UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020March 31, 2021
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                  to                 
Commission File Number: 1-12675 (Kilroy Realty Corporation)
Commission File Number: 000-54005 (Kilroy Realty, L.P.)
KILROY REALTY CORPORATION
KILROY REALTY, L.P.
(Exact name of registrant as specified in its charter)
Kilroy Realty CorporationMaryland95-4598246
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
Kilroy Realty, L.P.Delaware95-4612685
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Kilroy Realty Corporation Yes  ☐     No   ☑
Kilroy Realty, L.P. Yes  ☐     No   ☑
As of July 24, 2020, 115,179,550April 23, 2021, 116,450,370 shares of Kilroy Realty Corporation common stock, par value $.01 per share, were outstanding.
 



EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended June 30, 2020March 31, 2021 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 June 30, 2020,March 31, 2021, the Company owned an approximate 98.3%99.0% common general partnership interest in the Operating Partnership. The remaining approximate 1.7%1.0% common limited partnership interests are owned by non-affiliated investors and certain directors and officers of the Company. As the sole general partner of the Operating Partnership, the Company exercises exclusive and complete discretion over the Operating Partnership’s day-to-day management and control and can cause it to enter into certain major transactions, including acquisitions, dispositions, and refinancings and cause changes in its line of business, capital structure and distribution policies.
There are a few differences between the Company and the Operating Partnership that are reflected in the disclosures in this Form 10-Q. We believe it is important to understand the differences between the Company and the Operating Partnership in the context of how the Company and the Operating Partnership operate as an interrelated, consolidated company. The Company is a REIT, the only material asset of which is the partnership interests it holds in the Operating Partnership. As a result, the Company generally does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing equity from time to time and guaranteeing certain debt of the Operating Partnership. The Company itself is not directly obligated under any indebtedness, but generally guarantees all of the debt of the Operating Partnership. The Operating Partnership owns substantially all of the assets of the Company either directly or through its subsidiaries, conducts the operations of the Company’s business and is structured as a limited partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Company, which the Company generally contributes to the Operating Partnership in exchange for units of partnership interest, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s incurrence of indebtedness or through the issuance of units of partnership interest.
Noncontrolling interests, stockholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The common limited partnership interests in the Operating Partnership are accounted for as partners’ capital in the Operating Partnership’s financial statements and, to the extent not held by the Company, as noncontrolling interests in the Company’s financial statements. The Operating Partnership’s financial statements reflect the noncontrolling interest in Kilroy Realty Finance Partnership, L.P., a Delaware limited partnership (the “Finance Partnership”). This noncontrolling interest represents the Company’s 1% indirect general partnership interest in the Finance Partnership, which is directly held by Kilroy Realty Finance, Inc., a wholly owned subsidiary of the Company. The differences between stockholders’ equity, partners’ capital and noncontrolling interest 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 4, Stockholders’ Equity of the Company;
◦Note 6, Partners’ Capital of the Operating Partnership;

◦Note 5, Stockholders’ Equity of the Company;
◦Note 7, Partners’ Capital of the Operating Partnership;
◦Note 12, Net Income Available to Common Stockholders Per Share of the Company;
◦Note 13, Net Income Available to Common Unitholders Per Unit of the Operating Partnership;
i


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


ii
ii


KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
QUARTERLY REPORT FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020MARCH 31, 2021
TABLE OF CONTENTS
 
Page
PART I – FINANCIAL INFORMATION
Item 1.
1
Consolidated Balance Sheets as of June 30, 2020March 31, 2021 and December 31, 20192020
1
Consolidated Statements of Operations for the Three and Six Months ended June 30,March 31, 2021 and 2020 and 2019
2
Consolidated Statements of Equity for the Three and Six Months ended June 30,March 31, 2021 and 2020 and 2019
3
Consolidated Statements of Cash Flows for the SixThree Months ended June 30,March 31, 2021 and 2020 and 2019
54
Item 1.
65
Consolidated Balance Sheets as of June 30, 2020March 31, 2021 and December 31, 20192020
65
Consolidated Statements of Operations for the Three and Six Months ended June 30,March 31, 2021 and 2020 and 2019
76
Consolidated Statements of Capital for the Three and Six Months ended June 30,March 31, 2021 and 2020 and 2019
87
Consolidated Statements of Cash Flows for the SixThree Months ended June 30,March 31, 2021 and 2020 and 2019
98
109
Item 2.
AND RESULTS OF OPERATIONS
2825
Item 3.
5951
Item 4.
5951
PART II – OTHER INFORMATION
Item 1.
6052
Item 1A.
6052
Item 2.
6252
Item 3.
6252
Item 4.
6252
Item 5.
6252
Item 6.
6353
6454




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, 2021December 31, 2020
ASSETS
REAL ESTATE ASSETS (Note 2):  
Land and improvements$1,539,542 $1,628,848 
Buildings and improvements6,480,857 6,783,092 
Undeveloped land and construction in progress1,771,762 1,778,106 
Total real estate assets held for investment9,792,161 10,190,046 
Accumulated depreciation and amortization(1,838,338)(1,798,646)
Total real estate assets held for investment, net7,953,823 8,391,400 
CASH AND CASH EQUIVALENTS657,819 731,991 
RESTRICTED CASH (Note 2)1,028,759 91,139 
MARKETABLE SECURITIES (Note 11)24,089 27,481 
CURRENT RECEIVABLES, NET12,855 12,007 
DEFERRED RENT RECEIVABLES, NET370,470 386,658 
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET190,721 210,949 
RIGHT OF USE GROUND LEASE ASSETS (Note 10)95,312 95,523 
PREPAID EXPENSES AND OTHER ASSETS, NET (Note 3)50,505 53,560 
TOTAL ASSETS$10,384,353 $10,000,708 
LIABILITIES AND EQUITY
LIABILITIES:
Secured debt, net (Notes 4 and 11)$252,298 $253,582 
Unsecured debt, net (Notes 4 and 11)3,671,094 3,670,099 
Accounts payable, accrued expenses and other liabilities408,552 445,100 
Ground lease liabilities (Note 10)97,617 97,778 
Accrued dividends and distributions (Note 16)59,472 59,431 
Deferred revenue and acquisition-related intangible liabilities, net123,794 128,523 
Rents received in advance and tenant security deposits68,634 68,874 
Total liabilities4,681,461 4,723,387 
COMMITMENTS AND CONTINGENCIES (Note 10)00
EQUITY:
Stockholders’ Equity (Note 5):
Common stock, $.01 par value, 280,000,000 shares authorized, 116,450,370 and 116,035,827 shares issued and outstanding, respectively1,165 1,160 
Additional paid-in capital5,122,584 5,131,916 
Retained earnings (distributions in excess of earnings)334,496 (103,133)
Total stockholders’ equity5,458,245 5,029,943 
Noncontrolling Interests (Notes 1 and 6):
Common units of the Operating Partnership53,930 49,875 
Noncontrolling interests in consolidated property partnerships190,717 197,503 
Total noncontrolling interests244,647 247,378 
Total equity5,702,892 5,277,321 
TOTAL LIABILITIES AND EQUITY$10,384,353 $10,000,708 
 June 30, 2020 December 31, 2019
ASSETS   
REAL ESTATE ASSETS:   
Land and improvements$1,546,209
 $1,466,166
Buildings and improvements6,289,816
 5,866,477
Undeveloped land and construction in progress2,109,196
 2,296,130
Total real estate assets held for investment9,945,221
 9,628,773
Accumulated depreciation and amortization(1,684,837) (1,561,361)
Total real estate assets held for investment, net8,260,384
 8,067,412
CASH AND CASH EQUIVALENTS (Note 4)605,012
 60,044
RESTRICTED CASH16,300
 16,300
MARKETABLE SECURITIES (Note 10)23,175
 27,098
CURRENT RECEIVABLES, NET20,925
 26,489
DEFERRED RENT RECEIVABLES, NET358,914
 337,937
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET209,637
 212,805
RIGHT OF USE GROUND LEASE ASSETS (Note 9)95,940
 96,348
PREPAID EXPENSES AND OTHER ASSETS, NET (Note 2)68,378
 55,661
TOTAL ASSETS$9,658,665
 $8,900,094
LIABILITIES AND EQUITY   
LIABILITIES:   
Secured debt, net (Notes 3 and 10)$256,113
 $258,593
Unsecured debt, net (Notes 3, and 10)3,399,105
 3,049,185
Unsecured line of credit (Notes 3 and 10)—
 245,000
Accounts payable, accrued expenses and other liabilities401,378
 418,848
Ground lease liabilities (Note 9)98,093
 98,400
Accrued dividends and distributions (Note 15)57,600
 53,219
Deferred revenue and acquisition-related intangible liabilities, net129,264
 139,488
Rents received in advance and tenant security deposits63,523
 66,503
Total liabilities4,405,076
 4,329,236
COMMITMENTS AND CONTINGENCIES (Note 9)

