockholders that we reasonably believe are necessary to (a) maintain our qualification as a REIT for federal and state income tax purposes and (b) avoid the payment of federal or state income or excise tax.

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

9. Secured and Unsecured Debt of the Operating Partnership

Secured Debt

The following table sets forth the composition of our secured debt as of December 31, ~~2016~~2019 and ~~2015:~~2018:


	Annual Stated Interest Rate ⁽¹⁾	GAAP Effective Rate ⁽¹⁾⁽²⁾		Maturity Date		December 31,							Annual Stated Interest Rate ⁽¹⁾		GAAP Effective Rate ⁽¹⁾⁽²⁾		Maturity Date	December 31,
Type of Debt	Annual Stated Interest Rate ⁽¹⁾			Maturity Date	2016				2015						GAAP Effective Rate ⁽¹⁾⁽²⁾	2019			2018
						(in thousands)							Annual Stated Interest Rate ⁽¹⁾						(in thousands)
Mortgage note payable ⁽³⁾	3.57%	GAAP Effective Rate ⁽¹⁾⁽²⁾	3.57%		December 2026		$	170,000			$	—		3.57%		3.57%	Maturity Date	December 2026		$	170,000			$	170,000
Mortgage note payable ⁽⁴⁾⁽³⁾	4.27%	4.27%		February 2018		125,756				128,315			4.48%		4.48%		July 2027	89,502				91,332
Mortgage note payable ⁽⁴⁾	4.48%	4.48%		July 2027		94,754				96,354
Mortgage note payable ⁽⁴⁾⁽⁵⁾	6.05%	3.50%		June 2019		82,443				85,890
Mortgage note payable⁽⁶⁾	7.15%	7.15%		May 2017		1,215				3,987
Mortgage note payable ⁽⁷⁾	6.51%	6.51%		February 2017		—				65,563
Other ⁽⁸⁾	Various	Various		Various		—				1,809
Mortgage note payable ⁽³⁾⁽⁴⁾													6.05%		3.50%		June 2019	—				75,238
Total secured debt						$	474,168			$	381,918							$	259,502			$	336,570
Unamortized Deferred Financing Costs						(1,396		)		(1,083		)						(909		)		(1,039		)
Total secured debt, net						$	472,772			$	380,835							$	258,593			$	335,531

______________


(1)	All interest rates presented are fixed-rate interest rates.


(2)	Represents the effective interest rate including the amortization of initial issuance discounts/premiums excluding the amortization of deferred financing costs.


(3)	~~This mortgage note payable was entered into in November 2016.~~


~~(4)~~	The secured debt and the related properties that secure the debt are held in a special purpose entity and the properties are not available to satisfy the debts and other obligations of the Company or the Operating Partnership.


~~(5)~~(4)	~~As of December 31, 2016 and 2015,~~In February 2019, the ~~mortgage loan had unamortized debt premiums of $4.4 millionand $6.2 million, respectively.~~


~~(6)~~	~~This~~Company repaid this mortgage note payable ~~was repaid in February 2017~~ at par.


~~(7)~~	~~This mortgage note payable was repaid in December 2016 at par.~~


~~(8)~~	~~Balance of $1.8 million as of December 31, 2015 included public facility bonds that were assumed by the buyers in connection with sales of land during the year ended December 31, 2016.~~

The Operating Partnership’s secured debt was collateralized by operating properties with a combined net book value of approximately ~~$570.6~~$251.2 millionas of December 31, ~~2016.~~2019.

Although our mortgage loans are secured and non-recourse to the Company and the Operating Partnership, the Company provides limited customary secured debt guarantees for items such as voluntary bankruptcy, fraud, misapplication of payments and environmental liabilities.

As of December 31, ~~2016,~~2019, all of the Operating Partnership’s secured loans contained restrictions that would require the payment of prepayment penalties for the acceleration of outstanding debt. The mortgage notes payable are secured

F - 34

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

by deeds of trust on certain of our properties and the assignment of certain rents and leases associated with those properties.

Unsecured Senior Notes

In September 2015, the Operating Partnership issued $400.0 million of aggregate principal amount of unsecured senior notes in a registered public offering. The outstanding balance of the unsecured senior notes is included in unsecured debt, net of the unamortized balance of the initial issuance discount of $2.2 million, on our consolidated balance sheets. The unsecured senior notes, which are scheduled to mature on October 1, 2025, require semi-annual interest payments each April and October based on a stated annual interest rate of 4.375%. The Company used the net proceeds to repay the $325.0 million 5.000% Unsecured Senior Notes upon maturity in November 2015 and for other general corporate purposes, including the repayment of debt and funding development expenditures.

The following table summarizes the balance and significant terms of the registered unsecured senior notes issued by the Operating Partnership and outstanding, including unamortized discounts of $6.5 millionand $6.6 million and unamortized deferred financing costs of $18.7 million and $15.4 million as of December 31, ~~2016~~2019 and ~~2015:~~

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

2018, respectively:


					Net Carrying Amount as of December 31,										Net Carrying Amount as of December 31,
	Issuance date	Maturity date	Stated coupon rate	Effective interest rate⁽¹⁾	2016			2015			Issuance date	Maturity date	Stated coupon rate	Effective interest rate⁽¹⁾	2019			2018
					(in thousands)										(in thousands)
4.375% Unsecured Senior Notes ⁽²⁾	September 2015	October 2025	4.375%	4.440%	$	400,000		$	400,000
3.050% Unsecured Senior Notes ⁽²⁾											September 2019	February 2030	3.050%	3.064%	$	500,000		$	—
Unamortized discount and deferred financing costs					(4,846		)	(5,400		)					(5,998		)	—
Net carrying amount					$	395,154		$	394,600						$	494,002		$	—

4.250% Unsecured Senior Notes ⁽³⁾	July 2014	August 2029	4.250%	4.350%	$	400,000		$	400,000
4.750% Unsecured Senior Notes ⁽³⁾											November 2018	December 2028	4.750%	4.800%	$	400,000		$	400,000
Unamortized discount and deferred financing costs					(6,696		)	(7,228		)					(4,446		)	(4,960		)
Net carrying amount					$	393,304		$	392,772						$	395,554		$	395,040

3.800% Unsecured Senior Notes ⁽⁴⁾	January 2013	January 2023	3.800%	3.804%	$	300,000		$	300,000
4.350% Unsecured Senior Notes⁽⁴⁾											October 2018	October 2026	4.350%	4.350%	$	200,000		$	200,000
Unamortized discount and deferred financing costs					(1,656		)	(1,931		)					(1,186		)	(1,375		)
Net carrying amount					$	298,344		$	298,069						$	198,814		$	198,625

4.800% Unsecured Senior Notes ⁽⁴⁾⁽⁵⁾	July 2011	July 2018	4.800%	4.827%	$	325,000		$	325,000
4.300% Unsecured Senior Notes ⁽⁴⁾											July 2018	July 2026	4.300%	4.300%	$	50,000		$	50,000
Unamortized discount and deferred financing costs					(767		)	(1,251		)					(290		)	(342		)
Net carrying amount					$	324,233		$	323,749						$	49,710		$	49,658

6.625% Unsecured Senior Notes ⁽⁶⁾	May 2010	June 2020	6.625%	6.743%	$	250,000		$	250,000
3.450% Unsecured Senior Notes ⁽⁵⁾											December 2017	December 2024	3.450%	3.470%	$	425,000		$	425,000
Unamortized discount and deferred financing costs															(2,907		)	(3,493		)
Net carrying amount															$	422,093		$	421,507

3.450% Unsecured Senior Notes ⁽⁶⁾											February 2017	February 2029	3.450%	3.450%	$	75,000		$	75,000
Unamortized discount and deferred financing costs															(390		)	(432		)
Net carrying amount															$	74,610		$	74,568

3.350% Unsecured Senior Notes ⁽⁶⁾											February 2017	February 2027	3.350%	3.350%	$	175,000		$	175,000
Unamortized discount and deferred financing costs															(825		)	(941		)
Net carrying amount															$	174,175		$	174,059

4.375% Unsecured Senior Notes ⁽⁷⁾											September 2015	October 2025	4.375%	4.444%	$	400,000		$	400,000
Unamortized discount and deferred financing costs															(3,185		)	(3,738		)
Net carrying amount															$	396,815		$	396,262

4.250% Unsecured Senior Notes ⁽⁸⁾											July 2014	August 2029	4.250%	4.350%	$	400,000		$	400,000
Unamortized discount and deferred financing costs															(5,100		)	(5,632		)
Net carrying amount															$	394,900		$	394,368

3.800% Unsecured Senior Notes ⁽⁹⁾											January 2013	January 2023	3.800%	3.800%	$	300,000		$	300,000
Unamortized discount and deferred financing costs					(1,868		)	(2,414		)					(834		)	(1,108		)
Net carrying amount					$	248,132		$	247,586						$	299,166		$	298,892

Total Unsecured Senior Notes, Net					$	1,659,167		$	1,656,776						$	2,899,839		$	2,402,979

________________________


(1)	Represents the effective interest rate including the amortization of initial issuance discounts, excluding the amortization of deferred financing costs.


(2)	Interest on these notes is payable semi-annually in arrears on February 15th and August 15th of each year, beginning on February 15, 2020.


(3)	Interest on these notes is payable semi-annually in arrears on June 15th and December 15th of each year.


(4)	Interest on these notes is payable semi-annually in arrears on April 18th and October 18th of each year.


(5)	Interest on these notes is payable semi-annually in arrears on June 15th and December 15th of each year.


(6)	Interest on these notes is payable semi-annually in arrears on February 17th and August 17th of each year.


(7)	Interest on these notes is payable semi-annually in arrears on April 1st and October 1st of each year.


~~(3)~~(8)	Interest on these notes is payable semi-annually in arrears on February 15th and August 15th of each year.


~~(4)~~(9)	Interest on these notes is payable semi-annually in arrears on January 15th and July 15th of each year.

~~(5)~~

In October 2015, certain common limited partners in the Operating Partnership that previously contributed their interests in the property at 6255 W. Sunset Blvd., Los Angeles, California to the Operating Partnership entered into an agreement with the Company. Pursuant to this agreement, such common limited partners will reimburse the Company for a portion of any amounts the Company may be required to pay pursuant to its guarantee of the Operating Partnership's 4.800% Senior Notes due 2018 or that the Company may otherwise become required to pay under applicable law with respect to such notes.


~~(6)~~	~~Interest on these notes is payable semi-annually in arrears on June 1st and December 1st of each year.~~

F - 35

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Unsecured Senior Notes - Registered Offerings

In September 2019, the Operating Partnership issued $500.0 million of aggregate principal amount of unsecured senior notes in a registered public offering. The outstanding balance of the unsecured senior notes is included in unsecured debt, net of an initial issuance discount of $0.6 million, on our consolidated balance sheets. The unsecured senior notes, which are scheduled to mature on February 15, 2030, require semi-annual interest payments each February and August based on a stated annual interest rate of 3.050%. The Operating Partnership may redeem the notes at any time prior to February 15, 2030, either in whole or in part, subject to the payment of an early redemption premium prior to a par call option period commencing three months prior to maturity.

In November 2018, the Operating Partnership issued $400.0 million of aggregate principal amount of unsecured senior notes in a registered public offering. The outstanding balance of the unsecured senior notes is included in unsecured debt, net of initial issuance discount of $1.5 million, on our consolidated balance sheets. The unsecured senior notes, which are scheduled to mature on December 15, 2028, require semi-annual interest payments each June and December based on a stated annual interest rate of 4.750%. The Operating Partnership may redeem the notes at any time prior to December 15, 2028, either in whole or in part, subject to the payment of an early redemption premium subject to a par call option.

In December 2018, we used a portion of the net proceeds from the issuance of our $400.0 million, 4.750% unsecured senior notes to early redeem, at our option, the $250.0 million aggregate principal amount of our outstanding 6.625% unsecured senior notes that were scheduled to mature on June 1, 2020. In connection with our early redemption, we incurred a $12.6 million loss on early extinguishment of debt comprised of an $11.8 million premium paid to the note holders at the redemption date and a $0.8 million write-off of the unamortized discount and unamortized deferred financing costs.

Unsecured Senior Notes - Private Placement

~~On September 14, 2016,~~In May 2018, the Operating Partnership entered into a ~~Note Purchase Agreement~~note purchase agreement in a private placement (the ~~“Note~~“2018 Note Purchase Agreement”), in connection with the issuance and sale of ~~$175.0~~$50.0 million principal amount of the Operating Partnership’s ~~3.35%~~4.30% Senior Notes, Series A, due ~~February 17, 2027~~July 18, 2026 (the “Series A ~~Notes”~~Notes due 2026”), and ~~$75.0~~$200.0 million principal amount of the Operating Partnership’s ~~3.45%~~4.35% Senior Notes, Series B, due ~~February 17, 2029~~October 18, 2026 (the “Series B ~~Notes”~~Notes due 2026” and, together with the Series A Notes, the “Series A and B ~~Notes”~~Notes due 2026”)~~. Under~~, as shown in the ~~delayed draw option~~table above. The Company drew the full amount of the Series A Notes due 2026 on July 18, 2018. On October 22, 2018, the Company drew the full amount of the Series B Notes due 2026. The Series A and B Notes the Operating Partnership is required to issue $175.0 million principal amount of its Series A Notes and $75.0 million principal amount of its Series B Notes by February 17, 2017. As of December 31, 2016, there were no amounts issued or outstanding under the Series A and B Notes. The Series A Notesdue 2026 mature on ~~February 17, 2027, and the Series B notes mature on February 17, 2029,~~their respective due dates, unless earlier redeemed or prepaid pursuant to the terms of the 2018 Note Purchase Agreement. Interest on the Series A and B Notes due 2026 is payable semi-annually in arrears on ~~February 17~~April 18 and ~~August 17~~October 18 of each year beginning ~~February 17, 2017.~~April 18, 2019. As of December 31, 2019, there was $50.0 million and $200.0 million issued and outstanding aggregate principal amount of Series A and Series B Notes due 2026, respectively.

The Operating Partnership may, at its option and upon notice to the purchasers of the Series A and B Notes due 2026, prepay at any time all, or from time to time any part of the ~~Series A and B Notes~~principal amounts then outstanding (in an amount not less than 5% of the aggregate principal amount of the Series A and B Notes due 2026 then outstanding in the case of a partial prepayment), at 100% of the principal amount so prepaid, plus the make-whole amount determined for the prepayment date with respect to such principal amount as set forth in the 2018 Note Purchase Agreement.

In connection with the issuance of the Series A and B Notes due 2026, the Company ~~will enter~~entered into an agreement whereby it will guarantee the payment by the Operating Partnership of all amounts due with respect to the Series A and B Notes due 2026 and the performance by the Operating Partnership of its obligations under the 2018 Note Purchase Agreement.

Unsecured Revolving Credit Facility and Term Loan Facility

The following table summarizes the balance and terms of our unsecured revolving credit facility as of December 31, 2019 and 2018:

F - 36

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~Unsecured Revolving Credit Facility and Unsecured Term Loan Facility~~

~~The following table summarizes the balance and terms of our unsecured revolving credit facility as of~~ ~~December 31, 2016~~ ~~and 2015:~~


	December 31, 2016			December 31, 2015			December 31, 2019			December 31, 2018
	(in thousands)						(in thousands)
Outstanding borrowings	$	—		$	—		$	245,000		$	45,000
Remaining borrowing capacity	600,000			600,000			505,000			705,000
Total borrowing capacity ⁽¹⁾	$	600,000		$	600,000		$	750,000		$	750,000
Interest rate ⁽²⁾	1.82		%	1.48		%	2.76		%	3.48		%
Facility fee-annual rate ⁽³⁾	0.200%						0.200%
Maturity date	July 2019						July 2022

_______________


(1)	We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional ~~$311.0~~$600.0 million under an accordion feature under the terms of the unsecured revolving credit facility and unsecured term loan facility.


(2)	~~The interest rate on our~~Our unsecured revolving credit facility isinterest rate was calculated based on ~~an annual~~the contractual rate of LIBOR ~~plus1.050%.~~plus 1.000% as of December 31, 2019 and 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 December 31, ~~2016~~2019 and ~~2015, $3.3~~2018, $3.4 million and ~~$4.6~~$4.7 million of unamortized deferred financing costs, ~~remained to be amortized through the maturity date of our unsecured revolving credit facility,~~respectively, which are included in prepaid expenses and other assets, net on our consolidated balance ~~sheets.~~sheets, remained to be amortized through the maturity date of our unsecured revolving credit facility.

