UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2022
OR
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
Commission File Number: 1-12675 (Kilroy Realty Corporation)
Commission File Number: 000-54005 (Kilroy Realty, L.P.)
KILROY REALTY CORPORATION
KILROY REALTY, L.P.
(Exact name of registrant as specified in its charter)
Kilroy Realty CorporationMaryland95-4598246
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
Kilroy Realty, L.P.Delaware95-4612685
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)

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

(310) 481-8400
(Registrant's telephone number, including area code)
N/A
Kilroy Realty CorporationMaryland95-4598246
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
Kilroy Realty, L.P.Delaware95-4612685
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064
(Address of principal executive offices) (Zip Code)
(310) 481-8400
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
RegistrantTitle of each className of each exchange on which registeredTicker Symbol
Kilroy Realty CorporationCommon Stock, $.01 par valueNew York Stock ExchangeKRC
Securities registered pursuant to Section 12(g) of the Act:
RegistrantTitle of each class
Kilroy Realty, L.P.Common Units Representing Limited Partnership Interests
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    
Kilroy Realty Corporation    Yes  þ☑    No   o☐
Kilroy Realty, L.P.         Yes  þ☑    No   o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    
Kilroy Realty Corporation     Yes  þ☑    No   o☐
Kilroy Realty, L.P.         Yes  þ☑    No   o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Kilroy Realty Corporation
Kilroy Realty Corporation
Large accelerated filer     þ
Accelerated filer     o
Non-accelerated filer     o (Do not check if a smaller reporting company)
Smaller reporting company     o
Emerging growth company    o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Kilroy Realty, L.P.
Large accelerated filer     o
Accelerated filer     o
Non-accelerated filer     þ (Do not check if a smaller reporting company)
Smaller reporting company     o
Emerging growth company    o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Large accelerated filer ☑    Accelerated filer ☐

Non-accelerated filer ☐    Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Kilroy Realty, L.P.
Large accelerated filer ☐    Accelerated filer ☐
Non-accelerated filer ☑    Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Kilroy Realty Corporation Yes  o☐     No   þ☑
Kilroy Realty, L.P. Yes  o☐     No   þ☑
As of October 20, 2017, 98,382,256April 22, 2022, 116,716,080shares of Kilroy Realty Corporation common stock, par value $.01 per share, were outstanding.
 



EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2017March 31, 2022 of Kilroy Realty Corporation and Kilroy Realty, L.P. Unless stated otherwise or the context otherwise requires, references to “Kilroy Realty Corporation” or the “Company,” “we,” “our,” and “us” mean Kilroy Realty Corporation, a Maryland corporation, and its controlled and consolidated subsidiaries, and references to “Kilroy Realty, L.P.” or the “Operating Partnership” mean Kilroy Realty, L.P., a Delaware limited partnership and its controlled and consolidated subsidiaries.
The Company is a real estate investment trust, or REIT, and the general partner of the Operating Partnership. As of September 30, 2017,March 31, 2022, the Company owned an approximate 97.9%99.0% common general partnership interest in the Operating Partnership. The remaining approximate 2.1%1.0% common limited partnership interests are owned by non-affiliated investors and certain directors and officers of the Company. As the sole general partner of the Operating Partnership, the Company exercises exclusive and complete discretion over the Operating Partnership’s day-to-day management and control and can cause it to enter into certain major transactions, including acquisitions, dispositions, and refinancings and cause changes in its line of business, capital structure and distribution policies.
There are a few differences between the Company and the Operating Partnership that are reflected in the disclosures in this Form 10-Q. We believe it is important to understand the differences between the Company and the Operating Partnership in the context of how the Company and the Operating Partnership operate as an interrelated, consolidated company. The Company is a REIT, the only material asset of which is the partnership interests it holds in the Operating Partnership. As a result, the Company generally does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing equity from time to time and guaranteeing certain debt of the Operating Partnership. The Company itself is not directly obligated under any indebtedness, but generally guarantees someall 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 thedifferences between stockholders’ equity, partners’ capital and 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 noncontrolling interests, stockholders’ equity and partners’ capital 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 quarterly reports on Form 10-Q of the Company and the Operating Partnership into this single report results in the following benefits:
•Combined reports better reflect how management and the analyst community view the business as a single operating unit;
•Combined reports enhance investors’ understanding of the Company and the Operating Partnership by enabling them to view the business as a whole and in the same manner as management;
•Combined reports are more efficient for the Company and the Operating Partnership and result in savings in time, effort and expense; and
•Combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review.
To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:
•consolidated financial statements;
•the following notes to the consolidated financial statements:
◦Note 7, Stockholders’ Equity of the Company;
◦Note 8, Partners’ Capital of the Operating Partnership;

◦Note 4, Stockholders’ Equity of the Company;
◦Note 6, Partners’ Capital of the Operating Partnership;
◦Note 11, Net Income Available to Common Stockholders Per Share of the Company;
◦Note 12, Net Income Available to Common Unitholders Per Unit of the Operating Partnership;
i


◦Note 12, Net Income Available to Common Stockholders Per Share of the Company;
◦Note 13, Net Income Available to Common Unitholders Per Unit of the Operating Partnership;
◦Note 14, Supplemental Cash Flow Information of the Company; and
◦Note 15, Supplemental Cash Flow Information of the Operating Partnership;
◦Note 13, Supplemental Cash Flow Information of the Company; and
◦Note 14, Supplemental Cash Flow Information of the Operating Partnership;
•“Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
◦—Liquidity and Capital Resources of the Company;” and
◦—Liquidity and Capital Resources of the Operating Partnership.”
◦—Liquidity and Capital Resources of the Company;” and
◦—Liquidity and Capital Resources of the Operating Partnership.”
This report also includes separate sections under Part“Part I – Financial Information, Item 4. Controls and ProceduresProcedures” and separate Exhibit 31 and Exhibit 32 certifications for the Company and the Operating Partnership to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Company and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.



Available Information

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


KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
QUARTERLY REPORT FOR THE THREE AND NINEMONTHS ENDED SEPTEMBER 30, 2017MARCH 31, 2022
TABLE OF CONTENTS
 
Page
PART I – FINANCIAL INFORMATION
Item 1.
1
Consolidated Balance Sheets as of September 30, 2017 (unaudited)March 31, 2022 and December 31, 20162021
1
Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2017March 31, 2022 and 2016 (unaudited)2021
2
Consolidated Statements of Equity for the NineThree Months ended September 30, 2017March 31, 2022 and 2016 (unaudited)2021
3
Consolidated Statements of Cash Flows for the NineThree Months ended September 30, 2017March 31, 2022 and 2016 (unaudited)2021
4
Item 1.
5
Consolidated Balance Sheets as of September 30, 2017 (unaudited)March 31, 2022 and December 31, 20162021
5
Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2017March 31, 2022 and 2016 (unaudited)2021
6
Consolidated Statements of Capital for the NineThree Months ended September 30, 2017March 31, 2022 and 2016 (unaudited)2021
7
Consolidated Statements of Cash Flows for the NineThree Months ended September 30, 2017March 31, 2022 and 2016 (unaudited)2021
8
9
Item 2.
AND RESULTS OF OPERATIONS
2623
Item 3.
5349
Item 4.
5349
PART II – OTHER INFORMATION
Item 1.
5450
Item 1A.
5450
Item 2.
5450
Item 3.
5450
Item 4.
5450
Item 5.
5450
Item 6.
5551
5652




PART I – FINANCIAL INFORMATION


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


KILROY REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except share data)
 March 31, 2022December 31, 2021
ASSETS
REAL ESTATE ASSETS (Note 2):  
Land and improvements$1,715,192 $1,731,982 
Buildings and improvements7,509,311 7,543,585 
Undeveloped land and construction in progress2,158,279 2,017,126 
Total real estate assets held for investment11,382,782 11,292,693 
Accumulated depreciation and amortization(2,034,193)(2,003,656)
Total real estate assets held for investment, net9,348,589 9,289,037 
CASH AND CASH EQUIVALENTS331,685 414,077 
RESTRICTED CASH13,007 13,006 
MARKETABLE SECURITIES (Note 10)25,829 27,475 
CURRENT RECEIVABLES, NET12,107 14,386 
DEFERRED RENT RECEIVABLES, NET420,895 405,665 
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET228,426 234,458 
RIGHT OF USE GROUND LEASE ASSETS126,946 127,302 
PREPAID EXPENSES AND OTHER ASSETS, NET57,338 57,991 
TOTAL ASSETS$10,564,822 $10,583,397 
LIABILITIES AND EQUITY
LIABILITIES:
Secured debt, net (Notes 3 and 10)$247,030 $248,367 
Unsecured debt, net (Notes 3 and 10)3,821,433 3,820,383 
Accounts payable, accrued expenses and other liabilities391,920 391,264 
Ground lease liabilities125,414 125,550 
Accrued dividends and distributions (Note 15)61,951 61,850 
Deferred revenue and acquisition-related intangible liabilities, net171,121 171,151 
Rents received in advance and tenant security deposits80,192 74,962 
Total liabilities4,899,061 4,893,527 
COMMITMENTS AND CONTINGENCIES (Note 9)00
EQUITY:
Stockholders’ Equity (Note 4):
Common stock, $.01 par value, 280,000,000 shares authorized, 116,716,080 and 116,464,169 shares issued and outstanding, respectively1,167 1,165 
Additional paid-in capital5,149,968 5,155,232 
Retained earnings274,193 283,663 
Total stockholders’ equity5,425,328 5,440,060 
Noncontrolling Interests (Notes 1 and 5):
Common units of the Operating Partnership53,472 53,746 
Noncontrolling interests in consolidated property partnerships186,961 196,064 
Total noncontrolling interests240,433 249,810 
Total equity5,665,761 5,689,870 
TOTAL LIABILITIES AND EQUITY$10,564,822 $10,583,397 
 September 30, 2017 December 31, 2016
ASSETS(unaudited)  
REAL ESTATE ASSETS:   
Land and improvements$1,076,172
 $1,108,971
Buildings and improvements4,871,667
 4,938,250
Undeveloped land and construction in progress1,292,017
 1,013,533
Total real estate assets held for investment7,239,856
 7,060,754
Accumulated depreciation and amortization(1,216,358) (1,139,853)
Total real estate assets held for investment, net6,023,498
 5,920,901
REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET—
 9,417
CASH AND CASH EQUIVALENTS64,954
 193,418
RESTRICTED CASH (Note 2)179,276
 56,711
MARKETABLE SECURITIES (Note 11)18,851
 14,773
CURRENT RECEIVABLES, NET (Note 3)18,626
 13,460
DEFERRED RENT RECEIVABLES, NET (Note 3)238,959
 218,977
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET185,420
 208,368
PREPAID EXPENSES AND OTHER ASSETS, NET (Note 4)108,715
 70,608
TOTAL ASSETS$6,838,299
 $6,706,633
LIABILITIES AND EQUITY   
LIABILITIES:   
Secured debt, net (Notes 5 and 11)$465,828
 $472,772
Unsecured debt, net (Notes 5 and 11)1,909,381
 1,847,351
Unsecured line of credit (Notes 5 and 11)60,000
 —
Accounts payable, accrued expenses and other liabilities271,405
 202,391
Accrued dividends and distributions (Note 16)43,324
 222,306
Deferred revenue and acquisition-related intangible liabilities, net145,556
 150,360
Rents received in advance and tenant security deposits46,925
 52,080
Liabilities of real estate assets held for sale—
 56
Total liabilities2,942,419
 2,947,316
COMMITMENTS AND CONTINGENCIES (Note 10)
 
EQUITY:   
Stockholders’ Equity (Note 7):   
Preferred stock, $.01 par value, 30,000,000 shares authorized:   
6.875% Series G Cumulative Redeemable Preferred stock, $.01 par value, no shares issued and outstanding at 9/30/2017, and 4,000,000 shares authorized, issued and outstanding ($100,000 liquidation preference) at 12/31/2016—
 96,155
6.375% Series H Cumulative Redeemable Preferred stock, $.01 par value, no shares issued and outstanding at 9/30/2017, and 4,000,000 shares authorized, issued and outstanding ($100,000 liquidation preference) at 12/31/2016—
 96,256
Common stock, $.01 par value, 150,000,000 shares authorized, 98,382,256 and 93,219,439 shares issued and outstanding, respectively984
 932
Additional paid-in capital3,797,546
 3,457,649
Distributions in excess of earnings(108,667) (107,997)
Total stockholders’ equity3,689,863
 3,542,995
Noncontrolling Interests:   
Common units of the Operating Partnership (Note 6)77,911
 85,590
Noncontrolling interests in consolidated property partnerships (Note 1)128,106
 130,732
Total noncontrolling interests206,017
 216,322
Total equity3,895,880
 3,759,317
TOTAL LIABILITIES AND EQUITY$6,838,299
 $6,706,633




See accompanying notes to consolidated financial statements.

1
1


KILROY REALTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except share and per share data)
 
 Three Months Ended March 31,
 20222021
REVENUES  
Rental income (Note 8)$263,208 $234,656 
Other property income2,293 990 
Total revenues265,501 235,646 
EXPENSES  
Property expenses45,424 38,859 
Real estate taxes25,870 25,266 
Ground leases1,826 1,828 
General and administrative expenses (Note 7)22,781 21,985 
Leasing costs1,013 692 
Depreciation and amortization88,660 75,932 
Total expenses185,574 164,562 
OTHER INCOME (EXPENSES)  
Interest and other income, net81 1,373 
Interest expense (Note 3)(20,625)(22,334)
Gain on sale of depreciable operating property— 457,288 
      Total other (expenses) income(20,544)436,327 
NET INCOME59,383 507,411 
Net income attributable to noncontrolling common units of the Operating Partnership(516)(4,886)
Net income attributable to noncontrolling interests in consolidated property partnerships(5,739)(4,894)
Total income attributable to noncontrolling interests(6,255)(9,780)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS$53,128 $497,631 
Net income available to common stockholders per share – basic (Note 11)$0.45 $4.27 
Net income available to common stockholders per share – diluted (Note 11)$0.45 $4.26 
Weighted average common shares outstanding – basic (Note 11)116,650,228 116,344,375 
Weighted average common shares outstanding – diluted (Note 11)117,060,094 116,801,384 
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
REVENUES       
Rental income$159,954
 $146,539
 $475,527
 $423,947
Tenant reimbursements19,665
 16,406
 58,228
 43,948
Other property income1,915
 5,403
 7,685
 6,032
Total revenues181,534
 168,348
 541,440
 473,927
EXPENSES       
Property expenses33,070
 30,050
 97,615
 85,236
Real estate taxes16,371
 14,501
 50,878
 39,378
Provision for bad debts1,036
 —
 2,743
 —
Ground leases1,562
 909
 4,751
 2,506
General and administrative expenses14,514
 13,533
 43,750
 40,949
Acquisition-related expenses (Note 1)—
 188
 —
 964
Depreciation and amortization62,567
 56,666
 185,737
 160,452
Total expenses129,120
 115,847
 385,474
 329,485
OTHER (EXPENSES) INCOME       
Interest income and other net investment gains (Note 11)1,526
 538
 3,629
 1,120
Interest expense (Note 5)(16,151) (14,976) (51,476) (41,189)
Total other (expenses) income(14,625) (14,438) (47,847) (40,069)
INCOME FROM OPERATIONS BEFORE GAINS (LOSS) ON SALES OF REAL ESTATE37,789
 38,063
 108,119
 104,373
Net gain (loss) on sale of land (Note 2)449
 —
 449
 (295)
Gains on sales of depreciable operating properties (Note 2)37,250
 18,312
 39,507
 164,302
NET INCOME75,488
 56,375
 148,075
 268,380
Net income attributable to noncontrolling common units of the Operating Partnership (Note 6)(1,394) (1,453) (2,633) (5,892)
Net income attributable to noncontrolling interests in consolidated property partnerships(2,984) (1,027) (9,359) (1,438)
Total income attributable to noncontrolling interests(4,378) (2,480) (11,992) (7,330)
NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION71,110
 53,895
 136,083
 261,050
Preferred dividends(808) (3,313) (5,774) (9,938)
Original issuance costs of redeemed preferred stock and preferred units
(Note 7)
(3,744) —
 (7,589) —
Total preferred dividends(4,552) (3,313) (13,363) (9,938)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS$66,558
 $50,582
 $122,720
 $251,112
Net income available to common stockholders per share – basic (Note 12)$0.67
 $0.54
 $1.24
 $2.71
Net income available to common stockholders per share – diluted (Note 12)$0.67
 $0.54
 $1.23
 $2.69
Weighted average common shares outstanding – basic (Note 12)98,352,139
 92,227,016
 98,008,780
 92,220,522
Weighted average common shares outstanding – diluted (Note 12)98,911,612
 92,920,406
 98,591,048
 92,831,538
Dividends declared per common share$0.425
 $0.375
 $1.225
 $1.100





































See accompanying notes to consolidated financial statements.

2
2


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

   Common Stock 
Total
Stock-
holders’
Equity
 Noncontrolling Interests 
Total
Equity
 
Preferred
Stock
 
Number of
Shares
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained Earnings / (Distributions
in Excess of
Earnings)
 
BALANCE AS OF DECEMBER 31, 2015$192,411
 92,258,690
 $923
 $3,047,894
 $(70,262) $3,170,966
 $63,620
 $3,234,586
Net income        261,050
 261,050
 7,330
 268,380
Issuance of share-based compensation awards      1,339
   1,339
   1,339
Non-cash amortization of share-based compensation      19,303
   19,303
   19,303
Exercise of stock options  51,000
   2,173
   2,173
   2,173
Repurchase of common stock, stock options and restricted stock units  (110,528) (1) (6,873)   (6,874)   (6,874)
Settlement of restricted stock units for shares of common stock  72,130
 1
 (1)   —
   —
Issuance of common units in connection with acquisition            48,033
 48,033
Exchange of common units of the Operating Partnership  1,200
   39
   39
 (39) —
Initial contribution from noncontrolling interest in consolidated property partnership, net of transaction costs      113,022
   113,022
 78,654
 191,676
Distributions to noncontrolling interests in consolidated property partnerships            (1,139) (1,139)
Adjustment for noncontrolling interest      14,822
   14,822
 (14,822) —
Preferred dividends        (9,938) (9,938)   (9,938)
Dividends declared per common share and common unit ($1.10 per share/unit)        (102,743) (102,743) (2,894) (105,637)
BALANCE AS OF SEPTEMBER 30, 2016$192,411
 92,272,492
 $923
 $3,191,718
 $78,107
 $3,463,159
 $178,743
 $3,641,902
                

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

  Common Stock 
Total
Stock-
holders’
Equity
 Noncontrolling Interests 
Total
Equity
 
Preferred
Stock
 
Number of
Shares
 
Common
Stock
 
Additional
Paid-in
Capital
 
Distributions
in Excess of
Earnings
BALANCE AS OF DECEMBER 31, 2016$192,411
 93,219,439
 $932
 $3,457,649
 $(107,997) $3,542,995
 $216,322
 $3,759,317
Net income        136,083
 136,083
 11,992
 148,075
Redemption of Series G and H Preferred stock (Note 7)(192,411)       (7,589) (200,000)   (200,000)
Issuance of common stock (Note 7)  4,427,500
 44
 308,768
   308,812
   308,812
Issuance of share-based compensation awards  
   5,291
   5,291
   5,291
Non-cash amortization of share-based compensation      19,013
   19,013
   19,013
Exercise of stock options (Note 9)  282,000
 4
 12,047
   12,051
   12,051
Settlement of restricted stock units for shares of common stock  317,848
 3
 (3)   —
   —
Repurchase of common stock, stock options and restricted stock units  (168,881) (2) (12,984)   (12,986)   (12,986)
Exchange of common units of the Operating Partnership  304,350
 3
 10,936
   10,939
 (10,939) —
Contributions from noncontrolling interests in consolidated property partnerships          —
 250
 250
Distributions to noncontrolling interests in consolidated property partnerships          —
 (12,234) (12,234)
Adjustment for noncontrolling interest      (3,171)   (3,171) 3,171
 —
Preferred dividends        (5,774) (5,774)   (5,774)
Dividends declared per common share and common unit ($1.225 per share/unit)        (123,390) (123,390) (2,545) (125,935)
BALANCE AS OF SEPTEMBER 30, 2017$—
 98,382,256
 $984
 $3,797,546
 $(108,667) $3,689,863
 $206,017
 $3,895,880






Common StockTotal
Stock-
holders’
Equity		Noncontrolling InterestsTotal
Equity
Number of
Shares		Common
Stock		Additional
Paid-in
Capital		Retained Earnings (Distributions
in Excess of
Earnings)
BALANCE AS OF DECEMBER 31, 2020116,035,827 $1,160 $5,131,916 $(103,133)$5,029,943 $247,378 $5,277,321 
Net income497,631 497,631 9,780 507,411 
Issuance of share-based compensation awards1,950 1,950 1,950 
Non-cash amortization of share-based compensation9,604 9,604 9,604 
Settlement of restricted stock units for shares of common stock769,701 8 (8)— — 
Repurchase of common stock and restricted stock units(355,158)(3)(21,134)(21,137)(21,137)
Distributions to noncontrolling interests in consolidated property partnerships— (11,680)(11,680)
Adjustment for noncontrolling interest256 256 (256)— 
Dividends declared per common share and common unit ($0.500 per share/unit)(60,002)(60,002)(575)(60,577)
BALANCE AS OF MARCH 31, 2021116,450,370 $1,165 $5,122,584 $334,496 $5,458,245 $244,647 $5,702,892 












See accompanying notes to consolidated financial statements.

3
3


KILROY REALTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
 
 Three Months Ended March 31,
 20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$59,383 $507,411 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of real estate assets and leasing costs87,001 74,431 
Depreciation of non-real estate furniture, fixtures and equipment1,659 1,501 
Revenue (recoveries) reversals for doubtful accounts, net (Note 8)(1,311)1,035 
Non-cash amortization of share-based compensation awards5,256 7,877 
Non-cash amortization of deferred financing costs and debt discounts821 794 
Non-cash amortization of net below market rents(2,892)(1,181)
Gain on sale of depreciable operating property— (457,288)
Non-cash amortization of deferred revenue related to tenant-funded tenant improvements(4,261)(4,204)
Straight-line rents(13,847)(17,292)
Amortization of right of use ground lease assets356 211 
Net change in other operating assets2,657 1,710 
Net change in other operating liabilities43,837 29,147 
Net cash provided by operating activities178,659 144,152 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Expenditures for acquisitions of development properties and undeveloped land (Note 2)(40,033)— 
Expenditures for development and redevelopment properties and undeveloped land(112,314)(172,325)
Expenditures for operating properties and other capital assets(17,027)(28,242)
Net proceeds received from disposition— 1,012,817 
Net cash (used in) provided by investing activities(169,374)812,250 
CASH FLOWS FROM FINANCING ACTIVITIES:  
Financing costs(318)(235)
Repurchase of common stock and restricted stock units(13,994)(21,137)
Distributions to noncontrolling interests in consolidated property partnerships(14,834)(11,672)
Dividends and distributions paid to common stockholders and common unitholders(61,161)(58,594)
Principal payments and repayments of secured debt(1,369)(1,316)
Net cash used in financing activities(91,676)(92,954)
Net (decrease) increase in cash and cash equivalents and restricted cash(82,391)863,448 
Cash and cash equivalents and restricted cash, beginning of period427,083 823,130 
Cash and cash equivalents and restricted cash, end of period$344,692 $1,686,578 
 Nine Months Ended September 30,
 2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net income$148,075
 $268,380
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization of real estate assets and leasing costs181,875
 157,587
Depreciation of non-real estate furniture, fixtures and equipment3,862
 2,865
Increase in provision for bad debts2,743
 —
Non-cash amortization of share-based compensation awards13,617
 15,263
Non-cash amortization of deferred financing costs and debt discounts and premiums2,398
 2,020
Non-cash amortization of net below market rents(6,026) (5,128)
Gains on sales of depreciable operating properties (Note 2)(39,507) (164,302)
(Gain) loss on sale of land (Note 2)(449) 295
Non-cash amortization of deferred revenue related to tenant-funded tenant improvements(12,394) (9,700)
Straight-line rents(25,537) (22,856)
Net change in other operating assets(16,970) (7,263)
Net change in other operating liabilities24,855
 15,444
Net cash provided by operating activities276,542
 252,605
CASH FLOWS FROM INVESTING ACTIVITIES:   
Expenditures for development properties and undeveloped land(270,839) (222,719)
Expenditures for operating properties and other capital assets(61,875) (81,688)
Net proceeds received from dispositions (Note 2)182,492
 325,031
(Increase) decrease in acquisition-related deposits(30,490) 1,902
Expenditures for acquisition of operating properties—
 (55,415)
Expenditures for acquisition of undeveloped land—
 (33,513)
Increase in note receivable—
 (1,000)
Net cash used in investing activities(180,712) (67,402)
CASH FLOWS FROM FINANCING ACTIVITIES:   
Net proceeds from issuance of common stock (Note 7)308,812
 —
Redemption of Series G and H Preferred stock (Note 7)(200,000) —
Proceeds from the issuance of unsecured debt (Note 5)250,000
 —
Repayments of unsecured debt (Note 5)(189,000) —
Borrowings on unsecured revolving credit facility70,000
 305,000
Repayments on unsecured revolving credit facility(10,000) (305,000)
Principal payments on secured debt(5,740) (7,254)
Financing costs(7,480) (1,485)
Repurchase of common stock and restricted stock units(12,986) (6,874)
Proceeds from exercise of stock options12,051
 2,173
Contributions from noncontrolling interests in consolidated property partnerships250
 191,676
Distributions to noncontrolling interests in consolidated property partnerships(12,234) (1,139)
Dividends and distributions paid to common stockholders and common unitholders(297,993) (101,542)
Dividends and distributions paid to preferred stockholders and preferred unitholders (Note 7)(7,409) (9,938)
Net cash (used in) provided by financing activities(101,729) 65,617
Net (decrease) increase in cash and cash equivalents and restricted cash(5,899) 250,820
Cash and cash equivalents and restricted cash, beginning of period250,129
 57,204
Cash and cash equivalents and restricted cash, end of period$244,230
 $308,024

























See accompanying notes to consolidated financial statements.