 

EQUITY:   
Stockholders’ Equity (Note 4):   
Common stock, $.01 par value, 280,000,000 and 150,000,000 shares authorized, respectively, 115,176,538 and 106,016,287 shares issued and outstanding, respectively1,152
 1,060
Additional paid-in capital5,084,362
 4,350,917
Distributions in excess of earnings(113,223) (58,467)
Total stockholders’ equity4,972,291
 4,293,510
Noncontrolling Interests (Notes 1 and 5):   
Common units of the Operating Partnership83,502
 81,917
Noncontrolling interests in consolidated property partnerships197,796
 195,431
Total noncontrolling interests281,298
 277,348
Total equity5,253,589
 4,570,858
TOTAL LIABILITIES AND EQUITY$9,658,665
 $8,900,094




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,
 20212020
REVENUES  
Rental income (Note 9)$234,656 $218,633 
Other property income990 2,695 
Total revenues235,646 221,328 
EXPENSES  
Property expenses38,859 38,983 
Real estate taxes25,266 22,202 
Ground leases (Note 10)1,828 2,317 
General and administrative expenses (Note 8)21,985 19,010 
Leasing costs692 1,456 
Depreciation and amortization75,932 74,370 
Total expenses164,562 158,338 
OTHER INCOME (EXPENSES)  
Interest income and other net investment gain (loss) (Note 11)1,373 (3,128)
Interest expense (Note 4)(22,334)(14,444)
Gain on sale of depreciable operating property (Note 2)457,288 0 
      Total other income (expenses)436,327 (17,572)
NET INCOME507,411 45,418 
Net income attributable to noncontrolling common units of the Operating Partnership(4,886)(705)
Net income attributable to noncontrolling interests in consolidated property partnerships(4,894)(4,896)
Total income attributable to noncontrolling interests(9,780)(5,601)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS$497,631 $39,817 
Net income available to common stockholders per share – basic (Note 12)$4.27 $0.37 
Net income available to common stockholders per share – diluted (Note 12)$4.26 $0.37 
Weighted average common shares outstanding – basic (Note 12)116,344,375 106,875,234 
Weighted average common shares outstanding – diluted (Note 12)116,801,384 107,389,575 
 Three Months Ended June 30, Six Months Ended June 30,
 2020 2019 2020 2019
REVENUES       
Rental income (Note 8)$218,356
 $197,629
 $436,989
 $397,011
Other property income1,067
 2,863
 3,762
 4,683
Total revenues219,423
 200,492
 440,751
 401,694
EXPENSES       
Property expenses37,829
 38,536
 76,812
 76,685
Real estate taxes21,854
 17,926
 44,056
 36,565
Ground leases (Note 9)2,330
 2,114
 4,647
 4,086
General and administrative expenses (Notes 7 and 10)38,597
 19,857
 57,607
 43,198
Leasing costs1,330
 2,650
 2,786
 4,407
Depreciation and amortization80,085
 68,252
 154,455
 134,387
Total expenses182,025
 149,335
 340,363
 299,328
OTHER (EXPENSES) INCOME       
Interest income and other net investment gain (loss) (Note 10)2,838
 616
 (290) 2,444
Interest expense (Note 3)(15,884) (11,727) (30,328) (22,970)
Gains on sales of depreciable operating properties—
 7,169
 —
 7,169
      Total other (expenses) income(13,046) (3,942) (30,618) (13,357)
NET INCOME24,352
 47,215
 69,770
 89,009
Net income attributable to noncontrolling common units of the Operating Partnership(367) (871) (1,072) (1,571)
Net income attributable to noncontrolling interests in consolidated property partnerships(4,367) (4,150) (9,263) (8,341)
Total income attributable to noncontrolling interests(4,734) (5,021) (10,335) (9,912)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS$19,618
 $42,194
 $59,435
 $79,097
Net income available to common stockholders per share – basic (Note 11)$0.17
 $0.41
 $0.53
 $0.77
Net income available to common stockholders per share – diluted (Note 11)$0.17
 $0.41
 $0.52
 $0.77
Weighted average common shares outstanding – basic (Note 11)115,084,897
 100,972,355
 110,980,066
 100,937,069
Weighted average common shares outstanding – diluted (Note 11)115,539,725
 101,809,541
 111,464,647
 101,618,953
























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
 
Number of
Shares
 
Common
Stock
 
Additional
Paid-in
Capital
 
Distributions
in Excess of
Earnings
 
BALANCE AS OF DECEMBER 31, 2019106,016,287
 $1,060
 $4,350,917
 $(58,467) $4,293,510
 $277,348
 $4,570,858
Net income      39,817
 39,817
 5,601
 45,418
Issuance of common stock (Note 4)8,897,110
 89
 721,705
   721,794
   721,794
Issuance of share-based compensation awards    1,720
   1,720
   1,720
Non-cash amortization of share-based compensation (Note 7)    8,653
   8,653
   8,653
Settlement of restricted stock units for shares of common stock269,972
 3
 (3)   —
   —
Repurchase of common stock, stock options and restricted stock units(117,445) (1) (9,798)   (9,799)   (9,799)
Exchange of common units of the Operating Partnership2,000
 —
 81
   81
 (81) —
Distributions to noncontrolling interests in consolidated property partnerships        —
 (2,617) (2,617)
Adjustment for noncontrolling interest    (6,094)   (6,094) 6,094
 —
Dividends declared per common share and common unit ($0.485 per share/unit)      (57,532) (57,532) (980) (58,512)
BALANCE AS OF MARCH 31, 2020115,067,924
 1,151
 5,067,181
 (76,182) 4,992,150
 285,365
 5,277,515
Net income      19,618
 19,618
 4,734
 24,352
Issuance of common stock—
 —
 (45)   (45)   (45)
Issuance of share-based compensation awards    805
   805
   805
Non-cash amortization of share-based compensation (Note 7)    13,576
   13,576
   13,576
Settlement of restricted stock units for shares of common stock33,581
 —
 —
   —
   —
Repurchase of common stock, stock options and restricted stock units(11,668) —
 (735)   (735)   (735)
Exchange of common units of the Operating Partnership86,701
 1
 3,761
   3,762
 (3,762) —
Distributions to noncontrolling interests in consolidated property partnerships        —
 (4,281) (4,281)
Adjustment for noncontrolling interest    (181)   (181) 181
 —
Dividends declared per common share and common unit ($0.485 per share/unit)      (56,659) (56,659) (939) (57,598)
BALANCE AS OF JUNE 30, 2020115,176,538
 $1,152
 $5,084,362
 $(113,223) $4,972,291
 $281,298
 $5,253,589
              