The Company intends to borrow ~~amounts~~ under the unsecured revolving credit facility from time to time for general corporate purposes, to ~~fund potential acquisitions, to~~ finance development and redevelopment expenditures, to fund potential acquisitions and to potentially repay long-term debt.

During the first quarter of 2018, we borrowed the full $150.0 million borrowing capacity of our unsecured term loan facility. In connection with the funding of the outstanding borrowings, we transferred $30.0 million of outstanding borrowings under the unsecured revolving credit facility to the balance of our unsecured term loan facility. As a result, only $120.0 million of cash proceeds were received from the funding of the unsecured term loan facility. The following table summarizes the balance and terms of our unsecured term loan facility as of December 31, 2019 and 2018, which is included in ~~our~~ unsecured debt, ~~as of~~ ~~December 31, 2016~~ ~~and 2015:~~net on our consolidated balance sheets:


	December 31, 2016			December 31, 2015			December 31, 2019			December 31, 2018
	(in thousands)						(in thousands)
Outstanding borrowings ⁽¹⁾	$	150,000		$	150,000		$	150,000		$	150,000
Remaining borrowing capacity							—			—
Total borrowing capacity ⁽¹⁾							$	150,000		$	150,000
Interest rate ⁽²⁾	1.85		%	1.40		%	2.85		%	3.49		%
Undrawn facility fee-annual rate							0.200%
Maturity date	July 2019						July 2022

_______________


(1)	As of December 31, ~~2016~~2019 and ~~December 31, 2015,~~2018, $0.7 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 ~~an annual~~the contractual rate of LIBOR plus ~~1.150%.~~1.100% as of December 31, 2019 and 2018.

~~Additionally, the Company has a $39.0 million unsecured term loan outstanding with an annual interest rate of LIBOR plus 1.150% as of~~ ~~December 31, 2016~~ ~~and 2015, that matures in July 2019. As of~~ ~~December 31, 2016~~ ~~and 2015, $0.2 million of unamortized deferred financing costs remained to be amortized through the maturity date of our unsecured term loan.~~

Debt Covenants and Restrictions

The unsecured revolving credit facility, the unsecured term loan facility, the unsecured ~~term loan, the unsecured~~ senior notes, the Series A and B Notes 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 December 31, ~~2016~~2019 and ~~2015.~~2018.

F - 37

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Debt Maturities

The following table summarizes the stated debt maturities and scheduled amortization payments as of December 31, ~~2016~~:2019:



Year	(in thousands)
2020	$	5,137
2021	5,342
2022	400,554
2023	305,775
2024	431,006
Thereafter	2,431,688
Total aggregate principal value ⁽¹⁾	$	3,579,502

Year (in thousands)
2017 $ 7,286
2018 451,669
2019 265,309
2020 255,137
2021 5,342
Thereafter 1,349,023
Total aggregate principal value ⁽¹⁾⁽²⁾
$ 2,333,766

________________________

(1)

Includes gross principal balance of outstanding debt before the effect of the following at December 31, ~~2016: $11.5~~2019: $20.3 million of unamortized deferred financing costs ~~$6.6~~for the unsecured term loan facility, unsecured senior notes and secured debt and $6.5 million of unamortized discounts for the unsecured senior ~~notes and $4.4 million of unamortized premiums for the secured debt.~~


~~(2)~~	Excludes the Series A and B Notes issuable pursuant to the Note Purchase Agreement entered into in September 2016 as no Series A or B Notes were issued and outstanding under these notes as of December 31, 2016.notes.

~~4.25% Exchangeable Senior Notes due 2014~~Capitalized Interest and Loan Fees

The Company repaid its $172.5 million 4.25% Exchangeable Notes due November 2014 (the “4.25% Exchangeable Notes”) upon maturity in November 2014. The unamortized discount on the 4.25% Exchangeable Notes was accreted as additional interest expense from the date of issuance through the maturity date. The following table ~~summarizes the total~~sets forth gross interest expense, ~~attributable to the 4.25% Exchangeable Notes prior to maturity in November 2014, based on the effective interest rates, before the effect~~including debt discount/premium and deferred financing cost amortization, net of capitalized interest, for the ~~year~~years ended ~~December 31, 2014~~:2019, 2018 and 2017. The interest expense capitalized was recorded as a cost of development and increased the carrying value of undeveloped land and construction in progress.



	Year Ended December 31,
	2019			2018			2017
	(in thousands)
Gross interest expense	$	129,778		$	117,789		$	112,577
Capitalized interest and deferred financing costs	(81,241		)	(68,068		)	(46,537		)
Interest expense	$	48,537		$	49,721		$	66,040

Year Ended
December 31, 2014

Contractual interest payments
$ 5,608
Amortization of discount
3,769
Interest expense attributable to the 4.25% Exchangeable Notes
$ 9,377

For the respective reporting periods noted below, which preceding maturity of the 4.25% Exchangeable Notes on November 15, 2014, the per share average trading price of the Company's common stock on the NYSE was higher than the $35.93 exchange price for the 4.25% Exchangeable Notes, as presented in the table below. See Note 22 “Net Income Available to Common Stockholders Per Share of the Company” and Note 23 “Net Income Available to Common Unitholders Per Unit of the Operating Partnership” for a discussion of the impact of the 4.25% Exchangeable Notes on our diluted earnings per share and unit calculations for the year ended December 31, 2014.

F - 38

Period Ended November 15, 2014 ⁽¹⁾
Per share average trading price of the Company's common stock $ 60.04

~~_______________~~

~~(1) Represents the maturity date of the 4.25% Exchangeable Notes.~~

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~Capitalized Interest and Loan Fees~~

The following table sets forth gross interest expense reported in continuing operations, including debt discount/premium and deferred financing cost amortization, net of capitalized interest, for the years ended ~~December 31, 2016, 2015 and~~ ~~2014. The interest expense capitalized was recorded as a cost of development and redevelopment, and increased the carrying value of undeveloped land and construction in progress.~~

Year Ended December 31,
2016 2015 2014
(in thousands)
Gross interest expense $ 105,263
$ 109,647
$ 114,661
Capitalized interest (49,460 ) (51,965 ) (47,090 )
Interest expense $ 55,803
$ 57,682
$ 67,571


10.	Deferred Revenue and ~~Acquisition Related~~Acquisition-Related Intangible Liabilities, net

Deferred revenue and acquisition-related intangible liabilities, net consisted of the following at December 31, ~~2016~~2019 and ~~2015~~:2018:


	December 31,				December 31,
	2016		2015		2019		2018
	(in thousands)				(in thousands)
Deferred revenue related to tenant-funded tenant improvements ⁽¹⁾	$	99,489	$	90,825	$	96,271	$	104,558
Other deferred revenue	9,293		5,007		19,125		15,950
Acquisition-related intangible liabilities, net ⁽²⁾⁽¹⁾	41,578		32,324		24,092		29,138
Total	$	150,360	$	128,156	$	139,488	$149,646

________________________


(1)	~~Excludes deferred revenue related to tenant-funded tenant improvements related to properties held for sale at December 31, 2015~~.


~~(2)~~	See ~~Note 2 “Basis of Presentation and Significant Accounting Policies” and~~ Note 5 “Deferred Leasing Costs and ~~Acquisition-related~~Acquisition-Related Intangible Assets and Liabilities, net” for additional ~~information.~~information regarding our acquisition-related intangible liabilities.

Deferred Revenue Related to Tenant-funded Tenant Improvements

During the years ended December 31, ~~2016, 2015,~~2019, 2018, and ~~2014, $13.2~~2017, $19.2 million, ~~$13.3~~$18.4 million and ~~$11.0~~$16.8 million, respectively, of deferred revenue related to tenant-funded tenant improvements ~~(including discontinued operations for the year ended~~ ~~December 31, 2014~~) was amortized and recognized as rental income. The following is the estimated amortization of deferred revenue related to tenant-funded tenant improvements as of December 31, ~~2016~~2019 for the next five years and thereafter:



Year Ending	(in thousands)
2020	$	16,935
2021	15,426
2022	14,320
2023	12,553
2024	10,318
Thereafter	26,719
Total	$	96,271

F - 39

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Year Ending (in thousands)
2017 $ 14,453
2018 13,891
2019 12,349
2020 11,767
2021 10,524
Thereafter 36,505
Total $ 99,489

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

Common Units of the Operating Partnership

The Company owned a ~~97.5%~~98.1% and ~~98.1%~~98.0% common general partnership interest in the Operating Partnership as of December 31, ~~2016~~2019 and ~~2015,~~2018, respectively. The remaining ~~2.5%~~1.9% and ~~1.9%~~2.0% common limited partnership interest as of December 31, ~~2016~~2019 and ~~2015,~~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 ~~2,381,543~~2,023,287 and ~~1,764,775~~2,025,287 common units

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

outstanding held by these investors, executive officers and directors as of December 31, ~~2016~~2019 and ~~2015,~~2018, respectively. The ~~increase~~decrease in the common units from December 31, ~~2015~~2018 to December 31, ~~2016~~2019 was attributable to ~~867,701~~2,000 common ~~units issued in connection with an acquisition (see Note 3), partially offset by~~ unit redemptions.

The noncontrolling common units may be redeemed by unitholders for cash. Except under certain circumstances, we, at our option, may satisfy the cash redemption obligation with shares of the Company’s common stock on a ~~one-for-one~~1-for-one basis. If satisfied in cash, the value for each noncontrolling common unit upon redemption is the amount equal to the average of the closing quoted price per share of the Company’s common stock, par value ~~$0.01~~$.01 per share, as reported on the NYSE for the ~~ten~~10 trading days immediately preceding the applicable redemption date. The aggregate value upon redemption of the then-outstanding noncontrolling common units was ~~$174.9~~$167.7 million and ~~$112.0~~$126.4 million as of December 31, ~~2016~~2019 and ~~2015,~~2018, respectively. This redemption value does not necessarily represent the amount that would be distributed with respect to each noncontrolling common unit in the event of our termination or liquidation. In the event of our termination or liquidation, it is expected in most cases that each common unit would be entitled to a liquidating distribution equal to the liquidating distribution payable in respect of each share of the Company’s common stock.

Noncontrolling Interest in Consolidated Property Partnerships

OnIn August ~~30,~~ 2016, the Operating Partnership entered into agreements with Norges Bank Real Estate Management (“NBREM”) whereby NBREM ~~invested,~~made contributions, through two REIT subsidiaries, for a 44% common equity interest in two existing companies that owned the Company’s 100 First Street and 303 Second Street office properties located in San Francisco, California. Based on a gross valuation of the two properties of approximately $1.2 billion, NBREM contributed a total of $452.9 million, for a 44% common equity interest in the companies, which is net of approximately $55.3 million of its proportionate share of the existing mortgage debt on 303 Second Street.

The transaction was structured with a staggered closing. On August 30, 2016, the first tranche of the transaction closed and NBREM contributed $191.4 million plus a working capital contribution of $2.1 million for a 44% common ownership interest in 100 First LLC. On November 30, 2016, the second tranche of the transaction closed and NBREM contributed $261.5 million, which was net of its proportionate share of the existing mortgage debt secured by the 303 Second Street property of approximately $55.3 million, plus a working capital contribution of $2.9 million for a 44% common ownership interest in 303 Second LLC.

The transactions did not meet the criteria to qualify as sales of real estate because the Company continues to effectively control the properties and therefore continued to account for the 100 First Street and 303 Second Street office properties on a consolidated basis in its financial statements. At formation, the Company accounted for the transactions as equity transactions and recognized noncontrolling interests in its consolidated balance sheets totaling approximately $124.5 million, which was equal to 44% of the aggregate net asset value of 100 First LLC and 303 Second LLC immediately prior to the transactions (which was net of NBREM’s 44% share of the existing mortgage debt of $55.3 million) plus an additional $5.0 million working capital contribution made by NBREM. The amount of NBREM’s total contribution not recognized as noncontrolling interest, net of transaction costs, was approximately $329.0 million. This amount was not reflected as a gain on sale of operating properties in the Company’s consolidated statements of operations and instead was reflected as an increase in additional paid-in capital and partners’ capital in the Company’s and the Operating Partnership’s consolidated balance sheets, respectively. Transfers of less than 50% of an entity ownership interest are normally not subject to certain tax assessments in California and therefore the Company believes that the two tranches of the transaction do not meet the statutory requirements for such tax assessments. If the taxing authority attempted to assess such tax assessments on the transactions, the Company estimates it could incur additional taxes of up to $10.9 million and $18.0 million for the first and second tranches of the transaction, respectively, plus potential penalties and interest.sheets.

In connection with the transaction, the Company provides customary property management, leasing and construction management services for both properties. 100 First Street is a 467,095 square foot office tower, and 303 Second Street is a 740,047 square foot office property, both located in the South of Market submarket in San Francisco, California.

The noncontrolling interests in 100 First LLC and 303 Second LLC as of December 31, ~~2016 was $124.3~~2019 and 2018 were $189.6 million ~~which is recognized in noncontrolling interests in consolidated property partnerships on the Company's consolidated~~

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~balance sheets.~~and $186.4 million, respectively. The remaining amount of noncontrolling interests in consolidated property partnerships represents the third party equity interest in Redwood LLC. This noncontrolling interest was ~~$6.4~~$5.8 millionand$~~6.5~~6.0 millionas of December 31, ~~2016~~2019 and ~~December 31, 2015,~~2018, respectively.

F - 40

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

12. Noncontrolling Interests on the Operating Partnership’s Consolidated Financial Statements

Consolidated Property Partnerships

OnIn August ~~30,~~ 2016, the Operating Partnership entered into agreements with NBREM whereby NBREM ~~invested,~~made contributions, through two REIT subsidiaries, for a 44% common equity interest in two existing companies that owned the Company’s 100 First Street and 303 Second Street office properties located in San Francisco, California. ~~Based on a gross valuation of the two properties of approximately~~$1.2 billion, NBREM contributed a total of $452.9 million for a 44% common equity interest in the companies, which is net of approximately $55.3 million of its proportionate share of the existing mortgage debt. Refer to Note 11 for additional information regarding these ~~transactions.~~consolidated property partnerships.


13.	Stockholders’ Equity of the Company

Common Stock

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 of5,000,000 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.

In July 2019, the Company physically settled these forward equity sale agreements. 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.

At-The-Market Stock Offering Programs

Under our ~~current~~ at-the-market stock offering ~~program,~~programs, which commenced in December 2014 and June 2018, we may offer and sell shares of our common stock ~~having~~from time to time in “at-the-market” offerings. During the year ended December 31, 2018, the Company completed its existing at-the-market stock offering program (the “2014 At-The-Market Program”) under which we sold an aggregate of $300.0 million in gross sales of shares. In June 2018, the Company commenced a new at-the-market stock offering program (the “2018 At-The-Market Program”) under which we may offer and sell shares of our common stock with an aggregate gross sales price of up to ~~$300.0 million~~$500.0 million. In connection with the 2018 At-The-Market Program, the Company may also, at its discretion, enter into forward equity sale agreements. The use of forward equity sale agreements would allow the Company to lock in a share price on the sale of shares of our common stock at the time an agreement is executed, but defer receiving the proceeds from the sale of shares until a later date.

During the year ended December 31, 2019, we executed various 12-month forward equity sale agreements under the 2018 Program with financial institutions acting as forward purchasers to sell 3,147,110 shares of common stock at a weighted average sales price of $80.08 per share before underwriting discounts, commissions and offering expenses. The Company did not directly sell any shares of our common stock under the 2018 At-The-Market Program during the year and did not receive any proceeds from the sale of its shares of common stock 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 in the first quarter of 2020 through the first quarter of 2021, at which time we expect to ~~time~~receive aggregate net cash proceeds at settlement equal to the number of shares specified in ~~“at-the-market” offerings.~~ 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.

F - 41

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

During the year ended December 31, 2018, we sold 447,466shares of common stock under the 2018 At-The-Market Program and 1,369,729 shares of common stock under the 2014 At-The-Market Program.

Since commencement of the ~~program~~2018 At-The-Market Program through December 31, ~~2016,~~2019, we have directly sold ~~2,459,165~~ 447,466shares of common stock, ~~having~~and an ~~aggregate gross sales price~~additional 3,147,110 shares have been sold by forward purchasers under forward equity sale agreements, which have not been settled as of ~~$182.4 million.~~the date of this filing. As of December 31, ~~2016, shares of common stock having an aggregate gross sales price of up to $117.6~~2019, approximately $214.2 million ~~remain~~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.