4
4







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


KILROY REALTY, L.P.
CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except unit data)
 
 March 31, 2022December 31, 2021
ASSETS
REAL ESTATE ASSETS (Note 2):
Land and improvements$1,715,192 $1,731,982 
Buildings and improvements7,509,311 7,543,585 
Undeveloped land and construction in progress2,158,279 2,017,126 
Total real estate assets held for investment11,382,782 11,292,693 
Accumulated depreciation and amortization(2,034,193)(2,003,656)
Total real estate assets held for investment, net9,348,589 9,289,037 
CASH AND CASH EQUIVALENTS331,685 414,077 
RESTRICTED CASH13,007 13,006 
MARKETABLE SECURITIES (Note 10)25,829 27,475 
CURRENT RECEIVABLES, NET12,107 14,386 
DEFERRED RENT RECEIVABLES, NET420,895 405,665 
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET228,426 234,458 
RIGHT OF USE GROUND LEASE ASSETS126,946 127,302 
PREPAID EXPENSES AND OTHER ASSETS, NET57,338 57,991 
TOTAL ASSETS$10,564,822 $10,583,397 
LIABILITIES AND CAPITAL
LIABILITIES:
Secured debt, net (Notes 3 and 10)$247,030 $248,367 
Unsecured debt, net (Notes 3 and 10)3,821,433 3,820,383 
Accounts payable, accrued expenses and other liabilities391,920 391,264 
Ground lease liabilities125,414 125,550 
Accrued distributions (Note 15)61,951 61,850 
Deferred revenue and acquisition-related intangible liabilities, net171,121 171,151 
Rents received in advance and tenant security deposits80,192 74,962 
Total liabilities4,899,061 4,893,527 
COMMITMENTS AND CONTINGENCIES (Note 9)00
CAPITAL:
Common units, 116,716,080 and 116,464,169 held by the general partner and 1,150,574 and 1,150,574
held by common limited partners issued and outstanding, respectively (Note 5)
5,478,800 5,493,806 
Noncontrolling interests in consolidated property partnerships (Note 1)186,961 196,064 
Total capital5,665,761 5,689,870 
TOTAL LIABILITIES AND CAPITAL$10,564,822 $10,583,397 
 September 30, 2017 December 31, 2016
ASSETS 
(unaudited)  
REAL ESTATE ASSETS:   
Land and improvements$1,076,172
 $1,108,971
Buildings and improvements4,871,667
 4,938,250
Undeveloped land and construction in progress1,292,017
 1,013,533
Total real estate assets held for investment7,239,856
 7,060,754
Accumulated depreciation and amortization(1,216,358) (1,139,853)
Total real estate assets held for investment, net6,023,498
 5,920,901
REAL ESTATE ASSETS AND OTHER ASSETS HELD FOR SALE, NET—
 9,417
CASH AND CASH EQUIVALENTS64,954
 193,418
RESTRICTED CASH (Note 2)179,276
 56,711
MARKETABLE SECURITIES (Note 11)18,851
 14,773
CURRENT RECEIVABLES, NET (Note 3)18,626
 13,460
DEFERRED RENT RECEIVABLES, NET (Note 3)238,959
 218,977
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET185,420
 208,368
PREPAID EXPENSES AND OTHER ASSETS, NET (Note 4)108,715
 70,608
TOTAL ASSETS$6,838,299
 $6,706,633
LIABILITIES AND CAPITAL   
LIABILITIES:   
Secured debt, net (Notes 5 and 11)$465,828
 $472,772
Unsecured debt, net (Notes 5 and 11)1,909,381
 1,847,351
Unsecured line of credit (Notes 5 and 11)60,000
 —
Accounts payable, accrued expenses and other liabilities271,405
 202,391
Accrued distributions (Note 16)43,324
 222,306
Deferred revenue and acquisition-related intangible liabilities, net145,556
 150,360
Rents received in advance and tenant security deposits46,925
 52,080
Liabilities of real estate assets held for sale—
 56
Total liabilities2,942,419
 2,947,316
COMMITMENTS AND CONTINGENCIES (Note 10)
 
CAPITAL:   
Partners’ Capital (Note 8):   
6.875% Series G Cumulative Redeemable Preferred units, no units issued and outstanding at 9/30/2017, 4,000,000 units issued and outstanding ($100,000 liquidation preference) at 12/31/2016—
 96,155
6.375% Series H Cumulative Redeemable Preferred units, no units issued and outstanding at 9/30/2017, 4,000,000 units issued and outstanding ($100,000 liquidation preference) at 12/31/2016—
 96,256
Common units, 98,382,256 and 93,219,439 held by the general partner and 2,077,193 and 2,381,543
held by common limited partners issued and outstanding, respectively
3,763,078

3,431,768
Total partners’ capital3,763,078
 3,624,179
Noncontrolling interests in consolidated property partnerships and subsidiaries (Note 1)132,802

135,138
Total capital3,895,880

3,759,317
TOTAL LIABILITIES AND CAPITAL$6,838,299

$6,706,633



















See accompanying notes to consolidated financial statements.

5
5


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


Three Months Ended March 31,
20222021
REVENUES
Rental income (Note 8)$263,208 $234,656 
Other property income2,293 990 
Total revenues265,501 235,646 
EXPENSES
Property expenses45,424 38,859 
Real estate taxes25,870 25,266 
Ground leases1,826 1,828 
General and administrative expenses (Note 7)22,781 21,985 
Leasing costs1,013 692 
Depreciation and amortization88,660 75,932 
Total expenses185,574 164,562 
OTHER INCOME (EXPENSES)
Interest and other income, net81 1,373 
Interest expense (Note 3)(20,625)(22,334)
Gain on sale of depreciable operating property— 457,288 
Total other (expenses) income(20,544)436,327 
NET INCOME59,383 507,411 
Net income attributable to noncontrolling interests in consolidated property partnerships and subsidiaries(5,739)(4,894)
NET INCOME AVAILABLE TO COMMON UNITHOLDERS$53,644 $502,517 
Net income available to common unitholders per unit – basic (Note 12)$0.45 $4.27 
Net income available to common unitholders per unit – diluted (Note 12)$0.45 $4.26 
Weighted average common units outstanding – basic (Note 12)117,800,802 117,494,949 
Weighted average common units outstanding – diluted (Note 12)118,210,668 117,951,958 
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
REVENUES       
Rental income$159,954
 $146,539
 $475,527
 $423,947
Tenant reimbursements19,665
 16,406
 58,228
 43,948
Other property income1,915
 5,403
 7,685
 6,032
Total revenues181,534
 168,348
 541,440
 473,927
EXPENSES       
Property expenses33,070
 30,050
 97,615
 85,236
Real estate taxes16,371
 14,501
 50,878
 39,378
Provision for bad debts1,036
 —
 2,743
 —
Ground leases1,562
 909
 4,751
 2,506
General and administrative expenses14,514
 13,533
 43,750
 40,949
Acquisition-related expenses (Note 1)—
 188
 —
 964
Depreciation and amortization62,567
 56,666
 185,737
 160,452
Total expenses129,120
 115,847
 385,474
 329,485
OTHER (EXPENSES) INCOME       
Interest income and other net investment gains (Note 11)1,526
 538
 3,629
 1,120
Interest expense (Note 5)(16,151) (14,976) (51,476) (41,189)
Total other (expenses) income(14,625) (14,438) (47,847) (40,069)
INCOME FROM OPERATIONS BEFORE GAINS (LOSS) ON SALES OF REAL ESTATE37,789
 38,063
 108,119
 104,373
Net gain (loss) on sale of land (Note 2)449
 —
 449
 (295)
Gains on sales of depreciable operating properties (Note 2)37,250
 18,312
 39,507
 164,302
NET INCOME75,488
 56,375
 148,075
 268,380
Net income attributable to noncontrolling interests in consolidated property partnerships and subsidiaries(3,086) (1,121) (9,648) (1,703)
NET INCOME ATTRIBUTABLE TO KILROY REALTY, L.P.72,402
 55,254
 138,427
 266,677
Preferred distributions(808) (3,313) (5,774) (9,938)
Original issuance costs of redeemed preferred units (Note 8)(3,744) —
 (7,589) —
Total preferred distributions(4,552) (3,313) (13,363) (9,938)
NET INCOME AVAILABLE TO COMMON UNITHOLDERS$67,850
 $51,941
 $125,064
 $256,739
Net income available to common unitholders per unit – basic (Note 13)$0.67
 $0.54
 $1.23
 $2.70
Net income available to common unitholders per unit – diluted (Note 13)$0.67
 $0.54
 $1.23
 $2.68
Weighted average common units outstanding – basic (Note 13)100,429,332
 94,858,292
 100,160,595
 94,630,183
Weighted average common units outstanding – diluted (Note 13)100,988,805
 95,551,682
 100,742,863
 95,241,199
Dividends declared per common unit$0.425
 $0.375
 $1.225
 $1.100










































See accompanying notes to consolidated financial statements.

6
6


KILROY REALTY, L.P.
CONSOLIDATED STATEMENTS OF CAPITAL
(Unaudited; in thousands, except unit and per unit data)
Partners’ CapitalNoncontrolling Interests in Consolidated Property Partnerships
Number of
Common
Units		Common
Units		Total
Capital
BALANCE AS OF DECEMBER 31, 2021117,614,743 $5,493,806 $196,064 $5,689,870 
Net income53,644 5,739 59,383 
Issuance of share-based compensation awards1,942 1,942 
Non-cash amortization of share-based compensation (Note 7)6,598 6,598 
Settlement of restricted stock units459,050 — — 
Repurchase of common units and restricted stock units(207,139)(13,994)(13,994)
Distributions to noncontrolling interests in consolidated property partnerships(14,842)(14,842)
Distributions declared per common unit ($0.52 per unit)(63,196)(63,196)
BALANCE AS OF MARCH 31, 2022117,866,654 $5,478,800 $186,961 $5,665,761 

 Partners’ Capital 
Total
Partners’ 
Capital
 Noncontrolling Interests in Consolidated Property Partnerships and Subsidiaries  
 
Preferred
Units
 
Number of
Common
Units
 
Common
Units
   
Total
Capital
BALANCE AS OF DECEMBER 31, 2015$192,411
 94,023,465
 $3,031,609
 $3,224,020
 $10,566
 $3,234,586
Net income    266,677
 266,677
 1,703
 268,380
Issuance of common units in connection with acquisition  867,701
 48,033
 48,033
   48,033
Issuance of share-based compensation awards    1,339
 1,339
   1,339
Non-cash amortization of share-based compensation    19,303
 19,303
   19,303
Exercise of stock options  51,000
 2,173
 2,173
   2,173
Repurchase of common units, stock options and restricted stock units  (110,528) (6,874) (6,874)   (6,874)
Settlement of restricted stock units  72,130
 —
 —
   —
Initial contribution from noncontrolling interest in consolidated property partnership, net of transaction costs    113,022
 113,022
 78,654
 191,676
Distributions to noncontrolling interests in consolidated
property partnerships
        (1,139) (1,139)
Preferred distributions    (9,938) (9,938)   (9,938)
Distributions declared per common unit ($1.10 per unit)    (105,637) (105,637)   (105,637)
BALANCE AS OF SEPTEMBER 30, 2016$192,411
 94,903,768
 $3,359,707
 $3,552,118
 $89,784
 $3,641,902
            


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







 Partners’ Capital 
Total
Partners’ 
Capital
 Noncontrolling Interests in Consolidated Property Partnerships and Subsidiaries  
 
Preferred
Units
 
Number of
Common
Units
 
Common
Units
  
Total
Capital
BALANCE AS OF DECEMBER 31, 2016$192,411
 95,600,982
 $3,431,768
 $3,624,179
 $135,138
 $3,759,317
Net income    138,427
 138,427
 9,648
 148,075
Redemption of Series G and H Preferred units (Note 8)(192,411)   (7,589) (200,000)   (200,000)
Issuance of common units (Note 8)  4,427,500
 308,812
 308,812
   308,812
Issuance of share-based compensation awards    5,291
 5,291
   5,291
Non-cash amortization of share-based compensation    19,013
 19,013
   19,013
Exercise of stock options (Note 9)  282,000
 12,051
 12,051
   12,051
Settlement of restricted stock units  317,848
 —
 —
   —
Repurchase of common units, stock options and restricted stock units  (168,881) (12,986) (12,986)   (12,986)
Contributions from noncontrolling interests in consolidated property partnerships    

 

 250
 250
Distributions to noncontrolling interests in consolidated property partnerships      

 (12,234) (12,234)
Preferred distributions    (5,774) (5,774)   (5,774)
Distributions declared per common unit ($1.225 per unit)    (125,935) (125,935)   (125,935)
BALANCE AS OF SEPTEMBER 30, 2017$—
 100,459,449
 $3,763,078
 $3,763,078
 $132,802
 $3,895,880






























See accompanying notes to consolidated financial statements.

7
7


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


Nine Months Ended September 30, Three Months Ended March 31,
2017 2016 20222021
CASH FLOWS FROM OPERATING ACTIVITIES:   CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$148,075
 $268,380
Net income$59,383 $507,411 
Adjustments to reconcile net income to net cash provided by operating activities:   Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of real estate assets and leasing costs181,875
 157,587
Depreciation and amortization of real estate assets and leasing costs87,001 74,431 
Depreciation of non-real estate furniture, fixtures and equipment3,862
 2,865
Depreciation of non-real estate furniture, fixtures and equipment1,659 1,501 
Increase in provision for bad debts2,743
 —
Revenue (recoveries) reversals for doubtful accounts, net (Note 8)Revenue (recoveries) reversals for doubtful accounts, net (Note 8)(1,311)1,035 
Non-cash amortization of share-based compensation awards13,617
 15,263
Non-cash amortization of share-based compensation awards5,256 7,877 
Non-cash amortization of deferred financing costs and debt discounts and premiums2,398
 2,020
Non-cash amortization of deferred financing costs and debt discountsNon-cash amortization of deferred financing costs and debt discounts821 794 
Non-cash amortization of net below market rents(6,026) (5,128)Non-cash amortization of net below market rents(2,892)(1,181)
Gains on sales of depreciable operating properties (Note 2)(39,507) (164,302)
(Gain) loss on sale of land (Note 2)(449) 295
Gain on sale of depreciable operating propertyGain on sale of depreciable operating property— (457,288)
Non-cash amortization of deferred revenue related to tenant-funded tenant improvements(12,394) (9,700)Non-cash amortization of deferred revenue related to tenant-funded tenant improvements(4,261)(4,204)
Straight-line rents(25,537) (22,856)Straight-line rents(13,847)(17,292)
Amortization of right of use ground lease assetsAmortization of right of use ground lease assets356 211 
Net change in other operating assets(16,970) (7,263)Net change in other operating assets2,657 1,710 
Net change in other operating liabilities24,855
 15,444
Net change in other operating liabilities43,837 29,147 
Net cash provided by operating activities276,542
 252,605
Net cash provided by operating activities178,659 144,152 
CASH FLOWS FROM INVESTING ACTIVITIES:   CASH FLOWS FROM INVESTING ACTIVITIES:  
Expenditures for development properties and undeveloped land(270,839) (222,719)
Expenditures for acquisition of development properties and undeveloped land (Note 2)Expenditures for acquisition of development properties and undeveloped land (Note 2)(40,033)— 
Expenditures for development and redevelopment properties and undeveloped landExpenditures for development and redevelopment properties and undeveloped land(112,314)(172,325)
Expenditures for operating properties and other capital assets(61,875) (81,688)Expenditures for operating properties and other capital assets(17,027)(28,242)
Net proceeds received from dispositions (Note 2)182,492
 325,031
(Increase) decrease in acquisition-related deposits(30,490) 1,902
Expenditures for acquisition of operating properties—
 (55,415)
Expenditures for acquisition of undeveloped land—
 (33,513)
Increase in note receivable—
 (1,000)
Net cash used in investing activities(180,712) (67,402)
Net proceeds received from dispositionNet proceeds received from disposition— 1,012,817 
Net cash (used in) provided by investing activitiesNet cash (used in) provided by investing activities(169,374)812,250 
CASH FLOWS FROM FINANCING ACTIVITIES:   CASH FLOWS FROM FINANCING ACTIVITIES:  
Net proceeds from issuance of common units (Note 8)308,812
 —
Redemption of Series G and H Preferred units (Note 8)(200,000) —
Proceeds from the issuance of unsecured debt (Note 5)250,000
 —
Repayments of unsecured debt (Note 5)(189,000) —
Borrowings on unsecured revolving credit facility70,000
 305,000
Repayments on unsecured revolving credit facility(10,000) (305,000)
Principal payments on secured debt(5,740) (7,254)
Financing costs(7,480) (1,485)Financing costs(318)(235)
Repurchase of common units and restricted stock units(12,986) (6,874)Repurchase of common units and restricted stock units(13,994)(21,137)
Proceeds from exercise of stock options12,051
 2,173
Contributions from noncontrolling interests in consolidated property partnerships250
 191,676
Distributions to noncontrolling interests in consolidated property partnerships(12,234) (1,139)Distributions to noncontrolling interests in consolidated property partnerships(14,834)(11,672)
Distributions paid to common unitholders(297,993) (101,542)Distributions paid to common unitholders(61,161)(58,594)
Distributions paid to preferred unitholders (Note 8)(7,409) (9,938)
Net cash (used in) provided by financing activities(101,729) 65,617
Principal payments and repayments of secured debtPrincipal payments and repayments of secured debt(1,369)(1,316)
Net cash used in financing activitiesNet cash used in financing activities(91,676)(92,954)
Net (decrease) increase in cash and cash equivalents and restricted cash(5,899) 250,820
Net (decrease) increase in cash and cash equivalents and restricted cash(82,391)863,448 
Cash and cash equivalents and restricted cash, beginning of period250,129
 57,204
Cash and cash equivalents and restricted cash, beginning of period427,083 823,130 
Cash and cash equivalents and restricted cash, end of period$244,230
 $308,024
Cash and cash equivalents and restricted cash, end of period$344,692 $1,686,578 
 























See accompanying notes to consolidated financial statements.

8
8


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


1.    Organization, Ownership and Basis of Presentation


Organization and Ownership


Kilroy Realty Corporation (the “Company”) is a self-administered real estate investment trust (“REIT”) active in premier office, life science and mixed-use submarkets alongin the West Coast.United States. We own, develop, acquire and manage real estate assets, consisting primarily of Class A properties in the coastal regions ofGreater Los Angeles, Orange County, San Diego County, the San Francisco Bay Area, and Greater Seattle and Austin, Texas, which we believe have strategic advantages and strong barriers to entry. Class A real estate encompasses attractive and efficient buildings of high quality that are attractive to tenants, are well-designed and constructed with above-average material, workmanship and finishes and are well-maintained and managed. We qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). The Company’s common stock is publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “KRC.”


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


Our stabilized portfolio of operating properties was comprised of the following properties at September 30, 2017:March 31, 2022:

Number of
Buildings		Rentable
Square Feet		Number of
Tenants
Percentage 
Occupied (1)
Percentage Leased
Stabilized Office Properties (2)
118 15,221,912 415 91.3 %93.1 %
________________________
 
Number of
Buildings
 
Rentable
Square Feet
(unaudited)
 
Number of
Tenants
 
Percentage 
Occupied (unaudited)
 Percentage Leased (unaudited)
Stabilized Office Properties101
 13,720,598
 515
 94.0% 96.2%
(1)Represents economic occupancy.

(2)Includes stabilized life science and retail space.

 Number of
Buildings		 Number of Units 
Percentage 
Occupied
(unaudited)
 
Percentage Leased
(unaudited)
Stabilized Residential Property1
 200
 72.0% 74.5%
Number of
Projects		Number of
Units		2022 Average Occupancy
Stabilized Residential Properties3 1,001 93.7 %


Our stabilized portfolio includes all of our properties with the exception of development and redevelopment properties currently committed for construction, under construction, or committed forin the tenant improvement phase, redevelopment properties under construction, “lease-up” properties,undeveloped land 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 life science properties that we recently developedare developing or redeveloped that have not yetredeveloping 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 withinor one year followingfrom the date of the cessation of major base building construction activities. There were no operatingCosts capitalized to construction in progress for development and redevelopment properties are transferred to land and improvements, buildings and improvements, and deferred leasing costs on our consolidated balance sheets at the historical cost of the property as the projects or phases of projects are placed in “lease-up” or held for sale as of September 30, 2017.service.


During the nine months ended September 30, 2017, we added one development project to our stabilized office portfolio consisting of 365,359 rentable square feet in Hollywood, California. As of September 30, 2017,March 31, 2022, the following properties were excluded from our stabilized portfolio. We did not have any redevelopment properties held for sale at September 30, 2017.March 31, 2022.

 
Number of
Properties/Projects
 
Estimated Rentable
Square Feet (1)
Development projects under construction (2)
4 1,800,000
Number of
Properties/Projects
Estimated Rentable
Square Feet (1)
In-process development projects - tenant improvement31,604,000 
In-process development projects - under construction2946,000 
In-process redevelopment projects - under construction3330,000 
________________________
(1)Estimated rentable square feet upon completion.
(2)Development projects under construction also include 96,000 square feet of retail space and 237 residential units in addition to the estimated office rentable square feet noted above.

(1)Estimated rentable square feet upon completion.
Our stabilized portfolio also excludes our near-term and future development pipeline, which as of September 30, 2017 was comprised offivedevelopment sites, representing approximately 47gross acres of undeveloped land.



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







Our stabilized portfolio also excludes our future development pipeline, which as of March 31, 2022 was comprised of 7 future development sites, representing approximately 62 gross acres of undeveloped land.

As of September 30, 2017,March 31, 2022, all of our properties, development projects and developmentredevelopment projects were owned and all of our business was conducted in the state of California with the exception of twelve9 stabilized office properties, and one1 development project under constructionin the tenant improvement phase and 1 future development project located in the state of Washington.Washington, and 1 development project in the tenant improvement phase and 1 future development project in Austin, Texas. All of our properties, development projects and developmentredevelopment projects are 100% owned, excluding four4 office properties owned by three3 consolidated property partnerships.

Two NaN of the three3 consolidated property partnerships, 100 First Street Member, LLC (“100 First LLC”) and 303 Second Street Member, LLC (“303 Second LLC”), each owned one1 office property in San Francisco, California through subsidiary REITs. As of September 30, 2017,March 31, 2022, the Company owned a 56% common equity interest in both 100 First LLC and 303 Second LLC. The third consolidated property partnership, Redwood City Partners, LLC (“Redwood LLC”) owned two2 office properties in Redwood City, California. As of September 30, 2017,March 31, 2022, the Company owned an approximate 93% common equity interest in Redwood LLC. The remaining interests in all three3 property partnerships were owned by unrelated third parties.


Ownership and Basis of Presentation


The consolidated financial statements of the Company include the consolidated financial position and results of operations of the Company, the Operating Partnership, the Finance Partnership, Kilroy Services,303 Second LLC, (“KSLLC”), 100 First LLC, 303 Second LLC, Redwood LLC and all of our wholly-owned and controlled subsidiaries. The consolidated financial statements of the Operating Partnership include the consolidated financial position and results of operations of the Operating Partnership, the Finance Partnership, KSLLC,303 Second LLC, 100 First LLC, 303 Second 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.


As of September 30, 2017,March 31, 2022, the Company owned an approximate 97.9%99.0% common general partnership interest in the Operating Partnership. The remaining approximate 2.1%1.0% common limited partnership interest in the Operating Partnership as of September 30, 2017March 31, 2022 was owned by non-affiliated investors and certain of our executive officers and directors (see Note 6).directors. Both the general and limited common partnership interests in the Operating Partnership are denominated in common units. Generally, the number of common units held by the Company is equivalent to the number of outstanding shares of the Company’s common stock, and the rights of all the common units to quarterly distributions and payments in liquidation mirror those of the Company’s common stockholders. The common limited partners have certain redemption rights as provided in the Operating Partnership’s Seventh Amended and Restated Agreement of Limited Partnership, as amended, the “Partnership Agreement.”

Kilroy Realty Finance, Inc., which is a wholly-owned subsidiary of the Company, is the sole general partner of the Finance Partnership and owns a 1.0% common general partnership interest in the Finance Partnership. The Operating Partnership owns the remaining 99.0% common limited partnership interest. We conduct substantially all of our development activities through KSLLC, which is a wholly owned subsidiary of the Operating Partnership.Agreement”. With the exception of the Operating Partnership and our consolidated property partnerships, all of our subsidiaries are wholly-owned.


The accompanying interim financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying interim financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented. However, the results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.2022. The interim financial statements for the Company and the Operating Partnership should be read in conjunction with the audited consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2016.2021.



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



Variable Interest Entities
The Operating Partnership is a variable interest entity (“VIE”) ofthat is consolidated by the Company as the primary beneficiary as the Operating Partnership is a limited partnership in which the common limited partners do not have substantive kick-out or participating rights. At September 30, 2017,March 31, 2022, the consolidated financial statements of the Company included two3 VIEs in addition to the Operating Partnership: 100 First LLC, and 303 Second LLC.LLC and one entity established during the first quarter of 2022 to facilitate potential future Section 1031 Exchanges. At September 30, 2017,March 31, 2022, the Company and the Operating Partnership were determined to be the primary beneficiaries of these two3 VIEs since we had the ability to control the activities that most significantly impact each of the VIE’sVIEs’ economic performance. As of September 30, 2017, these twoMarch 31, 2022, the 3 VIEs’ total assets, liabilities and noncontrolling interests included on our consolidated balance sheet were approximately $429.4$483.5 million (of which $383.7$413.2 million related to real estate held for investment), approximately $151.4$29.8 million and approximately $121.8$181.7 million, respectively. Revenues, income and net assets

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




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


At December 31, 2016,2021, the consolidated financial statements of the Company included 2 VIEs in addition to the Operating Partnership: 100 First LLC and 303 Second LLC. At December 31, 2021, the Company and the Operating Partnership included three VIEs in which we were deemeddetermined to be the primary beneficiary: 100 First LLC, 303 Second LLC and an entity established duringbeneficiaries of these 2 VIEs since we had the fourth quarter of 2016ability to facilitate a transaction intended to qualify as a like-kind exchange pursuant to Section 1031control the activities that most significantly impact each of the Code (“Section 1031 Exchange”). In January 2017, the Section 1031 Exchange was successfully completed and the entity established for the 1031 Exchange was no longer a VIE.VIEs’ economic performance. At December 31, 2016,2021, the impact of consolidating the VIEs increased the Company’s total assets, liabilities and noncontrolling interests on our consolidated balance sheet by approximately $654.3$462.3 million (of which $588.6$377.9 million related to real estate held for investment), approximately $166.1$28.1 million and approximately $124.3$190.7 million, respectively.
Adoption of New Accounting Pronouncements
Effective January 1, 2017,

2.Acquisitions

Development Project Acquisitions

During the Company adopted FASB ASU No. 2017-01 (“ASU 2017-01”) which clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework provides a screen for determining whether an integrated set of assets is a business combination or an asset acquisition and clarifies that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar assets, the set of assets and activities is deemed not to meet the definition of a business. As a result of our adoption of the guidance, which we adopted on a prospective basis, the Company expects that most of our future acquisitions of operating properties and development properties that were previously accounted for as business combinations will instead be accounted for as asset acquisitions under the new guidance. In addition, we expect that most of the transaction costs associated with these future acquisitions will be capitalized as part of the purchase price of the acquisition instead of being expensed as incurred to acquisition-related expenses. The Company did not have any acquisitions of operating properties during the ninethree months ended September 30, 2017.March 31, 2022, we acquired the following development site from an unrelated third party.
Also effective January 1, 2017, the Company adopted ASU No. 2016-18 (“ASU 2016-18”) which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The Company adopted ASU 2016-18 on a retrospective basis. Therefore, amounts generally described as restricted cash and restricted cash equivalents are included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the Company’s consolidated statements of cash flows for the nine months ended September 30, 2017 and 2016. As a result of the adoption of ASU 2016-18, the change in restricted cash is no longer presented as a separate line item within cash flows from investing activities on the Company’s consolidated statements of cash flows since such balances are now included in total cash at both the beginning and end of the reporting period. As a result, for the nine months ended September 30, 2016, the Company had net cash used in investing activities of $67.4 million instead of net cash used in investing activities of $124.2 million as previously reported since the Company had an increase in restricted cash of $56.8 million during the nine months ended September 30, 2016 primarily due to $48.4 million of restricted cash that was held at qualified intermediaries to facilitate potential future Section1031 Exchanges.
PropertyDate of AcquisitionSubmarket
Purchase Price (in millions) (1)
10615 Burnet Road, Austin, TXMarch 9, 2022Stadium District / Domain$40.0 
________________________ 
In addition, effective January 1, 2017, the Company adopted ASU No. 2016-09 (“ASU 2016-09”) which simplified several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The adoption of this guidance did not have an impact on our consolidated financial statements or notes to our consolidated financial statements.(1)Excludes acquisition-related costs.
Recently Issued Accounting Pronouncements