3

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 compensation (Note 8)9,604 9,604 9,604 
Settlement of restricted stock units for shares of common stock769,701 8 (8)— 0 
Repurchase of common stock, stock options 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)0 
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 
 Common Stock 
Total
Stock-
holders’
Equity
 Noncontrolling Interests 
Total
Equity
 
Number of
Shares
 
Common
Stock
 
Additional
Paid-in
Capital
 
Distributions
in Excess of
Earnings
BALANCE AS OF DECEMBER 31, 2018100,746,988
 $1,007
 $3,976,953
 $(48,053) $3,929,907
 $271,354
 $4,201,261
Net income      36,903
 36,903
 4,891
 41,794
Opening adjustment to Distributions in Excess of Earnings upon adoption of ASC 842      (3,146) (3,146)   (3,146)
Issuance of share-based compensation awards    2,210
   2,210
   2,210
Non-cash amortization of share-based compensation    8,817
   8,817
   8,817
Settlement of restricted stock units for shares of common stock393,240
 4
 (4)   —
   —
Repurchase of common stock, stock options and restricted stock units(175,204) (1) (12,129)   (12,130)   (12,130)
Exchange of common units of the Operating Partnership2,000
 —
 78
   78
 (78) —
Distributions to noncontrolling interests in consolidated property partnerships        —
 (6,309) (6,309)
Adjustment for noncontrolling interest    279
   279
 (279) —
Dividends declared per common share and common unit ($0.455 per share/unit)      (48,394) (48,394) (921) (49,315)
BALANCE AS OF MARCH 31, 2019100,967,024
 1,010
 3,976,204
 (62,690) 3,914,524
 268,658
 4,183,182
Net income      42,194
 42,194
 5,021
 47,215
Issuance of share-based compensation awards    820
   820
   820
Non-cash amortization of share-based compensation    8,732
   8,732
   8,732
Exercise of stock options1,500
 —
 64
   64
   64
Settlement of restricted stock units for shares of common stock16,270
 —
 —
   —
   —
Repurchase and cancellation of common stock, stock options, and restricted stock units(12,759) —
 (793)   (793)   (793)
Distributions to noncontrolling interests in consolidated property partnerships        —
 (1,487) (1,487)
Adjustment for noncontrolling interest    (160)   (160) 160
 —
Dividends declared per common share and common unit ($0.485 per share/unit)      (49,849) (49,849) (981) (50,830)
BALANCE AS OF JUNE 30, 2019100,972,035
 $1,010
 $3,984,867
 $(70,345) $3,915,532
 $271,371
 $4,186,903


Common StockTotal
Stock-
holders’
Equity		Noncontrolling InterestsTotal
Equity
Number of
Shares		Common
Stock		Additional
Paid-in
Capital		Distributions
in Excess of
Earnings
BALANCE AS OF DECEMBER 31, 2019106,016,287 $1,060 $4,350,917 $(58,467)$4,293,510 $277,348 $4,570,858 
Net income39,817 39,817 5,601 45,418 
Issuance of common stock8,897,110 89 721,705 721,794 721,794 
Issuance of share-based compensation awards1,720 1,720 1,720 
Non-cash amortization of share-based compensation8,653 8,653 8,653 
Settlement of restricted stock units for shares of common stock269,972 3 (3)— 0 
Repurchase of common stock, stock options and restricted stock units(117,445)(1)(9,798)(9,799)(9,799)
Exchange of common units of the Operating Partnership2,000 0 81 81 (81)0 
Distributions to noncontrolling interests in consolidated property partnerships— (2,617)(2,617)
Adjustment for noncontrolling interest(6,094)(6,094)6,094 0 
Dividends declared per common share and common unit ($0.485 per share/unit)(57,532)(57,532)(980)(58,512)
BALANCE AS OF MARCH 31, 2020115,067,924 $1,151 $5,067,181 $(76,182)$4,992,150 $285,365 $5,277,515 























See accompanying notes to consolidated financial statements.

3
4


KILROY REALTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
 
 Three Months Ended March 31,
 20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$507,411 $45,418 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of real estate assets and leasing costs74,431 72,438 
Depreciation of non-real estate furniture, fixtures and equipment1,501 1,932 
Revenue reversals for doubtful accounts (Note 9)1,035 6,487 
Non-cash amortization of share-based compensation awards7,877 6,783 
Non-cash amortization of deferred financing costs and debt discounts and premiums794 505 
Non-cash amortization of net below market rents(1,181)(2,586)
Gain on sale of depreciable operating properties (Note 2)(457,288)0 
Non-cash amortization of deferred revenue related to tenant-funded tenant improvements(4,204)(4,420)
Straight-line rents(17,292)(19,995)
Amortization of right of use ground lease assets211 203 
Net change in other operating assets1,710 7,966 
Net change in other operating liabilities29,147 8,209 
Net cash provided by operating activities144,152 122,940 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Expenditures for development properties and undeveloped land(172,325)(167,328)
Expenditures for operating properties and other capital assets(28,242)(44,084)
Net proceeds received from dispositions (Note 2)1,012,817 0 
Net cash provided by (used in) investing activities812,250 (211,412)
CASH FLOWS FROM FINANCING ACTIVITIES:  
Principal payments and repayments of secured debt(1,316)(1,266)
Financing costs(235)(160)
Repurchase of common stock and restricted stock units(21,137)(9,799)
Distributions to noncontrolling interests in consolidated property partnerships(11,672)(2,608)
Dividends and distributions paid to common stockholders and common unitholders(58,594)(52,399)
Net proceeds from issuance of common stock0 721,794 
Borrowings on unsecured revolving credit facility0 190,000 
Repayments on unsecured revolving credit facility0 (55,000)
Net cash (used in) provided by financing activities(92,954)790,562 
Net increase in cash and cash equivalents and restricted cash863,448 702,090 
Cash and cash equivalents and restricted cash, beginning of period823,130 76,344 
Cash and cash equivalents and restricted cash, end of period$1,686,578 $778,434 
 Six Months Ended June 30,
 2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net income$69,770
 $89,009
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization of real estate assets and leasing costs148,419
 131,982
Depreciation of non-real estate furniture, fixtures and equipment6,036
 2,405
Revenue reversals (recoveries) for doubtful accounts (Note 8)12,381
 (3,091)
Non-cash amortization of share-based compensation awards18,311
 14,082
Non-cash amortization of deferred financing costs and debt discounts and premiums1,076
 717
Non-cash amortization of net below market rents(4,500) (4,415)
Gain on sale of depreciable operating properties—
 (7,169)
Non-cash amortization of deferred revenue related to tenant-funded tenant improvements(8,793) (8,181)
Straight-line rents(33,514) (29,937)
Amortization of right of use ground lease assets408
 291
Net change in other operating assets13,991
 (15,540)
Net change in other operating liabilities437
 (4,493)
Net cash provided by operating activities224,022
 165,660
CASH FLOWS FROM INVESTING ACTIVITIES:   
Expenditures for development properties and undeveloped land(293,711) (372,750)
Expenditures for operating properties and other capital assets(80,630) (61,557)
Net proceeds received from dispositions—
 17,271
Net cash used in investing activities(374,341) (417,036)
CASH FLOWS FROM FINANCING ACTIVITIES:   
Net proceeds from issuance of common stock (Note 4)721,749
 —
Proceeds from the issuance of unsecured debt (Note 3)350,000
 —
Borrowings on unsecured revolving credit facility (Note 3)190,000
 425,000
Repayments on unsecured revolving credit facility (Note 3)(435,000) (95,000)
Principal payments and repayments of secured debt (Note 3)(2,543) (75,384)
Financing costs(2,283) (1,335)
Repurchase of common stock and restricted stock units(10,534) (12,618)
Proceeds from exercise of stock options—
 64
Distributions to noncontrolling interests in consolidated property partnerships(6,915) (7,812)
Dividends and distributions paid to common stockholders and common unitholders(109,187) (93,858)
Net cash provided by financing activities695,287
 139,057
Net increase (decrease) in cash and cash equivalents and restricted cash544,968
 (112,319)
Cash and cash equivalents and restricted cash, beginning of period76,344
 171,034
Cash and cash equivalents and restricted cash, end of period$621,312
 $58,715

