The following table sets forth information regarding direct sales of our common stock under our at-the-market offering programs for the years ended December 31, ~~2016, 2015~~2018 and ~~2014~~:2017:



	Year Ended December 31,
	2018		2017
	(in millions, except share data)
Shares of common stock sold during the period	1,817,195		235,077
Weighted average price per share of common stock	$	73.64	$	75.40
Aggregate gross proceeds	$	133.8	$	17.7
Aggregate net proceeds after selling commissions	$	132.1	$	17.5

Year Ended December 31,
2016 2015 2014
(in millions, except share data)
Shares of common stock sold during the period 451,398
1,866,267
1,599,123
Aggregate gross proceeds $ 32.3
$ 140.1
$ 104.7
Aggregate net proceeds after selling commissions $ 31.9
$ 138.2
$ 103.1

The proceeds from sales were used to fund acquisitions, development expenditures and general corporate purposes including repayment of borrowings under the unsecured revolving credit facility.

~~Common Stock Issuance~~

In October 2014, the Company issued 351,476 shares of its common stock valued at approximately $21.6 million to partially fund a development acquisition (see Note 3 “Acquisitions” for additional information).

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Common Stock Repurchases

~~On February 23, 2016, the Company’s Board~~An aggregate of Directors approved a 4,000,000 share increase to the Company’s existing share repurchase program bringing the total current repurchase authorization to 4,988,025 shares. In March 2016, the Company repurchased 52,199 shares of common stock at a weighted average price of $55.45 per share of common stock for $2.9 million. As of December 31, 2016, 4,935,826 shares currently remain eligible for repurchase under a share repurchase program approved by the Company’s ~~share repurchase program.~~board of directors in 2016. The Company did not repurchase shares of common stock under this program during the three years endedDecember 31, ~~2015 or~~ ~~2014~~.2019, 2018 and 2017.

Accrued Dividends and Distributions

On December 13, 2016, the Company’s Board of Directors declared a special cash dividend of $1.90 per share of common stock and a regular quarterly cash dividend of $0.375 per share of common stock payable on January 13, 2017 to stockholders of record on December 30, 2016.

The following tables summarize accrued dividends and distributions for the noted outstanding shares of common stock ~~preferred stock,~~ and noncontrolling units as of December 31, ~~2016~~2019 and ~~2015~~:2018:


	December 31,				December 31,
	2016		2015		2019		2018
	(in thousands)				(in thousands)
Dividends and Distributions payable to:
Common stockholders	$	212,074	$	32,291	$	51,418	$	45,840
Noncontrolling common unitholders of the Operating Partnership	5,418		618		981		922
RSU holders⁽¹⁾	3,158		427		820		797
Total accrued dividends and distribution to common stockholders and noncontrolling unitholders	220,650		33,336		$	53,219	$	47,559
Preferred stockholders	1,656		1,656
Total accrued dividends and distributions	$	222,306	$	34,992

______________________


(1)	The amount includes the value of the dividend equivalents that will be paid with additional RSUs (see Note 15 “Share-Based Compensation” for additional information).


	December 31,		December 31,
	2016	2015	2019	2018
Outstanding Shares and Units:
Common stock ⁽¹⁾	93,219,439	92,258,690	106,016,287	100,746,988
Noncontrolling common units	2,381,543	1,764,775	2,023,287	2,025,287
RSUs ⁽²⁾	1,395,189	1,269,809	1,651,905	1,711,628
Series G Preferred stock	4,000,000	4,000,000
Series H Preferred stock	4,000,000	4,000,000

______________________


(1)	The amount includes nonvested shares.

F - 42

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


(2)	The amount includes nonvested RSUs. Does not include ~~the 659,051~~932,675 and ~~425,452~~1,018,337 market measure-based RSUs because not all the necessary performance conditions have been met as of December 31, ~~2016~~2019 and~~2015,~~2018, respectively. Refer to Note 15 “Share-Based Compensation” for additional information.

~~6.875% Series G and~~Preferred Stock

On August 15, 2017, the Company redeemed all 4,000,000 shares of its 6.375% Series H Cumulative Redeemable Preferred Stock (“Series H Preferred Stock”). The shares of Series H Preferred Stock were redeemed at a redemption price equal to their stated liquidation preference of $25.00 per share, representing $100.0 million in aggregate. The redemption payment did not include any additional accrued dividends because the redemption date was also the dividend payment date.

~~The~~On March 30, 2017 (the “Series G Redemption Date”), the Company ~~has the option to redeem the~~redeemed all 4,000,000 shares of its 6.875% Series G Cumulative Redeemable Preferred Stock ("(“Series G Preferred ~~Stock"~~Stock”) ~~and the 4,000,000~~. The shares of ~~its 6.375%~~ Series ~~H Cumulative Redeemable~~G Preferred Stock ~~("Series H Preferred Stock"), on or after March 27, 2017 and August 15, 2017, respectively, in whole or in part~~were redeemed at ~~any time or from time~~a redemption price equal to ~~time, by payment~~their stated liquidation preference of $25.00 per share, representing $100.0 million in ~~cash, totaling $200.0 million~~aggregate, plus ~~any accumulated,~~all accrued and unpaid ~~distributions through~~dividends to the ~~date~~Series G Redemption Date.

In connection with the redemption of ~~redemption. Depending on various factors, including but not limited to market conditions, we may redeem all or part of~~ the ~~outstanding~~ Series G and Series H Preferred Stock, ~~on or after their stated redemption dates. Upon redemption of all outstanding Series G and Series H Preferred Stock,~~during the year ended December 31, 2017 we ~~would incur an associated~~recorded non-cash ~~charge~~charges of $7.6 million as a reduction to net income available to common stockholders for the ~~related~~ original issuance ~~costs.~~costs of the Series H and Series G Preferred Stock.

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~


14.	~~Partners'~~Partners’ Capital of the Operating Partnership

Common Units

Issuance of Common Units

In July 2019, the Company physically settled the forward equity sale agreements entered into in August 2018 (see Note 13 “Stockholders’ Equity of the Company”). 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 5,000,000 common units.

At-The-Market Stock Offering Program

The Company did not issue any shares of common stock under its at-the-market stock offering program during the year ended December 31, 2019. During the years ended December 31, ~~2016, 2015~~2018 and ~~2014,~~2017, the Company utilized its at-the-market stock offering programs to issue shares of common ~~stock (see~~stock. See Note 13 “Stockholders’ Equity of the Company” for additional ~~information).~~information. The net offering proceeds ~~and property acquired using net offering proceeds were~~ contributed by the Company to the Operating Partnership in exchange for common units for the years ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014~~2017 are as follows:



	Year Ended December 31,
	2018		2017
	(in millions, except share and per share data)
Shares of common stock contributed by the Company	1,817,195		235,077
Common units exchanged for shares of common stock by the Company	1,817,195		235,077
Aggregate gross proceeds	$	133.8	$	17.7
Aggregate net proceeds after selling commissions	$	132.1	$	17.5

F - 43

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Year Ended December 31,
2016 2015 2014
(in millions, except share and per share data)
Shares of common stock contributed by the Company 451,398
1,866,267
1,599,123
Common units exchanged for shares of common stock by the Company 451,398
1,866,267
1,599,123
Aggregate gross proceeds $ 32.3
$ 140.1
$ 104.7
Aggregate net proceeds after selling commissions $ 31.9
$ 138.2
$ 103.1

~~Issuance of Common Units~~

In March 2016, the Operating Partnership issued 867,701 common units in connection with a development acquisition (see Note 3 “Acquisitions”). Each common unit was valued at $55.36, which was based on a trailing ten-day average of the closing quoted price per share of the Company’s common stock, par value $.01 per share, as reported on the NYSE, as calculated in accordance with the Partnership Agreement.

In July 2015, the Company completed the sale and issuance of 3,733,766 shares of its common stock at a price of $66.19 per share for aggregate gross proceeds of $249.8 million and aggregate net proceeds after offering costs of $249.6 million through a registered direct placement with an institutional investor (see Note 13 “Stockholders’ Equity of the Company” for additional information). The net offering proceeds were contributed by the Company to the Operating Partnership in exchange for 3,733,766 common units.

In October 2014, the Company issued 351,476 shares of its common stock to partially fund $21.6 million of a development acquisition (see Note 13 “Stockholders’ Equity of the Company” for additional information). The development acquisition property was contributed by the Company to the Operation Partnership in exchange for 351,476 common units.

Common Units Outstanding

The following table sets forth the number of common units held by the Company and the number of common units held by non-affiliated investors and certain of our executive officers and directors in the form of noncontrolling common units as well as the ownership interest held on each respective date:



	December 31, 2019		December 31, 2018
Company owned common units in the Operating Partnership	106,016,287		100,746,988
Company owned general partnership interest	98.1	%	98.0	%
Noncontrolling common units of the Operating Partnership	2,023,287		2,025,287
Ownership interest of noncontrolling interest	1.9	%	2.0	%

December 31, 2016 December 31, 2015
Company owned common units in the Operating Partnership 93,219,439
92,258,690
Company owned general partnership interest 97.5 % 98.1 %
Noncontrolling common units of the Operating Partnership 2,381,543
1,764,775
Ownership interest of noncontrolling interest 2.5 % 1.9 %

For a further discussion of the noncontrolling common units during the years ended December 31, ~~2016~~2019 and ~~2015,~~2018, refer to Note 11 “Noncontrolling Interests on the Company’s Consolidated Financial Statements.”

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Accrued Distributions

The following tables summarize accrued distributions for the noted common ~~and preferred~~ units as of December 31, ~~2016~~2019 and ~~2015~~:2018:


	December 31, 2016		December 31, 2015		December 31, 2019		December 31, 2018
	(in thousands)				(in thousands)
Distributions payable to:
General partner	$	212,074	$	32,291	$	51,418	$	45,840
Common limited partners	5,418		618		981		922
RSU holders ⁽¹⁾	3,158		427		820		797
Total accrued distributions to common unitholders	220,650		33,336		$	53,219	$	47,559
Preferred unitholders	1,656		1,656
Total accrued distributions	$	222,306	$	34,992

______________________


(1)	The amount includes the value of the dividend equivalents that will be paid with additional RSUs (see Note 15 “Share-Based Compensation” for additional information).



	December 31, 2019	December 31, 2018
Outstanding Units:
Common units held by the general partner	106,016,287	100,746,988
Common units held by the limited partners	2,023,287	2,025,287
RSUs ⁽¹⁾	1,651,905	1,711,628

December 31, 2016 December 31, 2015
Outstanding Units:
Common units held by the general partner 93,219,439
92,258,690
Common units held by the limited partners 2,381,543
1,764,775
RSUs ⁽¹⁾
1,395,189
1,269,809
Series G Preferred units 4,000,000
4,000,000
Series H Preferred units 4,000,000
4,000,000

______________________


(1)	Does not include ~~the 659,051~~932,675 and ~~425,452~~1,018,337 market measure-based RSUs because not all the necessary performance conditions have been met as of December 31, ~~2016~~2019 and ~~2015,~~2018, respectively. Refer to Note 15 “Share-Based Compensation” for additional information.

Preferred Units

On August 15, 2017, the Company redeemed all 4,000,000 shares of its 6.375% Series H Preferred Stock. For each share of Series H Preferred Stock that was outstanding, the Company had an equivalent number of 6.375% Series H Preferred Units (“Series H Preferred Units”) outstanding with substantially similar terms as the Series H Preferred Stock. In connection with the redemption of the Series H Preferred Stock, the Series H Preferred Units held by the Company were redeemed by the Operating Partnership.

On March 30, 2017, the Company redeemed all 4,000,000 shares of its 6.875% Series G Preferred Stock. For each share of Series G Preferred Stock that was outstanding, the Company had an equivalent number of 6.875% Series G Preferred Units (“Series G Preferred Units”) outstanding with substantially similar terms as the Series G Preferred Stock. In connection with the redemption of the Series G Preferred Stock, the Series G Preferred Units held by the Company were redeemed by the Operating Partnership.

In connection with the redemption of the Series G and Series H Preferred Stock, during the year ended December 31, 2017 we recorded non-cash charges of $7.6 million as a reduction to net income available to common unitholders for the original issuance costs of the Series H and Series G Preferred Stock.

F - 44

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

15. Share-Based and Other Compensation

Stockholder Approved Share-Based Incentive Compensation Plan

As of December 31, ~~2016~~2019, we maintained one share-based incentive compensation plan, the Kilroy Realty 2006 Incentive Award Plan, as amended (the “2006 Plan”). AtThe Company has a currently effective registration statement registering 9.2 million shares of our ~~annual meeting of stockholders on May 21, 2015, stockholders approved an amendment and restatement of the~~common stock for possible issuance under our 2006 ~~Plan, which included an increase in the maximum number of shares that may be issued or awarded under the 2006 Plan to 8,320,000 shares.~~Incentive Award Plan. As of December 31, ~~2016~~2019, ~~1.3~~approximately 0.4 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 ~~target~~maximum levels for the other performance and market conditions (as defined below) ~~applicable to these awards.~~for awards still in a performance period.

The Executive Compensation Committee ~~( the~~(the “Compensation Committee”) of the ~~Company's~~Company’s Board of Directors may grant the following share-based awards to eligible individuals, as provided under the 2006 Plan: incentive stock options, nonqualified stock options, restricted stock (nonvested shares), stock appreciation rights, performance shares, performance stock units, dividend equivalents, stock payments, deferred stock, restricted stock units (“RSUs”), profit interest units, performance bonus awards, performance-based awards and other incentive awards. For each award granted under our share-based incentive compensation programs, the Operating Partnership simultaneously issues to the Company a number of common units equal to the number of shares of common stock ultimately paid by the Company in respect of such awards.

~~Stock Award Deferral Program~~2019, 2018 and 2017 Share-Based Compensation Grants

~~We have a Stock Award Deferral Program (the “RSU Program”~~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. Under~~Plan, which included 143,396 RSUs (at the ~~RSU Program, participants may defer receipt~~target level of ~~awards of nonvested shares~~performance) that may be granted by electing to receive an equivalent number of RSUs in lieu of such nonvested shares, or defer payment of RSU awards. Each RSU represents the right to receive one share of our common stock in the future and isare 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”). During the ~~same vesting conditions~~year ended December 31, 2019, 10,733 2019 Time-Based RSUs, 24,353 2019 Performance-Based RSUs and 98,844 time vest and performance RSUs that ~~would have applied if~~were granted in prior years were forfeited.

In connection with entering into an amended employment agreement (the “Amended Employment Agreement”), on December 27, 2018, the award had been issued in nonvested shares. RSUs carry with them the right to receive dividend equivalents such that participants receive additional RSUs at the time dividends are paid equal to the value of the dividend earned on the shares underlying the participant’s RSUs. The dividend equivalents earned vest based on terms specified under the related RSU award agreement. Shares issued upon settlement of vested RSUs, including RSUs paid on dividend equivalents, are distributed in a single lump sum distribution upon the earlier of (1) the date specified by the participant when the election is made or (2) occurrence of certain other events specified under the RSU program.

~~Share-Based Compensation Programs~~

~~The~~ Compensation Committee ~~has historically awarded nonvested shares and RSUs under the share-based compensation programs described below. These share-based awards were valued based on the quoted closing share price~~ of the Company’s ~~common stock on~~Board of Directors awarded John Kilroy, the ~~NYSE on~~Chairman of the ~~applicable grant date. Prior~~Board of Directors, President and Chief Executive Officer of the Company and the Operating Partnership 483,871 RSUs, providing an additional retention incentive during the term of the agreement and enticing Mr. Kilroy to ~~2014,~~delay his retirement. Of these RSUs awarded, 266,130 RSUs (at the target level of performance) are subject to market-based vesting requirements and 217,741 RSUs are subject to time-based vesting requirements. In addition to Mr. Kilroy’s award, the Compensation Committee of the Company’s Board of Directors awarded ~~annual long-term equity awards based primarily on~~161,290 RSUs to certain members of management. Of these RSUs awarded, 80,647 RSUs (at the ~~prior year’s performance, however, starting in~~target level of performance) are subject to market-based vesting requirements (together totaling 346,777 target RSUs with Mr. Kilroy’s award, the “December 2018 Market-Based RSUs”) and 80,643 RSUs are subject to time-based vesting requirements (together totaling 298,384 RSUs with Mr. Kilroy’s award, the “December 2018 Time-Based RSUs”).

In January ~~2014, such annual awards have been granted as an incentive for~~and February 2018, the ~~year in~~Executive Compensation Committee of the Company’s Board of Directors awarded 282,038 RSUs to certain officers of the Company under the 2006 Plan, which included 158,205 RSUs (at the ~~awards~~target level of performance) that are subject to market and/or performance-based vesting requirements (the “2018 Performance-Based RSUs”) and 123,833 RSUs that are subject to time-based vesting requirements (the “2018 Time-Based RSUs”). Additionally, during 2018, 14,999 RSUs were granted to the board of directors and ~~subsequent years.~~certain members of management subject to time vesting requirements.