ASU No. 2016-02 “Leases (Topic 842)”

On February 25, 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”) to amend the accounting guidance for leases. The accounting applied by a lessor is largely unchanged under ASU 2016-02. However, the standard requires lessees to recognize lease assets and lease liabilities for leases classified as operating leases on the balance sheet. Lessees will recognize in the statement of financial position a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it will recognize lease expense for such leases generally on a straight-line basis over the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and early adoption is permitted.
We are currently conducting our evaluation of the impact of the guidance on our consolidated financial statements and have an active project team working on the evaluation and implementation of the guidance. We currently believe that the adoption of


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







the standard will not significantly change the accounting for operating leases on our consolidated balance sheets where we are the lessor, and that such leases will be accounted for in a similar method to existing standards with the underlying leased asset being reported and recognized as a real estate asset. We currently expect that certain non-lease components will need to be accounted for separately from the lease components, with the lease components continuing to be recognized on a straight-line basis over the term of the lease and certain non-lease components (such as common area maintenance) being accounted for under the new revenue recognition guidance in ASU 2014-09 discussed below, even when revenue for such non-lease components is not separately stipulated in the lease. In addition, under ASU 2016-02, lessors will only be permitted to capitalize and amortize incremental direct leasing costs. As a result, we expect that upon the adoption of the standard, we will no longer be able to capitalize and amortize certain leasing related costs and instead will expense these costs as incurred. We currently expect this could have a material impact to the Company’s results of operations upon adoption of the standard.
For leases where we are the lessee, specifically for our ground leases, we currently believe that the adoption of the standard will significantly change the accounting on our consolidated balance sheets since both existing ground leases and any future ground leases will be required to be recorded on the Company’s consolidated balance sheets as an obligation of the Company. We currently believe that existing ground leases executed before the January 1, 2019 adoption date will continue to be accounted for as operating leases and will not have a material impact on our recognition of ground lease expense or our results of operations. However, we believe that we will be required to recognize a right of use asset and a lease liability on our consolidated balance sheets equal to the present value of the minimum lease payments required in accordance with each ground lease. As of September 30, 2017, our future undiscounted minimum rental payments under these leases totaled$252.8 million, with several of the leases containing provisions for rental payments to fluctuate based on fair market value and operating income measurements with expirations through 2093. In addition, we currently believe that for new ground leases entered into after the adoption date of the new standard, such leases could be required to be accounted for as a financing type lease, resulting in ground lease expense recorded using the effective interest method instead of on a straight-line basis over the term of the lease. This could have a significant impact on our results of operations if we enter into material new ground leases after the date of adoption since ground lease expense calculated using the effective interest method results in an increased amount of ground lease expense in the earlier years of a ground lease as compared to the current straight-line method.
We will adopt the guidance on a modified retrospective basis as required by ASU 2016-02. We are in the process of evaluating whether we will elect to apply the practical expedients identified in the standard but currently believe that we may do so.
ASU No. 2014-09 “Revenue From Contracts with Customers (Topic 606)”

In May 2014, the FASB issued ASU 2014-09 “Revenue From Contracts with Customers (Topic 606)” (“ASU 2014-09”). The objective of ASU 2014-09 is to establish a single comprehensive model for entities to use in accounting for revenue from contracts with customers and will supersede most of the existing revenue recognition guidance. On May 9, 2016 and December 21, 2016, the FASB issued ASU No. 2016-12 and ASU No. 2016-20, which provides practical expedients, technical corrections, and improvements for certain aspects of ASU No. 2014-09. Public business entities may elect to adopt the amendments as of the original effective date; however, adoption is required for annual reporting periods beginning after December 15, 2017.
We have compiled an inventory of the sources of revenue that will be impacted by ASU 2014-09. Specifically, we have evaluated the impact of the guidance on timing of gain recognition for dispositions and currently do not believe there will be a material impact to our consolidated financial statements given the simplicity of the Company’s historical disposition transactions. In addition, we currently believe that certain non-lease components of revenue from leases such as common area maintenance and certain types of parking revenue may be impacted by ASU 2014-09 when we adopt ASU 2016-02 on January 1, 2019. We are in the process of evaluating the impact on these non-lease revenue components and currently believe the impact will be limited to the income statement presentation of revenue and not the total amount of revenue recognized.
Other Recently Issued Pronouncements
On May 10, 2017, the FASB issued ASU No. 2017-09 “Compensation - Stock Compensation (Topic 718)” to clarify the scope of modification accounting. Under the guidance, an entity will not apply modification accounting to a share-based payment award if the award’s fair value, vesting conditions, and classification as an equity or liability instrument remain the same immediately before and after the change. The guidance is effective for annual periods beginning after December 15, 2017 and early adoption is permitted. The Company does not currently anticipate that the guidance will have a material impact on our consolidated financial statements or notes to our consolidated financial statements.

On February 22, 2017, the FASB issued ASU No. 2017-05 “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20)” (“ASU 2017-05”) to provide guidance and clarify the scope of the original guidance within Subtopic 610-20 “Gains and Losses from the Derecognition of Nonfinancial Assets” that was issued in connection with ASU

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




2014-09, which provided guidance for recognizing gains and losses from the transfer of nonfinancial assets in transactions with noncustomers. ASU 2017-05 additionally adds guidance pertaining to the partial sales of real estate and clarifies that nonfinancial assets within the scope of Accounting Standards Codification Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. For example, a parent may transfer control of nonfinancial assets by transferring ownership interests in a consolidated subsidiary. ASU 2017-05 is effective for fiscal years beginning after December 15, 2017, with early application permitted for fiscal years beginning after December 15, 2016. We are currently evaluating the impact of ASU 2017-05 on our consolidated financial statements and currently do not anticipate that the guidance will have a material impact on our consolidated financial statements or notes to our consolidated financial statements.

On August 26, 2016, the FASB issued ASU No. 2016-15 (“ASU 2016-15”) to provide guidance for areas where there is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not currently anticipate that the guidance will have a material impact on our consolidated financial statements or notes to our consolidated financial statements.
On June 16, 2016, the FASB issued ASU No. 2016-13 (“ASU 2016-13”) to amend the accounting for credit losses for certain financial instruments. Under the new guidance, an entity recognizes its estimate of expected credit losses as an allowance, which the FASB believes will result in more timely recognition of such losses.  ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company does not currently anticipate that the guidance will have a material impact on our consolidated financial statements or notes to our consolidated financial statements.
On January 5, 2016, the FASB issued ASU No. 2016-01 (“ASU 2016-01”) to amend the accounting guidance on the classification and measurement of financial instruments. The standard requires that all investments in equity securities, including other ownership interests, are carried at fair value through net income. This requirement does not apply to investments that qualify for equity method accounting or to those that result in consolidation of the investee or for which the entity has elected the predictability exception to fair value measurement. Additionally, the standard requires that the portion of the total fair value change caused by a change in instrument-specific credit risk for financial liabilities for which the fair value option has been elected would be recognized in other comprehensive income. Any accumulated amount remaining in other comprehensive income is reclassified to earnings when the liability is extinguished. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017. The Company does not currently anticipate that the guidance will have a material impact on our consolidated financial statements or notes to our consolidated financial statements.

2.    Dispositions

The following table summarizes the properties sold during the nine months ended September 30, 2017.
Location Property Type Month of Disposition Number of Buildings Rentable Square Feet 
Sales Price (1)
(in millions)
5717 Pacific Center Boulevard, San Diego, CA (2)
 Office January 1 67,995
 $12.1
Sorrento Mesa and Mission Valley Properties (3)
 Office September 10 675,143
 174.5
Total Dispositions     11 743,138
 $186.6
           
________________________ 
(1)Represents gross sales price before the impact of broker commissions and closing costs.
(2)
This property was classified as held for sale at December 31, 2016.
(3)The Sorrento Mesa and Mission Valley Properties includes the following properties: 10390, 10394, 10398, 10421, 10445 and 10455 Pacific Center Court, 2355, 2365, 2375 and 2385 Northside Drive and Pacific Corporate Center - Lot 8, a 5.0 acre undeveloped land parcel.

The total gain on the operating properties and land sold during the nine months ended September 30, 2017 was $39.5 million and $0.4 million, respectively. As of September 30, 2017, approximately $170.6 million of net proceeds related to the Sorrento Mesa and Mission Valley Properties disposition were temporarily being held at qualified intermediaries, at our direction, for the purpose of facilitating potential future Section 1031 Exchanges. The cash proceeds are included in restricted cash on our consolidated balance sheets as of September 30, 2017.

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





3.    Receivables

Current Receivables, net

Current receivables, net is primarily comprised of contractual rents and other lease-related obligations due from tenants. The balance consisted of the following as of September 30, 2017 and December 31, 2016:

 September 30, 2017 December 31, 2016
 (in thousands)
Current receivables$20,746
 $15,172
Allowance for uncollectible tenant receivables(2,120) (1,712)
Current receivables, net$18,626
 $13,460

Deferred Rent Receivables, net

Deferred rent receivables, net consisted of the following as of September 30, 2017 and December 31, 2016:

 September 30, 2017 December 31, 2016
 (in thousands)
Deferred rent receivables$241,929
 $220,501
Allowance for deferred rent receivables(2,970) (1,524)
Deferred rent receivables, net$238,959
 $218,977

4.    Prepaid Expenses and Other Assets, Net

Prepaid expenses and other assets, net consisted of the following at September 30, 2017 and December 31, 2016:
 September 30, 2017 December 31, 2016
 (in thousands)
Furniture, fixtures and other long-lived assets, net$39,889
 $40,395
Notes receivable (1)
19,838
 19,439
Prepaid expenses & acquisition deposits48,988
 10,774
Total prepaid expenses and other assets, net$108,715
 $70,608
_______________
(1)
Approximately $15.1 millionof our notes receivable are secured by real estate.

5.    Secured and Unsecured Debt of the Operating Partnership


Unsecured Senior Notes - Private Placement

On February 17, 2017,The Company generally guarantees all of the Operating Partnership issuedPartnership’s unsecured debt obligations including the $175.0 million principal amount of its 3.35% Senior Notes, Series A, due February 17, 2027 (the “Series A Notes”), and the $75.0 million principal amount of its 3.45% Senior Notes, Series B, due February 17, 2029 (the “Series B Notes” and, together with the Series A Notes, the “Series A and B Notes”). The Series A and B Notes were issued pursuant to a delayed draw option under a Note Purchase Agreement entered into in connection with a private placement in September 2016. As of September 30, 2017, there was $175.0 million and $75.0 million issued and outstanding aggregate principal amount of Series A and B Notes, respectively. The Series A Notes mature on February 17, 2027, and the Series B Notes mature on February 17, 2029, unless earlier redeemed or prepaid pursuant to the terms of the Note Purchase Agreement. Interest on the Series A and B Notes is payable semi-annually in arrears on February 17 and August 17 of each year.

The Operating Partnership may, at its option and upon notice to the purchasers of the Series A and B Notes, prepay at any time all, or from time to time, any part of the Series A and B Notes then outstanding (in an amount not less than 5% of the aggregate principal amount of the Series A and B Notes then outstanding in the case of a partial prepayment), at 100% of the principal amount so prepaid, plus the make-whole amount determined for the prepayment date with respect to such principal amount as set forth in the Note Purchase Agreement.


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




In connection with the issuance of the Series A and B Notes, the Company entered into an agreement whereby it guarantees the payment by the Operating Partnership of all amounts due with respect to the Series A and B Notes and the performance by the Operating Partnership of its obligations under the Note Purchase Agreement.

Unsecured Revolving Credit Facility and Term Loan Facility

In July 2017, the Operating Partnership amended and restated the terms of its unsecured revolving credit facility and unsecured term loan facility (together, the “Facility”). The amendment and restatement increased the sizeall of the unsecured revolving credit facility from $600.0 million to $750.0 million, maintained the size of the unsecured term loan facility of $150.0 million, reduced the borrowing costs and extended the maturity date of thesenior notes.

Unsecured Revolving Credit Facility to July 2022. The unsecured term loan facility features two six-month delayed draw options.


The following table summarizes the balance and terms of our unsecured revolving credit facility as of September 30, 2017March 31, 2022 and December 31, 2016:2021:

September 30, 2017 December 31, 2016March 31, 2022December 31, 2021
(in thousands)(in thousands)
Outstanding borrowings$60,000
 $—
Outstanding borrowings$— $— 
Remaining borrowing capacity690,000
 600,000
Remaining borrowing capacity
1,100,000 1,100,000 
Total borrowing capacity (1)
$750,000
 $600,000
Total borrowing capacity (1)
$1,100,000 $1,100,000 
Interest rate (2)
2.24% 1.82%
Interest rate (2)
1.35 %1.00 %
Facility fee-annual rate (3)
0.200%
Facility fee-annual rate (3)
0.200%
Maturity dateJuly 2022 July 2019Maturity dateJuly 2025
________________________
(1)We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $600.0 million under an accordion feature under the terms of the unsecured revolving credit facility and unsecured term loan facility.
(2)Our unsecured revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.000% and LIBOR plus 1.050% as of September 30, 2017 and December 31, 2016, respectively.
(3)
Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs. As of September 30, 2017 and December 31, 2016, $6.3 millionand $3.3 million of unamortized deferred financing costs, respectively, remained to be amortized through the maturity date of our unsecured revolving credit facility, which are included in prepaid expenses and other assets, net on our consolidated balance sheets.

(1)We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $500.0 million under an accordion feature under the terms of the unsecured revolving credit facility.
(2)Our unsecured revolving credit facility interest rate was calculated based on the contractual rate of LIBOR plus 0.900% as of March 31, 2022 and December 31, 2021.
(3)Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs. As of March 31, 2022 and December 31, 2021, $6.8 millionand $7.3 million of unamortized deferred financing costs, respectively, which are included in prepaid expenses and other assets, net on our consolidated balance sheets, remained to be amortized through the respective maturity dates presented of our unsecured revolving credit facility.

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

The following table summarizes the balance and terms of our unsecured term loan facility as of September 30, 2017 and December 31, 2016:

 September 30, 2017 December 31, 2016
 (in thousands)
Outstanding borrowings (1)
$—
 $150,000
Remaining borrowing capacity150,000
 —
Total borrowing capacity (2)
$150,000
 $150,000
Interest rate (3)
2.33% 1.85%
Undrawn facility fee-annual rate (4)
0.200% —%
Maturity dateJuly 2022 July 2019
________________________
(1)In July 2017, the unsecured term loan facility was paid down and the Facility was amended to include two, six-month delayed draw options on the unsecured term loan facility. The Company may draw on the unsecured term loan facility through July 2018, at which time the outstanding balance will become the balance of the unsecured term loan facility and no additional draws may be made. However, if the Company does not draw at least $75.0 million by the end of first option term in January 2018, the total borrowing capacity under the Facility will be reduced by 50% of the unutilized borrowing capacity at that time. The Company intends to draw $75.0 million prior to the end of the first option term in January 2018.
(2)As of September 30, 2017 and December 31, 2016, $1.2 million and $0.7 million of unamortized deferred financing costs, respectively, remained to be amortized through the maturity date of our unsecured term loan facility.
(3)Our unsecured term loan facility interest rate was calculated based on an annual rate of LIBOR plus 1.100% and LIBOR plus 1.150% as of September 30, 2017 and December 31, 2016, respectively.
(4)In July 2017, the Facility was amended to include a facility fee on the remaining borrowing capacity of the unsecured term loan facility, which is paid on a monthly basis.


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




Additionally, as of December 31, 2016 the Operating Partnership had a $39.0 million unsecured term loan outstanding with an annual interest rate of LIBOR plus 1.150% that was to mature in July 2019. As of December 31, 2016, $0.2 million of unamortized deferred financing costs remained to be amortized through the maturity date of our unsecured term loan. Concurrently with the amendment of the Facility, the Operating Partnership repaid its $39.0 million unsecured term loan.


Debt Covenants and Restrictions


The unsecured revolving credit facility, the unsecured term loan facility, the unsecured term loan, the unsecured senior notes, including the Series A and B Notesprivate placement notes, and certain other secured debt arrangements contain covenants and restrictions requiring us to meet certain financial ratios and reporting requirements. Some of the more restrictive financial covenants include a maximum ratio of total debt to total asset value, a minimum fixed-charge coverage ratio, a minimum unsecured debt ratio and a minimum unencumbered asset pool debt service coverage ratio. Noncompliance with one or more of the covenants and restrictions could result in the full principal balance of the associated debt becoming immediately due and payable. We believe we were in compliance with all of our debt covenants as of September 30, 2017.March 31, 2022.


Debt Maturities


The following table summarizes the stated debt maturities and scheduled amortization payments of our issued andfor all outstanding debt excludingas of March 31, 2022:

Year
(in thousands)
Remaining 2022$4,186 
20235,775 
2024431,006 
2025406,246 
2026401,317 
2027249,125 
Thereafter2,600,000 
Total aggregate principal value (1)
$4,097,655 
________________________
(1)Includes gross principal balance of outstanding debt before the effect of the following at March 31, 2022: $22.0 million of unamortized debt discounts, premiums and deferred financing costs asfor the unsecured senior notes and secured debt and $7.1 million of September 30, 2017:unamortized discounts for the unsecured senior notes.


Year
(in thousands) 
Remaining 2017$1,545
2018451,669
201976,309
2020255,137
20215,342
Thereafter1,659,023
Total (1)
$2,449,025
12
________________________
(1)
Includes gross principal balance of outstanding debt before the effect of the following at September 30, 2017: $10.9 million of unamortized deferred financing costs, $6.0 million of unamortized discounts for the unsecured senior notes and $3.0 million of unamortized premiums for the secured debt.
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




Capitalized Interest and Loan Fees


The following table sets forth gross interest expense, including debt discount/premiumdiscount and deferred financing cost amortization, net of capitalized interest, for the three and nine months ended September 30, 2017March 31, 2022 and 2016.2021. The interest expense capitalized was recorded as a cost of development and redevelopment and increased the carrying value of undeveloped land and construction in progress.

Three Months Ended March 31,
20222021
(in thousands)
Gross interest expense$39,723 $39,242 
Capitalized interest and deferred financing costs(19,098)(16,908)
Interest expense$20,625 $22,334 

4.    Stockholders’ Equity of the Company
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 (in thousands)
Gross interest expense$28,331
 $26,184
 $84,577
 $79,027
Capitalized interest and deferred financing costs(12,180) (11,208) (33,101) (37,838)
Interest expense$16,151
 $14,976
 $51,476
 $41,189


At-The-Market Stock Offering Program

6.Under our at-the-market stock offering program, which commenced in June 2018, we may offer and sell shares of our common stock having an aggregate gross sales price up to $500.0 million from time to time in “at-the-market” offerings. In connection with our at-the-market program, the Company may enter into forward equity sale agreements with certain financial institutions acting as forward purchasers whereby, at our discretion, the forward purchasers may borrow and sell shares of our common stock under our at-the-market program. The use of a forward equity sale agreement allows the Company to lock in a share price on the sale of shares of our common stock at the time the agreement is executed but defer settling the forward equity sale agreements and receiving the proceeds from the sale of shares until a later date. The Company did not have any outstanding forward equity sale agreements to be settled at March 31, 2022.

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

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


Common Units of the Operating Partnership


The Company owned an approximate 97.9%, 97.5% and 97.2%99.0% common general partnership interest in the Operating Partnership as of September 30, 2017, March 31, 2022, December 31, 20162021 and September 30, 2016, respectively.March 31, 2021. The remaining approximate 2.1%, 2.5% and 2.8%1.0% common limited partnership interest as of September 30, 2017,March 31, 2022, December 31, 20162021 and September 30, 2016, respectively,March 31, 2021 was owned by non-affiliated investors and certain of our executive officers and directors in the form of noncontrolling common units. There were 2,077,193, 2,381,543 and 2,631,2761,150,574common units outstanding held by these investors, executive officers and directors as of September 30, 2017, March 31, 2022, December 31, 20162021 and September 30, 2016, respectively.March 31, 2021.



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




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-one1-for-one basis. If satisfied in cash, the value for each noncontrolling common unit upon redemption is the amount equal to the average of the closing quoted price per share of the Company’s common stock, par value $.01 per share, as reported on the NYSE for the ten10 trading days immediately preceding the applicable redemption date. The aggregate value upon redemption of the then-outstanding noncontrolling common units was $145.6$87.7 millionand $174.9$76.2 million as of September 30, 2017March 31, 2022 and December 31, 2016,2021, respectively. This redemption value does not necessarily represent the amount that would be distributed with respect to each noncontrolling common unit in the event of our termination or liquidation. In the event of our termination or liquidation, it is expected in most cases that each common unit would be entitled to a liquidating distribution equal to the liquidating distribution payable in respect of each share of the Company’s common stock.

7.    Stockholders’ Equity of the Company

Preferred Stock Redemption

On August 15, 2017, the Company redeemed all 4,000,000 shares of its 6.375% Series H Cumulative Redeemable Preferred Stock (“Series H Preferred Stock”). The shares of Series H Preferred Stock were redeemed at a redemption price equal to their stated liquidation preference of $25.00 per share, representing $100.0 million in aggregate. The redemption payment did not include any additional accrued dividends because the redemption date was also the dividend payment date.

On March 30, 2017 (the “Series G Redemption Date”), the Company redeemed all 4,000,000 shares of its 6.875% Series G Cumulative Redeemable Preferred Stock (“Series G Preferred Stock”). The shares of Series G Preferred Stock were redeemed at a redemption price equal to their stated liquidation preference of $25.00 per share, representing $100.0 million in aggregate, plus all accrued and unpaid dividends to the Series G Redemption Date.

During the three and nine months ended September 30, 2017, we recognized non-recurring non-cash charges of $3.7 million and $7.6 million, respectively, as a reduction to net income available to common stockholders for the original issuance costs related to the Series G and Series H Preferred Stock.

Common Stock Issuance

In January 2017, the Company completed an underwritten public offering of 4,427,500 shares of its common stock. The net offering proceeds, after deducting underwriting discounts and offering expenses, were approximately $308.8 million. We used a portion of the proceeds to partially fund our 2016 special dividend and used the remaining proceeds for general corporate uses, to fund development expenditures and to repay outstanding indebtedness.

At-The-Market Stock Offering Program

Under our current at-the-market stock offering program, which commenced in December 2014, we may offer and sell shares of our common stock having an aggregate gross sales price of up to $300.0 million from time to time in “at-the-market” offerings. No shares of common stock were sold under this program during the nine months ended September 30, 2017. Since commencement of the program through September 30, 2017, we have sold 2,459,165 shares of common stock having an aggregate gross sales price of $182.4 million. As of September 30, 2017, shares of common stock having an aggregate gross sales price of up to $117.6 million remain available to be sold under this program. Actual future sales will depend upon a variety of factors, including but not limited to market conditions, the trading price of the Company’s common stock and our capital needs. We have no obligation to sell the remaining shares available for sale under this program.

Payment of 2016 Special Cash Dividend

On January 13, 2017, the Company paid $184.3 million of special cash dividends, which was the equivalent of $1.90 of special cash dividend per share of common stock to stockholders of record on December 30, 2016. This special dividend payment was in addition to the $36.4 million of regular dividends we also paid on January 13, 2017 to common stockholders, unitholders and RSU holders of record on December 30, 2016.



17
13
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)







8.6.    Partners’ Capital of the Operating Partnership

Preferred Stock Redemption

On August 15, 2017, the Company redeemed all 4,000,000 shares of its 6.375% Series H Preferred Stock. For each share of Series H Preferred Stock that was outstanding, the Company had an equivalent number of 6.375% Series H Preferred Units (“Series H Preferred Units”) outstanding with substantially similar terms as the Series H Preferred Stock. In connection with the redemption of the Series H Preferred Stock, the Series H Preferred Units held by the Company were redeemed by the Operating Partnership.

On March 30, 2017, the Company redeemed all 4,000,000 shares of its 6.875% Series G Preferred Stock. For each share of Series G Preferred Stock that was outstanding, the Company had an equivalent number of 6.875% Series G Preferred Units (“Series G Preferred Units”) outstanding with substantially similar terms as the Series G Preferred Stock. In connection with the redemption of the Series G Preferred Stock, the Series G Preferred Units held by the Company were redeemed by the Operating Partnership.

Issuance of Common Units

In January 2017, the Company completed an underwritten public offering of 4,427,500 shares of its common stock as discussed in Note 7. The net offering proceeds of approximately $308.8 million were contributed by the Company to the Operating Partnership in exchange for 4,427,500 common units.


Common Units Outstanding


The following table sets forth the number of common units held by the Company and the number of common units held by non-affiliated investors and certain of our executive officers and directors in the form of noncontrolling common units as well as the ownership interest held on each respective date:

March 31, 2022December 31, 2021March 31, 2021
Company owned common units in the Operating Partnership116,716,080 116,464,169 116,450,370 
Company owned general partnership interest99.0 %99.0 %99.0 %
Noncontrolling common units of the Operating Partnership1,150,574 1,150,574 1,150,574 
Ownership interest of noncontrolling interest1.0 %1.0 %1.0 %

 September 30, 2017 December 31, 2016 September 30, 2016
Company owned common units in the Operating Partnership98,382,256
 93,219,439
 92,272,492
Company owned general partnership interest97.9% 97.5% 97.2%
Noncontrolling common units of the Operating Partnership2,077,193
 2,381,543
 2,631,276
Ownership interest of noncontrolling interest2.1% 2.5% 2.8%

For further discussion of the noncontrolling common units as of September 30, 2017March 31, 2022 and December 31, 2016,2021, refer to Note 6.5 “Noncontrolling Interests on the Company’s Consolidated Financial Statements.”


9.7.    Share-Based Compensation


Stockholder Approved EquityShare-Based Incentive Compensation PlansPlan


As of September 30, 2017,March 31, 2022, we maintained one1 share-based incentive compensation plan, the Kilroy Realty 2006 Incentive Award Plan, as amended (the “2006 Plan”). The Company has a currently effective registration statement registering 10.7 million shares of our common stock for possible issuance under our 2006 Plan. As of September 30, 2017, 2,004,127March 31, 2022, approximately 1.0 million shares were available for grant under the 2006 Plan. The calculation of shares available for grant is presented after taking into account a reserve for a sufficient number of shares to cover the vesting and payment of 2006 Plan awards that were outstanding on that date, including performance-based vesting awards at (i) levels actually achieved for the performance conditions (as defined below) for which the performance period has been completed and (ii) at targetmaximum levels for the other performance orand market conditions (as defined below) for awards still in a performance period.


20172022 Share-Based Compensation Grants


In February 2017,January 2022, the Executive Compensation Committee of the Company’s Board of Directors awarded 229,976351,281 restricted stock units (“RSUs”) to certain officers of the Company under the 2006 Plan, which included 130,956193,111 RSUs (at the target level of performance), or 57%, that are subject to market and/or performance-based vesting requirements (the “2017“2022 Performance-Based RSUs”) and 99,020158,170 RSUs or 43%, that are subject to time-based vesting requirements (the “2017“2022 Time-Based RSUs”).