See accompanying notes to consolidated financial statements.

4
5






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, 2021December 31, 2020
ASSETS
REAL ESTATE ASSETS (Note 2):
Land and improvements$1,539,542 $1,628,848 
Buildings and improvements6,480,857 6,783,092 
Undeveloped land and construction in progress1,771,762 1,778,106 
Total real estate assets held for investment9,792,161 10,190,046 
Accumulated depreciation and amortization(1,838,338)(1,798,646)
Total real estate assets held for investment, net7,953,823 8,391,400 
CASH AND CASH EQUIVALENTS657,819 731,991 
RESTRICTED CASH (Note 2)1,028,759 91,139 
MARKETABLE SECURITIES (Note 11)24,089 27,481 
CURRENT RECEIVABLES, NET12,855 12,007 
DEFERRED RENT RECEIVABLES, NET370,470 386,658 
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET190,721 210,949 
RIGHT OF USE GROUND LEASE ASSETS (Note 10)95,312 95,523 
PREPAID EXPENSES AND OTHER ASSETS, NET (Note 3)50,505 53,560 
TOTAL ASSETS$10,384,353 $10,000,708 
LIABILITIES AND CAPITAL
LIABILITIES:
Secured debt, net (Notes 4 and 11)$252,298 $253,582 
Unsecured debt, net (Notes 4 and 11)3,671,094 3,670,099 
Accounts payable, accrued expenses and other liabilities408,552 445,100 
Ground lease liabilities (Note 10)97,617 97,778 
Accrued distributions (Note 16)59,472 59,431 
Deferred revenue and acquisition-related intangible liabilities, net123,794 128,523 
Rents received in advance and tenant security deposits68,634 68,874 
Total liabilities4,681,461 4,723,387 
COMMITMENTS AND CONTINGENCIES (Note 10)00
CAPITAL:
Common units, 116,450,370 and 116,035,827 held by the general partner and 1,150,574 and 1,150,574
held by common limited partners issued and outstanding, respectively (Note 7)
5,512,175 5,079,818 
Noncontrolling interests in consolidated property partnerships (Note 1)190,717 197,503 
Total capital5,702,892 5,277,321 
TOTAL LIABILITIES AND CAPITAL$10,384,353 $10,000,708 
 June 30, 2020 December 31, 2019
ASSETS 
   
REAL ESTATE ASSETS:   
Land and improvements$1,546,209
 $1,466,166
Buildings and improvements6,289,816
 5,866,477
Undeveloped land and construction in progress2,109,196
 2,296,130
Total real estate assets held for investment9,945,221
 9,628,773
Accumulated depreciation and amortization(1,684,837) (1,561,361)
Total real estate assets held for investment, net8,260,384
 8,067,412
CASH AND CASH EQUIVALENTS (Note 4)605,012
 60,044
RESTRICTED CASH16,300
 16,300
MARKETABLE SECURITIES (Note 10)23,175
 27,098
CURRENT RECEIVABLES, NET20,925
 26,489
DEFERRED RENT RECEIVABLES, NET358,914
 337,937
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET209,637
 212,805
RIGHT OF USE GROUND LEASE ASSETS (Note 9)95,940
 96,348
PREPAID EXPENSES AND OTHER ASSETS, NET (Note 2)68,378
 55,661
TOTAL ASSETS$9,658,665
 $8,900,094
LIABILITIES AND CAPITAL   
LIABILITIES:   
Secured debt, net (Notes 3 and 10)$256,113
 $258,593
Unsecured debt, net (Notes 3, 10)3,399,105
 3,049,185
Unsecured line of credit (Notes 3 and 10)—
 245,000
Accounts payable, accrued expenses and other liabilities401,378
 418,848
Ground lease liabilities (Note 9)98,093
 98,400
Accrued distributions (Note 15)57,600
 53,219
Deferred revenue and acquisition-related intangible liabilities, net129,264
 139,488
Rents received in advance and tenant security deposits63,523
 66,503
Total liabilities4,405,076
 4,329,236
COMMITMENTS AND CONTINGENCIES (Note 9)

 

CAPITAL:   
Common units, 115,176,538 and 106,016,287 held by the general partner and 1,934,586 and 2,023,287
held by common limited partners issued and outstanding, respectively (Note 6)		5,049,844

4,369,758
Noncontrolling interests in consolidated property partnerships and subsidiaries (Note 1)203,745

201,100
Total capital5,253,589

4,570,858
TOTAL LIABILITIES AND CAPITAL$9,658,665

$8,900,094













See accompanying notes to consolidated financial statements.