In February 2017, the Executive ~~Officer and Key Employee Share-Based Compensation Programs~~

~~The~~ Compensation Committee ~~has annually approved compensation programs~~of the Company’s Board of Directors awarded 229,976 RSUs to certain officers of the Company under the 2006 Plan, which included 130,956 RSUs (at the target level of performance) that ~~include the potential issuance of share-based awards~~are subject to ~~our executive officers~~time-based, market-measure based and other key employees as part of their annual and long-term incentive compensation. The share-based awards are generally issued in the first quarter after the end of our prior fiscal year. The share-based awards generally have a serviceperformance-based vesting ~~period, which has historically ranged from~~ ~~one~~ to ~~five~~ ~~years, depending on the type of award.~~requirements (the

F - 45

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~Non-Employee Board Member Share-Based Compensation Program~~

The Board of Directors awards nonvested shares or nonvested RSUs to non-employee board members on an annual basis as part of such board members’ annual compensation and to newly elected non-employee board members in accordance with our Board of Directors compensation program. The share-based awards are generally issued in the second quarter, and the individual share awards vest in equal annual installments over the applicable service vesting period, which will be one year for the annual non-employee board awards and four years for the awards relating to newly elected non-employee board members.

~~2016 and 2015 Share-Based Compensation Grants~~

On January 28, 2016 (the “2016 RSU Grant Date”), the Compensation Committee of the Company’s Board of Directors awarded 294,821 RSUs to certain officers of the Company under the 2006 Plan, which included 168,077 RSUs (at the target level of performance), or 57%, that are subject to time-based, market and performance-based vesting requirements (each a “2016“2017 Performance-Based ~~RSU” and collectively, the “2016 Performance-Based RSU Grant”~~RSUs”) and ~~126,744 RSUs, or 43%, that are subject to time-based vesting requirements (each a “2016 Time-Based RSU” and collectively, the “2016 Time-Based RSU Grant”).~~

On January 27, 2015 (the “2015 RSU Grant Date”), the Compensation Committee of the Company’s Board of Directors awarded 212,468 RSUs to certain officers of the Company under the 2006 Plan, which included 127,657 RSUs that are subject to time-based, market and performance-based vesting requirements (each a “2015 Performance-Based RSU” and collectively, the “2015 Performance-Based RSU Grant”) and 84,81199,020 RSUs that are subject to time-based vesting requirements ~~(each a “2015~~(the “2017 Time-Based ~~RSU”~~RSUs”). Additionally, during 2017, 43,081 RSUs were granted to the board of directors and ~~collectively, the “2015 Time-Based RSU Grant”).~~

~~2016 and 2015 Performance-Based RSU Grants~~

~~The 2016 Performance-Based RSUs and 2015 Performance-Based RSUs (collectively, the “Performance-Based RSUs”) are scheduled to cliff vest at the end~~certain members of ~~a three-year service period~~management subject to time vesting requirements.

December 2018 Market-Based RSU Grant

Between 0% and 200% of the ~~compensation committee's determination that~~total 346,777 target number of December 2018 Market-Based RSUs will be eligible to vest based on the ~~Company has achieved the pre-defined FFO per share goals (the “performance conditions”) and upon the average annual~~Company’s relative total ~~stockholder~~shareholder return (“TSR”) versus a ~~comparator~~comparative group of ~~Companies~~companies that consist of ~~Companies~~companies in the SNL US REIT Office Index ~~(the “market conditions”) for~~over the ~~three-year periods detailed in the table below. The number of Performance-Based RSUs ultimately earned, and therefore the compensation costs for these awards, can fluctuate from the original~~performance period. An initial number of RSUs ~~granted~~(the “Initial Number of RSUs”) will be determined at the end of 2021 based ~~upon~~on a three year performance period (2019 through 2021). Once the ~~levels~~Initial Number of ~~achievement for both the FFO per share and relative total stockholder return metrics. During each~~RSUs is determined, 75% of the ~~2016 and 2015 performance periods, the estimate~~Initial Number of RSUs will be scheduled to vest on January 5, 2022. The remaining 25% of the ~~number~~Initial Number of RSUs ~~earned was evaluated quarterly based~~will be scheduled to vest on our forecasted level of achievement of the FFO per share hurdle. As of December 31, 2016, the FFO per share hurdle performance conditions were achieved at approximately 144% of target for the 2016 Performance-Based RSUs. As of December 31, 2015, the FFO per share hurdle performance conditions were achieved at 150% of target for the 2015 Performance-Based RSUs. As a result, the number of RSUs earned as of that dateJanuary 5, 2023, subject to adjustment based on the ~~FFO per share~~Company’s relative TSR for the entire four-year performance ~~excluding~~period (2019 through 2022). The December 2018 Market-Based RSUs are also subject to service vesting requirements through the ~~impact of forfeitures, was as follows:~~scheduled vest dates.

2016 Performance-Based RSU Grant 2015 Performance-Based RSU Grant
Service vesting period January 28, 2016 - January 5, 2019

January 27, 2015 - January 5, 2018
Target RSUs granted 168,077
127,657
Estimated RSUs earned based on FFO per share performance condition 241,438
185,510
Date of fair valuation January 28, 2016
January 27, 2015

Each ~~Performance-Based~~December 2018 Market-Based RSU represents the right to receive one share of our common stock in the future, subject to, and as modified by, the ~~Company's~~Company’s level of achievement of the applicable market ~~condition.~~conditions. The December 27, 2018 grant date fair value of the ~~2016 Performance-Based RSU Grant~~December 2018 Market-Based RSUs was ~~$9.6 million at January 28, 2016 and the fair value of the 2015 Performance-Based RSU Grant was $10.1 million at January 27, 2015.~~$23.8 million. The fair value ~~for each grant~~ was calculated using a Monte Carlo simulation pricing model based on the assumptions in the table below. The determination of the fair value of the Performance-Based RSU Grants take into consideration the likelihood of achievement of both the performance condition and the market condition discussed above. For the year ended December 31, ~~2016,~~2018, we recorded compensation expense

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~for the 2016 Performance-Based RSU Grant~~ based upon the ~~$57.08~~$68.66 grant date fair value per share at January 28, 2016 multiplied by the 241,438 RSUs estimated to be earned at December 31, 2016. For the years ended December 31, 2016 and 2015, we recorded compensation expense for the 2015 Performance-Based RSU Grant based upon the $78.55 fair value per share at January 27, 2015 multiplied by the 185,510 RSUs, which is net of forfeitures, estimated to be earned at December 31, 2015.share. Compensation expense for the ~~Performance-Based~~December 2018 Market-Based RSUs is ~~recorded~~recognized using a graded vesting approach, where 75% of the fair value will be recognized on a straight-line basis over the ~~respective~~ three-year ~~periods.~~initial performance period through the end of 2021, and the remaining 25% of the fair value will be recognized on a straight-line basis over the four-year final performance period through the end of 2022. The following table summarizes the assumptions utilized in the Monte Carlo simulation pricing models:



		December 2018 Market-Based RSU Award Fair Value Assumptions
Valuation date		December 27, 2018
Fair value per share on valuation date		$68.66
Expected share price volatility		23.0%
Risk-free interest rate		2.4%

2016 Award Fair Value Assumptions 2015 Award Fair Value Assumptions
Valuation date January 28, 2016 January 27, 2015
Fair value per share on valuation date $57.08 $78.55
Expected share price volatility 26.00% 20.00%
Risk-free interest rate 1.13% 0.92%
Remaining expected life 2.9 years 2.9 years

The computation of expected volatility was based on a blend of the historical volatility of our shares of common stock over ~~approximately five years, as this is expected to be most consistent with future volatility and equates to~~ a ~~time~~ period of twice ~~as long as~~ the ~~approximate two and a half year remaining~~ performance period ~~of the RSUs~~ and implied volatility data based on the observed pricing of six month publicly-traded options on shares of our common stock. The risk-free interest rate was based on the yield curve on zero-coupon U.S. Treasury STRIP securities in effect at ~~January 28, 2016~~December 27, 2018.

2019, 2018 and ~~January 27, 2015.~~2017 Annual Performance-Based RSU Grants

~~2016~~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 ~~2015~~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 “2019 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 “2019 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 “2019 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 2019 FFO Performance Condition was achieved at 175% of target for one participant and 150% of target for all other participants. 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 2019 Debt to EBITDA Ratio

F - 46

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Performance Condition, the 2019 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. 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.

The 2018 Performance-Based RSUs are scheduled to vest at the end of a three year period (consisting of calendar years 2018-2020). A target number of 2018 Performance-Based RSUs were awarded, and the final number of 2018 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, 2018 that applies to 100% of the Performance-Based RSUs awarded (the “2018 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 “2018 Debt to EBITDA Ratio Performance Condition” and together with the 2018 FFO Performance Condition, the “2018 Performance Conditions”) and a market measure that applies to the other 50% of the award based upon the relative ranking of the Company’s TSR for the three year performance period compared to the TSR of an established comparison group of companies over the same period (the “2018 Market Condition”). The 2018 Performance-Based RSUs are also subject to a three year service vesting provision 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 2018 FFO Performance Condition was achieved at 175% of target for one participant and 150% of target for all other participants. The number of 2018 Performance-Based RSUs ultimately earned could fluctuate from the current estimated number of 2018 Performance-Based RSUs granted based upon the levels of achievement for the 2018 Debt to EBITDA Ratio Performance Condition, the 2018 Market Condition and the extent to which the service vesting condition is satisfied.

The 2017 Performance-Based RSUs are scheduled to cliff vest at the end of a three year period (consisting of calendar years 2017-2019) based upon (1) the achievement of pre-defined FFO per share goals for the year ended December 31, 2017 that applies to 100% of the 2017 Performance-Based RSUs awarded (the “2017 FFO Performance Condition”) and (2) also based upon either the average FAD per share growth that applies to 30% of the award or the Company’s average debt to EBITDA ratio that applies to a separate 30% of the award (together, the “Other 2017 Performance Conditions” and together with the 2017 FFO Performance Condition, the “2017 Performance Conditions”) or the relative TSR versus a comparative group of companies that consist of companies in the SNL US REIT Office Index that applies to the remaining 40% of the award (the “2017 Market Condition”) for the three year period ending December 31, 2019. Based on the combined results of the 2017 Performance Conditions and the 2017 Market Condition, the 2017 Performance-Based RSUs achieved a weighted average of approximately 131% of their target level of performance.

As of December 31, 2019, the estimated number of RSUs earned for the 2019 and 2018 Performance-Based RSUs and the actual number of RSUs earned for the 2017 Performance-Based RSUs was as follows:



	2019 Performance-Based RSUs	2018 Performance-Based RSUs	2017 Performance-Based RSUs
Service vesting period	February 1, 2019 - January, 2022	February 14, 2018 - January, 2021	February 24, 2017 - January, 2020
Target RSUs granted	143,396	158,205	130,956
Estimated RSUs earned ⁽¹⁾	229,095	262,242	142,581
Date of valuation	February 1, 2019	February 14, 2018	February 24, 2017

_______________

(1)

Estimated RSUs earned for the 2019 Performance-Based RSUs are based on the actual achievement of the 2019 FFO Performance Condition and for the 2019 Debt to EBITDA Ratio Performance Condition, assumes 125% of the target level of achievement for one participant and 117% of the target level of achievement for all other participants, and target level of achievement of the 2019 Market Condition. Estimated RSUs earned for the 2018 Performance-Based RSUs are based on the actual achievement of the 2018 FFO Performance Condition and assume target level achievement of the 2018 Market Condition and maximum level of achievement of the 2018 Debt to EBITDA Ratio Performance Condition. The 2017 Performance-Based RSUs earned are based on actual performance of the 2017 Performance Conditions and the 2017 Market Condition.

Each Performance-Based RSU represents the right to receive one share of our common stock in the future, subject to, and as modified by, the Company’s level of achievement of the applicable performance and market conditions. The fair values of the 2019 Performance-Based RSUs, 2018 Performance-Based RSUs and 2017 Performance-Based RSUs

F - 47

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

were $10.2 million at February 1, 2019, $10.8 million at February 14, 2018, and $10.3 million at February 24, 2017, respectively. The fair values for the awards with market conditions were calculated using a Monte Carlo simulation pricing model based on the assumptions in the table below. The determination of the fair value of the 2019, 2018 and 2017 Performance-Based RSUs takes into consideration the likelihood of achievement of the 2019, 2018 and 2017 Performance Conditions and the 2019, 2018 and 2017 Market Conditions, respectively, as discussed above. The following table summarizes the assumptions utilized in the Monte Carlo simulation pricing models:



	2019 Award Fair Value Assumptions	2018 Award Fair Value Assumptions	2017 Award Fair Value Assumptions
Valuation date	February 1, 2019	February 14, 2018	February 24, 2017
Fair value per share on valuation date	$72.57	$70.08	$80.89
Expected share price volatility	19.0%	20.0%	21.0%
Risk-free interest rate	2.48%	2.37%	1.39%

The computation of expected volatility was based on a blend of the historical volatility of our shares of common stock over a period of twice the remaining performance period as of the grant date and implied volatility data based on the observed pricing of six month publicly-traded options on shares of our common stock. The risk-free interest rate was based on the yield curve on zero-coupon U.S. Treasury STRIP securities in effect at February 1, 2019, February 14, 2018, and February 24, 2017.

Compensation expense for the Performance-Based RSUs is recognized on a straight-line basis over the requisite service period for each participant, which is generally the three-year service period. As of December 31, 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 229,095, and the compensation cost recorded to date for this program was based on that estimate. For the portion of the 2019 Performance-Based RSUs subject to the 2019 Market Condition, for the year ended December 31, 2019, we recorded compensation expense based upon the $72.57 fair value per share at February 1, 2019. Compensation expense will be variable for the portion of the 2019 Performance-Based RSUs subject to the 2019 Debt to EBITDA Ratio Performance Condition, based upon the outcome of that condition. As of December 31, 2019, the number of 2018 Performance-Based RSUs estimated to be earned based on the Company’s estimate of the performance conditions measured against the applicable goals was 262,242, and the compensation cost recorded to date for this program was based on that estimate. For the portion of the 2018 Performance-Based RSUs subject to the 2018 Market Condition, for the years ended December 31, 2019 and 2018, we recorded compensation expense based upon the $70.08 fair value per share at February 14, 2018. Compensation expense will be variable for the portion of the 2018 Performance-Based RSUs subject to the 2018 Debt to EBITDA Performance Condition, based upon the outcome of that condition. For the years ended December 31, 2019, 2018 and 2017, we recorded compensation expense for the portion of the 2017 Performance-Based RSUs subject to the 2017 Market Condition based upon the $80.89 fair value per share at February 24, 2017 and for the portion of the 2017 Performance-Based RSUs subject to the 2017 Debt to EBITDA Ratio Performance Condition, based on the stock price at date of grant multiplied by the 142,581 RSUs, which is net of forfeitures, estimated to be earned at December 31, 2019.