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





20172022 Performance-Based RSU Grant


The 20172022 Performance-Based RSUs are scheduled to vest at the end of a three-yearthree year period (consisting of calendar years 2022-2024). A target number of 2022 Performance-Based RSUs were awarded, and the final number of 2022 Performance-Based RSUs that vest (which may be more or less than the target number) will be based upon (1) during the first calendar year of the three year performance measurement period, the achievement of pre-set FFO per share goals forthat applies to 100% of the year ending December 31, 2017Performance-Based RSUs awarded (the “FFO performance condition”Performance Condition”) and also(2) a performance measure that applies to 50% of the award based upon either the average FAD per share growth ora measure of the Company’s average debt to EBITDA ratio for the three year performance period (the “other performance conditions”“Debt to EBITDA Ratio Performance Condition”) orand a market measure that applies to the average annualother 50% of the award based upon the relative ranking of the Company’s total stockholder return ranking for the Companythree year performance period compared to the total stockholder returns of an established comparison group of companies over the same period (the “market condition”“Market Condition”) for the three-year period ending December 31, 2019.. The 20172022 Performance-Based RSUs are also subject to a three-yearthree year service vesting provision (the “service vesting condition”) and are scheduled to cliff vest aton the date the final vesting percentage is determined following the end of the three-year period.three year performance period under the awards. The number of 20172022 Performance-Based RSUs ultimately earned could fluctuate from the target number of 20172022 Performance-Based RSUs granted based upon the levels of achievement for the FFO performance condition,Performance Condition, the other performance conditionsDebt to EBITDA Ratio Performance Condition, the Market Condition, and the market condition.extent to which the service vesting condition is satisfied. The estimate of the number of 20172022 Performance-Based RSUs earned is evaluated quarterly during the performance period based on our estimate for each of the performance conditions measured against the applicable goals. As of September 30, 2017, the number of 2017 Performance-Based RSUs estimated to be earned based on the Company’s estimate of the performance conditions measured against the applicable goals was 130,956, and the compensation cost recorded to date for this program was based on that estimate. Compensation expense for the 2017 Performance-Based RSU grant will be recorded on a straight-line basis over the three-year period.

Each 2017 Performance-Based RSU represents the right, subject to the applicable vesting conditions, to receive one share of our common stock in the future. The total fair value of the 2017 Performance-Based RSU grant was $10.3 million at February 24, 2017. The determination of the fair value of the 2017 Performance-Based RSU grant with other performance conditions takes into consideration the likelihood of achievement of the FFO performance condition and the other performance conditions. The grant date fair value for the performance awards with a market condition was calculated using a Monte Carlo simulation pricing model based on the assumptions in the table below. For the portion of the 2017 Performance-Based RSUs subject to the market condition, for the nine months ended September 30, 2017, we recorded compensation expense based upon the $80.89 fair value at February 24, 2017. The following table summarizes the assumptions utilized in the Monte Carlo simulation pricing model:
Fair Value Assumptions
Fair value per share at February 24, 2017$80.89
Expected share price volatility21.00%
Risk-free interest rate1.39%
Remaining expected life2.8 years

The computation of expected volatility is based on a blend of the historical volatility of our shares of common stock over approximately 5.6 years, as that is expected to be most consistent with future volatility and equates to a time period twice as long as the approximate 2.8-year remaining performance period of the RSUs and implied volatility data based on the observed pricing of six month publicly-traded options on our shares of common stock. The risk-free interest rate is based on the yield curve on zero-coupon U.S. Treasury STRIP securities in effect at February 24, 2017. The expected life of the RSUs is equal to the remaining 2.8 year vesting period as of February 24, 2017.

2017 Time-Based RSU Grant

The 2017 Time-Based RSUs are scheduled to vest in three equal installments beginning on January 5, 2018 through January 5, 2020. Compensation expense for the 2017 Time-Based RSUs will be recognized on a straight-line basis over the three-year service vesting period. Each 2017 Time-Based RSU represents the right to receive one share of our common stock in the future. The total fair value of the 2017 Time-Based RSU grant was $7.5 million, which was based on the $73.30 and $77.16 closing share prices of the Company’s common stock on the NYSE on the February 3, 2017 and February 24, 2017 grant dates, respectively.

Share-Based Award Activity

During the nine months ended September 30, 2017, 282,000 non-qualified stock options were exercised at an exercise price per share equal to $42.61. As of September 30, 2017, there were 29,500 stock options outstanding.

Share-Based Compensation Cost Recorded During the Period

The total compensation cost for all share-based compensation programs was $6.4 million and $6.8 million for the three months ended September 30, 2017 and 2016, respectively, and $19.0March 31, 2022, we recognized $1.1 million and $19.3 millionof compensation expense for the nine months ended September

2022 Performance-Based RSU grant. In the event we achieve a lower level of performance or fail to meet the FFO performance
19
14
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)







condition, we would reverse a portion or all of the $1.1 million of compensation expense. Compensation expense for the 2022 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, except for 1 participant whose compensation expense is recognized on an accelerated basis, due to clauses that render a portion of the vesting conditions to be non-substantive.
30, 2017
Each 2022 Performance-Based RSU represents the right to receive 1 share of our common stock in the future, subject to, and 2016,as modified by the Company’s level of achievement of the FFO Performance, the Debt to EBITDA Ratio Performance Condition and the Market Condition. The fair value of the award was calculated using a Monte Carlo simulation pricing model based on the assumptions in the table below, which resulted in the following grant date fair value per share.

Fair Value Assumptions
Valuation dateJanuary 28, 2022
Fair value on valuation date (in millions)$12.7
Fair value per share on valuation date (1)
$67.62
Expected share price volatility36.0%
Risk-free interest rate1.35%
________________________
(1)For one participant, the fair value per share on the valuation date for their 2022 Performance-Based RSUs is $70.00.

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 January 28, 2022.

For the three months ended March 31, 2022, we recorded compensation expense based upon the grant date fair value per share for each component multiplied by the estimated number of RSUs to be earned.

2022 Time-Based RSU Grant

The 2022 Time-Based RSUs are scheduled to vest in 3 equal annual installments beginning on January 5, 2023 through January 5, 2025. Compensation expense for the 2022 Time-Based RSUs is recognized on a straight-line basis over the requisite service period, which is generally the explicit service period except for 1 participant whose compensation expense is recognized on an accelerated basis, due to clauses that render a portion of the vesting conditions to be non-substantive.Each 2022 Time-Based RSU represents the right to receive 1 share of our common stock in the future, subject to continued employment through the applicable vesting date, unless accelerated upon separation of employment, provided certain conditions are met. The total grant date fair value of the 2022 Time-Based RSU awards was $10.0 million, which was based on the $63.05 closing share price of the Company’s common stock on the NYSE on the January 28, 2022 grant date.

2021 and 2020 Performance-Based RSUs

Compensation cost for the 2021 performance-based RSUs for the three months ended March 31, 2022 assumes the 2021 debt to EBITDA ratio performance condition is met at 100% of the target level of achievement for all participants. Compensation cost for the 2020 performance-based RSUs for the three months ended March 31, 2022 assumes the 2020 debt to EBITDA ratio performance condition is met at 150% of the target level of achievement (175.0% for one participant).

Share-Based Compensation Cost Recorded During the Period

The total compensation cost for all share-based compensation programs was $6.6 million and $9.6 million for the three months ended March 31, 2022 and 2021, respectively. Of the total share-based compensation costs, $1.7$1.3 million and $1.5$1.7 million was capitalized as part of the real estate assets and deferred leasing costs for the three months ended September 30, 2017March 31, 2022 and 2016, respectively, and $5.4 million and $4.0 million for the nine months ended September 30, 2017 and 2016,2021, respectively. As of September 30, 2017,March 31, 2022, there was approximately $30.9$38.2 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 1.92.1 years. The remaining compensation cost related to these nonvested incentive awards had been recognized in periods prior to September 30, 2017.March 31, 2022.

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




8.    Rental Income and Future Minimum Rent

Our rental income is primarily comprised of payments defined under leases and are either subject to scheduled fixed increases or adjustments in rent based on the Consumer Price Index. 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 and collectability recoveries (reversals) for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
20222021
(in thousands)
Fixed lease payments$224,816 $204,216 
Variable lease payments37,081 31,475 
Net collectability recoveries (reversals) (1)
1,311 (1,035)
Total rental income$263,208 $234,656 
_____________________
(1)Represents adjustments to rental income related to our assessment of the collectability of amounts due under leases with our tenants, including recognition of deferred rent balances associated with tenants restored from a cash basis of revenue recognition to an accrual basis to revenue recognition and allowances for uncollectible receivables and leases deemed not probable of collection.

We have operating leases with tenants that expire at various dates through2044 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, which includes amounts contractually due from leases that are on a cash basis of reporting due to creditworthiness considerations, as of March 31, 2022 for future periods is summarized as follows:
Year Ending(in thousands)
Remaining 2022$602,820 
2023814,598 
2024779,984 
2025741,031 
2026687,467 
2027626,861 
Thereafter2,291,039 
Total (1)
$6,543,800 
_____________________
(1)Excludes residential leases and leases with a term of one year or less.


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




9.    Commitments and Contingencies


General


As of September 30, 2017,March 31, 2022, we had commitments of approximately $755.0$819.0 million, excluding our ground lease commitments, for contracts and executed leases directly related to our operating, propertiesdevelopment and development projects.redevelopment properties.


Environmental Matters


We follow the policy of monitoringevaluating all of our properties, bothincluding 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 undisclosed environmental liability with respect to our stabilized portfolio properties that would have a material adverse effect on our financial condition, results of operations and cash flow, or that we believe would require additional disclosure or the recording of a loss contingency.


As of September 30, 2017,March 31, 2022, we had accrued environmental remediation liabilities of approximately $27.1$74.3 millionrecorded on our consolidated balance sheets in connection with certain of our in-process and future development projects. The accrued environmental remediation liabilities represent the remaining costs we estimate we will incur prior to and during the development process at various development acquisition sites. These estimates, which we developed with the assistance of third party experts, consist primarily of the removal of contaminated soil, treatment of contaminated groundwater in connection with dewatering efforts, performing environmental closure activities, constructing remedial systems and other related costs that are necessary when we develop new buildings at these sites.

We record estimated environmental remediation obligations for acquired properties at the acquisition date when we are aware of such costs and when such costs are probable of being incurred and can be reasonably estimated. Estimated costs related to development environmental remediation liabilities are recorded as an increase to the cost of the development project. Actual costs are recorded as a decrease to the liability when incurred. These accruals are adjusted as an increase or decrease to the development project costs and as an increase or decrease to the accrued environmental remediation liability if we obtain further information or circumstances change. The environmental remediation obligations recorded at March 31, 2022 were not discounted to their present values since the amount and timing of cash payments are not fixed. It is possible that we could incur additional environmental remediation costs in connection with these future development projects.  However, given we are in the pre-development phase on these future development projects, potential additional environmental costs are notfor these development projects cannot be reasonably estimableestimated at this time and certain changes in estimates could occur as the site conditions, final project timing, design elements, actual soil conditions and other aspects of the projects, which may depend upon municipal and other approvals beyond the control of the Company, are determined.


Other than the accrued environmental liabilities 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.
11.
17
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




10.    Fair Value Measurements and Disclosures


Assets and Liabilities Reported at Fair Value


The only assets we record at fair value on our consolidated financial statements are the marketable securities related to our Deferred Compensation Plan. The following table sets forth the fair value of our marketable securities as of September 30, 2017March 31, 2022 and December 31, 2016:2021:

Fair Value (Level 1) (1)
March 31, 2022December 31, 2021
Description(in thousands)
Marketable securities (2)
$25,829 $27,475 
________________________
 
Fair Value (Level 1) (1)
 September 30, 2017 December 31, 2016
Description(in thousands)
Marketable securities (2)
$18,851
 $14,773
________________________
(1)(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(2)    The marketable securities at the end of each accounting period in interest income and other net investment gains in the consolidated statements of operations. We also adjust the related Deferred Compensation Plan liability to fair value at the end of each accounting period based on the performance of the benchmark funds selected by each participant, which resultsare held in a corresponding increase or decrease to compensation cost for the period.limited rabbi trust.

20
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)





The following table sets forth the net gain on marketable securities recorded during the three and nine months ended September 30, 2017 and 2016:

 Three Months Ended September 30, Nine Months Ended September 30,

2017 2016 2017 2016
Description(in thousands) (in thousands)
Net gain on marketable securities$536
 $481
 $1,719
 $867

Financial Instruments Disclosed at Fair Value


The following table sets forth the carrying value and the fair value of our other financial instruments as of September 30, 2017March 31, 2022 and December 31, 2016:2021:

March 31, 2022December 31, 2021
Carrying
Value
Fair
Value (1)
Carrying
Value
Fair
Value (1)
(in thousands)
Liabilities
Secured debt, net$247,030 $250,875 $248,367 $269,687 
Unsecured debt, net$3,821,433 $3,748,850 $3,820,383 $4,105,408 
________________________
(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.
 September 30, 2017 December 31, 2016
 Carrying
Value		 
Fair
Value (1)
 Carrying
Value		 
Fair
Value (1)
 (in thousands)
Liabilities       
Secured debt, net$465,828
 $467,968
 $472,772
 $469,234
Unsecured debt, net1,909,381
 1,983,737
 1,847,351
 1,900,487
Unsecured line of credit60,000
 60,087
 —
 —
18
________________________
(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.



21
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)









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


The following table reconciles the numerator and denominator in computing the Company’s basic and diluted per-share computations for net income available to common stockholders for the three and ninemonths ended September 30, 2017March 31, 2022 and 2016:2021:

 Three Months Ended March 31,
 20222021
 (in thousands, except share and per share amounts)
Numerator:
Net income available to common stockholders$53,128 $497,631 
Allocation to participating securities (1)
(413)(365)
Numerator for basic and diluted net income available to common stockholders$52,715 $497,266 
Denominator:  
Basic weighted average vested shares outstanding116,650,228 116,344,375 
Effect of dilutive securities409,866 457,009 
Diluted weighted average vested shares and common stock equivalents outstanding117,060,094 116,801,384 
Basic earnings per share:  
Net income available to common stockholders per share$0.45 $4.27 
Diluted earnings per share:  
Net income available to common stockholders per share$0.45 $4.26 
________________________
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 (in thousands, except share and per share amounts)
Numerator:       
Net income attributable to Kilroy Realty Corporation$71,110
 $53,895
 $136,083
 $261,050
Total preferred dividends(4,552) (3,313) (13,363) (9,938)
Allocation to participating securities (1)
(501) (426) (1,460) (1,244)
Numerator for basic and diluted net income available to common stockholders$66,057
 $50,156
 $121,260
 $249,868
Denominator:       
Basic weighted average vested shares outstanding98,352,139
 92,227,016
 98,008,780
 92,220,522
Effect of dilutive securities559,473
 693,390
 582,268
 611,016
Diluted weighted average vested shares and common share equivalents outstanding98,911,612
 92,920,406
 98,591,048
 92,831,538
Basic earnings per share:       
Net income available to common stockholders per share$0.67
 $0.54
 $1.24
 $2.71
Diluted earnings per share:       
Net income available to common stockholders per share$0.67
 $0.54
 $1.23
 $2.69
(1)Participating securities include certain time-based RSUs and vested market measure-based RSUs.
________________________
(1)Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs.


Share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are considered participating securities. The impact of potentially dilutive common shares, including stock options RSUs and other securitiesRSUs are considered in our diluted earnings per share calculation for the three and nine months ended September 30, 2017March 31, 2022 and 2016.2021. Certain market measure-based RSUs are not included in dilutive securities for the three and nine months ended September 30, 2017March 31, 2022 and 2016,2021, as not all performance metrics had been met by the end of the applicable reporting periods.

See Note 97 “Share-Based Compensation” for additional information regarding share-based compensation.



22
19
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)









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


The following table reconciles the numerator and denominator in computing the Operating Partnership’s basic and diluted per-unit computations for net income available to common unitholders for the three and ninemonths ended September 30, 2017March 31, 2022 and 2016:2021:

 Three Months Ended March 31,
 20222021
 (in thousands, except unit and per unit amounts)
Numerator:
Net income available to common unitholders$53,644 $502,517 
Allocation to participating securities (1)
(413)(365)
Numerator for basic and diluted net income available to common unitholders$53,231 $502,152 
Denominator:  
Basic weighted average vested units outstanding117,800,802 117,494,949 
Effect of dilutive securities409,866 457,009 
Diluted weighted average vested units and common unit equivalents outstanding118,210,668 117,951,958 
Basic earnings per unit:
Net income available to common unitholders per unit$0.45 $4.27 
Diluted earnings per unit:  
Net income available to common unitholders per unit$0.45 $4.26 
________________________
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
 (in thousands, except unit and per unit amounts)
Numerator:       
Net income attributable to Kilroy Realty, L.P.$72,402
 $55,254
 $138,427
 $266,677
Total preferred distributions(4,552) (3,313) (13,363) (9,938)
Allocation to participating securities (1)
(501) (426) (1,460) (1,244)
Numerator for basic and diluted net income available to common unitholders$67,349
 $51,515
 $123,604
 $255,495
Denominator:       
Basic weighted average vested units outstanding100,429,332
 94,858,292
 100,160,595
 94,630,183
Effect of dilutive securities559,473
 693,390
 582,268
 611,016
Diluted weighted average vested units and common unit equivalents outstanding100,988,805
 95,551,682
 100,742,863
 95,241,199
Basic earnings per unit:       
Net income available to common unitholders per unit$0.67
 $0.54
 $1.23
 $2.70
Diluted earnings per unit:       
Net income available to common unitholders per unit$0.67
 $0.54
 $1.23
 $2.68
(1)Participating securities include certain time-based RSUs and vested market measure-based RSUs.
________________________
(1)Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs.


Share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are considered participating securities. The impact of potentially dilutive common units, including stock options RSUs and other securitiesRSU are considered in our diluted earnings per share calculation for the three and nine months ended September 30, 2017March 31, 2022 and 2016.2021. Certain market measure-based RSUs are not included in dilutive securities for the three and nine months ended September 30, 2017March 31, 2022 and 2016,2021, as not all performance metrics had been met by the end of the applicable reporting periods.

See Note 97 “Share-Based Compensation” for additional information regarding share-based compensation.



23
20
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)









14.13.    Supplemental Cash Flow Information of the Company


Supplemental cash flow information is included as follows (in thousands):

Three Months Ended March 31,
20222021
SUPPLEMENTAL CASH FLOWS INFORMATION:  
Cash paid for interest, net of capitalized interest of $18,029 and $16,131 as of March 31, 2022 and 2021, respectively$4,736 $12,387 
Cash paid for amounts included in the measurement of ground lease liabilities$1,532 $1,455 
NON-CASH INVESTING TRANSACTIONS:  
Accrual for expenditures for operating properties and development and redevelopment properties$47,101 $57,675 
Tenant improvements funded directly by tenants$1,908 $2,570 
NON-CASH FINANCING TRANSACTIONS: 
Accrual of dividends and distributions payable to common stockholders and common unitholders
(Note 15)		$61,951 $59,472 
 Nine Months Ended September 30,
 2017 2016
SUPPLEMENTAL CASH FLOWS INFORMATION:   
Cash paid for interest, net of capitalized interest of $31,880 and $36,468 as of September 30, 2017 and 2016, respectively$46,878
 $42,858
NON-CASH INVESTING TRANSACTIONS:   
Accrual for expenditures for operating properties and development properties$104,409
 $77,161
Tenant improvements funded directly by tenants$10,361
 $16,803
Assumption of accrued liabilities in connection with acquisitions$—
 $4,911
NON-CASH FINANCING TRANSACTIONS:   
Accrual of dividends and distributions payable to common stockholders and common unitholders$43,324
 $36,109
Accrual of dividends and distributions payable to preferred stockholders and preferred unitholders$—
 $1,656
Exchange of common units of the Operating Partnership into shares of the Company’s common stock$10,939
 $39
Issuance of common units of the Operating Partnership in connection with an acquisition$—
 $48,033
Secured debt assumed by buyers in connection with land dispositions$—
 $2,322



The following is a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the ninethree months ended September 30, 2017March 31, 2022 and 2016.2021.

Three Months Ended March 31,
20222021
(in thousands)
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:  
Cash and cash equivalents at beginning of period$414,077 $731,991 
Restricted cash at beginning of period13,006 91,139 
Cash and cash equivalents and restricted cash at beginning of period$427,083 $823,130 
Cash and cash equivalents at end of period$331,685 $657,819 
Restricted cash at end of period13,007 1,028,759 
Cash and cash equivalents and restricted cash at end of period$344,692 $1,686,578 
 Nine Months Ended September 30,
 2017 2016
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:   
Cash and cash equivalents at beginning of period$193,418
 $56,508
Restricted cash at beginning of period56,711
 696
Cash and cash equivalents and restricted cash at beginning of period$250,129
 $57,204
    
Cash and cash equivalents at end of period$64,954
 $250,523
Restricted cash at end of period179,276
 57,501
Cash and cash equivalents and restricted cash at end of period$244,230
 $308,024


15.14.    Supplemental Cash Flow Information of the Operating Partnership:


Supplemental cash flow information is included as follows (in thousands):

 Three Months Ended March 31,
 20222021
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest, net of capitalized interest of $18,029 and $16,131 as of March 31, 2022 and 2021, respectively$4,736 $12,387 
Cash paid for amounts included in the measurement of ground lease liabilities$1,532 $1,455 
NON-CASH INVESTING TRANSACTIONS:
Accrual for expenditures for operating properties and development and redevelopment properties$47,101 $57,675 
Tenant improvements funded directly by tenants$1,908 $2,570 
NON-CASH FINANCING TRANSACTIONS:
Accrual of distributions payable to common unitholders (Note 15)$61,951 $59,472 

21
 Nine Months Ended September 30,
 2017 2016
SUPPLEMENTAL CASH FLOWS INFORMATION:   
Cash paid for interest, net of capitalized interest of $31,880 and $36,468 as of September 30, 2017 and 2016, respectively$46,878
 $42,858
NON-CASH INVESTING TRANSACTIONS:   
Accrual for expenditures for operating properties and development properties$104,409
 $77,161
Tenant improvements funded directly by tenants$10,361
 $16,803
Assumption of accrued liabilities in connection with acquisitions$—
 $4,911
NON-CASH FINANCING TRANSACTIONS:   
Accrual of distributions payable to common unitholders$43,324
 $36,109
Accrual of distributions payable to preferred unitholders$—
 $1,656
Issuance of common units of the Operating Partnership in connection with an acquisition$—
 $48,033
Secured debt assumed by buyers in connection with land dispositions$—
 $2,322


24
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)







The following is a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the ninethree months ended September 30, 2017March 31, 2022 and 2016.2021.

Three Months Ended March 31,
20222021
(in thousands)
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:  
Cash and cash equivalents at beginning of period$414,077 $731,991 
Restricted cash at beginning of period13,006 91,139 
Cash and cash equivalents and restricted cash at beginning of period$427,083 $823,130 
Cash and cash equivalents at end of period$331,685 $657,819 
Restricted cash at end of period13,007 1,028,759 
Cash and cash equivalents and restricted cash at end of period$344,692 $1,686,578 
 Nine Months Ended September 30,
 2017 2016
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:   
Cash and cash equivalents at beginning of period$193,418
 $56,508
Restricted cash at beginning of period56,711
 696
Cash and cash equivalents and restricted cash at beginning of period$250,129
 $57,204
    
Cash and cash equivalents at end of period$64,954
 $250,523
Restricted cash at end of period179,276
 57,501
Cash and cash equivalents and restricted cash at end of period$244,230
 $308,024


16.15.    Subsequent Events


On October 10, 2017, the Company completed the acquisition of a 1.2 acre development site located in the Little Italy neighborhood of downtown San Diego, California for $19.4 million in cash.

OnOctober 18, 2017,April 13, 2022, aggregate dividends, distributions and dividend equivalents of $43.3$61.9 millionwere paid to common stockholders, common unitholders and RSU holders of record on September 30, 2017.March 31, 2022.





25
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS


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


Forward-Looking Statements


Statements contained in this “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are not historical facts may be forward-looking statements. Forward-looking statements include, among other things, statements or information concerning our plans, objectives, capital resources, portfolio performance, results of operations, projected future occupancy and rental rates, lease expirations, debt maturities, potential investments, strategies such as capital recycling, development and redevelopment activity, projected construction costs, projected construction commencement and completion dates, projected square footage of 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,” “—Liquidity and Capital Resource of the Company,” and “—Liquidity and Capital Resources of the Operating Partnership.” Forward-looking statements can be identified by the use of words such as “believes,” “expects,” “projects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” and the negative of these words and phrases and similar expressions that do not relate to historical matters. Forward-looking statements are based on our current expectations, beliefs and assumptions, and are not guarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult to predict, many of which are outside of our control. Accordingly, actual performance, results and events may vary materially from those indicated or implied in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results or events. Numerous factors could cause actual future performance, results and events to differ materially from those indicated in the forward-looking statements, including, among others: global market and general economic conditions and their effect on our liquidity and financial conditions and those of our tenants; adverse economic or real estate conditions generally, and specifically, in the States of California, Texas and Washington; risks associated with our investment in real estate assets, which are illiquid and with trends in the real estate industry; defaults on or non-renewal of leases by tenants; any significant downturn in tenants'tenants’ businesses; our ability to re-lease property at or above current market rates; costs to comply with government regulations, including environmental remediations;remediation; the availability of cash for distribution and debt service and exposure to risk of default under debt obligations; increases in interest rates and our ability to manage interest rate exposure; 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 offswrite-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'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.REIT; and uncertainties regarding the impact of the COVID-19 pandemic, and restrictions intended to prevent its spread, on our business and the economy generally. 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 factors that could materially adversely affect the Company'sCompany’s and the Operating Partnership'sPartnership’s business and financial performance, see the discussion below, as well as “Itemin “Part I, Item 1A. Risk Factors” and in our “Item“Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s and the Operating Partnership’s annual report on Form 10-K for the year ended December 31, 20162021 and their respective other filings with the
23

SEC. All forward-looking statements are based on currentlyinformation that was available information and speak only as of the datedates on which they arewere 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.



26

Overview and Background


We are a self-administered REIT active in premier office, life science and mixed-use submarkets alongin the West Coast.United States. We own, develop, acquire and manage real estate assets, consisting primarily of Class A properties in the coastal regions ofGreater Los Angeles, Orange County, San Diego County, the San Francisco Bay Area, and Greater Seattle and Austin, Texas, which we believe have strategic advantages and strong barriers to entry. We own our interests in all of our real properties through the Operating Partnership and the Finance Partnership and generally conduct substantially all of our operations through the Operating Partnership. We owned an approximate 97.9%, 97.5%and 97.2%99.0% general partnership interest in the Operating Partnership as of September 30, 2017, March 31, 2022, December 31, 20162021 and September 30, 2016, respectively. AllMarch 31, 2021. As of March 31, 2022, all of our properties are held in fee except for the thirteenfourteen office buildings that are held subject to long-term ground leases for the land.


Factors That May Influence Future Results of Operations


Development Programand Redevelopment Programs


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 developmentand redevelopment 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 and redevelopment opportunities and expanded our near-term and future development pipeline through targeted acquisitions of development opportunities on the West Coast.Coast and in Austin, Texas.


We have a proactive planning process by which we continually evaluate the size, timing, costs and scope of our development programand redevelopment programs 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 programand redevelopment programs 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.


StabilizedIn-Process Development Projects - Tenant Improvement


During the nine months ended September 30, 2017, we addedAs of March 31, 2022, the following project to our stabilized portfolio since the project had reached one year from building shell substantial completion:

Columbia Square Phase 2 - Office, locatedprojects were in the heart of Hollywood, California, two blocks from the corner of Sunset Boulevard and Vine Street.tenant improvement phase:

•2100 Kettner, Little Italy, San Diego, California. We commenced construction on this project in September 2019. This project is comprised of three buildings totaling approximately 365,359 rentable235,000 square feet withof office space for a total estimated investment of approximately $230.0$140.0 million. TheWe currently expect this project was added to reach stabilization in the stabilized portfolio during the firstthird quarter of 2017 and was 88% occupied as of September 30, 2017. The project is currently 100% leased.2022.