5
6


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

Three Months Ended March 31,
20212020
REVENUES
Rental income (Note 9)$234,656 $218,633 
Other property income990 2,695 
Total revenues235,646 221,328 
EXPENSES
Property expenses38,859 38,983 
Real estate taxes25,266 22,202 
Ground leases (Note 10)1,828 2,317 
General and administrative expenses (Note 8)21,985 19,010 
Leasing costs692 1,456 
Depreciation and amortization75,932 74,370 
Total expenses164,562 158,338 
OTHER INCOME (EXPENSES)
Interest income and other net investment gain (Note 11)1,373 (3,128)
Interest expense (Note 4)(22,334)(14,444)
Gain on sale of depreciable operating property (Note 2)457,288 0 
Total other income (expenses)436,327 (17,572)
NET INCOME507,411 45,418 
Net income attributable to noncontrolling interests in consolidated property partnerships and subsidiaries(4,894)(5,029)
NET INCOME AVAILABLE TO COMMON UNITHOLDERS$502,517 $40,389 
Net income available to common unitholders per unit – basic (Note 13)$4.27 $0.37 
Net income available to common unitholders per unit – diluted (Note 13)$4.26 $0.36 
Weighted average common units outstanding – basic (Note 13)117,494,949 108,897,027 
Weighted average common units outstanding – diluted (Note 13)117,951,958 109,411,368 
 Three Months Ended June 30, Six Months Ended June 30,
 2020 2019 2020 2019
REVENUES       
Rental income (Note 8)$218,356
 $197,629
 $436,989
 $397,011
Other property income1,067
 2,863
 3,762
 4,683
Total revenues219,423
 200,492
 440,751
 401,694
EXPENSES       
Property expenses37,829
 38,536
 76,812
 76,685
Real estate taxes21,854
 17,926
 44,056
 36,565
Ground leases (Note 9)2,330
 2,114
 4,647
 4,086
General and administrative expenses (Notes 7 and 10)38,597
 19,857
 57,607
 43,198
Leasing costs1,330
 2,650
 2,786
 4,407
Depreciation and amortization80,085
 68,252
 154,455
 134,387
Total expenses182,025
 149,335
 340,363
 299,328
OTHER (EXPENSES) INCOME       
Interest income and other net investment gain (loss) (Note 10)2,838
 616
 (290) 2,444
Interest expense (Note 3)(15,884) (11,727) (30,328) (22,970)
Gains on sales of depreciable operating properties—
 7,169
 —
 7,169
Total other (expenses) income(13,046) (3,942) (30,618) (13,357)
NET INCOME24,352
 47,215
 69,770
 89,009
Net income attributable to noncontrolling interests in consolidated property partnerships and subsidiaries(4,514) (4,314) (9,543) (8,600)
NET INCOME AVAILABLE TO COMMON UNITHOLDERS$19,838
 $42,901
 $60,227
 $80,409
Net income available to common unitholders per unit – basic (Note 12)$0.16
 $0.41
 $0.52
 $0.77
Net income available to common unitholders per unit – diluted (Note 12)$0.16
 $0.41
 $0.52
 $0.77
Weighted average common units outstanding – basic (Note 12)117,098,562
 102,995,642
 112,997,795
 102,960,599
Weighted average common units outstanding – diluted (Note 12)117,553,390
 103,832,828
 113,482,376
 103,642,483


























See accompanying notes to consolidated financial statements.

6
7


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, 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 compensation (Note 8)9,604 9,604 
Settlement of restricted stock units769,701 — 0 
Repurchase of common units, stock options 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 Noncontrolling Interests in Consolidated Property Partnerships and Subsidiaries  
 Number of
Common
Units		 Common
Units		 Total
Capital
BALANCE AS OF DECEMBER 31, 2019108,039,574
 $4,369,758
 $201,100
 $4,570,858
Net income  40,389
 5,029
 45,418
Issuance of common units (Note 4)8,897,110
 721,794
   721,794
Issuance of share-based compensation awards  1,720
   1,720
Non-cash amortization of share-based compensation (Note 7)  8,653
   8,653
Settlement of restricted stock units269,972
 —
   —
Repurchase of common units, stock options and restricted stock units(117,445) (9,799)   (9,799)
Distributions to noncontrolling interests in consolidated property partnerships    (2,617) (2,617)
Distributions declared per common unit ($0.485 per unit)  (58,512)   (58,512)
BALANCE AS OF MARCH 31, 2020117,089,211
 5,074,003
 203,512
 5,277,515
Net income  19,838
 4,514
 24,352
Issuance of common units—
 (45)   (45)
Issuance of share-based compensation awards  805
   805
Non-cash amortization of share-based compensation (Note 7)  13,576
   13,576
Settlement of restricted stock units33,581
 —
   —
Repurchase of common units, stock options and restricted stock units(11,668) (735)   (735)
Distributions to noncontrolling interests in consolidated property partnerships    (4,281) (4,281)
Distributions declared per common unit ($0.485 per unit)  (57,598)   (57,598)
BALANCE AS OF JUNE 30, 2020117,111,124
 $5,049,844
 $203,745
 $5,253,589
        




Partners’ CapitalNoncontrolling Interests in Consolidated Property Partnerships and Subsidiaries
Number of
Common
Units		Common
Units		Total
Capital
BALANCE AS OF DECEMBER 31, 2019108,039,574 $4,369,758 $201,100 $4,570,858 
Net income40,389 5,029 45,418 
Issuance of common units8,897,110 721,794 721,794 
Issuance of share-based compensation awards1,720 1,720 
Non-cash amortization of share-based compensation8,653 8,653 
Settlement of restricted stock units269,972 — 0 
Repurchase of common units, stock options and restricted stock units(117,445)(9,799)(9,799)
Distributions to noncontrolling interests in consolidated property partnerships(2,617)(2,617)
Distributions declared per common unit ($0.485 per unit)(58,512)(58,512)
BALANCE AS OF MARCH 31, 2020117,089,211 $5,074,003 $203,512 $5,277,515 

 Partners’ Capital Noncontrolling Interests in Consolidated Property Partnerships and Subsidiaries  
 
Number of
Common
Units
 
Common
Units
 
Total
Capital
BALANCE AS OF DECEMBER 31, 2018102,772,275
 $4,003,700
 $197,561
 $4,201,261
Net income  37,508
 4,286
 41,794
Opening adjustment to Partners’ Capital upon adoption of ASC 842  (3,146)   (3,146)
Issuance of share-based compensation awards  2,210
   2,210
Non-cash amortization of share-based compensation  8,817
   8,817
Settlement of restricted stock units393,240
 —
   —
Repurchase of common units, stock options and restricted stock units(175,204) (12,130)   (12,130)
Distributions to noncontrolling interests in consolidated property partnerships    (6,309) (6,309)
Distributions declared per common unit ($0.455 per unit)  (49,315)   (49,315)
BALANCE AS OF MARCH 31, 2019102,990,311
 3,987,644

195,538

4,183,182
Net income  42,901
 4,314
 47,215
Issuance of share-based compensation awards  820
   820
Non-cash amortization of share-based compensation  8,732
   8,732
Exercise of stock options1,500
 64
   64
Settlement of restricted stock units16,270
 —
   —
Repurchase and cancellation of common units, stock options, and restricted stock units(12,759) (793)   (793)
Distributions to noncontrolling interests in consolidated property partnerships    (1,487) (1,487)
Distributions declared per common unit ($0.485 per unit)  (50,830)   (50,830)
BALANCE AS OF JUNE 30, 2019102,995,322
 $3,988,538
 $198,365
 $4,186,903





















See accompanying notes to consolidated financial statements.