F - 48

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Annual 2019, 2018 and 2017 and December 2018 Time-Based RSU Grants

The ~~2016~~annual 2019, 2018 and ~~2015~~2017 Time-Based RSUs ~~(collectively, the “Time-Based RSUs”)~~ are scheduled to vest in equal installments over the periods listed below. The 2019 Time-Based RSUs are scheduled to vest in three equal annual installments beginning on January 5, 2020 through January 5, 2022. The December 2018 Time-Based RSUs are scheduled to vest 50% on January 5, 2022 and 50% on January 5, 2023. Compensation expense for the December 2018 and annual 2019, 2018 and 2017 Time-Based RSUs ~~will be~~is recognized on a straight-line basis ~~from~~over the ~~grant date through~~requisite service period, which is generally the ~~continued~~explicit service ~~vesting periods.~~period. However, for one participant there was a shorter service period for their 2017 and 2018 Time-Based RSUs. Each Time-Based ~~RSUs~~RSU represents the right to receive one share of our common stock in the future, subject to continued employment through the applicable vesting date. The total fair value of the Time-Based RSUs is based on the Company's closing share price on the NYSE on the respective fair valuation dates as detailed in the table below:

2016 Time-Based RSU Grant 2015 Time-Based RSU Grant
Service vesting period January 28, 2016 - January 5, 2019
January 27, 2015 - January 5, 2018
Fair value on valuation date (in millions) $ 7.1
$ 6.4
Fair value per share $ 56.23
$ 75.34
Date of fair valuation January 28, 2016
January 27, 2015



	2019 Time-Based RSU Grant		December 2018 Time-Based RSU Grant		2018 Time-Based RSU Grant⁽¹⁾		2017 Time-Based RSU Grant ⁽²⁾
Service vesting period	February 1, 2019 - January 5, 2022		December 27, 2018 - January 5, 2023		January & February 2018 - January 5, 2021		February 2017 - January 5, 2020
Fair value on valuation date (in millions)	$	10.1	$	18.5	$	8.4	$	7.5
Fair value per share	$	69.89	$	62.00	$	70.37	$	73.30
Date of fair valuation	February 1, 2019		December 27, 2018		January & February 2018		February 2017

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~Summary of Market-Measure Based RSUs~~

~~A summary of our market-measure based RSU activity from January 1, 2016 through December 31, 2016 is presented below:~~

Nonvested RSUs Vested RSUs Total RSUs
Amount
Weighted-Average
Fair Value
Per Share ⁽¹⁾

Outstanding at January 1, 2016 425,452
$ 67.68
—
425,452
Granted 258,393
57.36
—
258,393
Vested (36,914 ) 43.53
36,914
—
Settled ⁽²⁾

(36,914 ) (36,914 )
Issuance of dividend equivalents ⁽³⁾
12,120
65.50
—
12,120
Outstanding as of December 31, 2016 ⁽⁴⁾
659,051
$ 64.95
—
659,051

_______________

(1)

~~Represents the grant-date fair value for all awards, excluding the 2014 Performance-Based RSU Grant, which was re-measured upon stockholder approval~~The 2018 Time-Based RSUs consist of ~~the amended 2006 Plan on May 22, 2014, as an insufficient number of shares were available to settle these~~56,015 RSUs ~~upon initial grant~~granted on January 29, ~~2014.~~2018 at a fair value per share of $70.37 and 67,818 RSUs granted on February 14, 2018 at a fair value per share of $66.46.


(2)	The 2017 Time-Based RSUs consist of 41,119 RSUs granted on February 3, 2017 at a fair value per share of $73.30 and 57,901 RSUs granted on February 24, 2017 at a fair value per share of $77.16.

Summary of Performance and Market-Measure Based RSUs

A summary of our performance and market-measure based RSU activity from January 1, 2019 through December 31, 2019 is presented below:



	Nonvested RSUs				Vested RSUs		Total RSUs
	Amount		Weighted-Average Fair Value Per Share		Vested RSUs		Total RSUs
Outstanding at January 1, 2019	1,018,337		$	67.29	35,761		1,054,098
Granted	231,191		71.12		1,155		232,346
Vested	(261,990	)	57.08		261,990		—
Settled ⁽¹⁾	—				(264,814	)	(264,814	)
Issuance of dividend equivalents ⁽²⁾	23,254		74.11		2,592		25,846
Forfeited	(78,117	)	70.07		(5	)	(78,122	)
Outstanding as of December 31, 2019 ⁽³⁾	932,675		$	71.04	36,679		969,354

_______________

(1)

Represents vested RSUs that were settled in shares of the Company’s common stock. Total shares settled include ~~19,264~~125,220 shares that were tendered in accordance with the terms of the 2006 Plan to satisfy minimum statutory tax withholding requirements related to the RSUs settled. We accept the return of RSUs at the current quoted closing share price of the Company’s common stock to satisfy tax obligations.


~~(3)~~(2)	Represents the issuance of dividend equivalents earned on the underlying RSUs. The dividend equivalents vest based on terms specified under the related RSU award agreement.

~~(4)~~(3)

Outstanding RSUs as of December 31, ~~2016~~2019 represent the actual achievement of the ~~maximum~~FFO performance conditions and ~~assumed~~assumes target levels for the market and other performance conditions. The number of restricted stock units ultimately earned is subject to change based upon actual performance over the three-year vesting period. Dividend equivalents earned will vest along with the underlying award and are also subject to changes based on the number of RSUs ultimately earned for each underlying award.

~~A summary of our market-measure based RSU activity for years ended December 31, 2016, 2015 and 2014 is presented below:~~

F - 49

RSUs Granted RSUs Vested
Years ended December 31,
Non-Vested
RSUs Granted

Weighted-Average
Fair Value
Per Share ⁽¹⁾
Vested RSUs
Total Vest-Date Fair Value
(in thousands)
2016 258,393
$ 57.36
(36,914 ) $ 2,788
2015 191,483
79.25
—
—
2014 183,365
64.86
(16,338 ) 1,092

~~_______________~~


~~(1)~~	Represents the grant-date fair value for all awards, excluding the 2014 Performance-Based RSU Grant, which was re-measured upon stockholder approval of the amended 2006 Plan on May 22, 2014, as an insufficient number of shares were available to settle these RSUs upon initial grant on January 29, 2014.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

A summary of our performance and market-measure based RSU activity for the years ended December 31, 2019, 2018 and 2017 is presented below:



	RSUs Granted			RSUs Vested
Years ended December 31,	Non-Vested RSUs Granted ⁽¹⁾	Weighted-Average Fair Value Per Share		Vested RSUs		Total Vest-Date Fair Value (in thousands)
2019	231,191	$	71.12	(265,737	)	$	18,703
2018	601,012	68.51		(265,918	)	18,906
2017	170,994	78.97		(194,991	)	14,270

_______________


(1)	Non-vested RSUs granted are based on the actual achievement of the FFO performance conditions and assumes target level achievement for the market and other performance conditions.

Summary of Time-Based RSUs

A summary of our time-based RSU activity from January 1, ~~2016~~2019 through December 31, ~~2016~~2019 is presented below:


	Nonvested RSUs				Vested RSUs		Total RSUs		Nonvested RSUs				Vested RSUs		Total RSUs
	Amount		Weighted Average Fair Value Per Share ⁽¹⁾		Vested RSUs		Total RSUs		Amount		Weighted Average Fair Value Per Share		Vested RSUs		Total RSUs
Outstanding at January 1, 2016	318,449		$	58.91	951,360		1,269,809
Outstanding at January 1, 2019									586,779		$	65.87	1,089,088		1,675,867
Granted	173,747		58.29		—		173,747		153,005		70.31		—		153,005
Vested	(130,784	)	57.91		130,784		—		(153,464	)	67.26		153,464		—
Settled ⁽²⁾⁽¹⁾					(72,148	)	(72,148	)					(198,183	)	(198,183	)
Issuance of dividend equivalents⁽³⁾⁽²⁾	5,027		65.78		23,243		28,270		13,341		74.72		28,755		42,096
Canceled ⁽⁴⁾					(4,489	)	(4,489	)
Outstanding as of December 31, 2016	366,439		$	59.07	1,028,750		1,395,189
Forfeited									(55,813	)	68.71		—		(55,813	)
Canceled ⁽³⁾													(1,746	)	(1,746	)
Outstanding as of December 31, 2019									543,848		$	66.66	1,071,378		1,615,226

_______________


(1)	Represents the grant-date fair value for all awards, excluding the 2014 Performance-Based RSU Grant, which was re-measured upon stockholder approval of the amended 2006 Plan on May 22, 2014, as an insufficient number of shares were available to settle these RSUs upon initial grant on January 29, 2014.

~~(2)~~

Represents vested RSUs that were settled in shares of the Company’s common stock. Total shares settled include ~~23,087~~82,646 shares that were tendered in accordance with the terms of the 2006 Plan to satisfy minimum statutory tax withholding requirements related to the RSUs settled. We accept the return of RSUs at the current quoted closing share price of the Company’s common stock to satisfy tax obligations.


~~(3)~~(2)	Represents the issuance of dividend equivalents earned on the underlying RSUs. The dividend equivalents vest based on terms specified under the related RSU award agreement.


~~(4)~~(3)	For shares vested but not yet settled, we accept the return of RSUs at the current quoted closing share price of the Company’s common stock to satisfy minimum statutory tax-withholding requirements related to either the settlement or vesting of RSUs in accordance with the terms of the 2006 Plan.

A summary of our time-based RSU activity for the years ended December 31, ~~2016, 2015~~2019, 2018 and ~~2014~~2017 is presented below:

RSUs Granted RSUs Vested
Year ended December 31,
Non-Vested
RSUs Issued

Weighted-Average Grant Date
Fair Value
Per Share
Vested RSUs
Total Vest-Date Fair Value ⁽¹⁾
(in thousands)
2016 173,747
$ 58.29
(130,784 ) $ 8,438
2015 98,802
74.49
(107,541 ) 7,528
2014 155,016
59.89
(116,447 ) 6,675



	RSUs Granted			RSUs Vested
Year ended December 31,	Non-Vested RSUs Issued	Weighted-Average Grant Date Fair Value Per Share		Vested RSUs		Total Vest-Date Fair Value ⁽¹⁾ (in thousands)
2019	153,005	$	70.31	(182,219	)	$	12,277
2018	437,216	64.21		(214,131	)	14,768
2017	142,101	74.91		(228,095	)	16,735

_______________


(1)	Total fair value of RSUs vested was calculated based on the quoted closing share price of the Company’s common stock on the NYSE on the day of vesting. Excludes the issuance of dividend equivalents earned on the underlying RSUs. The dividend equivalents vest based on terms specified under the related RSU award agreement.

~~Summary of Nonvested Restricted Stock~~

~~A summary of our nonvested restricted stock activity from January 1, 2016 through December 31, 2016 is presented below:~~

F - 50

Nonvested
Restricted Stock Weighted-Average
Grant Date
Fair Value
Per Share
Outstanding at January 1, 2016 60,797
$ 47.32
Vested ⁽¹⁾
(24,262 ) 46.39
Outstanding as of December 31, 2016 36,535
$ 47.93

~~_______________~~


~~(1)~~	The total shares vested includes 12,661 shares that were tendered in accordance with the terms of the 2006 Plan to satisfy minimum statutory tax withholding requirements related to the restricted shares that have vested. We accept the return of shares at the current quoted closing share price of the Company’s common stock to satisfy tax withholding obligations.

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Summary of Nonvested Restricted Stock

We did not have any nonvested restricted stock at January 1, 2019 or December 31, 2019. A summary of our nonvested and vested restricted stock activity for years ended December 31, ~~2016, 2015~~2018 and ~~2014~~2017 is presented below:

Shares Granted Shares Vested
Years ended December 31,
Nonvested
Shares Issued

Weighted-Average Grant Date
Fair Value
Per Share
Vested Shares
Total Fair Value at Vest Date⁽¹⁾
(in thousands)
2016 —
$ —
(24,262 ) $ 1,527
2015 —
—
(24,264 ) 1,725
2014 213
51.35
(25,899 ) 1,323



	Shares Granted		Shares Vested
Years ended December 31,	Nonvested Shares Issued	Weighted-Average Grant Date Fair Value Per Share	Vested Shares		Total Fair Value at Vest Date ⁽¹⁾ (in thousands)
2018	—	—	(22,884	)	1,652
2017	—	—	(24,261	)	1,781

_______________


(1)	Total fair value of shares vested was calculated based on the quoted closing share price of the Company’s common stock on the NYSE on the date of vesting.

~~Summary of Stock Options~~

On February 22, 2012, the Compensation Committee of the Company granted non-qualified stock options to certain key members of our senior management team, including our Executive Officers, to purchase an aggregate 1,550,000 shares of the Company’s common stock (the “February 2012” Grant) at an exercise price per share equal to $42.61, the closing price of the Company’s common stock on the grant date. The options will vest ratably in annual installments over a five year period, subject to continued employment through the applicable vesting date. The term of each option is ten years from the date of the grant. Dividends will not be paid on vested or unvested options. The options were granted pursuant to the 2006 Plan.

~~The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option pricing model based on the following assumptions for the February 2012 Grant.~~



	~~February 2012 Option Grant~~
~~Fair value of options granted per share~~	~~$9.20~~
~~Expected stock price volatility~~	~~33.00%~~
~~Risk-free interest rate~~	~~1.35%~~
~~Dividend yield~~	~~3.80%~~
~~Expected life of option~~	~~6.5 years~~

The computation of expected volatility is based on a blend of the historical volatility of our shares of common stock over a time period longer than the expected life of the option 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 the grant date. The expected dividend yield is estimated by examining the average of the historical dividend yield levels over the expected life of the option and the current dividend yield as of the grant date. The expected life of the options is calculated as the average of the vesting term and the contractual term. During the year ended December 31, 2016, 267,000 stock options vested with a total fair value of $2.5 million. During the year ended ~~December 31, 2015, 298,000 stock options vested with a total fair value of $2.7 million. During the year ended~~ ~~December 31, 2014, 304,000 stock options vested with a total fair value of $2.8 million.~~

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~A summary of our stock option activity related to the February 2012 grant from January 1,~~ ~~2016~~ ~~through December 31, 2016 is presented below:~~

Number of Options Exercise Price
Intrinsic Value
(in millions) ⁽¹⁾
Outstanding at December 31, 2015 610,000
$ 42.61
$ 12.6
Exercised (286,500 ) 42.61
8.4
Forfeited (9,000 ) 42.61
0.1
Outstanding at December 31, 2016 ⁽²⁾
314,500
$ 42.61
$ 9.6

Options exercisable at December 31, 2016 ⁽³⁾
50,500
$ 42.61
$ 1.5

~~_______________~~


~~(1)~~	The intrinsic value of a stock option is the amount by which the fair value of the underlying stock exceeds the exercise price of an option. The fair value of the underlying stock was determined by using the closing share price on the NYSE on the date of exercise, forfeiture or respective period end.


~~(2)~~	~~As of December 31, 2016, the average remaining life of stock options outstanding was 5.1 years~~


~~(3)~~	~~As of December 31, 2016, the average remaining life of stock options exercisable was approximately 5.1 years.~~

In accordance with the provisions of the 2006 Plan, we allow shares of our common stock to be withheld to satisfy the payment of exercise price and/or minimum statutory tax withholding obligations due upon the exercise of stock options. The value of the shares withheld is calculated based on the closing market price of our common stock on the NYSE on the exercise date. During the year ended December 31, 2016, 25,680 shares were withheld on stock option exercises with an aggregate value of $1.8 million. During the year ended December 31, 2015, 62,072 shares were withheld on stock option exercises with an aggregate value of $3.9 million. During the year ended December 31, 2014, 23,664 shares were withheld on stock option exercises with an aggregate value of $1.5 million.

Share-Based Compensation Cost Recorded During the Period

The total compensation cost for all share-based compensation programs was ~~$26.6~~$32.8 million, ~~$18.9~~$35.9 million and ~~$14.5~~$26.3 million for the years ended December 31, ~~2016~~2019, ~~2015~~2018 and ~~2014,~~2017, respectively. Of the total share-based compensation costs, ~~$5.6~~$5.8 million, ~~$3.3~~$8.0 million and ~~$2.3~~$7.3 million was capitalized as part of real estate assets and for 2018 and 2017, deferred leasing costs, for the years ended December 31, ~~2016~~2019, ~~2015~~2018 and ~~2014,~~2017, respectively. As of December 31, ~~2016~~2019, there was approximately ~~$29.6~~$50.5 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 ~~1.8~~2.1 years. The remaining compensation cost related to these nonvested incentive awards had been recognized in periods prior to December 31, ~~2016~~2019. The ~~$29.6~~$50.5 million of unrecognized compensation costs does not reflect the future compensation cost related to share-based awards that were granted subsequent to December 31, ~~2016~~2019.

Other Compensation

On December 27, 2018, the Executive Compensation Committee of the Company’s Board approved, and the Company and the Operating Partnership entered into the Amended Employment Agreement with John Kilroy, which amends and supersedes the existing employment agreement dated January 1, 2012. Except as noted below, the Amended Employment Agreement continues Mr. Kilroy’s employment on terms substantially similar to those of the existing employment agreement, with a new term scheduled to continue through December 31, 2023. The Amended Employment Agreement includes a cash retirement benefit of $13.2 million, or $16.2 million for a retirement at or after attaining age 73, with at least twelve months’ advance notice or at or after the end of the term of the agreement. For the year ended December 31, 2018, the Company recognized $12.1 million of compensation expense in general and administrative expenses on the consolidated statement of operations, representing the present value of the potential cash retirement benefit amount that was earned based on prior service. For the year ended December 31, 2019, the Company recognized $1.5 million of compensation expense in general and administrative expenses on the consolidated statement of operations related to the Amended Employment Agreement.