Projects Under Construction

As of September 30, 2017, we had four projects in our in-process development pipeline that were under construction.

The Exchange on 16th, Mission Bay, San Francisco, California, which we acquired in May 2014 and commenced construction on in June 2015. This project is currently anticipated to encompass approximately 750,000 gross rentable square feet consisting of 736,000 square feet of office space and 14,000 square feet of retail space at a total estimated investment of $570.0 million. Construction is currently in progress and the building and core shell are currently estimated to be completed in the first half of 2018. The office space in the project is 100% leased to Dropbox, Inc. The lease with Dropbox, Inc. will commence in phases beginning in the fourth quarter of 2018 through the fourth quarter of 2019.

•333 Dexter, South Lake Union, Washington, which we acquired in February 2015 andSeattle, Washington. We commenced construction on this project in June 2017. This project encompasses approximately 650,000 gross rentable635,000 square feet of office space at a total estimated investment of $380.0 million. Construction$410.0 million and 100% of the project is currently in progressleased to a global technology company. In June 2020, we completed construction and commenced revenue recognition on the building core and shellfirst phase of the project, representing approximately 49% of the project. The remaining two phases are currently estimatedexpected to be completedreach stabilization in the second halfthird quarter of 2019.2022.


100 Hooper, San Francisco, California, which we•Indeed Tower, Austin CBD, Austin, Texas. We acquired this project upon core/shell completion in July 2015 and commenced construction on in November 2016.June 2021. This project will encompassencompasses approximately 314,000734,000 square feet of office and approximately 86,000 square feet of production, distribution and repair (“PDR”) space configured in two, four-story buildings. The total estimated cost for this project is approximately $270.0 million. Construction is currently in process and the core and shell of the project

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are currently expected to be completed in the first half of 2018. The office portion of the project is 100% pre-leased to Adobe Systems Inc. In connection with 100 Hooper, the Company is also developing an adjacent 59,000 square foot PDR building located at 150 Hooper with a total estimated investment of approximately $22.0 million.$690.0 million and is 58% leased to six tenants with 42% of the space leased to Indeed.com through 2034. We currently expect this project to reach stabilization in the first quarter of 2024.


One Paseo
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In-Process Development Projects - Phase I (Retail and Residential)Under Construction

As of March 31, 2022, we had two projects in our in-process development pipeline that were under construction:

•Kilroy Oyster Point (Phase 2), South San Diego, California, whichFrancisco, California. In June 2021, we acquired in November 2007 and commenced construction on in December 2016. Phase I2 of this mixed-use39-acre life science campus situated on the waterfront in South San Francisco. The second phase encompasses approximately 875,000 square feet of office space across three buildings at a total estimated investment of $940.0 million.

•9514 Towne Centre Drive, University Towne Center, San Diego, California. In September 2021, we commenced construction on this project, includes site work and related infrastructure forwhich is comprised of 71,000 square feet of office space at a total estimated investment of $60.0 million. The building is 100% leased.

In-Process Redevelopment - Under Construction

As of March 31, 2022, we had three redevelopment projects under construction:

•12340 El Camino Real, Del Mar, San Diego, California. In December 2021, we began the entire project, as well as 237 residential units andphased redevelopment of this property, comprised of approximately 96,000 square feet, for life science use. We expect to complete redevelopment of retail space. The total estimated investment for thisthe project is approximately $225.0 million. Construction is currently in process and is currently expected to be completed in phases beginning in the third quarter of 2018.2022 with total estimated redevelopment costs of $40.0 million, inclusive of the depreciated basis of the building. The project is 100% leased to a life science tenant and will have phased commencement dates during 2022.


Near-Term and •12400 High Bluff Drive, Del Mar, San Diego, California. In March 2022, we began the phased redevelopment of this property. We executed a lease with a life science tenant for 182,000 square feet of this property, of which we are redeveloping approximately 144,000 square feet. We expect to complete redevelopment of the project in the third quarter of 2022 with total estimated redevelopment costs of $50.0 million, inclusive of 66% of the depreciated basis of the building.

•4690 Executive Drive, University Towne Center, San Diego, California. In March 2022, we began the phased redevelopment of this property, comprised of approximately 52,000 square feet, in phases, for life science use. We expect to complete redevelopment of the project in the third quarter of 2023 with total estimated redevelopment costs of $25.0 million, inclusive of the depreciated basis of the building. The project is 100% leased to a life science tenant.


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Future Development Pipeline


As of September 30, 2017,March 31, 2022, our near-termfuture development pipeline included two additionalseven future projects located in Greater Seattle, the San Francisco Bay Area, San Diego County and Los AngelesAustin, Texas with an aggregate cost basis of approximately $245.4 million$1.1 billion at which we believe we could develop approximately 1.2more than 5.7 million rentable square feet atfor a total estimated investment of approximately $865.0 million,$5.5 billion to $7.5 billion, depending on successfully obtaining entitlements and market conditions.


The following table sets forth information about our near-termfuture development pipeline.

Near-Term Development Pipeline (1)
 Location 
Potential Start Date (2)
 Approx. Developable Square Feet 
Total Estimated Investment
($ in millions)
 
Total Costs as of 9/30/2017 (3)
($ in millions)
           
Academy Project Hollywood 2018 545,000 $425
 $83.8
One Paseo - Phases II and III 
 Del Mar TBD 640,000 440
 161.6
Total Near-Term Development Pipeline     1,185,000 $865
 $245.4
Future Development PipelineLocation
Approx. Developable Square Feet (1)
Total Costs
as of 3/31/2022
($ in millions) (2)
San Diego County
Santa Fe Summit – Phases 2 and 356 Corridor600,000 - 650,000$97.9 
2045 Pacific HighwayLittle Italy275,00049.5 
Kilroy East VillageEast VillageTBD63.0 
San Francisco Bay Area
Kilroy Oyster Point - Phases 3 and 4South San Francisco875,000 - 1,000,000205.6 
Flower MartSOMA2,300,000467.7 
Greater Seattle
SIX0 - Office & ResidentialDenny Regrade925,000157.5 
Austin
10615 Burnet Road (3)
Stadium District / Domain493,00040.3 
TOTAL:$1,081.5 
________________________
(1)Project timing, costs, developable square feet and scope could change materially from estimated data provided due to one or more of the following: any significant changes in the economy, market conditions, our markets, tenant requirements and demands, construction costs, new office supply, regulatory and entitlement processes, and project design.
(2)Actual commencement is subject to extensive consideration of market conditions and economic factors.
(3)Represents cash paid and costs incurred as of September 30, 2017.

As of September 30, 2017, our longer term future development pipeline included additional undeveloped land holdings located in various submarkets in San Diego County and the San Francisco Bay Area with an aggregate cost basis of approximately $311.1 million, at which we believe we could develop more than 2.5 million(1)The developable square feet depending on successfully obtaining entitlements and scope of projects could change materially from estimated data provided due to one or more of the following: any significant changes in the economy, market conditions.conditions, our markets, tenant requirements and demands, construction costs, new supply, regulatory and entitlement processes or project design.

(2)Represents cash paid and costs incurred, including accrued liabilities in accordance with GAAP, as of March 31, 2022.
(3)This fully-entitled 2.9 acre land site was acquired in March 2022 for $40.0 million (refer to Note 2 “Acquisitions” to our consolidated financial statements included in this report for additional information).

Fluctuations in our development activities could cause fluctuations in the average development asset balances qualifying for interest and other carrying cost and internal cost capitalization in future periods. During the three and nine months ended September 30, 2017,March 31, 2022 and 2021, we capitalized interest on in-process development projects and future development pipeline projects with an average aggregate cost basis of approximately $1.0$2.0 billion and $1.7 billion, respectively, asit was determined these projects qualified for interest and other carrying cost capitalization under GAAP. DuringIn the three and nine months ended September 30, 2016, we capitalizedevent of an extended cessation of development activities, such projects may potentially no longer qualify for capitalization of interest on in-processor other carrying costs. However, a cessation of development projects and development pipeline projects with an average aggregate cost basisactivities caused by events outside of approximately $1.0 billion and $1.1 billion, respectively, asit was determined these projects qualified forour control would not impact our ability to capitalize interest and other carrying cost capitalization under GAAP.costs. For the three and nine months ended September 30, 2017,March 31, 2022 and 2021, we capitalized $12.2$19.1 million and $33.1$16.9 million, respectively, of interest to our qualifying development and redevelopment projects. For the three and nine months ended September 30, 2016,March 31, 2022 and 2021, we capitalized $11.2$5.3 million and $37.8 million, respectively, of interest to our qualifying development projects. For the three and nine months ended September 30, 2017, we capitalized $4.9 million and $15.7$5.5 million, respectively, of internal costs to our qualifying development and redevelopment projects. ForIn March 2022, the Federal Reserve raised interest rates by 0.25% and indicated that it expects to continue to raise interest rates throughout 2022. While we did not have any variable-rate debt outstanding during the three and nine months ended September 30, 2016,March 31, 2022, our interest expense and capitalized interest may increase in 2022 to the extent that we capitalized $5.1 million and $13.8 million, respectively,borrow amounts on our unsecured revolving credit facility, for which interest is calculated at the contractual rate of internal costs to our qualifying development projects.LIBOR plus 0.900%.


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 discussion of our capital recycling activities.




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InThe 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, the availability of financing for potential buyers (which has been and may continue to be constrained for some potential buyers due to the current economic and market conditions), 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 capital recycling strategy, duringstrategy. See the nine“Liquidity and Capital Resources of the Operating Partnership – Liquidity Sources” section for further information.

Acquisitions. During the three months ended September 30, 2017,March 31, 2022, we completed the saleacquired one development site in one transaction for a total cash purchase price of eleven operating properties and one undeveloped land parcel in two transactions to unaffiliated third parties for gross proceeds of $186.6$40.0 million.

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 and strategic operating properties.properties and land.  We continue to focus on growth opportunities primarily in West Coast markets populated by knowledge and creative basedcreative-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 programand redevelopment programs and selectively evaluate opportunities that we believe have the potential to either add immediate Net Operating Income to our portfolio or play a strategic role in our future growth.


WeIn connection with our growth strategy, we often have one or more potential acquisitions of properties and/or undeveloped land under consideration that are in varying stages of negotiation and due diligence review, or under contract, at any point in time. However, 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. As of September 30, 2017, we had $30.6 million of refundable acquisition deposits, subject to closing conditions required to be met by the seller, for potential future acquisitions.


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 2017,2022, 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/orand 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 September 30, 2017,March 31, 2022, there was approximately$30.9 $38.2 millionof total unrecognized compensation cost related to outstanding nonvested shares of restricted common stock and RSUs issued under share-based compensation arrangements. Those costs are expected to be recognized over a weighted-average period of1.9 2.1 years. The $30.9ultimate amount of compensation cost recognized related to outstanding nonvested RSUs issued under share-based compensation arrangements may vary for performance-based RSUs that are still in the performance period based on performance against applicable performance-based vesting goals. The $38.2 millionof unrecognized compensation cost does not reflect the future compensation cost for any potential share-based awards that may be issued.issued subsequent to March 31, 2022. 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. For additional information regarding our equity incentive awards, see Note 7 “Share-Based Compensation” to our consolidated financial statements included in this report.



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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 three and nine months ended September 30, 2017.March 31, 2022.


For Leases Commenced(1)
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)
NewRenewalNewRenewal
Three Months Ended
March 31, 2022		13 7 141,137 76,104 24.0 %$73.23 $10.59 25.4 %5.9 %83 
 
1st & 2nd Generation (2)
 
2nd Generation (2)
 
Number of Leases (3)
 
Rentable Square Feet (3)
 
TI/LC per
Sq. Ft. (4)
 
Changes in
Rents (5)(6)
 
Changes in
Cash Rents (7)
 
Retention Rates (8)
 
Weighted Average Lease Term (in months) 
 New Renewal New Renewal 
Three Months Ended
September 30, 2017
20
 11
 221,614
 56,566
 $58.76
 51.5% 31.5% 19.7% 80
Nine Months Ended September 30, 201757
 47
 521,079
 685,522
 $47.08
 33.0% 17.7% 48.2% 73



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For Leases Executed (1)(9)
 
1st & 2nd Generation (2)
 
2nd Generation (2)
 
Number of Leases (3)
 
Rentable Square Feet (3)
 
TI/LC per Sq. Ft. (4)
 
Changes in
Rents (5)(6)
 
Changes in
Cash Rents (7)
 
Weighted Average Lease Term
(in months)
 New Renewal New Renewal   
Three Months Ended
September 30, 2017 (9)(10)
22
 11
 152,547
 56,566
 $44.66
 9.5% 0.8% 65
Nine Months Ended
September 30, 2017 (10)
70
 47
 656,590
 685,522
 $48.89
 27.9% 12.8% 70
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)
NewRenewalNewRenewal
Three Months Ended
March 31, 2022		9 7 107,147 76,104 $92.61 $11.70 32.9 %6.7 %95 
________________________
(1)Includes 100% of consolidated property partnerships.
(2)First generation leasing includes space where we have made capital expenditures that result in additional revenue generated when the space is re-leased. Second generation leasing includes space where we have made capital expenditures to maintain the current market revenue stream.
(3)Represents leasing activity for leases that commenced or were signed during the period, including first and second generation space, net of month-to-month leases. Excludes leasing on new construction.
(4)Tenant improvements and leasing commissions per square foot exclude tenant-funded tenant improvements.
(5)Calculated as the change between GAAP rents for new/renewed leases and the expiring GAAP rents for the same space. Excludes leases for which the space was vacant longer than one year or vacant when the property was acquired.
(6)
Excludes commenced and executed leases of approximately 38,652 and 88,403 square feet, respectively, for the three months ended September 30, 2017, and162,357 and 173,270 rentable square feet, respectively, for the nine months ended September 30, 2017, for which the space was vacant longer than one year or being leased for the first time. Space vacant for more than one year is excluded from our change in rents calculations to provide a meaningful market comparison.
(7)Calculated as the change between stated rents for new/renewed leases and the expiring stated rents for the same space. Excludes leases for which the space was vacant longer than one year or vacant when the property was acquired.
(8)Calculated as the percentage of space either renewed or expanded into by existing tenants or subtenants at lease expiration.
(9)Excluding two leases executed in our Orange County region for 32,097 rentable square feet, cash rents increased 9.7%.
(10)
For the three months ended September 30, 2017, 18 leases totaling 133,789 rentable square feet were signed but not commenced as of September 30, 2017. For the nine months ended September 30, 2017, 35 leases totaling 448,854 rentable square feet were signed but not commenced as of September 30, 2017.

(1)Includes 100% of consolidated property partnerships.
(2)First generation leasing includes space where we have made capital expenditures that result in additional revenue generated when the space is re-leased. Second generation leasing includes space where we have made capital expenditures to maintain the current market revenue stream.
(3)Represents leasing activity for leases that commenced or were signed during the period, including first and second generation space, net of month-to-month leases. Excludes leasing on new construction.
(4)Calculated as the percentage of space either renewed or expanded into by existing tenants or subtenants at lease expiration.
(5)Tenant improvements and leasing commissions per square foot exclude tenant-funded tenant improvements.
(6)Calculated as the change between GAAP rents for new/renewed leases and the expiring GAAP rents for the same space. Includes leases for which re-leasing timing was impacted by the COVID-19 pandemic and restrictions intended to prevent its spread. Excludes leases for which the space was vacant when the property was acquired.
(7)Excludes commenced leases of approximately 10,000 rentable square feet for the three months ended March 31, 2022. Includes leases for which re-leasing timing was impacted by the COVID-19 pandemic and restrictions intended to prevent its spread. Space that was vacant when the property was acquired is excluded from our change in rents calculations to provide a more meaningful market comparison.
(8)Calculated as the change between stated rents for new/renewed leases and the expiring stated rents for the same space. Includes leases for which re-leasing timing was impacted by the COVID-19 pandemic and restrictions intended to prevent its spread. Excludes leases for which the space was vacant when the property was acquired.
(9)During the three months ended March 31, 2022, 7 new leases totaling 99,684 rentable square feet were signed but not commenced as of March 31, 2022.

As of September 30, 2017,March 31, 2022, we believe that the weighted average cash rental rates for our total stabilized portfolio are approximately 15%generally below the current average market rental rates, which includes a projection that the weighted average cash rental rates for our San Diego stabilized portfolio are approximately 7% abovecurrent market rental rates.rates in many of our markets. 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 ofor our portfolio.


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.

As restrictions intended to prevent the spread of COVID-19 have been lifted, we have seen an increase in prospective tenant tours and inquiries and leasing activity as compared to 2020 levels. While we do not believe that our development leasing and ability to renew leases scheduled to expire has been significantly impacted by the COVID-19 pandemic, we do believe that the impact of the restrictions and social distancing guidelines, the economic uncertainty caused by the COVID-19 pandemic and the uncertainty around the timing and extent of employees returning to offices have impacted the timing and volume of leasing and may continue to do so in the future, particularly if case rates surge again as a result of the spread of new variants or otherwise. Additionally, decreased demand, increased competition (including sublease space available from our tenants) 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.


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Scheduled Lease Expirations. The following table setstables set forth certain information regarding our lease expirations for our stabilized portfolio for the remainder of 20172022 and the next five years.years and by region for the remainder of 2022 and in 2023.


Lease Expirations (1)
Year of Lease ExpirationNumber of
Expiring
Leases		Total Square Feet% of Total Leased Sq. Ft.
Annualized Base Rent (2)(3)
% of Total Annualized Base Rent (2)
Annualized Base Rent per Sq. Ft. (2)
(in thousands)
Remainder of 2022 (4)
39 431,965 3.2 %$19,360 2.5 %$44.82 
2023 (4)
80 1,488,671 11.0 %76,087 10.1 %51.11 
202469 1,041,537 7.6 %47,913 6.3 %46.00 
202559 729,691 5.3 %36,298 4.8 %49.74 
202650 1,832,065 13.4 %84,032 11.1 %45.87 
202756 1,213,082 8.9 %48,079 6.4 %39.63 
Total353 6,737,011 49.4 %$311,769 41.2 %$46.28 


Year of Lease Expiration 
Number of
Expiring
Leases
 Total Square Feet % of Total Leased Sq. Ft. 
Annualized Base Rent (2)
 
% of Total Annualized Base Rent (2)
 
Annualized Base Rent per Sq. Ft. (2)
        (in thousands)    
Remainder of 2017 30
 360,619
 2.8% $12,956
 2.3% $35.93
2018 80
 1,235,826
 9.7% 51,982
 9.3% 42.06
2019 99
 1,547,021
 12.2% 56,605
 10.1% 36.59
2020 107
 1,739,675
 13.7% 68,376
 12.3% 39.30
2021 86
 994,240
 7.8% 44,151
 7.9% 44.41
2022 56
 572,999
 4.5% 23,523
 4.2% 41.05
Total 458
 6,450,380
 50.7% $257,593
 46.1% $39.93
YearRegion# 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)
2022 (4)
Greater Los Angeles30 321,898 2.5 %$14,806 2.0 %$46.00 
San Diego County5 19,241 0.1 %988 0.1 %51.35 
San Francisco Bay Area2 30,829 0.2 %1,785 0.2 %57.90 
Greater Seattle2 59,997 0.4 %1,781 0.2 %29.68 
Total39 431,965 3.2 %$19,360 2.5 %$44.82 
2023 (4)
Greater Los Angeles46 443,991 3.2 %$23,454 3.1 %$52.83 
San Diego County10 181,367 1.4 %7,923 1.0 %43.68 
San Francisco Bay Area16 389,560 2.9 %24,515 3.2 %62.93 
Greater Seattle8 473,753 3.5 %20,195 2.8 %42.63 
Total80 1,488,671 11.0 %$76,087 10.1 %$51.11 
________________________ 
(1)
For leases that have been renewed early with existing tenants, the expiration date and annualized base rent information presented takes into consideration the renewed lease terms. Excludes leases not commenced as of September 30, 2017, space leased under month-to-month leases, storage leases, vacant space and future lease renewal options not executed as of September 30, 2017.
(2)Annualized base rent includes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization of deferred revenue related tenant-funded tenant improvements, amortization of above/below market rents, amortization for lease incentives due under existing leases and expense reimbursement revenue. Additionally, the underlying leases contain various expense structures including full service gross, modified gross and triple net. Percentages represent percentage of total portfolio annualized contractual base rental revenue. For additional information on tenant improvement and leasing commission costs incurred by the Company for the current reporting period, please see further discussion under the caption “Information on Leases Commenced and Executed.”

(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 March 31, 2022, space leased under month-to-month leases, storage leases, vacant space and future lease renewal options not executed as of March 31, 2022.

(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.”
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(3)Includes 100% of annualized base rent of consolidated property partnerships.
(4)Adjusting for leases executed as of March 31, 2022 but not yet commenced, the 2022 expirations would be reduced by 64,058 square feet.

In addition to the 0.81.3 millionrentable square feet, or 6.0%8.7%, of currently available space in our stabilized portfolio, leases representing approximately 2.8%3.2% and 9.7%11.0% of the occupied square footage of our stabilized portfolio are scheduled to expire during 2017the remainder of 2022 and 2018,in 2023, respectively. The leases scheduled to expire during the remainder of 20172022 and in 20182023 represent approximately 1.61.9 million rentable square feet or 11.6%12.6% of our total annualized base rental revenue. Individual properties within any particular submarket presently mayAdjusting for leases executed as of March 31, 2022 but not yet commenced, the remaining 2022 expirations would be 367,907 square feet.
Sublease Space.  Of our 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 ratespace as of our overall portfolio. 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.

For the 360,619 rentable square feet or 2.3% of our total annualized base rental revenue scheduled to expire during the remainder of 2017, we believe that the weighted average cash rental rates in the aggregate areMarch 31, 2022, approximately at the current average market rental rates. For the approximately 1.21.0 million rentable square feet, or 9.3%6.5% of the square footage in our total annualized base rental revenuestabilized portfolio, was available for sublease, primarily in the San Francisco Bay Area region. Of the 6.5% of available sublease space in our stabilized portfolio as of March 31, 2022, approximately 5.1% was vacant space, and the remaining 1.4% was occupied. Of the approximately 1.0 million rentable square feet available for sublease as of March 31, 2022, approximately 31,748 rentable square feet representing 4 leases is scheduled to expire in 2018 we believe that the weighted average cash rental rates in the aggregate, are2022, and approximatelyat current average market rental rates. Of the 1.2 million 46,397 rentable square feet representing 4 leases are scheduled to expire in 2018, 307,415 rentable square feet or 2.8% of our total annualized base rental revenue is located in San Francisco submarkets and we currently believe these expiring leases are approximately 30% below market, and 444,949 rentable square feet or 3.7% of our total annualized base rental revenue is located in San Diego submarkets and we currently believe these expiring leases are approximately 30% above market.


2023.
31
29


Stabilized Portfolio Information


As of September 30, 2017,March 31, 2022, our stabilized portfolio was comprised of 101118 office and life science properties encompassing an aggregate of approximately 13.715.2 million rentable square feet and 2001,001 residential units. Our stabilized portfolio includes all of our properties with the exception of development and redevelopment properties currently committed for construction, under construction or committed forin the tenant improvement phase, redevelopment projects under construction, “lease-up” properties,undeveloped land 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 life science properties that we recently developedare developing or redeveloped that have not yetredeveloping 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 withinor one year followingfrom 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 or phases of projects are placed in service.

We did not have any “lease-up”, redevelopment orproperties held for sale properties at September 30, 2017.
As of September 30, 2017, the following properties were excluded from our stabilized portfolio:
 
Number of
Properties/Projects
 
Estimated Rentable
Square Feet (1)
Development projects under construction (2)
4 1,800,000
________________________
(1)Estimated rentable square feet upon completion.
(2)Development projects under construction also include 96,000 square feet of retail space and 237 residential units in addition to the estimated office rentable square feet noted above.

March 31, 2022. Our stabilized portfolio also excludes our near-term and future development pipeline, which as of September 30, 2017March 31, 2022 was comprised of fiveseven potential development sites, representing approximately 4762 gross acres of undeveloped land on which we believe we have the potential to develop over 4.3more than 5.7 million rentable square feet, of office space, depending upon economic conditions.


As of March 31, 2022, the following properties were excluded from our stabilized portfolio:
Number of
Properties/Projects
Estimated Rentable
Square Feet (1)
In-process development projects - tenant improvement31,604,000 
In-process development projects - under construction2946,000 
In-process redevelopment projects - under construction3330,000 
________________________
(1)Estimated rentable square feet upon completion.

The following table reconciles the changes in the rentable square feet in our stabilized office portfolio of operating properties from September 30, 2016March 31, 2021 to September 30, 2017:March 31, 2022:

Number of
Buildings		Rentable
Square Feet
Number of
Buildings
 
Rentable
Square Feet
Total as of September 30, 2016101
 13,605,597
Total as of March 31, 2021Total as of March 31, 2021117 14,049,585 
Acquisitions6
 344,284
Acquisitions1 539,226 
Completed development properties placed in-service4
 438,391
Completed development properties placed in-service5 949,065 
Properties transferred to redevelopmentProperties transferred to redevelopment(3)(348,568)
Dispositions(10) (675,143)Dispositions(2)(102,376)
Remeasurement—
 7,469
Remeasurement— 134,980 
Total as of September 30, 2017 (1)
101
 13,720,598
Total as of March 31, 2022 (1)
Total as of March 31, 2022 (1)
118 15,221,912 
________________________
(1)Includes four properties owned by consolidated property partnerships.

(1)Includes four properties owned by consolidated property partnerships (see Note 1 “Organization, Ownership and Basis of Presentation” to our consolidated financial statements included in this report for additional information).

Occupancy Information


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

RegionNumber of
Buildings		Rentable Square Feet
Occupancy at (1) 
3/31/202212/31/20219/30/2021
Greater Los Angeles55 4,457,320 85.7 %86.1 %86.4 %
San Diego County20 2,171,305 89.4 %95.9 %91.8 %
San Francisco Bay Area34 6,211,875 92.9 %92.4 %93.0 %
Greater Seattle9 2,381,412 99.2 %97.2 %97.2 %
Total Stabilized Office Portfolio118 15,221,912 91.3 %91.9 %91.5 %
Stabilized Portfolio Occupancy


30
Region Number of
Buildings		 Rentable Square Feet 
Occupancy at (1) 
 9/30/2017 6/30/2017 12/31/2016
Los Angeles and Ventura Counties 36
 4,181,735
 91.0% 91.2% 95.0%
Orange County 1
 271,556
 94.4% 94.7% 97.8%
San Diego 21
 2,043,645
 93.9% 93.5% 93.2%
San Francisco Bay Area 31
 5,157,524
 95.9% 95.1% 97.6%
Greater Seattle 12
 2,066,138
 95.2% 97.0% 97.2%
Total Stabilized Portfolio 101
 13,720,598
 94.0% 93.9% 96.0%


32


-Average Occupancy
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Stabilized Portfolio(1)
93.9% 96.1% 94.1% 95.3%
Same Store Portfolio(2)
94.3% 96.7% 94.9% 96.4%
Average Occupancy
Three Months Ended March 31,
20222021
Stabilized Office Portfolio (1)
91.4 %91.5 %
Same Store Portfolio (2)
90.5 %91.4 %
Residential Portfolio (3)
93.7 %69.1 %
________________________
(1)
(1)Occupancy percentages reported are based on our stabilized office portfolio as of the end of the period presented and exclude occupancy percentages of properties held for sale.
(2)
Occupancy percentages reported are based on office properties owned and stabilized as of January 1, 2016 and still owned and stabilized as of September 30, 2017. See discussion under “Results of Operations” for additional information.
Our stabilized office portfolio was 94.0% occupied as of September 30, 2017 with 360,619 square feet scheduled to expire during the remainderend of 2017. Ourthe period presented and exclude occupancy percentages of properties held for sale. Represents economic occupancy.
(2)Occupancy percentages reported are based on office properties owned and stabilized residential property was 72.0% occupied as of September 30, 2017.January 1, 2021 and still owned and stabilized as of March 31, 2022 and exclude our residential portfolio. See discussion under “Results of Operations” for additional information.