7
8


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

Six Months Ended June 30, Three Months Ended March 31,
2020 2019 20212020
CASH FLOWS FROM OPERATING ACTIVITIES:   CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$69,770
 $89,009
Net income$507,411 $45,418 
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 costs148,419
 131,982
Depreciation and amortization of real estate assets and leasing costs74,431 72,438 
Depreciation of non-real estate furniture, fixtures and equipment6,036
 2,405
Depreciation of non-real estate furniture, fixtures and equipment1,501 1,932 
Revenue reversals (recoveries) for doubtful accounts (Note 8)12,381
 (3,091)
Revenue reversals for doubtful accounts (Note 9)Revenue reversals for doubtful accounts (Note 9)1,035 6,487 
Non-cash amortization of share-based compensation awards18,311
 14,082
Non-cash amortization of share-based compensation awards7,877 6,783 
Non-cash amortization of deferred financing costs and debt discounts and premiums1,076
 717
Non-cash amortization of deferred financing costs and debt discounts and premiums794 505 
Non-cash amortization of net below market rents(4,500) (4,415)Non-cash amortization of net below market rents(1,181)(2,586)
Gain on sale of depreciable operating properties—
 (7,169)
Gain on sale of depreciable operating properties (Note 2)Gain on sale of depreciable operating properties (Note 2)(457,288)0 
Non-cash amortization of deferred revenue related to tenant-funded tenant improvements(8,793) (8,181)Non-cash amortization of deferred revenue related to tenant-funded tenant improvements(4,204)(4,420)
Straight-line rents(33,514) (29,937)Straight-line rents(17,292)(19,995)
Amortization of right of use ground lease assets408
 291
Amortization of right of use ground lease assets211 203 
Net change in other operating assets13,991
 (15,540)Net change in other operating assets1,710 7,966 
Net change in other operating liabilities437
 (4,493)Net change in other operating liabilities29,147 8,209 
Net cash provided by operating activities224,022
 165,660
Net cash provided by operating activities144,152 122,940 
CASH FLOWS FROM INVESTING ACTIVITIES:   CASH FLOWS FROM INVESTING ACTIVITIES:  
Expenditures for development properties and undeveloped land(293,711) (372,750)Expenditures for development properties and undeveloped land(172,325)(167,328)
Expenditures for operating properties and other capital assets(80,630) (61,557)Expenditures for operating properties and other capital assets(28,242)(44,084)
Net proceeds received from dispositions—
 17,271
Net cash used in investing activities(374,341) (417,036)
Net proceeds received from dispositions (Note 2)Net proceeds received from dispositions (Note 2)1,012,817 0 
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities812,250 (211,412)
CASH FLOWS FROM FINANCING ACTIVITIES:   CASH FLOWS FROM FINANCING ACTIVITIES:  
Net proceeds from issuance of common units (Note 4)721,749
 —
Proceeds from the issuance of unsecured debt (Note 3)350,000
 —
Borrowings on unsecured revolving credit facility (Note 3)190,000
 425,000
Repayments on unsecured revolving credit facility (Note 3)(435,000) (95,000)
Principal payments and repayments of secured debt (Note 3)(2,543) (75,384)
Principal payments and repayments of secured debtPrincipal payments and repayments of secured debt(1,316)(1,266)
Financing costs(2,283) (1,335)Financing costs(235)(160)
Repurchase of common units and restricted stock units(10,534) (12,618)Repurchase of common units and restricted stock units(21,137)(9,799)
Proceeds from exercise of stock options—
 64
Distributions to noncontrolling interests in consolidated property partnerships(6,915) (7,812)Distributions to noncontrolling interests in consolidated property partnerships(11,672)(2,608)
Distributions paid to common unitholders(109,187) (93,858)
Net cash provided by financing activities695,287
 139,057
Net increase (decrease) in cash and cash equivalents and restricted cash544,968
 (112,319)
Dividends and distributions paid to common stockholders and common unitholdersDividends and distributions paid to common stockholders and common unitholders(58,594)(52,399)
Net proceeds from issuance of common unitsNet proceeds from issuance of common units0 721,794 
Borrowings on unsecured revolving credit facilityBorrowings on unsecured revolving credit facility0 190,000 
Repayments on unsecured revolving credit facilityRepayments on unsecured revolving credit facility0 (55,000)
Net cash (used in) provided by financing activitiesNet cash (used in) provided by financing activities(92,954)790,562 
Net increase in cash and cash equivalents and restricted cashNet increase in cash and cash equivalents and restricted cash863,448 702,090 
Cash and cash equivalents and restricted cash, beginning of period76,344
 171,034
Cash and cash equivalents and restricted cash, beginning of period823,130 76,344 
Cash and cash equivalents and restricted cash, end of period$621,312
 $58,715
Cash and cash equivalents and restricted cash, end of period$1,686,578 $778,434 
 
















See accompanying notes to consolidated financial statements.

8
9


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

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

Our stabilized portfolio of operating properties was comprised of the following properties at June 30, 2020:March 31, 2021:

Number of
Buildings		Rentable
Square Feet		Number of
Tenants
Percentage 
Occupied (1)
Percentage Leased
Stabilized Office Properties (2)
117 14,049,585 436 91.5 %93.3 %
________________________
 
Number of
Buildings
 
Rentable
Square Feet
 
Number of
Tenants
 
Percentage 
Occupied
 Percentage Leased
Stabilized Office Properties (1)
114
 14,327,872
 473
 92.3% 96.0%
(1)Represents physical and economic occupancy.
(2)Includes stabilized life science and retail space.

________________________
(1)Includes stabilized retail space.

Number of
Projects		Number of
Units		2021 Average Occupancy
Stabilized Residential Properties2 808 69.1 %
 Number of
Buildings		 
Number of
Units
 2020 Average Occupancy
Stabilized Residential Property1
 200
 89.3%


Our stabilized portfolio includes all of our properties with the exception of development and redevelopment properties currently committed for construction, under construction, or in the tenant improvement phase, undeveloped land recently completed residential properties not yet stabilized and real estate assets held for sale. We define redevelopment properties as those properties for which we expect to spend significant development and construction costs on the existing or acquired buildings pursuant to a formal plan, the intended result of which is a higher economic return on the property. We define properties in the tenant improvement phase as office and life science properties that we are developing or redeveloping where the project has reached cold shell condition and is ready for tenant improvements, which may require additional major base building construction before being placed in service. Projects in the tenant improvement phase are added to our stabilized portfolio once the project reaches the earlier of 95% occupancy or one year from the date of the cessation of major base building construction activities. Costs capitalized to construction in progress for development and redevelopment properties are transferred to land and improvements, buildings and improvements, and deferred leasing costs on our consolidated balance sheets at the historical cost of the property as the projects or phases of projects are placed in service.


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



During the sixthree months ended June 30, 2020,March 31, 2021, we added 21 development projectsproject to our stabilized portfolio consisting of 750,370160,444 square feet of office space in San Francisco, California and 95,871square feet of retail space in San Diego, California. As of June 30, 2020,March 31, 2021, the following properties were excluded from our stabilized portfolio. We did not have any redevelopment properties or properties held for sale at June 30, 2020.March 31, 2021.
 
Number of
Properties/Projects
 
Estimated Rentable
Square Feet (1) / Units
In-process development projects - tenant improvement3 1,275,000
In-process development projects - under construction (2)
5 1,016,000
Completed residential development project (3)
2 462 units

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




Number of
Properties/Projects
Estimated Rentable
Square Feet (1)
In-process development projects - tenant improvement31,576,000 
In-process development projects - under construction (2)
2200,000 
________________________
(1)Estimated rentable square feet upon completion.
(2)In addition to the estimated office and life science rentable square feet noted above, development projects under construction also include 339 residential units.
(3)Represents recently completed residential phases I and II at our mixed-use development in San Diego, California that are not yet stabilized.
(1)Estimated rentable square feet upon completion.
(2)In addition to the estimated office and life science rentable square feet noted above, development projects under construction also include 193 residential units.

Our stabilized portfolio also excludes our future development pipeline, which as of June 30, 2020March 31, 2021 was comprised of 56 future development sites, representing approximately 6163 gross acres of undeveloped land.

As of June 30, 2020,March 31, 2021, all of our properties and development projects were owned and all of our business was conducted in the state of California with the exception of 8 stabilized office properties, 1 development project in the tenant improvement phase and 1 future development project located in the state of Washington. All of our properties and development projects are 100% owned, excluding 4 office properties owned by 3 consolidated property partnerships and 2 development projects held by consolidated variable interest entities established to facilitate potential transactions intended to qualify as like kind exchanges pursuant to Section 1031 of the Code (“Section 1031 Exchange”).partnerships. NaN of the 3 consolidated property partnerships, 100 First Street Member, LLC (“100 First LLC”) and 303 Second Street Member, LLC (“303 Second LLC”), each owned 1 office property in San Francisco, California through subsidiary REITs. As of June 30, 2020,March 31, 2021, 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 2 office properties in Redwood City, California. As of June 30, 2020,March 31, 2021, the Company owned an approximate 93% common equity interest in Redwood LLC. The remaining interests in all 3 property partnerships were owned by unrelated third parties.