16.	Employee Benefit Plans

401(k) Plan

We have a retirement savings plan designed to qualify under Section 401(k) of the Code (the “401(k) Plan”). Our employees are eligible to participate in the 401(k) Plan on the first day of the month after three months of service. The 401(k) Plan allows eligible employees (“401(k) Participants”) to defer up to 60% of their eligible compensation on a pre-tax basis, subject to certain maximum amounts allowed by the Code. The 401(k) Plan provides for a matching contribution by the Company in an amount equal to 50 cents of each one dollar of participant contributions up to a maximum of 10% of the 401(k) Participant’s annual salary. 401(k) Participants vest immediately in the amounts contributed by us. For each of the years ended December 31, ~~2016,~~ ~~2015~~,2019, 2018, and ~~2014~~,2017, we contributed ~~$1.2~~$1.6 million ~~$1.1~~, $1.5 million and ~~$1.0~~$1.3 million, respectively, to the 401(k) Plan.

F - 51

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Deferred Compensation Plan

In 2007, we adopted the Deferred Compensation Plan, under which directors and certain management employees may defer receipt of their compensation, including up to 70% of their salaries and up to 100% of their director fees and bonuses, as applicable. In addition, employee participants will receive mandatory Company contributions to their

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Deferred Compensation Plan accounts equal to 10% of their gross monthly salaries, without regard to whether such employees elect to defer salary or bonus compensation under the Deferred Compensation Plan. Our ~~board of directors~~Board may, but has no obligation to, approve additional discretionary contributions by the Company to Participant accounts. We hold the Deferred Compensation Plan assets in a limited rabbi trust, which is subject to the claims of our creditors in the event of bankruptcy or insolvency.

See Note 19 “Fair Value Measurements and Disclosures” for further discussion of our Deferred Compensation Plan assets as of December 31, ~~2016~~2019 and ~~2015~~.2018. Our liability of ~~$14.7~~$27.0 million and ~~$12.8~~$21.7 million under the Deferred Compensation Plan was fully funded as of December 31, ~~2016~~2019 and ~~2015~~,2018, respectively.


17.	Future Minimum Rent

We have operating leases with tenants that expire at various dates through~~2035~~2043 and are either subject to scheduled fixed increases or 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 December 31, ~~2016~~2019 for future periods is summarized as follows:



Year Ending	(in thousands)
2020	$	675,636
2021	728,736
2022	785,239
2023	769,294
2024	727,399
Thereafter	4,054,487
Total ⁽¹⁾	$	7,740,791

Year Ending (in thousands)
2017 $ 538,269
2018 537,891
2019 493,998
2020 424,791
2021 370,941
Thereafter 1,901,303
Total ⁽¹⁾
$ 4,267,193

______________


(1)	Excludes residential leases and leases with a term of one year or less.

Future contractual minimum rent under operating leases as of December 31, 2018 for future periods is summarized as follows:



Year Ending	(in thousands)
2019	$	566,783
2020	632,875
2021	631,835
2022	620,684
2023	586,371
Thereafter	3,240,143
Total ⁽¹⁾	$	6,278,691

______________


(1)	Excludes residential leases and leases with a term of one year or less.


18.	Commitments and Contingencies

General

As of December 31, ~~2016~~,2019, we had commitments of approximately ~~$538.6 million,~~$1.0 billion, excluding our ground lease commitments, for contracts and executed leases directly related to our operating and development properties.

F - 52

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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:



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
3243 S. La Cienega Boulevard, Los Angeles, CA ⁽³⁾	October 2106

____________________


(1)	Reflects the contractual expiration date prior to the impact of any extension or purchase options held by the Company.


(2)	The Company has ~~three 10 year~~3 10-year and ~~one 45 year~~1 45-year extension options for this ground lease, which if exercised would extend the expiration date to December 2116.


(3)	We entered into this ground lease in connection with an operating property acquisition in 2019. Refer to Note 3 “Acquisitions” for additional information.

As of December 31, 2019, the weighted average remaining lease term of our ground leases is 55 years. For the year ended December 31, 2019, variable lease costs totaling $2.9 million, were recorded to ground leases expense on our consolidated statements of operations.

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

The minimum commitment under our ground leases as of December 31, ~~2016~~2019 for five years and thereafter is as ~~follows:~~

follows:


Year Ending	(in thousands)		(in thousands)
2017	$	4,934
2018	4,934
2019	4,934
2020	4,934		5,641
2021	4,934		5,641
2022			5,642
2023			5,662
2024			5,662
Thereafter	231,402		286,385
Total^{(1)(2)(3)(4)(5)}	$	256,072
Totalundiscounted cash flows^{(1)(2)(3)(4)(5)(6)}			$	314,633
Present value discount			(216,233		)
Ground lease liabilities			$	98,400

________________________

~~(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.~~


(1)	Excludes contingent future rent payments based on gross income or adjusted gross income and reflects the minimum ground lease obligations before the impact of ground lease extension options.

(2)

One of our ground lease obligations is subject to a fair market value adjustment every five years; however, the lease includes ground rent subprotection and infrastructure rent credits which currently limit our annual rental obligations to $1.0 million. The contractual obligations for that ground lease included above assumes the lesser of $1.0 million or annual lease rental obligation in effect as of December 31, ~~2016.~~2019.

(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 five years based on 50% of the average annual percentage rent for the previous five years. The contractual obligations for that lease included above assume the current annual ground lease obligation in effect at December 31, 2019 for the remainder of the lease term since we cannot predict future adjustments.

(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 ~~rental~~ obligation in effect ~~as of~~at December 31, ~~2016.~~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 10 years by an amount equal to 60% of the average annual percentage rent for the previous three years. The contractual obligations for this lease included above assume the current annual ground lease obligation in effect at December 31, 2019 for the remainder of the lease term since we cannot predict future adjustments.


(6)	One of our ground lease obligations is subject to fixed 5% ground rent increases every five years, with the next increase occurring on December 1, 2022.

F - 53

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The minimum commitment under our ground leases as of December 31, 2018 for future periods is summarized as follows:



Year Ending	(in thousands)
2019	$	5,154
2020	5,154
2021	5,154
2022	5,154
2023	5,154
Thereafter	233,619
Total^{(1)(2)(3)(4)(5)}	$	259,389

________________________


(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)

(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 five years based on 50% of the average annual percentage rent for the previous five years. 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.

(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 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.

Environmental Matters

We follow the policy of monitoring all of our properties, ~~both~~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 December 31, ~~2016~~2019 and ~~2015~~,2018, we had accrued environmental remediation liabilities of approximately ~~$25.1~~$80.7 million and ~~$20.9~~$83.2 million, respectively, recorded on our consolidated balance sheets in connection with certain of our in-process and future development ~~projects and recent development acquisitions.~~projects. The accrued environmental remediation liabilities represent the remaining costs we estimate we will incur ~~when we commence~~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 ~~office properties as~~buildings at these sites.

We record estimated environmental remediation obligations for ~~acquisitions~~acquired properties at the acquisition date when we are aware of such costs and when such costs are ~~probably~~probable of being incurred and can be reasonably ~~estimable. Costs incurred in connection with the~~estimated. Estimated costs related to development ~~related~~ 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 December 31, ~~2016~~2019 and ~~2015~~2018 were not discounted to their present ~~value~~values since ~~we expect to complete~~ the ~~remediation activities in the next one to five years in connection with development activities at the various sites.~~amount and timing of cash payments are not fixed. It is possible that we could incur additional environmental remediation costs in connection with these ~~recent~~ development ~~acquisitions.~~projects. However, ~~given we are in the early stages of development on certain of these projects,~~ potential additional environmental costs ~~are not~~for these development projects cannot be reasonably ~~estimable~~estimated at this ~~time.~~ 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.

F - 54

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Other than the accrued environmental liabilities ~~recorded in connection with certain of our development projects,~~discussed above, we are not aware of any unasserted claims and assessments with respect to an environmental liability that we believe would require additional disclosure or the recording of an additional loss contingency.

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

Litigation

We and our properties are subject to litigation arising in the ordinary course of business. To our knowledge, neither we nor any of our properties are presently subject to any litigation or threat of litigation which, if determined unfavorably to us, would have a material adverse effect on our cash flow, financial condition, or results of operations.

Insurance

We maintain commercial general liability, auto liability, employers’ liability, umbrella/excess liability, special form property, difference in conditions including earthquake and flood, environmental, rental loss, and terrorism insurance covering all of our properties. Management believes the policy specifications and insured limits are reasonable given the relative risk of loss, the cost of the coverage, and industry practice. We do not carry insurance for generally uninsurable losses such as loss from governmental action, nuclear hazard, and war and military action. Policies are subject to various terms, conditions, and exclusions and some policies may involve large deductibles or co-payments.

~~Property Damage Settlement~~

During the year ended December 31, 2016, we settled an outstanding property damage matter and received cash proceeds totaling $5.0 million, which is included in other property income on our consolidated statements of operations.

19. 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 (see Note 16 “Employee Benefit Plans” for additional information). The following table sets forth the fair value of our marketable securities as of December 31, ~~2016~~2019 and ~~2015~~:2018:


	Fair Value (Level 1) ⁽¹⁾				Fair Value (Level 1) ⁽¹⁾
	2016		2015		2019		2018
Description	(in thousands)				(in thousands)
Marketable securities ⁽²⁾	$	14,773	$	12,882	$	27,098	$	21,779

_______________


(1)	Based on quoted prices in active markets for identical securities.


(2)	The marketable securities are held in a limited rabbi trust.

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 (losses) gains ~~(losses)~~ 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 (loss) gain ~~(loss)~~ on marketable securities recorded during the years ended December 31, ~~2016~~, ~~2015~~2019, 2018 and ~~2014:~~2017:



	December 31,
	2019		2018			2017
Description	(in thousands)
Net gain (loss) on marketable securities	$	3,885	$	(1,851	)	$	3,023

December 31,
2016 2015 2014
Description (in thousands)
Net gain (loss) on marketable securities $ 1,130
$ (269 ) $ 397

F - 55

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 December 31, ~~2016~~2019 and ~~2015~~:2018:



	December 31,
	2019				2018
	Carrying Value		Fair Value ⁽¹⁾		Carrying Value		Fair Value ⁽¹⁾
	(in thousands)
Liabilities
Secured debt, net	$	258,593	$	272,997	$	335,531	$	335,885
Unsecured debt, net	3,049,185		3,252,217		2,552,070		2,546,386
Unsecured line of credit	245,000		245,195		45,000		45,058

December 31,
2016 2015
Carrying Value
Fair Value ⁽¹⁾
Carrying Value
Fair Value ⁽¹⁾
(in thousands)
Liabilities
Secured debt, net $ 472,772
$ 469,234
$ 380,835
$ 391,611
Unsecured debt, net 1,847,351
1,900,487
1,844,634
1,898,863

_______________


(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.

20. Other Significant ~~Transactions~~Events

~~In January 2014,~~During the year ended December 31, 2019, we recorded a $2.9 million net increase in rental income on our consolidated statements of operations primarily due to a $4.2 million increase in revenue related to the improved credit quality of a tenant ~~at one of our San Diego, California operating properties exercised an early lease termination clause as permitted under the terms of their lease. As~~for which we previously recorded a ~~result, the lease which encompasses approximately 79,000 rentable square feet and was scheduled to expire in February 2020, terminated~~bad debt reserve during the year ended December 31, ~~2014. The total lease termination fee of~~2018, partially offset by a $1.3 million decrease in revenue for other tenants with diminished credit quality during the year ended December 31, 2019.

During the year ended December 31, 2018, we recognized $5.7 million of provision for bad debts. The provision for bad debts was ~~recorded as other property income on~~primarily due to a ~~straight line basis through~~$7.0 million provision for 1 tenant recognized during the ~~early~~second quarter of 2018, partially offset by a $1.4 million decrease in the provision for bad debts for one lease ~~termination date. The Company received~~due to the ~~cash payment~~assignment of the lease ~~termination fee~~to a credit tenant during the second quarter of ~~$5.7 million in September 2014. During the~~ ~~year~~ ~~ended~~ ~~December 31, 2014, the Company also recognized approximately $1.3 million as a reduction to rental income due to the accelerated amortization of the deferred rent receivable and above market lease for this tenant.~~2018.

F - 56

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


21.	~~Discontinued Operations~~

~~For the year ended~~ ~~December 31, 2014~~, discontinued operations included the results of all properties sold in 2014, except for the operations deemed immaterial related to a June 2014 office property disposition. The following table summarizes the revenue and expense components that comprise income from discontinued operations for the year ended ~~December 31, 2014~~:

2014
(in thousands)
Revenues:
Rental income $ 7,206
Tenant reimbursements 278
Other property income 13
Total revenues 7,497
Expenses:
Property expenses 2,171
Real estate taxes 692
Depreciation and amortization 2,061
Total expenses 4,924
Income from discontinued operations before net gain on dispositions of discontinued operations 2,573
Net gain on dispositions of discontinued operations 121,922
Total income from discontinued operations $ 124,495

~~KILROY REALTY CORPORATION AND KILROY REALTY, L.P.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~


~~22.~~	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 years ended December 31, ~~2016~~, ~~2015~~2019, 2018 and ~~2014:~~2017:



	Year Ended December 31,
	2019			2018			2017
	(in thousands, except unit and per unit amounts)
Numerator:
Net income attributable to Kilroy Realty Corporation	$	195,443		$	258,415		$	164,612
Total preferred dividends	—			—			(13,363		)
Allocation to participating securities ⁽¹⁾	(2,119		)	(2,004		)	(1,975		)
Numerator for basic and diluted net income available to common stockholders	$	193,324		$	256,411		$	149,274
Denominator:
Basic weighted average vested shares outstanding	103,200,568			99,972,359			98,113,561
Effect of dilutive securities	648,600			510,006			613,770
Diluted weighted average vested shares and common stock equivalents outstanding	103,849,168			100,482,365			98,727,331
Basic earnings per share:
Net income available to common stockholders per share	$	1.87		$	2.56		$	1.52
Diluted earnings per share:
Net income available to common stockholders per share	$	1.86		$	2.55		$	1.51

Year Ended December 31,
2016 2015 2014
(in thousands, except unit and per unit amounts)
Numerator:
Income from continuing operations $ 303,798
$ 238,604
$ 59,313
Income from continuing operations attributable to noncontrolling interests (10,010 ) (4,523 ) (966 )
Preferred dividends and distributions (13,250 ) (13,250 ) (13,250 )
Allocation to participating securities ⁽¹⁾
(3,839 ) (1,634 ) (1,699 )
Numerator for basic and diluted income from continuing operations available to common stockholders 276,699
219,197
43,398
Income from discontinued operations ⁽²⁾
—
—
124,495
Income from discontinued operations attributable to noncontrolling common units of the Operating Partnership ⁽²⁾
—
—
(2,623 )
Numerator for basic and diluted net income available to common stockholders $ 276,699
$ 219,197
$ 165,270
Denominator:
Basic weighted average vested shares outstanding 92,342,483
89,854,096
83,090,235
Effect of dilutive securities – contingently issuable shares and stock options 680,551
541,679
1,877,485
Diluted weighted average vested shares and common stock equivalents outstanding 93,023,034
90,395,775
84,967,720
Basic earnings per share:
Income from continuing operations available to common stockholders per share $ 3.00
$ 2.44
$ 0.52
Income from discontinued operations per share of common stock ⁽²⁾
—
—
1.47
Net income available to common stockholders per share $ 3.00
$ 2.44
$ 1.99
Diluted earnings per share:
Income from continuing operations available to common stockholders per share $ 2.97
$ 2.42
$ 0.51
Income from discontinued operations per share of common stock ⁽²⁾
—
—
1.44
Net income available to common stockholders per share $ 2.97
$ 2.42
$ 1.95

________________________


(1)	Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs.


~~(2)~~	The Company adopted ASU 2014-08 effective January 1, 2015 (see Note 2 “Basis of Presentation and Significant Accounting Policies” for additional information). As a result, properties classified as held for sale and/or disposed of subsequent to January 1, 2015 that do not represent a strategic shift are no longer presented as discontinued operations.

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 ~~shares of~~ common ~~stock,~~shares, including stock options, RSUs, shares issuable under executed forward equity sale agreements and other securities are considered in our diluted earnings per share calculation for the years ended December 31, ~~2016, 2015,~~2019, 2018, and ~~2014. Additionally, for the year ended December 31, 2014, contingently issuable shares included the impact of the 4.25% Exchangeable Notes prior to their maturity and settlement in November 2014.~~ 2017. Certain market measure-based RSUs are not included in dilutive securities as of December 31, ~~2016, 2015,~~2019, 2018, and ~~2014~~2017 as not all performance metrics had been met by the end of the applicable reporting periods.