(3)Our residential portfolio consists of our 200-unit residential tower and 193-unit Jardine project in Hollywood, California and 608 residential units at our One Paseo mixed-use project in Del Mar, California.

Significant Tenants


The following table sets forth information about our fifteen15 largest tenants based upon annualized base rental revenues, as defined below, as of September 30, 2017.March 31, 2022.

 Tenant Name 
Annualized Base Rental Revenue (1)
($ in thousands)
 
Rentable
Square Feet
 Percentage of Total Annualized Base Rental Revenue 
Percentage of
Total Rentable
Square Feet
 
 LinkedIn Corporation $28,344
 663,239
 5.1% 4.8%
 salesforce.com, inc. 23,836
 456,867
 4.3% 3.3%
 DIRECTV, LLC 23,152
 684,411
 4.2% 5.0%
 Box, Inc. 22,441
 371,792
 4.0% 2.7%
 Dropbox, Inc. 21,572
 256,484
 3.9% 1.9%
 Synopsys, Inc. 15,492
 340,913
 2.8% 2.5%
 Bridgepoint Education, Inc. 14,064
 296,708
 2.5% 2.2%
 Viacom International, Inc. 13,718
 211,343
 2.5% 1.5%
 Delta Dental of California 10,313
 188,143
 1.9% 1.4%
 Capital One, N.A. 9,170
 117,993
 1.6% 0.9%
 AMN Healthcare, Inc. 9,001
 176,075
 1.6% 1.3%
 Concur Technologies 8,852
 243,429
 1.6% 1.8%
 Biotech/Healthcare Industry Tenant 8,461
 128,688
 1.5% 0.9%
 Riot Games, Inc. 7,355
 131,537
 1.3% 1.0%
 Neurocrine Biosciences, Inc.
 6,883
 140,591
 1.2% 1.0%
 Total Top Fifteen Tenants $222,654
 4,408,213
 40.0% 32.2%
Tenant NameRegion
Annualized Base Rental Revenue (1) (2)
Rentable Square FeetPercentage of Total Annualized Base Rental RevenuePercentage of Total Rentable Square FeetYear(s) of Lease Expiration
(in thousands)
GM Cruise, LLCSan Francisco Bay Area$36,337 374,618 4.7 %2.4 %2031
Amazon.comGreater Seattle33,800 780,757 4.4 %5.0 %2023 / 2029 / 2030
Stripe, Inc.San Francisco Bay Area33,110 425,687 4.3 %2.7 %2034
LinkedIn Corporation / Microsoft CorporationSan Francisco Bay Area29,752 663,460 3.9 %4.3 %2024 / 2026
Adobe Systems, Inc.San Francisco Bay Area / Greater Seattle27,897 523,416 3.6 %3.4 %2027 / 2031
salesforce.com, inc.San Francisco Bay Area24,076 451,763 3.1 %2.9 %2031 / 2032
DoorDash, Inc.San Francisco Bay Area23,842 236,759 3.1 %1.5 %2032
DIRECTV, LLC (3)
Greater Los Angeles23,152 684,411 3.0 %4.4 %2027
Global Technology CompanyGreater Seattle /
San Diego County		23,059 472,427 3.0 %3.0 %2032 / 2033
Okta, Inc.San Francisco Bay Area22,387 273,371 2.9 %1.8 %2028
Netflix, Inc. (4)
Greater Los Angeles21,943 362,899 2.8 %2.3 %2022 / 2032
Box, Inc.San Francisco Bay Area20,390 341,441 2.6 %2.2 %2028
Cytokinetics, Inc.San Francisco Bay Area18,014 234,892 2.3 %1.5 %2033
Riot Games, Inc.Greater Los Angeles15,681 251,307 2.0 %1.6 %2023 / 2024
Synopsys, Inc.San Francisco Bay Area15,492 342,891 2.0 %2.2 %2030
Total$368,932 6,420,099 47.7 %41.2 %
________________________
(1)Includes 100% of annualized base rental revenues of consolidated property partnerships.

(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 March 31, 2022.

(2)Includes 100% of the annualized base rental revenues of consolidated property partnerships.
(3)On April 5, 2021, DIRECTV, LLC’s successor-in-interest (“DIRECTV”) filed suit in Los Angeles Superior Court against a subsidiary of the Company, claiming that DIRECTV properly exercised its contraction rights as to certain space leased by DIRECTV at the property located at 2250 East Imperial Highway, El Segundo, California. The Company strongly disagrees with the contentions made by DIRECTV and will vigorously defend the litigation.
(4)The 2022 lease expiration represents 1,480 rentable square feet expiring on June 30, 2022.





33
31


Results of Operations


Net Operating Income


Management internally evaluates the operating performance and financial results of our stabilized portfolio based on Net Operating Income. We define “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).


Net Operating Income is considered by management to be an important and appropriate supplemental performance measure to net income because we believe it helps both investors and management to understand the core operations of our properties excluding corporate and financing-related costs and non-cash depreciation and amortization. Net Operating Income is an unlevered operating performance metric of our properties and allows for a useful comparison of the operating performance of individual assets or groups of assets. This measure thereby provides an operating perspective not immediately apparent from GAAP income from operations or net income. In addition, Net Operating Income is considered by many in the real estate industry to be a useful starting point for determining the value of a real estate asset or group of assets. Other real estate companies may use different methodologies for calculating Net Operating Income, and accordingly, our presentation of Net Operating Income may not be comparable to other real estate companies. Because of the exclusion of the items shown in the reconciliation below, Net Operating Income should only be used as a supplemental measure of our financial performance and not as an alternative to GAAP income from operations or net income.


Management further evaluates Net Operating Income by evaluating the performance from the following property groups:


•Same Store Properties – includes the consolidated results of all of the office properties that were owned and included in our stabilized portfolio for two comparable reporting periods, i.e., owned and included in our stabilized portfolio as of January 1, 20162021 and still owned and included in the stabilized portfolio as of September 30, 2017;
March 31, 2022, including our 200-unit residential tower in Hollywood, California and 608 residential units at our One Paseo mixed-use project in Del Mar, California;


Stabilized •Development Properties – includes the results generated by certain of our in-process development and redevelopment projects, expenses for certain of our future development projects and the following:
◦One office development project that was added to the stabilized portfolio in the first quarter of 2017;
◦Two office development projects that were completed and stabilized in March 2016;
◦Our residential project that was completed in June 2016; and
◦One office development project that was added to the stabilized portfolio in the fourth quarter of 2016;

results generated by the following stabilized development properties:

◦One office building that was added to the stabilized portfolio in the second quarter of 2021;
◦Two office buildings that were added to the stabilized portfolio in the third quarter of 2021;
◦Two office buildings that were added to the stabilized portfolio in the fourth quarter of 2021; and
◦193 residential units at our Jardine project in Hollywood, California that were added to the stabilized portfolio in the second quarter of 2021;

•Acquisition Properties –- includes the results, from the datesdate of acquisition through the periods presented, for the four office and three retail buildings weone property acquired in three transactions during 2016;the third quarter of 2021; and


Dispositions and Other•Disposition Properties – includes the results of one property disposed of in the tenfirst quarter of 2021 and two properties disposed of in the thirdfourth quarter of 2017, the one property disposed of during the first quarter of 2017, the six properties disposed of in 2016 and expenses for certain of our in-process, near-term and future development projects.2021.


The following table sets forth certain information regarding the property groups within our stabilized office portfolio as of September 30, 2017:March 31, 2022:
Group# of BuildingsRentable
Square Feet
Same Store Properties11213,733,621 
Stabilized Development Properties (1)
5 949,065 
Acquisition Properties1 539,226 
Total Stabilized Portfolio11815,221,912 
________________________
(1)Excludes development projects in the tenant improvement phase, our in-process development and redevelopment projects and future development projects.

32
Group # of Buildings 
Rentable
Square Feet
Same Store Properties 88
 12,182,806
Stabilized Development Properties 6
 1,079,333
Acquisition Properties 7
 458,459
Total Stabilized Office Portfolio 101
 13,720,598



34



Comparison of the Three Months Ended September 30, 2017March 31, 2022 to the Three Months Ended September 30, 2016March 31, 2021


The following table summarizes our Net Operating Income, as defined, for our total portfolio for the three months ended September 30, 2017March 31, 2022 and 2016.2021.

 Three Months Ended March 31,Dollar
Change		Percentage
Change
 20222021
 ($ in thousands)
Reconciliation of Net Income Available to Common Stockholders to Net Operating Income, as defined:
Net Income Available to Common Stockholders$53,128 $497,631 $(444,503)(89.3)%
Net income attributable to noncontrolling common units of the Operating Partnership516 4,886 (4,370)(89.4)%
Net income attributable to noncontrolling interests in consolidated property partnerships5,739 4,894 845 17.3 %
Net income$59,383 $507,411 $(448,028)(88.3)%
Unallocated expense (income):
General and administrative expenses22,781 21,985 796 3.6 %
Leasing costs1,013 692 321 46.4 %
Depreciation and amortization88,660 75,932 12,728 16.8 %
Interest and other income, net(81)(1,373)1,292 (94.1)%
Interest expense20,625 22,334 (1,709)(7.7)%
Gain on sale of depreciable operating property— (457,288)457,288 (100.0)%
Net Operating Income, as defined$192,381 $169,693 $22,688 13.4 %

 Three Months Ended September 30, 
Dollar
Change
 
Percentage
Change
 2017 2016 
 ($ in thousands)
Reconciliation of Net Income Available to Common Stockholders to Net Operating Income, as defined:      

Net Income Available to Common Stockholders$66,558
 $50,582
 $15,976
 31.6 %
Preferred dividends808
 3,313
 (2,505) (75.6)%
Original issuance costs of redeemed preferred stock and preferred units3,744
 —
 3,744
 100.0 %
Net income attributable to Kilroy Realty Corporation$71,110
 $53,895
 $17,215
 31.9 %
Net income attributable to noncontrolling common units of the Operating Partnership1,394
 1,453
 (59) (4.1)%
Net income attributable to noncontrolling interests in consolidated property partnerships2,984
 1,027
 1,957
 190.6 %
Net income$75,488
 $56,375
 $19,113
 33.9 %
Unallocated expense (income):       
General and administrative expenses14,514
 13,533
 981
 7.2 %
Acquisition-related expenses—
 188
 (188) (100.0)%
Depreciation and amortization62,567
 56,666
 5,901
 10.4 %
Interest income and other net investment gains(1,526) (538) (988) 183.6 %
Interest expense16,151
 14,976
 1,175
 7.8 %
Net gain on sale of land(449) —
 (449) 100.0 %
Gains on sales of depreciable operating properties(37,250) (18,312) (18,938) 103.4 %
Net Operating Income, as defined

$129,495
 $122,888
 $6,607
 5.4 %


35

The following tables summarize our Net Operating Income, as defined, for our total portfolio for the three months ended September 30, 2017March 31, 2022 and 2016.2021.

Three Months Ended March 31,
 20222021
Same StoreDevelop-mentAcquisi-tionDispositionTotalSame StoreDevelop-mentAcquisi-tionDispositionTotal
(in thousands)
Operating revenues:
Rental income$218,089 $36,427 $8,685 $7 $263,208 $201,097 $12,687 $— $20,872 $234,656 
Other property income1,788 478 21 6 2,293 965 13 — 12 990 
Total219,877 36,905 8,706 13 265,501 202,062 12,700 — 20,884 235,646 
Property and related expenses:
Property expenses39,442 4,963 979 40 45,424 35,048 1,526 — 2,285 38,859 
Real estate taxes21,506 3,705 659 — 25,870 21,053 1,383 — 2,830 25,266 
Ground leases1,738 88 — — 1,826 1,828 — — — 1,828 
Total62,686 8,756 1,638 40 73,120 57,929 2,909 — 5,115 65,953 
Net Operating Income,
as defined		$157,191 $28,149 $7,068 $(27)$192,381 $144,133 $9,791 $— $15,769 $169,693 

33

Three Months Ended September 30, Three Months Ended March 31, 2022 as compared to the Three Months Ended March 31, 2021
2017 2016Same StoreDevelopmentAcquisitionDispositionTotal
Same Store Stabilized
Develop-ment		 Acquisi-tion Properties Disposi-tions & Other Total Same Store Stabilized
Develop-ment		 Acquisi-tion Properties Disposi-tions & Other TotalDollar ChangePercent ChangeDollar ChangePercent ChangeDollar ChangePercent ChangeDollar ChangePercent ChangeDollar ChangePercent Change
(in thousands) ($ in thousands)
Operating revenues:                   Operating revenues:
Rental income$130,147
 $18,550
 $7,317
 $3,940
 $159,954
 $129,684
 $11,347
 $1,339
 $4,169
 $146,539
Rental income$16,992 8.4 %$23,740 187.1 %$8,685 100.0 %$(20,865)(100.0)%$28,552 12.2 %
Tenant reimbursements14,550
 2,841
 1,821
 453
 19,665
 13,670
 1,999
 263
 474
 16,406
Other property income1,396
 91
 206
 222
 1,915
 287
 19
 —
 5,097
 5,403
Other property income823 85.3 %465 NM*21 100.0 %(6)(50.0)%1,303 131.6 %
Total146,093
 21,482
 9,344
 4,615
 181,534
 143,641
 13,365
 1,602
 9,740
 168,348
Total17,815 8.8 %24,205 190.6 %8,706 100.0 %(20,871)(99.9)%29,855 12.7 %
Property and related expenses:                   Property and related expenses:
Property expenses26,554
 4,468
 1,232
 816
 33,070
 25,165
 3,885
 106
 894
 30,050
Property expenses4,394 12.5 %3,437 225.2 %979 100.0 %(2,245)(98.2)%6,565 16.9 %
Real estate taxes9,949
 4,337
 1,429
 656
 16,371
 12,091
 1,534
 163
 713
 14,501
Real estate taxes453 2.2 %2,322 167.9 %659 100.0 %(2,830)(100.0)%604 2.4 %
Provision for bad debts643
 15
 362
 16
 1,036
 23
 —
 —
 (23) —
Ground leases964
 —
 598
 —
 1,562
 909
 —
 —
 —
 909
Ground leases(90)(4.9)%88 100.0 %— — %— — %(2)(0.1)%
Total38,110
 8,820
 3,621
 1,488
 52,039
 38,188
 5,419
 269
 1,584
 45,460
Total4,757 8.2 %5,847 201.0 %1,638 100.0 %(5,075)(99.2)%7,167 10.9 %
Net Operating Income,
as defined
$107,983
 $12,662
 $5,723
 $3,127
 $129,495
 $105,453
 $7,946
 $1,333
 $8,156
 $122,888
Net Operating Income, as defined$13,058 9.1 %$18,358 187.5 %$7,068 100.0 %$(15,796)(100.2)%$22,688 13.4 %

 Three Months Ended September 30, 2017 as compared to the Three Months Ended September 30, 2016
 Same Store Stabilized Development Acquisition Properties Dispositions & Other Total
 Dollar Change Percent Change Dollar Change Percent Change Dollar Change Percent Change Dollar Change Percent Change Dollar Change Percent Change
 ($ in thousands)
Operating revenues:                   
Rental income$463
 0.4 % $7,203
 63.5% $5,978
 446.5% $(229) (5.5)% $13,415
 9.2 %
Tenant reimbursements880
 6.4 % 842
 42.1% 1,558
 592.4% (21) (4.4)% 3,259
 19.9 %
Other property income1,109
 386.4 % 72
 378.9% 206
 100.0% (4,875) (95.6)% (3,488) (64.6)%
Total2,452
 1.7 % 8,117
 60.7% 7,742
 483.3% (5,125) (52.6)% 13,186
 7.8 %
Property and related expenses:                   
Property expenses1,389
 5.5 % 583
 15.0% 1,126
 NM*
 (78) (8.7)% 3,020
 10.0 %
Real estate taxes(2,142) (17.7)% 2,803
 182.7% 1,266
 776.7% (57) (8.0)% 1,870
 12.9 %
Provision for bad debts620
 NM*
 15
 100.0% 362
 100.0% 39
 169.6 % 1,036
 100.0 %
Ground leases55
 6.1 % —
 —% 598
 100.0% —
 — % 653
 71.8 %
Total(78) (0.2)% 3,401
 62.8% 3,352
 NM*
 (96) (6.1)% 6,579
 14.5 %
Net Operating Income,
as defined
$2,530
 2.4 % $4,716
 59.4% $4,390
 329.3% $(5,029) (61.7)% $6,607
 5.4 %
________________________
* Percentage not meaningful.


Net Operating Income increased $6.6$22.7 million, or 5.4%13.4%, for the three months ended September 30, 2017March 31, 2022 as compared to the three months ended September 30, 2016March 31, 2021 resulting from:


•An increase in Net Operating Income of $2.5$13.1 million attributable to the Same Store Properties, which was driven by the following activity:


•An increasein rental incometotal operating revenues of $0.5$17.8 million primarily due to:


•$3.45.0 million increase resulting from new leases and renewals at higher rates across allprimarily in the San Diego County and San Francisco Bay Area regions;


•$0.38.0 million increase related to recoveries from the impact of COVID-19 in 2021, comprised of:

•$4.0 million increase due to collection of past due amounts from tenants on a cash basis of revenue recognition;
•$1.5 million increase from the recognition of deferred rent balances associated with tenants restored from a cash basis of revenue recognition to an accrual basis of revenue recognition in 2022;

•$1.6 million increase in parking income due to increased parking demand and rates at certain properties as well as increased transient parking; partially offset by


36

$3.2 million decrease due to lease expirations and early terminationsan increase in the San Francisco Bay Area, Los Angelesnumber of monthly parking spaces rented and Greater Seattlehigher transient parking across all regions; and


An•$0.9 million increase in tenant reimbursements of $0.9 million primarily due to higher reimbursable expenses at several properties across the portfolio;lower charges in 2022 against rental income related to tenant creditworthiness considerations;


An•$4.0 million increase in other propertythe tenant reimbursement component of rental income of $1.1 million primarily due to early leasehigher occupancy and reimbursable operating expenses; and

•$0.5 million increase due to termination fees recognized in the2022 primarily related to one tenant in San Diego regionCounty and San Francisco Bay Area;one tenant in Greater Los Angeles;



34

•An offsetting decreaseincrease in property and related expenses of $0.1$4.8 million primarily due to the following:


•$1.43.4 million increase in property expenses due to an increase in contract services, electricity, security, parking,including repairs and maintenance, janitorial, utilities, security, and various other reimbursablerecurring expenses including a $0.3as tenants continue to return to the office;

•$0.9 million increase in non-recurring non-reimbursable expenses;operating expenses related to our residential properties due to higher occupancy; and


•$0.60.5 million increase in the bad debt provision primarily related to four tenants; offset by

$2.1 million decrease in real estate taxes primarily due to lower supplementalhigher annual property taxes at one property that was previously redeveloped;across the portfolio;


•An increase in Net Operating Income of $4.7$18.4 million attributable to the Stabilized Development Properties;


•An increase in Net Operating Income of $4.4$7.1 million attributable to the Acquisition Properties; andpartially offset by


•A decrease in Net Operating Income of $5.0$15.8 million attributable to the Dispositions and Other Properties due to $5.0 million of other property income received in 2016 relating to a property damage settlement.Disposition Properties.


Other Expenses and Income


General and Administrative Expenses


General and administrative expensesincreased by approximately $1.0$0.8 million, or 7.2%3.6%, for the three months ended September 30, 2017March 31, 2022 as compared to the three months ended September 30, 2016 mainlyMarch 31, 2021 primarily due to an increase in compensation related expenses primarily related to the growthcontinued reopening of the economy and the resumption of activities throughout the Company.


Depreciation and Amortization


Depreciation and amortization increased by approximately $5.9$12.7 million, or 10.4%16.8%, for the three months ended September 30, 2017March 31, 2022 compared to the three months ended September 30, 2016March 31, 2021 primarily due to the following:


•An increase of $4.3$10.9 million attributable to the Acquisition Properties; and


•An increase of $1.5$6.8 million attributable to the Stabilized Development Properties; partially offset by


An increase•A decrease of $0.2$1.2 million attributable to the Same Store Properties; and


•A decrease of $0.1$3.8 million attributable to Dispositions & Otherthe Disposition Properties.


37



Interest Expense


The following table sets forth our gross interest expense, including debt discounts/premiumsdiscounts and deferred financing cost amortization, and capitalized interest, including capitalized debt discounts/premiumsdiscounts and deferred financing cost amortization, for the three months ended September 30, 2017March 31, 2022 and 2016:2021:

Three Months Ended March 31,
 20222021Dollar
Change
Percentage
Change 
 (in thousands)
Gross interest expense$39,723 $39,242 $481 1.2 %
Capitalized interest and deferred financing costs(19,098)(16,908)(2,190)13.0 %
Interest expense$20,625 $22,334 $(1,709)(7.7)%

 Three Months Ended September 30,    
 2017 2016 
Dollar
Change
 
Percentage
Change 
 (in thousands)    
Gross interest expense$28,331
 $26,184
 $2,147
 8.2%
Capitalized interest and deferred financing costs(12,180) (11,208) (972) 8.7%
Interest expense$16,151
 $14,976
 $1,175
 7.8%

Gross interest expense, before the effect of capitalized interest and deferred financing costs, increased $2.1$0.5 million, or 8.2%1.2%, for the three months ended September 30, 2017March 31, 2022 as compared to the three months ended September 30, 2016March 31, 2021 primarily due to an increase in the average outstanding debt balance for the three months ended September 30, 2017. March 31, 2022.


35

Capitalized interest and deferred financing costs increased $1.0$2.2 million, or 8.7%13.0%, for the three months ended September 30, 2017 asMarch 31, 2022 compared to the three months ended September 30, 2016March 31, 2021 primarily due to an increase in the average development asset balances qualifying for interest capitalizationduring the three months ended September 30, 2017.March 31, 2022. During the three months ended March 31, 2022 and 2021, we capitalized interest on in-process development and redevelopment projects and future development pipeline projects with an average aggregate cost basis of approximately $2.0 billion and $1.7 billion, respectively, as it was determined these projects qualified for interest and other carrying cost capitalization under GAAP. In the event of an extended cessation of development or redevelopment activities to get any of these projects ready for its intended use, such projects could potentially no longer qualify for capitalization of interest or other carrying costs. However, a cessation of development or redevelopment activities caused by events outside of our control, such as those as a result of government restrictions aimed at stopping the spread of COVID-19, would not impact our ability to capitalize interest and other carrying costs.


Net Income Attributable to Noncontrolling Interests in Consolidated Property Partnerships


Net income attributable to noncontrolling interests in consolidated property partnerships increased $2.0$0.8 million foror 17.3% or the three months ended September 30, 2017March 31, 2022 compared to the three months ended September 30, 2016.March 31, 2021 primarily due to the expansion of one existing tenant at a higher rate at one property held in a property partnership in 2022. The amountamounts reported for the three months ended September 30, 2017 isMarch 31, 2022 and 2021 are comprised of the noncontrolling interest’s share of net income for 100 First Street Member, LLC (“100 First LLC”) and 303 Second Street Member, LLC (“303 Second LLC”) which closed on August 30, 2016 and November 30, 2016, respectively, in addition to the noncontrolling interest’sinterest's share of net income for Redwood City Partners, LLC (“Redwood LLC”). The amount reported for the three months ended September 30, 2016 is comprised of the noncontrolling interests’ share of net income for 100 First LLC and Redwood LLC.



38
36

Comparison of the Nine Months Ended September 30, 2017 to the Nine Months Ended September 30, 2016

The following table summarizes our Net Operating Income, as defined, for our total portfolio for the nine months ended September 30, 2017 and 2016.


 Nine Months Ended September 30, 
Dollar
Change
 
Percentage
Change
 2017 2016 
 ($ in thousands)
Reconciliation of Net Income Available to Common Stockholders to Net Operating Income, as defined:       
Net Income Available to Common Stockholders$122,720
 $251,112
 $(128,392) (51.1)%
Preferred dividends5,774
 9,938
 (4,164) (41.9)%
Original issuance costs of redeemed preferred stock and preferred units7,589
 —
 7,589
 100.0 %
Net income attributable to Kilroy Realty Corporation$136,083
 $261,050
 $(124,967) (47.9)%
Net income attributable to noncontrolling common units of the Operating Partnership2,633
 5,892
 (3,259) (55.3)%
Net income attributable to noncontrolling interests in consolidated property partnerships9,359
 1,438
 7,921
 550.8 %
Net income$148,075
 $268,380
 $(120,305) (44.8)%
Unallocated expense (income):       
General and administrative expenses43,750
 40,949
 2,801
 6.8 %
Acquisition-related expenses—
 964
 (964) (100.0)%
Depreciation and amortization185,737
 160,452
 25,285
 15.8 %
Interest income and other net investment gains(3,629) (1,120) (2,509) 224.0 %
Interest expense51,476
 41,189
 10,287
 25.0 %
Net (gain) loss on sale of land(449) 295
 (744) (252.2)%
Gains on sales of depreciable operating properties(39,507) (164,302) 124,795
 (76.0)%
Net Operating Income, as defined

$385,453
 $346,807
 $38,646
 11.1 %

The following tables summarize our Net Operating Income, as defined, for our total portfolio for the nine months ended September 30, 2017 and 2016.