Ownership and Basis of Presentation

The consolidated financial statements of the Company include the consolidated financial position and results of operations of the Company, the Operating Partnership, the Finance Partnership, 303 Second LLC, 100 First LLC, Redwood LLC and all of our wholly-owned and controlled subsidiaries. The consolidated financial statements of the Operating Partnership include the consolidated financial position and results of operations of the Operating Partnership, the Finance Partnership, 303 Second LLC, 100 First LLC, Redwood LLC and all of our wholly-owned and controlled subsidiaries. All intercompany balances and transactions have been eliminated in the consolidated financial statements.

As of June 30, 2020,March 31, 2021, the Company owned an approximate 98.3%99.0% common general partnership interest in the Operating Partnership. The remaining approximate 1.7%1.0% common limited partnership interest in the Operating Partnership as of June 30, 2020March 31, 2021 was owned by non-affiliated investors and certain of our executive officers and directors. Both the general and limited common partnership interests in the Operating Partnership are denominated in common units. Generally, the number of common units held by the Company is equivalent to the number of outstanding shares of the Company’s common stock, and the rights of all the common units to quarterly distributions and payments in liquidation mirror those of the Company’s common stockholders. The common limited partners have certain redemption rights as provided in the Operating Partnership’s Seventh Amended and Restated Agreement of Limited Partnership, as amended, the “Partnership Agreement”.

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

The accompanying interim financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying interim financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented. However, the results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.2021. 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, 2019.2020.


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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”) that is consolidated by the Company as the primary beneficiary as the Operating Partnership is a limited partnership in which the common limited partners do not have substantive kick-out or

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




participating rights. At June 30, 2020,March 31, 2021, the consolidated financial statements of the Company included 42 VIEs in addition to the Operating Partnership: 2 of the consolidated property partnerships, 100 First LLC and 303 Second LLC, and 2 entities established during the fourth quarter of 2019 to facilitate potential future Section 1031 Exchanges.LLC. At June 30, 2020,March 31, 2021, the Company and the Operating Partnership were determined to be the primary beneficiaries of these 42 VIEs since we had the ability to control the activities that most significantly impact each of the VIEs’ economic performance. As of June 30, 2020,March 31, 2021, the 42 VIEs’ total assets, liabilities and noncontrolling interests included on our consolidated balance sheet were approximately $686.4$454.8 million (of which $598.0$389.9 million related to real estate held for investment), approximately $42.7$34.7 million and approximately $192.1$185.1 million, respectively. Revenues, income and net assets generated by 100 First LLC and 303 Second LLC may only be used to settle their contractual obligations, which primarily consist of operating expenses, capital expenditures and required distributions.

At December 31, 2019,2020, the consolidated financial statements of the Company included 42 VIEs in which we were deemed to be the primary beneficiary (in addition to the Operating Partnership): 2 of the consolidated property partnerships,Partnership: 100 First LLC and 303 Second LLC, and 2 entities established during the fourth quarter of 2019 to facilitate a Section 1031 Exchange.LLC. At December 31, 2019,2020, the Company and the Operating Partnership were determined to be the primary beneficiaries of these 42 VIEs since we had the ability to control the activities that most significantly impact each of the VIEs’ economic performance. At December 31, 2019,2020, the impact of consolidating the VIEs increased the Company’s total assets, liabilities and noncontrolling interests on our consolidated balance sheet by approximately $676.7$469.3 million (of which $598.0$394.6 million related to real estate held for investment), approximately $40.1$33.9 million and approximately $189.6$191.9 million, respectively.
Accounting Pronouncements Adopted January 1, 2020

ASU No. 2016-13 “Financial Instruments - Credit Losses (Topic 326)”

Effective January 1, 2020, we adopted Financial Accounting Standards Board (“FASB”) FASB Accounting Standards Update (“ASU”) No. 2016-13 (“ASU 2016-13”), which amends the accounting for credit losses for certain financial instruments. Under the new guidance, an entity recognizes its estimate of expected credit losses as an allowance, which the FASB believes will result in more timely recognition of such losses.  In November 2018, the FASB released ASU No. 2018-19 “Codification Improvements to Topic 326, Financial Instruments - Credit Losses.” This ASU clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20 “Financial Instruments – Credit Losses.” Instead, impairment of receivables arising from operating leases should be accounted for under Subtopic 842-30 “Leases – Lessor.” The adoption did not have a material impact on our consolidated financial statements or notes to our consolidated financial statements.
ASU No. 2018-13 “Fair Value Measurement (Topic 820)”
Effective January 1, 2020, we adopted FASB ASU No. 2018-13 (“ASU 2018-13”), which amends the disclosure requirements for fair value measurements. The amendments in ASU 2018-13 include new, modified and eliminated disclosure requirements and are the result of a broader disclosure project called FASB Concepts Statement, Conceptual Framework for Financial Reporting - Chapter 8: Notes to Financial Statements (the “Concepts Statement”), which the FASB finalized on August 28, 2018. The FASB used the guidance in the Concepts Statement to improve the effectiveness of Topic 820’s disclosure requirements. The adoption did not have a material impact on our consolidated financial statements or notes to our consolidated financial statements.
ASU No. 2018-15 “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)”
Effective January 1, 2020, we adopted FASB ASU No. 2018-15 (“ASU 2018-15”), which amends a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The adoption did not have a material impact on our consolidated financial statements or notes to our consolidated financial statements.
COVID-19 Pandemic

The global impact of the COVID-19 pandemic has beencontinues to evolve rapidly evolving and as cases of the illness caused by the virus have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines and restrictions on travel. In addition, all the states where we own properties and/or have development projects (i.e., California and Washington), have reacted to the COVID-19 pandemic by instituting quarantines, restrictions on travel, “shelter in place” rules, restrictions on types of business that may continue to operate and/or restrictions on types of construction projects that may continue. During the last few months, several vaccines for COVID-19 received emergency use authorization from the FDA and are currently being administered across the country. Despite growing vaccination rates, we believe COVID-19 will continue to impact the normal operations for our tenants. The continued impact of the pandemic on our business and our tenants’ businesses is largely dependent on efforts to stem the spread of COVID-19, including governmental efforts to distribute vaccines and overall vaccination rates in the areas in which we own properties and/or have development projects.


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




2.    Dispositions
COVID-19 Lease Modification Accounting Relief

Operating Property Dispositions
Due
The following table summarizes the 1 operating property sold during the three months ended March 31, 2021:
PropertyMonth of DispositionNumber of BuildingsRentable Square Feet
Sales Price
(in billions) (1)
1800 Owens Street, San Francisco, CA (The Exchange on 16th)March1750,370 $1.08 
___________________________
(1)Represents gross sales price before the impact of broker commissions and closing costs.

The total gain on the sale of the operating property sold during the three months ended March 31, 2021 was $457.3 million.