See Note 15 “Share-Based Compensation” for additional information regarding the stock options and other share-based compensation.

F - 57

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


~~23.~~22.	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 years ended ~~December 31, 2016~~, ~~2015~~2019, 2018 and ~~2014:~~2017:

Year Ended December 31,
2016 2015 2014
(in thousands, except unit and per unit amounts)
Numerator:
Income from continuing operations $ 303,798
$ 238,604
$ 59,313
Income from continuing operations attributable to noncontrolling interests in consolidated subsidiaries (3,735 ) (467 ) (247 )
Preferred distributions (13,250 ) (13,250 ) (13,250 )
Allocation to participating securities ⁽¹⁾
(3,839 ) (1,634 ) (1,699 )
Numerator for basic and diluted income from continuing operations available to common unitholders 282,974
223,253
44,117
Income from discontinued operations ⁽²⁾
—
—
124,495
(Income) loss from discontinued operations attributable to noncontrolling interests in consolidated subsidiaries ⁽²⁾
—
—
(13 )
Numerator for basic and diluted net income available to common unitholders $ 282,974
$ 223,253
$ 168,599
Denominator:
Basic weighted average vested units outstanding 94,771,688
91,645,578
84,894,498
Effect of dilutive securities - contingently issuable shares and stock options 680,551
541,679
1,877,485
Diluted weighted average vested units and common unit equivalents outstanding 95,452,239
92,187,257
86,771,983
Basic earnings per unit:
Income from continuing operations available to common unitholders per unit $ 2.99
$ 2.44
$ 0.52
Income from discontinued operations per common unit ⁽²⁾
—
—
1.47
Net income available to common unitholders per unit $ 2.99
$ 2.44
$ 1.99
Diluted earnings per unit:
Income from continuing operations available to common unitholders per unit $ 2.96
$ 2.42
$ 0.51
Income from discontinued operations per common unit ⁽²⁾
—
—
1.43
Net income available to common unitholders per unit $ 2.96
$ 2.42
$ 1.94



	Year Ended December 31,
	2019			2018			2017
	(in thousands, except unit and per unit amounts)
Numerator:
Net income attributable to Kilroy Realty, L.P.	$	198,738		$	263,210		$	167,440
Total preferred distributions	—			—			(13,363		)
Allocation to participating securities ⁽¹⁾	(2,119		)	(2,004		)	(1,975		)
Numerator for basic and diluted net income available to common unitholders	$	196,619		$	261,206		$	152,102
Denominator:
Basic weighted average vested units outstanding	105,223,975			102,025,276			100,246,567
Effect of dilutive securities	648,600			510,006			613,770
Diluted weighted average vested units and common unit equivalents outstanding	105,872,575			102,535,282			100,860,337
Basic earnings per unit:
Net income available to common unitholders per unit	$	1.87		$	2.56		$	1.52
Diluted earnings per unit:
Net income available to common unitholders per unit	$	1.86		$	2.55		$	1.51

________________________


(1)	Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs.


~~(2)~~	The Operating Partnership adopted ASU 2014-08 effective January 1, 2015 (see Note 2 “Basis of Presentation and Significant Accounting Policies” for additional information). As a result, properties classified as held for sale and/or disposed of subsequent to January 1, 2015 that do not represent a strategic shift are no longer presented as discontinued operations.

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 executed forward equity sale agreements and other securities are considered in our diluted earnings per share calculation for the years ended December 31, ~~2016, 2015,~~2019, 2018 and ~~2014. Additionally, for the year ended December 31, 2014, contingently issuable shares included the impact of the 4.25% Exchangeable Notes prior to their maturity and settlement in November 2014.~~2017. Certain market measure-based RSUs are not included in dilutive securities as of December 31, ~~2016~~2019, 2018 and ~~2015~~2017 as not all performance metrics had been met by the end of the applicable reporting periods.

See Note 15 “Share-Based Compensation” for additional information regarding the stock options and other share-based compensation.

F - 58

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

~~24.~~23. Supplemental Cash Flow Information of the Company

Supplemental cash flow information follows (in thousands):



	Year Ended December 31,
	2019		2018		2017
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest, net of capitalized interest of $77,666, $65,627, and $44,757 as of December 31, 2019, 2018 and 2017, respectively	$	43,607	$	44,697	$	67,336
Cash paid for amounts included in the measurement of ground lease liabilities	$	5,224	$	4,398	$	4,809
NON-CASH INVESTING TRANSACTIONS:
Accrual for expenditures for operating properties and development properties	$	162,654	$	158,626	$	116,089
Assumption of accrued liabilities in connection with acquisitions (Note 3)	$	10,267	$	40,624	$	1,443
Tenant improvements funded directly by tenants	$	10,268	$	13,968	$	15,314
Initial measurement of operating right of use ground lease assets (Notes 2, 3 and 18)	$	96,272	$	—	$	—
Initial measurement of operating ground lease liabilities (Notes 2, 3 and 18)	$	98,349	$	—	$	—
NON-CASH FINANCING TRANSACTIONS:
Accrual of dividends and distributions payable to common stockholders and common unitholders (Notes 13 and 28)	$	53,219	$	47,559	$	43,448
Exchange of common units of the Operating Partnership into shares of the Company’s common stock	$	78	$	1,962	$	10,939

The following is a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the years ended 2019, 2018 and 2017.



	Year Ended December 31,
	2019		2018		2017
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:
Cash and cash equivalents at beginning of period	$	51,604	$	57,649	$	193,418
Restricted cash at beginning of period	119,430		9,149		56,711
Cash and cash equivalents and restricted cash at beginning of period	$	171,034	$	66,798	$	250,129

Cash and cash equivalents at end of period	$	60,044	$	51,604	$	57,649
Restricted cash at end of period	16,300		119,430		9,149
Cash and cash equivalents and restricted cash at end of period	$	76,344	$	171,034	$	66,798

F - 59

Year Ended December 31,
2016 2015 2014
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest, net of capitalized interest of $47,675, $50,923, and $44,385 as of
   December 31, 2016, 2015 and 2014, respectively
$ 54,295
$ 54,747
$ 58,944
NON-CASH INVESTING TRANSACTIONS:
Accrual for expenditures for operating properties and development and redevelopment
   properties
$ 62,589
$ 109,715
$ 77,091
Tenant improvements funded directly by tenants $ 18,050
$ 13,387
$ 42,906
Assumption of other assets and liabilities in connection with operating and development
   property acquisitions, net (Note 3)
$ 5,863
$ 6,254
$ 14,917
Accrual for receivable related to development properties $ 1,350
$ —
$ —
Release of holdback funds to third party $ —
$ 9,279
$ —
NON-CASH FINANCING TRANSACTIONS:
Accrual of dividends and distributions payable to common stockholders and common
    unitholders (Notes 13 and 29)
$ 220,650
$ 33,336
$ 31,243
Accrual of dividends and distributions payable to preferred stockholders and preferred
   unitholders (Notes 13 and 29)
$ 1,656
$ 1,656
$ 1,656
Issuance of common units of the Operating Partnership in connection with an acquisition
(Note 3) $ 48,033
$ —
$ —
Secured debt assumed by buyers in connection with land disposition (Note 4) $ 2,322
$ —
$ —
Issuance of shares of common stock in connection with a development property
acquisition $ —
$ —
$ 21,631
Exchange of common units of the Operating Partnership into shares of the Company’s
   common stock
$ 8,893
$ 1,223
$ 28

~~25. Supplemental Cash Flow Information of the Operating Partnership:~~

~~Supplemental cash flow information follows (in thousands):~~

Year Ended December 31,
2016 2015 2014
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest, net of capitalized interest of $47,675, $50,923, and $44,385 as of
December 31, 2016, 2015 and 2014, respectively
$ 54,295
$ 54,747
$ 58,944
NON-CASH INVESTING TRANSACTIONS:
Accrual for expenditures for operating properties and development and redevelopment properties $ 62,589
$ 109,715
$ 77,091
Tenant improvements funded directly by tenants $ 18,050
$ 13,387
$ 42,906
Assumption of other assets and liabilities in connection with operating and development property acquisitions, net (Note 3) $ 5,863
$ 6,254
$ 14,917
Accrual for receivable related to development properties $ 1,350
$ —
$ —
Release of holdback funds to third party $ —
$ 9,279
$ —
NON-CASH FINANCING TRANSACTIONS:
Accrual of dividends and distributions payable to common stockholders and common
unitholders (Notes 14 and 29) $ 220,650
$ 33,336
$ 31,243
Accrual of dividends and distributions payable to preferred stockholders and preferred unitholders (Notes 14 and 29) $ 1,656
$ 1,656
$ 1,656
Issuance of common units in connection with a development property acquisition (Note 3) $ 48,033
$ —
$ 21,631
Secured debt assumed by buyers in connection with land disposition (Note 4) $ 2,322
$ —
$ —

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

24. Supplemental Cash Flow Information of the Operating Partnership:

~~26.~~

Supplemental cash flow information follows (in thousands):



	Year Ended December 31,
	2019		2018		2017
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest, net of capitalized interest of $77,666, $65,627, and $44,757 as of December 31, 2019, 2018 and 2017, respectively	$	43,607	$	44,697	$	67,336
Cash paid for amounts included in the measurement of ground lease liabilities	$	5,224	$	4,398	$	4,809
NON-CASH INVESTING TRANSACTIONS:
Accrual for expenditures for operating properties and development properties	$	162,654	$	158,626	$	116,089
Assumption of accrued liabilities in connection with acquisitions (Note 3)	$	10,267	$	40,624	$	1,443
Tenant improvements funded directly by tenants	$	10,268	$	13,968	$	15,314
Initial measurement of operating right of use ground lease assets (Notes 2, 3 and 18)	$	96,272	$	—	$	—
Initial measurement of operating ground lease liabilities (Notes 2, 3 and 18)	$	98,349	$	—	$	—
NON-CASH FINANCING TRANSACTIONS:
Accrual of dividends and distributions payable to common stockholders and common unitholders (Notes 14 and 28)	$	53,219	$	47,559	$	43,448

The following is a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the years ended 2019, 2018 and 2017.



	Year Ended December 31,
	2019		2018		2017
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:
Cash and cash equivalents at beginning of period	$	51,604	$	57,649	$	193,418
Restricted cash at beginning of period	119,430		9,149		56,711
Cash and cash equivalents and restricted cash at beginning of period	$	171,034	$	66,798	$	250,129

Cash and cash equivalents at end of period	$	60,044	$	51,604	$	57,649
Restricted cash at end of period	16,300		119,430		9,149
Cash and cash equivalents and restricted cash at end of period	$	76,344	$	171,034	$	66,798

F - 60

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

25. Tax Treatment of Distributions

The following table reconciles the dividends declared per share of common stock to the dividends paid per share of common stock during the years ended December 31, ~~2016,~~ ~~2015~~2019, 2018 and ~~2014~~2017 as follows:



	Year Ended December 31,
Dividends	2019			2018			2017
Dividends declared per share of common stock	$	1.910		$	1.790		$	1.650
Less: Dividends declared in the current year and paid in the following year	(0.485		)	(0.455		)	(0.425		)
Add: Dividends declared in the prior year and paid in the current year ⁽¹⁾	0.455			0.425			2.275
Dividends paid per share of common stock	$	1.880		$	1.760		$	3.500

Year Ended December 31,
Dividends 2016 2015 2014
Dividends declared per share of common stock $ 3.375
$ 1.400
$ 1.400
Less: Dividends declared in the current year and paid in the following year⁽¹⁾
(2.275 ) (0.350 ) (0.350 )
Add: Dividends declared in the prior year and paid in the current year 0.350
0.350
0.350
Dividends paid per share of common stock $ 1.450
$ 1.400
$ 1.400

_________________

(1)

The fourth quarter 2016 dividend of $2.275 per share of common stock consists of a special cash dividend of $1.90 per share of common stock and a regular quarterly cash dividend of $0.375 per share of common stock. The $1.90 per share special distribution is treated as paid in two tax years for income tax purposes: $1.587 is treated as paid on December 31, 2016 and $0.313 is treated as paid on January 13, 2017. The $0.375 per share regular quarterly distribution is considered a 2017 dividend distribution for income tax purposes.

The unaudited income tax treatment for the dividends to common stockholders reportable for the years ended December 31, ~~2016,~~ ~~2015~~2019, 2018 and ~~2014~~2017 as identified in the table above was as follows:


	Year Ended December 31,												Year Ended December 31,
Shares of Common Stock	2016				2015				2014				2019				2018				2017
Ordinary income(1)	$	1.500	49.40	%	$	0.992	70.86	%	$	0.998	71.29	%	$	0.939	49.95	%	$	1.474	83.73	%	$	1.356	70.87	%
Qualified dividend	0.002		0.06		0.002		0.13		0.002		0.14		0.004		0.21		0.003		0.19		0.002		0.11
Return of capital	—		—		—		—		0.398		28.43		0.312		16.62		0.275		15.64		0.344		18.00
Capital gains ⁽¹⁾⁽²⁾	1.212		39.89		0.051		3.65		0.002		0.14		0.600		31.93		0.008		0.44		—		—
Unrecaptured section 1250 gains	0.323		10.65		0.355		25.36		—		—		0.025		1.29		—		—		0.211		11.02
	$	3.037	100.00	%	$	1.400	100.00	%	$	1.400	100.00	%	$	1.880	100.00	%	$	1.760	100.00	%	$	1.913	100.00	%

_________________

(1)

The Tax Cuts and Jobs Act enacted on December 22, 2017 generally allows a deduction for noncorporate taxpayers equal to 20% of ordinary dividends distributed by a REIT (excluding capital gain dividends and qualified dividend income). The amount of dividend eligible for this deduction is referred to as the Section 199A Dividend. For the year ended December 31, 2019, the Section 199A Dividend is equal to the total ordinary income dividend.


(2)	Capital gains are comprised entirely of 20% rate gains.

~~The~~ ~~6.875%~~ Series G Cumulative Redeemable Preferred Stock was issued in March 2012. The unaudited income tax treatment for the dividends to Series G preferred stockholders reportable for the years ended December 31, 2016, ~~2015, and~~ ~~2014~~ ~~was as follows:~~

F - 61

Year Ended December 31,
Preferred Shares 2016 2015 2014
Ordinary income $ 0.848
49.31 % $ 1.218
70.86 % $ 1.711
99.54 %
Qualified dividend 0.001
0.06
0.002
0.13
0.003
0.17
Capital gains ⁽¹⁾
0.687
39.97
0.063
3.65
0.005
0.29
Unrecaptured section 1250 gains 0.183
10.66
0.436
25.36
—
—
$ 1.719
100.00 % $ 1.719
100.00 % $ 1.719
100.00 %

~~__________________~~


~~(1)~~	~~Capital gains are comprised entirely of 20% rate gains.~~

The 6.375% Series H Cumulative Redeemable Preferred Stock was issued in August 2012. The unaudited income tax treatment for the dividends to Series H preferred stockholders reportable for the years ended December 31, 2016, ~~2015, and~~ ~~2014~~ ~~was as follows:~~

KILROY REALTY CORPORATION AND KILROY REALTY, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Year Ended December 31,
Preferred Shares 2016 2015 2014
Ordinary income $ 0.786
49.31 % $ 1.129
70.86 % $ 1.587
99.56 %
Qualified dividend 0.001
0.06
0.002
0.13
0.003
0.19
Capital gains ⁽¹⁾
0.637
39.97
0.059
3.65
0.004
0.25
Unrecaptured section 1250 gains 0.17
10.66
0.404
25.36
—
—
$ 1.594
100.00 % $ 1.594
100.00 % $ 1.594
100.00 %

~~__________________~~


~~(1)~~	~~Capital gains are comprised entirely of 20% rate gains.~~


~~27.~~26.	Quarterly Financial Information of the Company (Unaudited)

Summarized quarterly financial data for the years ended December 31, ~~2016~~2019 and ~~2015~~2018 was as follows:


	2016 Quarter Ended ⁽¹⁾												2019 Quarter Ended⁽¹⁾
	March 31,			June 30,			September 30,			December 31,			March 31,		June 30,		September 30,		December 31,
	(in thousands, except per share amounts)												(in thousands, except per share amounts)
Revenues	$	145,446		$	160,133		$	168,348		$	168,645		$	201,202	$	200,492	$	215,525	$	220,235
Net income	178,113			33,892			56,375			35,418			41,794		47,215		48,298		77,922
Net income attributable to Kilroy Realty Corporation	174,308			32,847			53,895			32,738			36,903		42,194		43,846		72,500
Preferred dividends and distributions	(3,313		)	(3,312		)	(3,313		)	(3,312		)
Net income available to common stockholders	170,995			29,535			50,582			29,426			36,903		42,194		43,846		72,500
Net income available to common stockholders per share – basic	1.85			0.32			0.54			0.29			0.36		0.41		0.41		0.68
Net income available to common stockholders per share – diluted	1.84			0.31			0.54			0.29			0.36		0.41		0.41		0.67