 Nine Months Ended September 30,
 2017 2016
 Same Store Stabilized
Develop-ment		 Acquisition Properties Dispositi-ons & Other Total Same Store Stabilized
Develop-ment		 Acquisition Properties Dispositi-ons & Other Total
 (in thousands)
Operating revenues:                   
Rental income$388,721
 $53,106
 $21,884
 $11,816
 $475,527
 $385,870
 $22,610
 $1,710
 $13,757
 $423,947
Tenant reimbursements43,592
 7,356
 5,846
 1,434
 58,228
 37,823
 4,028
 317
 1,780
 43,948
Other property income5,546
 241
 612
 1,286
 7,685
 850
 26
 —
 5,156
 6,032
Total437,859
 60,703
 28,342
 14,536
 541,440
 424,543
 26,664
 2,027
 20,693
 473,927
Property and related expenses:                   
Property expenses78,649
 12,659
 3,666
 2,641
 97,615
 74,193
 7,094
 116
 3,833
 85,236
Real estate taxes34,946
 9,198
 4,901
 1,833
 50,878
 33,624
 3,282
 181
 2,291
 39,378
Provision for bad debts1,672
 (101) 1,080
 92
 2,743
 39
 —
 —
 (39) —
Ground leases2,956
 —
 1,795
 —
 4,751
 2,506
 —
 —
 —
 2,506
Total118,223
 21,756
 11,442
 4,566
 155,987
 110,362
 10,376
 297
 6,085
 127,120
Net Operating Income,
as defined
$319,636
 $38,947
 $16,900
 $9,970
 $385,453
 $314,181
 $16,288
 $1,730
 $14,608
 $346,807


39

 Nine Months Ended September 30, 2017 as compared to the Nine Months Ended September 30, 2016
 Same Store Stabilized Development Acquisition Properties Dispositions & Other Total
 Dollar Change Percent Change Dollar Change Percent Change Dollar Change Percent Change Dollar Change Percent Change Dollar Change Percent Change
 ($ in thousands)
Operating revenues:                   
Rental income$2,851
 0.7% $30,496
 134.9 % $20,174
 NM*
 $(1,941) (14.1)% $51,580
 12.2%
Tenant reimbursements5,769
 15.3% 3,328
 82.6 % 5,529
 NM*
 (346) (19.4)% 14,280
 32.5%
Other property income4,696
 552.5% 215
 826.9 % 612
 100.0% (3,870) (75.1)% 1,653
 27.4%
Total13,316
 3.1% 34,039
 127.7 % 26,315
 NM*
 (6,157) (29.8)% 67,513
 14.2%
Property and related expenses:                   
Property expenses4,456
 6.0% 5,565
 78.4 % 3,550
 NM*
 (1,192) (31.1)% 12,379
 14.5%
Real estate taxes1,322
 3.9% 5,916
 180.3 % 4,720
 NM*
 (458) (20.0)% 11,500
 29.2%
Provision for bad debts1,633
 NM*
 (101) (100.0)% 1,080
 100.0% 131
 335.9 % 2,743
 100.0%
Ground leases450
 18.0% —
 — % 1,795
 100.0% —
 — % 2,245
 89.6%
Total7,861
 7.1% 11,380
 109.7 % 11,145
 NM*
 (1,519) (25.0)% 28,867
 22.7%
Net Operating Income,
as defined
$5,455
 1.7% $22,659
 139.1 % $15,170
 876.9% $(4,638) (31.7)% $38,646
 11.1%
________________________
* Percentage not meaningful.

Net Operating Income increased $38.6 million, or 11.1%, for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 primarily resulting from:

An increase of $5.5 million attributable to the Same Store Properties primarily resulting from:

An increase in rental income of $2.9 million primarily due to the following:

$9.0 million increase due to new leases and renewals at higher rates primarily in the San Francisco Bay Area, Los Angeles and Greater Seattle regions;

$0.5 million increase in parking income due to increased tenant parking demand at certain properties; partially offset by

$6.6 million decrease due to lease expirations and early terminations primarily in the San Francisco Bay Area, Los Angeles and Greater Seattle regions;

An increase in tenant reimbursements of $5.8 million primarily due to:

$3.3 million increase due to higher recurring expenses and increased occupancy at various properties across multiple regions;

$1.6 million increase due to lower reimbursable supplemental taxes in 2016 as a result of a change in estimate at one property;

$0.9 million increase primarily due to lower abated tenant reimbursements as compared to the prior year in addition to increased tenant reimbursements from tenants with 2016 base years;

An increase in other property income of $4.7 million primarily due to early termination fees in the San Francisco Bay Area and San Diego region;

An increase in property and related expenses of $7.9 million primarily due to the following:

$4.5 million increase in property expenses primarily resulting from a $3.5 million increase in certain recurring operating costs related to security, parking, janitorial, engineers, repairs and maintenance, contract services, and various other reimbursable expenses and a $1.0 million increase in non-reimbursable expenses of which $0.5 million is non-recurring;


40

$1.3 million increase in real estate taxes primarily due to regular annual property tax increases in 2017;

$1.6 million increase in the provision for bad debt expense primarily related to four tenants; and

$0.5 million increase in ground rent primarily due to higher percentage ground rent for one of our ground leases;

An increase of $22.7 million attributable to the Stabilized Development Properties;

An increase of $15.2 million attributable to the Acquisition Properties; and

A decrease of $4.6 million attributable to the Dispositions & Other Properties primarily due to $5.0 million of other property income received in 2016 relating to a property damage settlement.


Other Expenses and Income

General and Administrative Expenses

General and administrative expenses increased $2.8 million, or 6.8%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 primarily due to the following:

An increase of approximately $2.1 million due to higher compensation and office expenses related to the growth of the Company; and

An increase of $0.7 million attributable to compensation expense related to the mark-to-market adjustment for the Company’s deferred compensation plan. The compensation expense was offset by gains on the underlying marketable securities included in interest income and other net investment gains in the consolidated statements of operations.

Depreciation and Amortization

Depreciation and amortization increased by $25.3 million, or 15.8%, for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, primarily due to the following:

An increase of $14.5 million attributable to the Acquisition Properties;

An increase of $8.0 million attributable to the Stabilized Development Properties;

An increase of $3.7 million attributable to the Same Store Properties; offset by

A decrease of $0.9 million attributable to the Dispositions and Other Properties.

Interest Expense

The following table sets forth our gross interest expense, including debt discounts/premiums and deferred financing cost amortization, and capitalized interest, including capitalized debt discounts/premiums and deferred financing cost amortization for the nine months ended September 30, 2017 and 2016:

 Nine Months Ended September 30,    
 2017 2016 
Dollar
Change
 
Percentage
Change 
 (in thousands)    
Gross interest expense$84,577
 $79,027
 $5,550
 7.0 %
Capitalized interest and deferred financing costs(33,101) (37,838) 4,737
 (12.5)%
Interest expense$51,476
 $41,189
 $10,287
 25.0 %

Gross interest expense, before the effect of capitalized interest and deferred financing costs, increased $5.6 million or 7.0% for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 primarily due to an

41

increase in the average outstanding debt balance for the nine months ended September 30, 2017. Capitalized interest and deferred financing costs decreased $4.7 million or 12.5% primarily due to a decrease in the average development asset balances qualifying for interest capitalization for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.

Net Income Attributable to Noncontrolling Interests in Consolidated Property Partnerships

Net income attributable to noncontrolling interests in consolidated property partnerships increased $7.9 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. The amount reported for the nine months ended September 30, 2017 is comprised of the noncontrolling interest’s share of net income for 100 First LLC and 303 Second LLC, which closed on August 30, 2016 and November 30, 2016, respectively, in addition to the noncontrolling interest’s share of net income for Redwood LLC. The amount reported for the nine months ended September 30, 2016 is comprised of the noncontrolling interests’ share of net income for 100 First LLC and Redwood LLC.

42


Liquidity and Capital Resources of the Company


In this “Liquidity and Capital Resources of the Company” section, the term the “Company” refers only to Kilroy Realty Corporation on an unconsolidated basis and excludes the Operating Partnership and all other subsidiaries.


The Company’s business is operated primarily through the Operating Partnership. Distributions from the Operating Partnership are the Company’s primary source of capital. The Company believes the Operating Partnership’s sources of working capital, specifically its cash flow from operations and borrowings available under its unsecured revolving credit facility and funds from its capital recycling program, including strategic ventures, are adequate for it to make its distribution payments to the Company and, in turn, for the Company to make its dividend payments to its common stockholders for the next twelve months. Cash flows from operating activities generated by the Operating Partnership for the ninethree months ended September 30, 2017March 31, 2022 were sufficient to cover the Company’s payment of cash dividends to its stockholders. However, there can be no assurance that the Operating Partnership’s sources of capital will continue to be available at all or in amounts sufficient to meet its needs, including its ability to make distributions to the Company. The unavailability of capital could adversely affect the Operating Partnership’s ability to make distributions to the Company, which would in turn, adversely affect the Company’s ability to pay cash dividends to its stockholders.


The Company is a well-known seasoned issuer and the Company and the Operating Partnership have an effective shelf registration statement that provides for the public offering and sale from time to time by the Company of its preferred stock, common stock, depositary shares, warrants and guarantees of debt securities and by the Operating Partnership of its debt securities, in each case in unlimited amounts. The Company evaluates the capital markets on an ongoing basis for opportunities to raise capital, and, as circumstances warrant, the Company and the Operating Partnership may issue securities of all of these types in one or more offerings at any time and from time to time on an opportunistic basis, depending upon, among other things, market conditions, available pricing and capital needs. When the Company receives proceeds from the sales of its preferred or common stock, it generally contributes the net proceeds from those sales to the Operating Partnership in exchange for corresponding preferred or common partnership units of the Operating Partnership. The Operating Partnership may use these proceeds and proceeds from the sale of its debt securities to repay debt, including borrowings under its unsecured revolving credit facility, to develop new or redevelop existing properties, to make acquisitions of properties or portfolios of properties, or for general corporate purposes.


As the sole general partner with control of the Operating Partnership, the Company consolidates the Operating Partnership for financial reporting purposes, and the Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities and the revenues and expenses of the Company and the Operating Partnership are substantially the same on their respective financial statements. The section entitled “Liquidity and Capital Resources of the Operating Partnership” should be read in conjunction with this section to understand the liquidity and capital resources of the Company on a consolidated basis and how the Company is operated as a whole.


Liquidity Highlights

As of March 31, 2022, we had approximately $331.7 million in cash and cash equivalents. As of the date of this report, we had $1.1 billion available under our unsecured revolving credit facility and our next debt maturity occurs in December 2024. We believe that our available liquidity demonstrates a strong balance sheet and makes us well positioned to navigate any additional future uncertainties. In addition, the Company is a well-known seasoned issuer and has historically been able to raise capital on a timely basis in the public markets, as well as the private markets. Any future financings, however, will depend on market conditions for both capital raises and the investment of such proceeds, and there can be no assurances that we will successfully obtain such financings.


37

Distribution Requirements


The Company is required to distribute 90% of its taxable income (subject to certain adjustments and excluding net capital gains) on an annual basis to maintain qualification as a REIT for federal income tax purposes and is required to pay income tax at regular corporate rates to the extent it distributes less than 100% of its taxable income (including capital gains). As a result of these distribution requirements, the Operating Partnership cannot rely on retained earnings to fund its on-going operations to the same extent as other companies whose parent companies are not REITs. In addition, the Company may be required to use borrowings under the Operating Partnership’s revolving credit facility, if necessary, to meet REIT distribution requirements and maintain its REIT status. The Company may also need to continue to raise capital in the equity markets to fund the Operating Partnership’s working capital needs, as well as potential developments of new or existing properties or acquisitions.


The Company intends to continue to make, but has not committed to make, regular quarterly cash distributions to common stockholders, and through the Operating Partnership, to common unitholders from the Operating Partnership’s cash flow from operating activities. All such distributions are at the discretion of the Board of Directors. As the Company intends to maintain distributions at a level sufficient to meet the REIT distribution requirements and minimize its obligation to pay income and excise taxes, it will continue to evaluate whether the current levels of distribution are sufficientappropriate to do so for 2017.throughout 2022. In addition, in the event the Company is unable to identify and complete the acquisition of suitable replacement properties to effect Section 1031 Exchanges or is unable to successfully complete Section 1031 Exchanges to defer some or all of the taxable gains related to property dispositions (or in the event additional legislation is enacted that further modifies or repeals laws with respect to Section 1031 Exchanges), the Company may electbe required to distribute a special dividend to its common stockholders and common unitholders in order to minimize or eliminate income taxes on such gains. The Company considers market factors and its performance in addition to REIT requirements in determining its distribution levels. Amounts accumulated for distribution to stockholders are invested primarily in interest-bearing accounts and short-term interest-bearing securities, which is consistent with the Company’s intention to maintain

43

its qualification as a REIT. Such investments may include, for example, obligations of the Government National Mortgage Association, other governmental agency securities, certificates of deposit, and interest-bearing bank deposits.


On September 13, 2017,February 8, 2022, the Board of Directors declared a regular quarterly cash dividend of $0.425$0.52 per share of common stockshare. The regular quarterly cash dividend is payable on October 18, 2017 to stockholders of record on September 30, 2017March 31, 2022 and caused a $0.425corresponding cash distribution of $0.52 per Operating Partnership unit cash distributionis payable to be paid in respectholders of the Operating Partnership’s common limited partnership interests of record on March 31, 2022, including those owned by the Company. The total cash quarterly dividends and distributions paid on October 18, 2017 April 13, 2022were $42.7$61.3 million.


Debt Covenants


The covenants contained within thecertain of our unsecured revolving credit facility, unsecured term loan facility, unsecured term loan and the Series A and B Notesdebt obligations generally prohibit the Company from paying dividends during an event of default in excess of 95%an amount which results in distributions to us 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 FFO.federal or state income or excise tax.


38

Capitalization


As of September 30, 2017,March 31, 2022, our total debt as a percentage of total market capitalization was 25.5%31.3%, which was calculated based on the closing price per share of the Company’s common stock of $71.12$76.42 on September 30, 2017March 31, 2022 as shown in the following table:
Shares/Units at 
March 31, 2022		Aggregate
Principal
Amount or
$ Value
Equivalent		% of Total
Market
Capitalization
($ in thousands)
Debt: (1)(2)
Unsecured Senior Notes due 2024$425,000 3.2 %
Unsecured Senior Notes due 2025400,000 3.1 %
Unsecured Senior Notes Series A & B due 2026250,000 1.9 %
Unsecured Senior Notes due 2028400,000 3.1 %
Unsecured Senior Notes due 2029400,000 3.1 %
Unsecured Senior Notes Series A & B due 2027 & 2029250,000 1.9 %
Unsecured Senior Notes due 2030500,000 3.8 %
Unsecured Senior Notes due 2031350,000 2.7 %
Unsecured Senior Notes due 2032425,000 3.2 %
Unsecured Senior Notes due 2033450,000 3.4 %
Secured debt247,655 1.9 %
Total debt$4,097,655 31.3 %
Equity and Noncontrolling Interests in the Operating Partnership: (3)
Common limited partnership units outstanding (4)
1,150,574$87,927 0.7 %
Shares of common stock outstanding116,716,0808,919,443 68.0 %
Total Equity and Noncontrolling Interests in the Operating Partnership$9,007,370 68.7 %
Total Market Capitalization$13,105,025 100.0 %
________________________ 
(1)    Represents gross aggregate principal amount due at maturity before the effect of the following at March 31, 2022: $22.0 million of unamortized deferred financing costs on the unsecured senior notes and secured debt and $7.1 million of unamortized discounts for the unsecured senior notes.
(2)    As of March 31, 2022, there was no outstanding balance on the unsecured revolving credit facility.
(3)    Value based on closing price per share of our common stock of $76.42 as of March 31, 2022.
(4)    Includes common units of the Operating Partnership not owned by the Company; does not include noncontrolling interests in consolidated property partnerships.




 
Shares/Units at 
September 30, 2017
 
Aggregate
Principal
Amount or
$ Value
Equivalent
 
% of Total
Market
Capitalization
 ($ in thousands)
Debt: (1)(2)
     
Unsecured Line of Credit  $60,000
 0.6%
Unsecured Senior Notes due 2018  325,000
 3.4%
Unsecured Senior Notes due 2020  250,000
 2.6%
Unsecured Senior Notes due 2023  300,000
 3.1%
Unsecured Senior Notes due 2025  400,000
 4.2%
Unsecured Senior Notes due 2029  400,000
 4.2%
Unsecured Senior Notes Series A & B due 2027 & 2029  250,000
 2.6%
Secured debt  464,025
 4.8%
Total debt  $2,449,025
 25.5%
Equity and Noncontrolling Interest in the Operating Partnership: (3)
     
Common limited partnership units outstanding (4)(5)
2,077,193 $147,730
 1.6%
Common shares outstanding (5)
98,382,256 6,996,946
 72.9%
Total equity and noncontrolling interest in the Operating Partnership  $7,144,676
 74.5%
Total Market Capitalization  $9,593,701
 100.0%
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________________________ 
(1)
Represents gross aggregate principal amount due at maturity before the effect of the following at September 30, 2017: $10.9 million of unamortized deferred financing costs, $6.0 million of unamortized discounts for the unsecured senior notes and $3.0 million of unamortized premiums for the secured debt.
(2)
As of September 30, 2017, there was no outstanding balance on the unsecured term loan facility.
(3)Includes common units of the Operating Partnership; does not include noncontrolling interests in consolidated property partnerships.
(4)Represents common units not owned by the Company.
(5)
Value based on closing price per share of our common stock of $71.12as of September 30, 2017.

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Liquidity and Capital Resources of the Operating Partnership


In this “Liquidity and Capital Resources of the Operating Partnership” section, the terms “we,” “our,” and “us” refer to the Operating Partnership or the Operating Partnership and the Company together, as the context requires.


General


Our primary liquidity sources and uses are as follows:


Liquidity Sources


•Net cash flow from operations;
•Borrowings under the Operating Partnership’s unsecured revolving credit facility, unsecured term loan facility, and unsecured senior notes;facility;
•Proceeds from our capital recycling program, including the disposition of nonstrategic assets and the formation of strategic ventures;
•Proceeds from additional secured or unsecured debt financings; and
•Proceeds from public or private issuance of debt, equity or preferred equity securities.


Liquidity Uses


•Development and redevelopment costs;
•Operating property or undeveloped land acquisitions;
•Property operating and corporate expenses;
•Capital expenditures, tenant improvement and leasing costs;
•Debt service and principal payments, including debt maturities;
•Distributions to common and preferred security holders;
•Repurchases and redemptions of outstanding common or preferred stock of the Company; and
•Outstanding debt repurchases, redemptions and repayments.


General Strategy


Our general strategy is to maintain a conservative balance sheet with a strong credit profile and to maintain a capital structure that allows for financial flexibility and diversification of capital resources. We manage our capital structure to reflect a long-term investment approach and utilize multiple sources of capital to meet our long-term capital requirements. We believe that our current projected liquidity requirements for the next twelve-month period, as set forth above under the caption “—Liquidity Uses,” will be satisfied using a combination of the liquidity sources listed above, although there can be no assurance in this regard. We believe our conservative leverage and staggered debt maturities provide us with financial flexibility and enhance our ability to obtain additional sources of liquidity if necessary, and, therefore, we are well-positioned to refinance or repay maturing debt and to pursue our strategy of seeking attractive acquisition opportunities, which we may finance, as necessary, with future public and private issuances of debt and equity securities.securities, although there can be no assurance in this regard.








45
40


Liquidity Sources


Unsecured Revolving Credit Facility and Term Loan Facility


In July 2017, the Operating Partnership amended and restated the terms of its unsecured revolving credit facility and unsecured term loan facility (together, the “Facility”). The amendment and restatement increased the size of the unsecured revolving credit facility from $600.0 million to $750.0 million, maintained the size of the unsecured term loan facility of $150.0 million, reduced the borrowing costs and extended the maturity date of the Facility to July 2022. The unsecured term loan facility features two six-month delayed draw options and the Facility was undrawn at closing, including the $150.0 million term loan, which was paid down in full at closing with available cash. Concurrently with the closing of the Facility, the Operating Partnership also repaid its $39.0 million unsecured term loan with available cash.

The following table summarizes the balance and terms of our unsecured revolving credit facility as of September 30, 2017March 31, 2022 and December 31, 2016:2021:
September 30, 2017 December 31, 2016March 31, 2022December 31, 2021
(in thousands)(in thousands)
Outstanding borrowings$60,000
 $—
Outstanding borrowings$— $— 
Remaining borrowing capacity690,000
 600,000
Remaining borrowing capacity1,100,000 1,100,000 
Total borrowing capacity (1)
$750,000
 $600,000
Total borrowing capacity (1)
$1,100,000 $1,100,000 
Interest rate (2)
2.24% 1.82%
Interest rate (2)
1.35 %1.00 %
Facility fee-annual rate (3)
0.200%
Facility fee-annual rate (3)
0.200%
Maturity dateJuly 2022 July 2019Maturity dateJuly 2025
________________________
(1)We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $600.0 million under an accordion feature under the terms of the unsecured revolving credit facility and unsecured term loan facility.
(2)Our unsecured revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.000% and LIBOR plus 1.050% as of September 30, 2017 and December 31, 2016, respectively.
(3)
Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs. As of September 30, 2017 and December 31, 2016, $6.3 millionand $3.3 million of unamortized deferred financing costs, respectively, remained to be amortized through the maturity date of our unsecured revolving credit facility, which are included in prepaid expenses and other assets, net on our consolidated balance sheets.

(1)We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $500.0 million under an accordion feature under the terms of the unsecured revolving credit facility.
(2)Our unsecured revolving credit facility interest rate was calculated based on the contractual rate of LIBOR plus 0.900% as of March 31, 2022 and December 31, 2021.
(3)Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs. As of March 31, 2022 and December 31, 2021, $6.8 millionand $7.3 million of unamortized deferred financing costs, respectively, which are included in prepaid expenses and other assets, net on our consolidated balance sheets, remained to be amortized through the respective maturity dates presented of our unsecured revolving credit facility.

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

The following table summarizes the balance and terms of our unsecured term loan facility as of September 30, 2017 and December 31, 2016:

 September 30, 2017 December 31, 2016
 (in thousands)
Outstanding borrowings (1)
$—
 $150,000
Remaining borrowing capacity150,000
 —
Total borrowing capacity (2)
$150,000
 $150,000
Interest rate (3)
2.33% 1.85%
Undrawn facility fee-annual rate (4)
0.200% —%
Maturity dateJuly 2022 July 2019
________________________
(1)In July 2017, the unsecured term loan facility was paid down and the Facility was amended to include two, six-month delayed draw options on the unsecured term loan facility. The Company may draw on the unsecured term loan facility through July 2018, at which time the outstanding balance will become the balance of the unsecured term loan facility and no additional draws may be made. However, if the Company does not draw at least $75.0 million by the end of first option term in January 2018, the total borrowing capacity under the Facility will be reduced by 50% of the unutilized borrowing capacity at that time. The Company intends to draw $75.0 million prior to the end of the first option term in January 2018.
(2)As of September 30, 2017 and December 31, 2016, $1.2 million and $0.7 million of unamortized deferred financing costs, respectively, remained to be amortized through the maturity date of our unsecured term loan facility.
(3)Our unsecured term loan facility interest rate was calculated based on an annual rate of LIBOR plus 1.100% and LIBOR plus 1.150% as of September 30, 2017 and December 31, 2016, respectively.
(4)In July 2017, the Facility was amended to include a facility fee on the remaining borrowing capacity of the unsecured term loan facility, which is paid on a monthly basis.





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Capital Recycling Program


As discussed in the section “Factors That May Influence Future Results of Operations - Capital Recycling Program,” we continuously evaluate opportunities for the potential disposition of properties and undeveloped land in our portfolio or the formation of strategic ventures with the intent of recycling the proceeds generated from the disposition of less strategic or lower returncore assets into capital used to finance development expenditures, to fund new acquisitions, to repay long-term debt and for other general corporate purposes. As part of this strategy, we attempt to enter into Section 1031 Exchanges, when possible, to defer some or all of the taxable gains on the sales, if any, for federal and state income tax purposes.

In connection with our capital recycling strategy, during the nine months ended September 30, 2017, we completed the sale of eleven operating properties and one undeveloped land parcel to unaffiliated third parties for gross proceeds of $186.6 million.
Any potential future capital recyclingdisposition transactions and the timing of any potential future capital recycling transactions will depend on market conditions and other factors, including but not limited to our capital needs, the availability of financing for potential buyers (which has been and may continue to be constrained for some potential buyers due to current economic and market conditions), and our ability to defer some or all of the taxable gains on the sales. WeIn addition, we cannot assure you 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 acquisitionacquisitions of a suitable replacement propertyproperties to effect a Section 1031 ExchangeExchanges to defer some or be ableall of the taxable gains related to use other tax deferred structures in connection with our capital recycling strategy.program. In the event we are unable to complete dispositions as planned, we may raise capital through other sources of liquidity including our available unsecured revolving credit facility or the public or private issuance of unsecured debt.


At-The-Market Stock Offering Program

Under our current at-the-market stock offering program, which commenced June 2018, we may offer and January 2017 Common Stock Offeringsell shares of our common stock with an aggregate gross sales price of up to $500.0 million from time to time in “at-the-market” offerings. In connection with the at-the-market program, the Company may enter into forward equity sale agreements with certain financial institutions acting as forward purchasers whereby, at our discretion, the forward purchasers may borrow and sell shares of our common stock under our at-the-market program. The use of a forward equity sale agreement allows the Company to lock in a share price on the sale of shares of our common stock at the time the agreement is executed but defer settling the forward equity sale agreements and receiving the proceeds from the sale of shares until a later date. The Company did not have any outstanding forward equity sale agreements to be settled at March 31, 2022.


Since commencement of our current at-the-market stock offering program, in December 2014, through September 30, 2017, we have sold 2,459,165completed sales of 3,594,576 shares of common stock through March 31, 2022. As of March 31, 2022, we may offer and sell shares of our common stock having an aggregate gross sales price of $182.4up to approximately $214.2 million and approximately $117.6 million remained available to be sold under this program. No shares of common stock were soldThe Company did not complete any sales under thisthe program during the ninethree months ended September 30, 2017. 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.March 31, 2022.

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In January 2017, the Company completed an underwritten public offering of 4,427,500 shares of its common stock. The net offering proceeds, after deducting underwriting discounts and offering expenses, were approximately $308.8 million. We used a portion of the proceeds to partially fund our 2016 special dividend and will use the remaining proceeds for general corporate uses, to fund development expenditures, for potential future acquisitions and to repay outstanding indebtedness.


Shelf Registration Statement


As discussed above under “—Liquidity and Capital Resources of the Company,” theThe Company is a well-known seasoned issuer and the Company and the Operating Partnership have an effective shelf registration statement that provides for the public offering and sale from time to time by the Company of its preferred stock, common stock, depository shares and guarantees of debt securities and by the Operating Partnership of its debt securities, in each case in unlimited amounts. The Company evaluates the capital markets on an ongoing basis for opportunities to raise capital, and, as circumstances warrant, the Company and the Operating Partnership may issue securities of all of these types in one or more offerings at any time and from time to time on an opportunistic basis, depending upon, among other things, market conditions, available pricing and capital needs. Capital raising could be more challenging under current market conditions as uncertainty related to interest rates, inflation rates, economic outlook, geopolitical events (including the military conflict between Russia and Ukraine) and other factors have contributed and may continue to contribute to significant volatility and negative pressure in financial markets. When the Company receives proceeds from the sales of its preferred or common stock, it generally contributes the net proceeds from those sales to the Operating Partnership in exchange for corresponding preferred or common partnership units of the Operating Partnership. The Operating Partnership may use these proceeds and proceeds from the sale of its debt securities to repay debt, including borrowings under its unsecured revolving credit facility, to develop new or redevelop existing properties, to make acquisitions of properties or portfolios of properties, or for general corporate purposes.

Unsecured Senior Notes - Private Placement

On February 17, 2017, the Operating Partnership issued the $175.0 million principal amount of its 3.35% Senior Notes, Series A, due February 17, 2027 (the “Series A Notes”), and the $75.0 million principal amount of its 3.45% Senior Notes, Series B, due February 17, 2029 (the “Series B Notes” and, together with the Series A Notes, the “Series A and B Notes”). The Series A and B Notes were issued pursuant to a delayed draw option under a Note Purchase Agreement entered into in connection with a private placement in September 2016. As of September 30, 2017, there was $175.0 million and $75.0 million issued and outstanding aggregate principal amount of Series A and B Notes, respectively. The Series A Notes mature on February 17, 2027, and the Series B Notes mature on February 17, 2029, unless earlier redeemed or prepaid pursuant to the terms of the Note Purchase Agreement. Interest on the Series A and B Notes is payable semi-annually in arrears on February 17 and August 17 of each year.


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Unsecured and Secured Debt


The aggregate principal amount of the unsecured debt and secured debt of the Operating Partnership outstanding as of September 30, 2017March 31, 2022 was as follows:
 
Aggregate Principal
 Amount Outstanding
 (in thousands)
Unsecured Line of Credit (1)
$60,000
Unsecured Senior Notes due 2018325,000
Unsecured Senior Notes due 2020250,000
Unsecured Senior Notes due 2023300,000
Unsecured Senior Notes due 2025400,000
Unsecured Senior Notes due 2029400,000
Unsecured Senior Notes Series A & B due 2027 & 2029250,000
Secured Debt464,025
Total Unsecured and Secured Debt$2,449,025
Less: Unamortized Net Discounts and Deferred Financing Costs(13,816)
Total Debt, Net$2,435,209
________________________
Aggregate Principal
 Amount Outstanding
(in thousands)
(1)
Unsecured Senior Notes due 2024$425,000 
Unsecured Senior Notes due 2025400,000 
Unsecured Senior Notes Series A & B due 2026250,000 
Unsecured Senior Notes due 2028400,000 
Unsecured Senior Notes due 2029400,000 
Unsecured Senior Notes Series A & B due 2027 & 2029250,000 
Unsecured Senior Notes due 2030500,000 
Unsecured Senior Notes due 2031350,000 
Unsecured Senior Notes due 2032425,000 
Unsecured Senior Notes due 2033450,000 
Secured Debt247,655 
As of September 30, 2017, there was no outstanding balance on the unsecured term loan facility.Total Unsecured and Secured Debt (1)
4,097,655 
Less: Unamortized Net Discounts and Deferred Financing Costs (2)
(29,192)
Total Debt, Net$4,068,463 

________________________ 
(1)As of March 31, 2022, there was no outstanding balance on the unsecured revolving credit facility.
(2)Includes $22.0 million of unamortized deferred financing costs on the unsecured senior notes and secured debt and $7.1 million of unamortized discounts for the unsecured senior notes. Excludes unamortized deferred financing costs on the unsecured revolving credit facility, which are included in prepaid expenses and other assets, net on our consolidated balance sheets.


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Debt Composition


The composition of the Operating Partnership’s aggregate debt balances between secured and unsecured and fixed-rate and variable-rate debt as of March 31, 2022 and December 31, 2021 was as follows:
 
Percentage of Total Debt (1)
Weighted Average Interest Rate (1)
 
March 31, 2022 (2)
December 31, 2021
March 31, 2022 (2)
December 31, 2021
Secured vs. unsecured:
Unsecured94.0 %93.9 %3.6 %3.6 %
Secured6.0 %6.1 %3.9 %3.9 %
Variable-rate vs. fixed-rate:
Variable-rate— %— %— %— %
Fixed-rate (3)
100.0 %100.0 %3.7 %3.7 %
Stated rate (3)
3.7 %3.7 %
GAAP effective rate (4)
3.7 %3.7 %
GAAP effective rate including debt issuance costs3.9 %3.9 %
________________________
(1)    As of the end of the period presented.
(2)    As of March 31, 2022, there was no outstanding balance on the unsecured revolving credit facility.
(3)    Excludes the impact of the amortization of any debt discounts/premiums and deferred financing costs.
(4)    Includes the impact of amortization of any debt discounts/premiums, excluding deferred financing costs.
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Liquidity Uses

Contractual Obligations

Refer to our 2016 Annual Report on Form 10-K for our debt composition as of December 31, 2016. There were no material changes to our overall debt composition information including but not limited to secured to unsecured ratios, floating rate to fixed rate ratios, weighted average maturity and weighted average interest rate during the nine months ended September 30, 2017.

Liquidity Uses

Contractual Obligations

Refer to our 20162021 Annual Report on Form 10-K for a discussion of our contractual obligations. There have been no material changes, outside of the ordinary course of business, to these contractual obligations during the ninethree months ended September 30, 2017.March 31, 2022.

Other Liquidity Uses


Development Activities


As of September 30, 2017,March 31, 2022, we had fourtwo development projects under construction.  These projects have a total estimated investment of approximately $1.4$1.0 billion of which we have incurred approximately $708.1$286.0 million, net of retention, and committed an additional $714.0 million as of March 31, 2022, of which $135.0 million to $145.0 million is currently expected to be spent through the end of 2022. In addition, as of March 31, 2022, we had three development projects in the tenant improvement phase. These projects have a total estimated investment of approximately $1.2 billion, of which we have incurred approximately $1.1 billion, net of retention, and committed an additional $146.0 million as of March 31, 2022, of which $70.0 million to $80.0 million is currently expected to be spent through the end of 2022. We also hadtwo stabilized development projects with a total estimated investment of $715.0 million, of which $67.0 million remains to be spent through the end of 2022. In addition, as of March 31, 2022, we had three redevelopment projects under construction with total estimated incremental redevelopment costs of $55.0 million, of which we have incurred $14.7 million and committed an additional $622$40.3 million and we expect we will incur additional tenant improvement costs based on leasing activity. Additionally, as of September 30, 2017, we have four completed development projects with approximately $35March 31, 2022. Of this amount, $33.0 million in remaining trailing development and leasing costs.is expected to be spent through the end of 2022. Furthermore, we currently believe we may spend up to an additional $50$100.0 million on development pipeline projects duringthat we may commence construction on throughout the remainder of 2017.  Ultimate2022. The ultimate timing of these expenditures may fluctuate given construction progress and leasing status of the projects.projects, or as a result of events outside our control, such as delays or increased costs as a result of the COVID-19 pandemic. We expect that any material additional development activities will be funded with borrowings under the unsecured revolving credit facility, the public or private issuance of debt or equity securities, or the disposition of assets under our capital recycling program.

6.875% Series G and 6.375% Series H Cumulative Redeemable Preferred Stock

On March 30, 2017,program, or strategic venture opportunities. We cannot provide assurance that development projects will be completed on the Company redeemed all 4,000,000 shares of its Series G Preferred Stock. The shares of Series G Preferred Stock were redeemed at a redemption price of $25.00 per share plus accumulated and unpaid dividends for a total cash outflow totaling approximately $100.8 million. We have no further distribution requirements with respect to the Series G Preferred Stock. In connection with the redemption of the Series G Preferred Stock, we incurred an associated non-cash charge of $3.8 million as a reduction to net income available to common stockholdersterms, for the related original issuance costs.amounts or on the timelines currently contemplated, or at all.


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On August 15, 2017, the Company redeemed all 4,000,000 shares of its Series H Preferred Stock. The shares of Series H Preferred Stock were redeemed at a redemption price of $25.00 per share for a total cash outflow of $100.0 million. We have no further distribution requirements with respect to the Series H Preferred Stock. In connection with the redemption of the Series H Preferred Stock, we incurred an associated non-cash charge of $3.7 million as a reduction to net income available to common stockholders for the related original issuance costs.


Debt Maturities


We believe our conservative leverage, and staggered debt maturities and recent unsecured line of credit amendment provide us with financial flexibility and enhance our ability to obtain additional sources of liquidity if necessary, and, therefore, we believe we are well-positioned to refinance or repay maturing debt and to pursue our strategy of seeking attractive acquisition opportunities, which we may finance, as necessary, with future public and private issuances of debt and equity securities. However, we can provide no assurance that we will have access to the public or private debt or equity markets in the future on favorable terms or at all. Our next debt maturity with a balance of $123.8 million at September 30, 2017 occurs in February 2018 for mortgage debt held by 303 Second Street Member, LLC, a property partnership in which the Company has a 56% common equity interest. We have the option to prepay this debt without penalty in the fourth quarter of 2017 and intend to do so, at which time we will fund our proportionate share of the payoff amount and the minority owner will contribute capital to pay off its proportionate share. We also have an additional $325.0 million of unsecured senior notes maturing in July 2018.December 2024.


Potential Future Acquisitions


As discussed in the section “Factors That May Influence Future Results of Operations - Acquisitions”Acquisitions,”we continue to evaluate strategic opportunities and remain a disciplined buyer of development and redevelopment opportunities as well as value-add and strategic operating properties, dependent on market conditions and business cycles, among other factors.  We continue to focus on growth opportunities primarily 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.  AnyWe expect that any material acquisitions will be funded with borrowings under the unsecured revolving credit facility, the public or private issuance of debt or equity securities, the disposition of assets under our capital recycling program, the formation of strategic ventures or through the assumption of existing debt. As of September 30, 2017, we had $30.6 million of refundable acquisition deposits, subject to closing conditions required todebt, although there can be met by the seller, for potential future acquisitions. no assurance in this regard.

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.



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Share Repurchases


On February 23, 2016, the Company’s Board 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. As of September 30, 2017,March 31, 2022, 4,935,826 shares remainremained eligible for repurchase under the Company’sa share repurchase program.program approved by the Company's board of directors in 2016. Under this program, repurchases may be made in open market transactions at prevailing prices or through privately negotiated transactions. We may elect to repurchase shares of our common stock under this program in the future depending upon various factors, including market conditions, the trading price of our common stock and our other uses of capital. This program does not have a termination date and repurchases may be discontinued at any time. We intend to fund repurchases, if any, primarily with the proceeds from property dispositions.


Other Potential Future Liquidity Uses


The amounts we are required to spend onincur for tenant improvements and leasing costs we ultimately incur will depend on actual leasing activity.activity in each period. Tenant improvements and leasing costs generally fluctuate in any given period depending on factors such as the type and condition of the property, the term of the lease, the type of the lease, the involvement of external leasing agents, and overall market conditions. Capital expenditures may fluctuate in any given period subject to the nature, extent and timing of improvements required to maintain or improve our properties. As the impacts of the COVID-19 pandemic and restrictions intended to prevent its spread subside, there may be a continued lower level of leasing activity when compared to levels prior to the COVID-19 pandemic due to the uncertainty around the timing and extent of employees returning to the office, particularly if case rates surge again as a result of the spread of new variants or otherwise.


Factors That May Influence Future Sources of Capital and Liquidity of the Company and the Operating Partnership


We continue to evaluate sources of financing for our business activities, including borrowings under the unsecured revolving credit facility, issuance of public and private equity securities, unsecured debt and fixed-rate secured mortgage financing, proceeds from the disposition of selective assets through our capital recycling program, and the formation of strategic ventures. However, our ability to obtain new financing or refinance existing borrowings on favorable terms could be impacted by various factors,

49

including the state of the macro economy, the state of the credit and equity markets, significant tenant defaults, a decline in the demand for office properties, a decrease in market rental rates or market values of real estate assets in our submarkets, and the amount of our future borrowings.borrowings and uncertainty related to interest rates, inflation rates, geopolitical events (including the military conflict between Russia and Ukraine) and other factors (refer to “Part I, Item IA. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2021 for additional information). These events could result in the following:


•Decreases in our cash flows from operations, which could create further dependence on the unsecured revolving credit facility;


•An increase in the proportion of variable-rate debt, which could increase our sensitivity to interest rate fluctuations in the future; and


•A decrease in the value of our properties, which could have an adverse effect on the Operating Partnership’s ability to incur additional debt, refinance existing debt at competitive rates, or comply with its existing debt obligations.


In addition to the factors noted above, the Operating Partnership’s credit ratings are subject to ongoing evaluation by credit rating agencies and may be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. In the event that the Operating Partnership’s credit ratings are downgraded, we may incur higher borrowing costs and may experience difficulty in obtaining additional financing or refinancing existing indebtedness.


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Debt Covenants


The unsecured revolving credit facility, unsecured term loan facility, unsecured term loan, unsecured senior notes, the Series A and B Notes and certain other secured debt arrangements contain covenants and restrictions requiring us to meet certain financial ratios and reporting requirements. Key existing financial covenants and their covenant levels include:

Unsecured Credit Facility and Private Placement Notes (as defined in the applicable Credit Agreements):Covenant LevelActual Performance
as of March 31, 2022
Total debt to total asset valueless than 60%29%
Fixed charge coverage ratiogreater than 1.5x3.5x
Unsecured debt ratiogreater than 1.67x3.25x
Unencumbered asset pool debt service coveragegreater than 1.75x4.05x
Unsecured Credit Facility and Term Loan Facility (as defined in the applicable Credit Agreements) (1):
Covenant Level
Actual Performance
as of September 30, 2017
Total debt to total asset valueless than 60%25%
Fixed charge coverage ratiogreater than 1.5x3.3x
Unsecured debt ratiogreater than 1.67x4.12x
Unencumbered asset pool debt service coveragegreater than 1.75x4.41x
Unsecured Senior Notes due 2018, 2020, 2023,2024, 2025, 2028, 2029, 2030, 2032 and 20292033
(as defined in the applicable Indentures):
Total debt to total asset valueless than 60%32%34%
Interest coveragegreater than 1.5x7.1x8.4x
Secured debt to total asset valueless than 40%6%2%
Unencumbered asset pool value to unsecured debtgreater than 150%329%297%
________________________
(1)As of September 30, 2017, the covenant performance under the Unsecured Senior Notes Series A and B due 2027 and 2029 (“private placement notes”), was substantially similar to the Facility; however, the unsecured debt ratio under the private placement notes was 3.61x reflecting definitional differences on unencumbered value. The Operating Partnership was in compliance under the credit agreement of the private placement notes as of September 30, 2017.


The Operating Partnership was in compliance with all of its debt covenants as of September 30, 2017.March 31, 2022. Our current expectation is that the Operating Partnership will continue to meet the requirements of its debt covenants in both the short and long term. However, in the event of an economic slowdown or continued volatility in the credit markets, there is no certainty that the Operating Partnership will be able to continue to satisfy all of the covenant requirements.


Consolidated Historical Cash Flow Summary


The following summary discussion of our consolidated historical cash flow is based on the consolidated statements of cash flows in Item 1. “Financial Statements” and is not meant to be an all-inclusive discussion of the changes in our cash flow for the periods presented below. Changes in our cash flow include changes in cash and cash equivalents and restricted cash. Our historical cash flow activity for the ninethree months ended September 30, 2017March 31, 2022 as compared to the ninethree months ended September 30, 2016March 31, 2021 is as follows:

 Three Months Ended March 31,
 20222021Dollar
Change		Percentage
Change
 ($ in thousands)
Net cash provided by operating activities$178,659 $144,152 $34,507 23.9 %
Net cash (used in) provided by investing activities(169,374)812,250 (981,624)120.9 %
Net cash used in financing activities(91,676)(92,954)1,278 (1.4)%
Net (decrease) increase in cash and cash equivalents$(82,391)$863,448 $(945,839)(109.5)%

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 Nine Months Ended September 30,
 2017 2016 
Dollar
Change
 
Percentage
Change
 ($ in thousands)  
Net cash provided by operating activities$276,542
 $252,605
 $23,937
 9.5 %
Net cash used in investing activities(180,712) (67,402) (113,310) 168.1 %
Net cash (used in) provided by financing activities(101,729) 65,617
 (167,346) (255.0)%


Operating Activities


Our cash flows from operating activities depends on numerous factors including the occupancy level of our portfolio, the rental rates achieved on our leases, the collectability of rent and recoveries from our tenants, the level of operating expenses, the impact of property acquisitions, completed development projects and related financing activities, and other general and administrative costs. Our net cash provided by operating activities increased by $23.9$34.5 million, or 9.5%23.9%, for the ninethree months ended September 30, 2017March 31, 2022 compared to the ninethree months ended September 30, 2016March 31, 2021 primarily as a result of an increase in cash Net Operating Income generated from stabilized development properties in our Stabilized Development AcquisitionPortfolio and from our Same Store Portfolios.and Acquisition Portfolios and net changes in other operating liabilities related to the timing of expenditures. See additional information under the caption “—Results of Operations.”



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Investing Activities


Our cash flows from investing activities is generally used to fund development and operating property acquisitions, expenditures for development and redevelopment projects, and recurring and nonrecurring capital expenditures for our operating properties, net of proceeds received from dispositions of real estate assets. OurDuring the three months ended March 31, 2022 we had net cash used in investing activities increasedof $169.4 million compared to net cash provided by $113.3investing activities of $812.3 million or 168.1% for the ninethree months ended September 30, 2017, compared to the nine months ended September 30, 2016March 31, 2021 primarily due to lower net$1.0 billion of proceeds received from dispositionsthe disposition completed during the ninethree months ended September 30, 2017 as compared to the nine months ended September 30, 2016.March 31, 2021.


Financing Activities


Our cash flows from financing activities is principally impacted by our capital raising activities, net of dividends and distributions paid to common and preferred security holders. During the nine months ended September 30, 2017, we hadOur net cash used in financing activities of $101.7 millionremained generally consistent for the three months ended March 31, 2022 compared to net cash provided by financingthe three months ended March 31, 2021. We did not complete any capital raising activities of $65.6 million during the ninethree months ended September 30, 2016 primarily due to the redemption of the Company’s Series G Preferred Stock and Series H Preferred Stock and the January 2017 payment of the special dividend declared in December 2016, partially offset by proceeds from the January 2017 common stock offering.March 31, 2022 or 2021.

Off-Balance Sheet Arrangements

As of September 30, 2017 and as of the date this report was filed, we did not have any off-balance sheet transactions, arrangements or obligations, including contingent obligations.


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Non-GAAP Supplemental Financial Measure: Funds From Operations (“FFO”)


We calculate FFO in accordance with the 2018 Restated White Paper on FFO approved by the Board of Governors of NAREIT. The White Paper defines FFO as net income or loss calculated in accordance with GAAP, excluding extraordinary items, as defined by GAAP, gains and losses from sales of depreciable real estate and impairment write-downs associated with depreciable real estate, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets) and after adjustment for unconsolidated partnerships and joint ventures. Our calculation of FFO includes the amortization of deferred revenue related to tenant-funded tenant improvements and excludes the depreciation of the related tenant improvement assets. We also add back net income attributable to noncontrolling common units of the Operating Partnership because we report FFO attributable to common stockholders and common unitholders.

We believe that FFO is a useful supplemental measure of our operating performance. The exclusion from FFO of gains and losses from the sale of operating real estate assets allows investors and analysts to readily identify the operating results of the assets that form the core of our activity and assists in comparing those operating results between periods. Also, because FFO is generally recognized as the industry standard for reporting the operations of REITs, it facilitates comparisons of operating performance to other REITs. However, other REITs may use different methodologies to calculate FFO, and accordingly, our FFO may not be comparable to all other REITs.


Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies using historical cost accounting alone to be insufficient. Because FFO excludes depreciation and amortization of real estate assets, we believe that FFO along with the required GAAP presentations provides a more complete measurement of our performance relative to our competitors and a more appropriate basis on which to make decisions involving operating, financing and investing activities than the required GAAP presentations alone would provide.


However, FFO should not be viewed as an alternative measure of our operating performance because it does not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, which are significant economic costs and could materially impact our results from operations.


The following table presents our FFO for the three and ninemonths ended September 30, 2017March 31, 2022 and 2016:2021:

Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended March 31,
2017 2016 2017 2016 20222021
(in thousands) (in thousands)
Net income available to common stockholders$66,558
 $50,582
 $122,720
 $251,112
Net income available to common stockholders$53,128 $497,631 
Adjustments:       Adjustments:
Net income attributable to noncontrolling common units of the Operating Partnership1,394
 1,453
 2,633
 5,892
Net income attributable to noncontrolling common units of the Operating Partnership516 4,886 
Net income attributable to noncontrolling interests in consolidated property partnerships2,984
 1,027
 9,359
 1,438
Net income attributable to noncontrolling interests in consolidated property partnerships5,739 4,894 
Depreciation and amortization of real estate assets61,141
 55,460
 181,875
 157,587
Depreciation and amortization of real estate assets87,001 74,431 
Gains on sales of depreciable real estate(37,250) (18,312) (39,507) (164,302)
Gain on sale of depreciable real estateGain on sale of depreciable real estate— (457,288)
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships(5,280) (1,675) (16,832) (2,277)Funds From Operations attributable to noncontrolling interests in consolidated property partnerships(8,618)(8,310)
Funds From Operations (1)(2)
$89,547
 $88,535
 $260,248
 $249,450
Funds From Operations (1)(2)
$137,766 $116,244 
________________________
(1)
(1)    Reported amounts are attributable to common stockholders, common unitholders and restricted stock unitholders.
(2)
FFO available to common stockholders and unitholders includes amortization of deferred revenue related to tenant-funded tenant improvements of $4.2 millionand $3.6 million for the three months ended September 30, 2017 and 2016, respectively, and $12.4 million and $9.7 million for the nine months ended September 30, 2017 and 2016, respectively.


(2)    FFO available to common stockholders and unitholders includes amortization of deferred revenue related to tenant-funded tenant improvements of $4.3 million and $4.2 million for the three months ended March 31, 2022 and 2021, respectively.

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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information about our market risk is disclosed in Part“Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2021, and is incorporated herein by reference. There have been no material changes for the ninethree months ended September 30, 2017,March 31, 2022, to the information provided in Part“Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2021.


ITEM 4.CONTROLS AND PROCEDURES

ITEM 4.    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 September 30, 2017,March 31, 2022, 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, the disclosure controls and procedures were effective at the reasonable assurance level.


There have been no significant changes that occurred during the quarterperiod covered by this report in the Company’s internal control over financial reporting identified in connection with the evaluation referenced above that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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 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 September 30, 2017,March 31, 2022, the end of the period covered by this report. Based on the foregoing, the Operating Partnership’s Chief Executive Officer and Chief Financial Officer of its general partner concluded, as of that time, the disclosure controls and procedures were effective at the reasonable assurance level.


There have been no significant changes that occurred during the quarterperiod covered by this report in the Operating Partnership’s internal control over financial reporting identified in connection with the evaluation referenced above that have materially affected, or are reasonably likely to materially affect, ourthe Operating Partnership’s internal control over financial reporting.



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PART II – OTHER INFORMATION


ITEM 1.    LEGAL PROCEEDINGS


We and our properties are subject to routine litigation incidental to our business. These matters are generally covered by insurance. As of September 30, 2017,March 31, 2022, 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 1A.
ITEM 1A.    RISK FACTORS


There have been no material changes to the risk factors included in the Company’s and the Operating Partnership’s annual report on Form 10-K for the year ended December 31, 2016.2021.


ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Recent Sales of Unregistered Securities: None.


(b) Use of Proceeds from Registered Securities: None.


(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers:


The table below reflects our purchases of common stock during each of the three months in the three-month period ended September 30, 2017.
March 31, 2022.
Period
Total Number of Shares of Stock Purchased (1)
Average Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number (or Approximate Dollar Value) that May Yet be Purchased Under the Plans or Programs
January 1, 2022 - January 31, 2022207,139 $66.53 — — 
February 1, 2022 - February 28, 2022— — — — 
March 1, 2022 - March 31, 2022— — — — 
Total207,139 $66.53 — — 
________________________
(1)Represents 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.


Period 
Total Number of Shares of Stock Purchased (1)
 Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) that May Yet be Purchased Under the Plans or Programs
July 1, 2017 - July 31, 2017 11,853
 $73.35
 —
 —
August 1, 2017 - August 31, 2017 6,650
 68.78
 —
 —
September 1, 2017 - September 30, 2017 249
 68.10
 —
 —
Total 18,752
 $71.66
 —
 —
_______________
(1)Includes shares of common stock remitted to the Company to satisfy tax withholding obligations in connection with the distribution of, or the vesting and distribution of, restricted stock units or restricted stock in shares of common stock. The value of such shares of common stock remitted to the Company was based on the closing price of the Company’s common stock on the applicable withholding date.


ITEM 3.DEFAULTS UPON SENIOR SECURITIES

ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.

None.

ITEM 4.MINE SAFETY DISCLOSURES

ITEM 4.MINE SAFETY DISCLOSURES

None.


ITEM 5.OTHER INFORMATION

ITEM 5.OTHER INFORMATION

None.




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ITEM 6. EXHIBITS
ITEM 6.Exhibit
Number		EXHIBITS
Description
Exhibit
Number
Description
3.(i)1
Articles of Amendment and Restatement of Kilroy Realty Corporation Articles of Restatement (previously filed by Kilroy Realty Corporation as an exhibit on Form 10-Q for8-K as filed with the quarter ended June 30, 2012)Securities and Exchange Commission on May 21, 2020)
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)4
Articles Supplementary reclassifying shares of the Series G 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.(i)(5)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
FifthSeventh 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)May 20, 2021)
3.(ii)2
Seventh Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P. dated as of August 15, 2012, as amended (previously filed by Kilroy Realty Corporation on Form 10-Q for the quarter ended June 30, 2014)
10.14.1
General Partner Guaranty Agreement,Indenture, dated February 17, 2017March 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 10-Q for the quarter ended March 31, 2017)
10.2†
Kilroy Realty 2006 Incentive Award Plan (previously filed by Kilroy Realty Corporation on Form 8-KS-3 as filed with the Securities and Exchange Commission on May 23, 2017)October 2, 2013)
10.34.2
Second AmendedSupplemental Indenture, dated July 5, 2011, among Kilroy Realty, L.P., as issuer, Kilroy Realty Corporation, as guarantor, and Restated Credit Agreement datedU.S. Bank National Association, as of July 24, 2017trustee (previously filed by Kilroy Realty Corporation and Kilroy Realty, L.P. as an exhibit to the Registration Statement on Form 10-Q forS-3 as filed with the quarter ended June 30, 2017)Securities and Exchange Commission on October 2, 2013)
10.410.1†*
Second AmendedTransition Agreement by and Restated Guaranty dated as of July 24, 2017 (previously filed bybetween Kilroy Realty Corporation, on Form 10-Q for the quarter ended June 30, 2017)Kilroy Realty, L.P. and Michelle Ngo dated February 24, 2022
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 quarter ended September 30, 2017,March 31, 2022, formatted in inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Equity (unaudited), (iv) Consolidated Statements of Capital (unaudited), (v) Consolidated Statements of Cash Flows (unaudited) and (vi) Notes to the Consolidated Financial Statements (unaudited).(1)
104.1*Cover Page Interactive Data File - The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
_______________
*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.




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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on October 26, 2017.
April 28, 2022.
 KILROY REALTY CORPORATION
 KILROY REALTY CORPORATION
By:
By:/s/ John Kilroy
John Kilroy
President and
Chief Executive Officer

(Principal Executive Officer)
By:/s/ Tyler H. RoseEliott Trencher
Tyler H. Rose
Eliott Trencher
Executive Vice President, andChief Investment Officer,
Interim Chief Financial Officer
and Treasurer
(Principal Financial Officer)
By:/s/ Heidi R. RothMerryl E. Werber
Heidi R. Roth
ExecutiveMerryl E. Werber
Senior Vice President, and Chief Accounting Officer
and Controller
(Principal Accounting Officer)
 

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52



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on October 26, 2017.
April 28, 2022.
 KILROY REALTY, L.P.
BY:KILROY REALTY CORPORATION
Its general partner
 KILROY REALTY, L.P.
BY:By:KILROY REALTY CORPORATION
Its general partner
By:/s/ John Kilroy
John Kilroy
President and
Chief Executive Officer

(Principal Executive Officer)
By:/s/ Tyler H. RoseEliott Trencher
Tyler H. Rose
Eliott Trencher
Executive Vice President, andChief Investment Officer,
Interim Chief Financial Officer
and Treasurer
(Principal Financial Officer)
By:/s/ Heidi R. RothMerryl E. Werber
Heidi R. Roth
ExecutiveMerryl E. Werber
Senior Vice President, and Chief Accounting Officer
and Controller
(Principal Accounting Officer)



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