	2015 Quarter Ended ⁽¹⁾												2018 Quarter Ended ⁽¹⁾
	March 31,			June 30,			September 30,			December 31,			March 31,		June 30,		September 30,		December 31,
	(in thousands, except per share amounts)												(in thousands, except per share amounts)
Revenues	$	146,082		$	146,227		$	141,553		$	147,413		$	182,822	$	187,072	$	186,562	$	190,842
Net income	44,002			58,590			106,704			29,308			40,971		31,755		38,310		166,890
Net income attributable to Kilroy Realty Corporation	43,187			57,500			104,759			28,635			36,246		27,549		34,400		160,220
Preferred dividends and distributions	(3,313		)	(3,312		)	(3,313		)	(3,312		)
Net income available to common stockholders	39,874			54,188			101,446			25,323			36,246		27,549		34,400		160,220
Net income available to common stockholders per share – basic	0.45			0.61			1.10			0.27			0.36		0.27		0.34		1.59
Net income available to common stockholders per share – diluted	0.45			0.61			1.09			0.27			0.36		0.27		0.33		1.58

____________________



Kilroy Realty Corporation	Maryland	95-4598246
	(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Kilroy Realty, L.P.	Delaware	95-4612685
	(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)



Registrant	Title of each class	Name of each exchange on which registered	Ticker Symbol
Kilroy Realty Corporation	Common Stock, $.01 par value	New York Stock Exchange
~~Kilroy Realty Corporation~~	~~6.875% Series G Cumulative Redeemable~~ ~~Preferred Stock, $.01 par value~~	~~New York Stock Exchange~~
~~Kilroy Realty Corporation~~	~~6.375% Series H Cumulative Redeemable~~ ~~Preferred Stock, $.01 par value~~	~~New York Stock Exchange~~KRC



Kilroy Realty Corporation
x☒	Large accelerated filer	o☐	Accelerated filer	o☐	Non-accelerated filer ~~(Do not check if a smaller reporting company~~)	o☐	Smaller reporting company
☐	Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Kilroy Realty, L.P.
o☐	Large accelerated filer	o☐	Accelerated filer	x☒	Non-accelerated filer ~~(Do not check if a smaller reporting company)~~	o☐	Smaller reporting company
☐	Emerging growth company If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o



x☑	ANNUAL 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

~~12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064~~

(~~Address of principal executive offices) (Zip Code)~~
Registrant’s telephone number, including area ~~code: (310) 481-8400~~code)



	Number of Properties/Projects	Estimated Office Rentable Square Feet
Properties held for sale ⁽¹⁾	1	67,995
Development project in “lease-up” ⁽²⁾	1	377,000
Development projects under construction ⁽²⁾⁽³⁾	3	1,100,000



Year⁽¹⁾	Energy Consumption Data Coverage as % of Floor Area⁽²⁾		Total Energy Consumed by Portfolio Area with Data Coverage (MWh) ⁽³⁾	% of Energy Generated From Renewable Resources		Like-for-Like Change in Energy Consumption of Portfolio Area with Data Coverage⁽⁴⁾		% of Eligible Portfolio that has Obtained an Energy Rating and is Certified to ENERGY STAR
2015	92	%	273,381	3	%	(5	)%	65	%
2014	88	%	267,391	5	%	(2	)%	56	%
2013	84	%	261,191	3	%	(2	)%	53	%



Year⁽¹⁾	Water Withdrawal Data Coverage as a % of Total Floor Area⁽⁵⁾		Total Water Withdrawn by Portfolio Area (kgal)⁽⁶⁾	Like-for-like Change in Water Withdrawn for Portfolio Area with Data Coverage⁽⁴⁾
2015	94	%	832,737	(11	)%
2014	92	%	950,357	(2	)%
2013	89	%	900,809	1	%



	Construction Period
Stabilized Residential Project	Start Date	Completion Date	Number of Units	Percentage Leased
Columbia Square Residential	3Q 2013	2Q 2016	200	56.5	%



	Estimated Construction Period		Estimated Stabilization Date	Estimated Rentable Square Feet	Office % Leased
In-Process Development Projects	Start Date	Completion Date	Estimated Stabilization Date	Estimated Rentable Square Feet	Office % Leased

UNDER CONSTRUCTION:
Office
The Exchange on 16th ⁽¹⁾	2Q 2015	3Q 2017	3Q 2018	700,000	—%
100 Hooper ⁽²⁾	4Q 2016	1Q 2018	1Q 2019	400,000	66%
SUBTOTAL:				1,100,000	20%

Mixed-Use
One Paseo - Phase I (Retail and Residential) ⁽³⁾	4Q 2016	2Q 2018	2Q 2019	96,000 Retail	N/A
				237 Units


(2)	On January 1, 2019, the Company adopted FASB Topic 842 and recorded right of use ground lease assets and ground lease liabilities on its consolidate balance sheets. As of December 31, 2019, the consolidated balance sheets included $96.3 million of right of use ground lease assets and $98.4 million of ground lease liabilities.


(3)	Includes the noncontrolling interests of the common units of the Operating Partnership and consolidated property partnerships (see Note 2 “Basis of Presentation and Significant Accounting Policies” to our consolidated financial statements included in this report for additional information).


~~(4)~~(5)	FFO includes amortization of deferred revenue related to tenant-funded tenant improvements of $19.2 million, $18.4 million, $16.8 million, $13.2 million ~~$13.3 million, $11.0 million, $10.7 million~~ and ~~$9.1~~$13.3 million for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, ~~2014, 2013~~respectively.


~~(5)~~(7)	~~Occupancy percentages and total square feet reported are based on~~For the ~~Company’s stabilized office portfolio and one residential tower that was completed in~~year ended December 31, 2016, ~~for the periods presented.~~represents occupancy at December 31, 2016.


~~(2)~~	The year ended December 31, 2016 includes a special distribution of $1.90 per common unit that was paid on January 13, 2017.


(3)	Includes the noncontrolling interests in consolidated property partnerships and subsidiaries (see Note 2 “Basis of Presentation and Significant Accounting Policies” to our consolidated financial statements included in this report for additional information).


(5)	For the year ended December 31, 2016, represents occupancy at December 31, 2016.



Near-Term Development Pipeline ⁽¹⁾	Location	Potential Start Date ⁽²⁾	Approx. Developable Square Feet	Total Estimated Investment		Total Costs as of 12/31/2016 ⁽³⁾ (in millions)

333 Dexter ⁽⁴⁾	South Lake Union	2017	700,000	$	385	$	73.5
Academy Project	Hollywood	2017	545,000	390		73.5
One Paseo - Phases II and III ⁽⁵⁾	Del Mar	TBD	640,000	440		127.1

Total Near-Term Development Pipeline			1,885,000	$	1,215	$	274.1



	1st & 2nd Generation ⁽¹⁾				2nd Generation ⁽¹⁾
	Number of Leases ⁽²⁾		Rentable Square Feet ⁽²⁾		TI/LC per Sq. Ft. ⁽³⁾		Changes in Rents ⁽⁴⁾⁽⁵⁾		Changes in Cash Rents ⁽⁶⁾		Retention Rates ⁽⁷⁾		Weighted Average Lease Term (in months)
	New	Renewal	New	Renewal	TI/LC per Sq. Ft. ⁽³⁾		Changes in Rents ⁽⁴⁾⁽⁵⁾		Changes in Cash Rents ⁽⁶⁾		Retention Rates ⁽⁷⁾		Weighted Average Lease Term (in months)
Year Ended December 31, 2016	86	63	585,637	476,011	$	38.78	24.4	%	11.9	%	47.9	%	66


	Average Occupancy				Average Occupancy
	Year Ended December 31,				Year Ended December 31,
	2016		2015		2019		2018
Stabilized Portfolio ⁽¹⁾	95.5	%	95.6	%
Stabilized Office Portfolio ⁽¹⁾					93.3	%	94.1	%
Same Store Portfolio ⁽²⁾	95.9	%	95.8	%	93.7	%	94.3	%
Residential Portfolio⁽³⁾					82.4	%	79.7	%


(1)	Occupancy percentages reported are based on our stabilized office portfolio as of the end of the period ~~presented.~~presented and exclude occupancy percentages of properties held for sale.


(3)	Our residential portfolio consists of our 200-unit residential tower located in Hollywood, California and excludes 237 recently completed residential units that are not yet stabilized.


◦	~~One office development project that was added to the stabilized portfolio in the fourth quarter of 2016;~~


◦	~~Two office development projects that were completed and stabilized in March 2016; and~~


◦	~~Two office development projects comprising four office buildings that were completed and stabilized in the fourth quarter of 2015;~~


•	Disposition Properties – includes the results of the 11 properties disposed of in the fourth quarter of 2018, the one property disposed of in the second quarter of 2019 and the one property disposed of in the fourth quarter of 2019.


Group	# of Buildings	Rentable Square Feet	# of Buildings	Rentable Square Feet
Same Store Properties	94	12,388,876	88	12,673,967
Stabilized Development Properties	7	1,178,521
Development Properties - Stabilized ⁽¹⁾			1	394,340
Acquisition Properties	7	458,459	23	407,488
Total Stabilized Portfolio	108	14,025,856	112	13,475,795


(1)	Excludes development projects in the tenant improvement phase, our in-process development projects and future development projects.


	Year Ended December 31,						Dollar Change			Percentage Change		Year Ended December 31,						Dollar Change				Percentage Change
	2016			2015			Dollar Change			Percentage Change		2019			2018			Dollar Change				Percentage Change
	($ in thousands)											($ in thousands)
Reconciliation of Net Income Available to Common Stockholders to Net Operating Income, as defined:
Net Income Available to Common Stockholders	$	280,538		$	220,831		$	59,707		27.0	%	$	195,443		$	258,415		$	(62,972	)		(24.4	)%
Preferred dividends	13,250			13,250			—			—
Net income attributable to Kilroy Realty Corporation	293,788			234,081			59,707			25.5
Net income attributable to noncontrolling common units of the Operating Partnership	6,635			4,339			2,296			52.9		3,766			5,193			(1,427		)		(27.5	)
Net income attributable to noncontrolling interests in consolidated property partnerships	3,375			184			3,191			1,734.2		16,020			14,318			1,702				11.9
Net income	$	303,798		$	238,604		$	65,194		27.3	%	$	215,229		$	277,926		$	(62,697	)		(22.6	)%
Unallocated expense (income):
General and administrative expenses	57,029			48,265			8,764			18.2		88,139			90,471			(2,332		)		(2.6	)
Acquisition-related expenses	1,902			497			1,405			282.7
Leasing costs												7,615			—			7,615			—	100
Depreciation and amortization	217,234			204,294			12,940			6.3		273,130			254,281			18,849				7.4
Interest income and other net investment (gains) losses	(1,764		)	(243		)	(1,521		)	625.9
Interest income and other net investment (gain) loss												(4,641		)	559			(5,200		)		(930.2	)
Interest expense	55,803			57,682			(1,879		)	(3.3	)	48,537			49,721			(1,184		)		(2.4	)
Net loss (gain) on sales of land	295			(17,116		)	17,411			(101.7	)
Loss on early extinguishment of debt												—			12,623			(12,623		)		(100.0	)
Net gain on sales of land												—			(11,825		)	11,825				(100.0	)
Gains on sales of depreciable operating properties	(164,302		)	(109,950		)	(54,352		)	49.4		(36,802		)	(142,926		)	106,124				(74.3	)
Net Operating Income, as defined	$	469,995		$	422,033		$	47,962		11.4	%	$	591,207		$	530,830		$	60,377			11.4	%


	Year Ended December 31, 2016 as compared to the Year Ended December 31, 2015																							Year Ended December 31,
	Same Store					Stabilized Development				Acquisitions				2016 Held for Sale, Dispositions & Other					Total					2019										2018
	Dollar Change			Percent Change		Dollar Change		Percent Change		Dollar Change		Percent Change		Dollar Change			Percent Change		Dollar Change			Percent Change		Same Store		Develop-ment		Acquisitions		Disposi-tions		Total		Same Store		Develop-ment		Acquisitions		Disposi-tions		Total
	($ in thousands)																							(in thousands)										(in thousands)
Operating revenues:																								Operating revenues:
Rental income	$	15,701		3.2	%	$	52,606	733.4	%	$	4,250	100.0	%	$	(23,499	)	(75.1	)%	$	49,058		9.3	%	$	727,572	$	62,547	$	28,338	$	8,015	$	826,472	$	610,363	$	5,564	$	6,458	$	34,246	$	656,631
Tenant reimbursements	(664		)	(1.4	)	11,775		3,634.3		922		100.0		(4,728		)	(91.9	)	7,305			13.6		—		—		—		—		—		73,083		849		1,378		5,672		80,982
Other property income	(43		)	(2.2	)	19		633.3		53		100.0		4,905			2,651.4		4,934			229.9		9,051		1,316		37		578		10,982		9,241		4		210		230		9,685
Total	14,994			2.8		64,400		858.7		5,225		100.0		(23,322		)	(63.7	)	61,297			10.5		736,623		63,863		28,375		8,593		837,454		692,687		6,417		8,046		40,148		747,298
Property and related expenses:	Property and related expenses:																							Property and related expenses:
Property expenses	(1,396		)	(1.4	)	6,796		1,101.5		477		100.0		2,677			56.8		8,554			8.1		144,417		10,236		2,909		2,475		160,037		123,235		1,093		598		8,861		133,787
Real estate taxes	(909		)	(2.0	)	6,892		1,073.5		446		100.0		(1,446		)	(35.4	)	4,983			9.9		64,441		9,279		3,391		986		78,097		63,933		1,696		1,072		4,119		70,820
Provision for bad debts	(777		)	(129.9	)	116		100.0		51		100.0		65			(122.6	)	(545		)	(100.0	)	—		—		—		—		—		5,661		16		—		8		5,685
Ground leases	260			8.4		—		—		83		100.0		—			—		343			11.1		7,953		—		160		—		8,113		6,176		—		—		—		6,176
Total	(2,822		)	(1.9	)	13,804		1,096.4		1,057		100.0		1,296			14.8		13,335			8.4		216,811		19,515		6,460		3,461		246,247		199,005		2,805		1,670		12,988		216,468
Net Operating Income, as defined	$	17,816		4.6	%	$	50,596	810.7	%	$	4,168	100.0	%	$	(24,618	)	(88.4	)%	$	47,962		11.4	%	$	519,812	$	44,348	$	21,915	$	5,132	$	591,207	$	493,682	$	3,612	$	6,376	$	27,160	$	530,830



	Year Ended December 31, 2019 as compared to the Year Ended December 31, 2018
	Same Store					Development					Acquisitions					Dispositions					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	$	117,209		19.2	%	$	56,983		NM*		$	21,880		338.8	%	$	(26,231	)	(76.6	)%	$	169,841		25.9	%
Tenant reimbursements	(73,083		)	(100.0	)	(849		)	(100.0	)	(1,378		)	(100.0	)	(5,672		)	(100.0	)	(80,982		)	(100.0	)
Other property income	(190		)	(2.1	)	1,312			NM*		(173		)	(82.4	)	348			151.3		1,297			13.4
Total	43,936			6.3		57,446			895.2		20,329			252.7		(31,555		)	(78.6	)	90,156			12.1
Property and related expenses:
Property expenses	21,182			17.2		9,143			836.5		2,311			386.5		(6,386		)	(72.1	)	26,250			19.6
Real estate taxes	508			0.8		7,583			447.1		2,319			216.3		(3,133		)	(76.1	)	7,277			10.3
Provision for bad debts	(5,661		)	(100.0	)	(16		)	(100.0	)	—			—		(8		)	(100.0	)	(5,685		)	(100.0	)
Ground leases	1,777			28.8		—			—		160			100.0		—			—		1,937			31.4
Total	17,806			8.9		16,710			595.7		4,790			286.8		(9,527		)	(73.4	)	29,779			13.8
Net Operating Income, as defined	$	26,130		5.3	%	$	40,736		NM*		$	15,539		243.7	%	$	(22,028	)	(81.1	)%	$	60,377		11.4	%


◦	$~~14.0~~20.0 million increase primarily due to new leases and renewals at higher average rental rates in the San Francisco Bay Area, Greater Seattle and ~~increased occupancy;~~Los Angeles regions;