Restricted Cash Related to Dispositions

As of March 31, 2021, approximately $1.0 billion of net proceeds related to the business disruptions and challenges severely affectingoperating property disposition completed during the global economy causedthree months ended March 31, 2021 were temporarily being held by a qualified intermediary, at our direction, for the COVID-19 pandemic, many lessors may be required to provide rent deferrals and other lease concessions to lessees. While the lease modification guidancepurpose of facilitating a Section 1031 Exchange. The cash proceeds were included in Accounting Standards Codification (“ASC”) Topic 842 (“Topic 842”) addresses routine changes to lease terms resulting from negotiations between the lessee and the lessor, this guidance did not contemplate concessions being so rapidly executed to address the sudden liquidity constraints of some lessees arising from the COVID-19 pandemic and restrictions intended to prevent its spread.restricted cash on our consolidated balance sheet at March 31, 2021.

In April 2020, the FASB staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. The Company has elected to apply such relief and availed itself of the election to avoid performing a lease by lease analysis. In addition, the Company has elected to apply the lease modification accounting framework consistently to leases within the property types in which it invests, specifically office, residential and retail properties.

2.3.    Prepaid Expenses and Other Assets, Net

Prepaid expenses and other assets, net consisted of the following at June 30, 2020March 31, 2021 and December 31, 2019:2020:
March 31, 2021December 31, 2020
(in thousands)
Furniture, fixtures and other long-lived assets, net$40,752 $43,367 
Prepaid expenses and other assets, net9,753 10,193 
Total prepaid expenses and other assets, net$50,505 $53,560 
 June 30, 2020 December 31, 2019
 (in thousands)
Furniture, fixtures and other long-lived assets, net$53,060
 $35,286
Prepaid expenses15,318
 18,724
Note receivable (1)
—
 1,651
Total prepaid expenses and other assets, net$68,378
 $55,661

________________________
(1)During the six months ended June 30, 2020, the balance of the note receivable was written-off and the note receivable was placed on non-accrual status. We do not recognize interest income on non-accrual financing receivables. As of December 31, 2019 the note receivable was shown net of a valuation allowance of approximately $3.6 million.


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




3.4.    Secured and Unsecured Debt of the Operating Partnership

The Company generally guarantees all of the Operating Partnership’s unsecured debt obligations including the unsecured revolving credit facility the unsecured term loan facility and all of the unsecured senior notes.

Unsecured Senior Notes - Private Placement

On April 28, 2020, the Operating Partnership entered into a Note Purchase Agreement in connection with the issuance and sale of $350.0 million principal amount of the Operating Partnership’s 4.27% Senior Notes due January 31, 2031 (the “Notes”), pursuant to a private placement. The Notes mature on their due date, unless earlier redeemed or prepaid pursuant to the terms of the Note Purchase Agreement. Interest on the Notes is payable semi-annually in arrears on April 18 and October 18 of each year beginning October 18, 2020.

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

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

Unsecured Revolving Credit Facility and Term Loan Facility

The following table summarizes the balance and terms of our unsecured revolving credit facility as of June 30, 2020March 31, 2021 and December 31, 2019:2020:
June 30, 2020 December 31, 2019March 31, 2021December 31, 2020
(in thousands)(in thousands)
Outstanding borrowings$—
 $245,000
Outstanding borrowings$0 $0 
Remaining borrowing capacity
750,000
 505,000
Remaining borrowing capacity
750,000 750,000 
Total borrowing capacity (1)
$750,000
 $750,000
Total borrowing capacity (1)
$750,000 $750,000 
Interest rate (2)
1.16% 2.76%
Interest rate (2)
1.11 %1.14 %
Facility fee-annual rate (3)
0.200%
Facility fee-annual rate (3)
0.200%
Maturity dateJuly 2022Maturity dateJuly 2022
________________________
(1)We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $600.0 million under an accordion feature under the terms of the unsecured revolving credit facility and unsecured term loan facility.
(2)Our unsecured revolving credit facility interest rate was calculated based on the contractual rate of LIBOR plus 1.000% as of June 30, 2020 and December 31, 2019.
(3)
Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs. As of June 30, 2020 and December 31, 2019, $2.7 millionand $3.4
(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.
(2)Our unsecured revolving credit facility interest rate was calculated based on the contractual rate of LIBOR plus 1.000% as of March 31, 2021 and December 31, 2020.
(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, 2021 and December 31, 2020, $1.7 millionand $2.1 million of unamortized deferred financing costs, respectively, which are included in prepaid expenses and other assets, net on our consolidated balance sheets, remained to be amortized through the maturity date of our unsecured revolving credit facility.

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




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

The following table summarizesIn April 2021, the balanceOperating Partnership amended and restated the terms of ourits unsecured term loanrevolving credit facility. The amendment and restatement increased the size of the unsecured revolving credit facility asfrom $750.0 million to $1.1 billion, reduced the borrowing costs, extended the maturity date of June 30, 2020the unsecured revolving credit facility to July 2025, with 2 six-month extension options, and December 31, 2019:added a sustainability-linked pricing component whereby the interest rate is lowered by 0.01% if certain sustainability performance targets are met. The LIBOR replacement provisions of the unsecured revolving credit facility permit the use of rates based on the secured overnight financing rate (“SOFR”) administered by the Federal Reserve Bank of New York. The unsecured revolving credit facility was undrawn at closing.
 June 30, 2020 December 31, 2019
 (in thousands)
Outstanding borrowings$150,000
 $150,000
Remaining borrowing capacity—
 —
Total borrowing capacity (1)
$150,000
 $150,000
Interest rate (2)
1.28% 2.85%
Undrawn facility fee-annual rate0.200%
Maturity dateJuly 2022

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




________________________
(1)As of June 30, 2020 and December 31, 2019, $0.5 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.
(2)Our unsecured term loan facility interest rate was calculated based on the contractual rate of LIBOR plus 1.100% as of June 30, 2020 and December 31, 2019.

Debt Covenants and Restrictions

The unsecured revolving credit facility, the unsecured term loan facility, the unsecured senior notes, the Series A and B Notes due 2026, Series A and B Notes due 2027 and 2029, and Notes due 2031 and certain other secured debt arrangements contain covenants and restrictions requiring us to meet certain financial ratios and reporting requirements. Some of the more restrictive financial covenants include a maximum ratio of total debt to total asset value, a minimum fixed-charge coverage ratio, a minimum unsecured debt ratio and a minimum unencumbered asset pool debt service coverage ratio. Noncompliance with one or more of the covenants and restrictions could result in the full principal balance of the associated debt becoming immediately due and payable. We believe we were in compliance with all of our debt covenants as of June 30, 2020.March 31, 2021.

Debt Maturities

The following table summarizes the stated debt maturities and scheduled amortization payments as of June 30, 2020:March 31, 2021:
Year
(in thousands) 
Year
(in thousands)
Remaining 2020$2,594
20215,342
Remaining 2021Remaining 2021$4,026 
2022155,554
20225,554 
2023305,775
2023305,775 
2024431,006
2024431,006 
2025406,245
2025406,246 
20262026401,317 
Thereafter2,375,442
Thereafter2,399,125 
Total aggregate principal value (1)
$3,681,958
Total aggregate principal value (1)
$3,953,049 
________________________ 
(1)
(1)     Includes gross principal balance of outstanding debt before the effect of the following at March 31, 2021: $21.7 million of unamortized deferred financing costs for the unsecured senior notes and secured debt and $8.0 million of unamortized discounts for the unsecured senior notes.

June 30, 2020: $20.7 millionof unamortized deferred financing costs for the unsecured term loan facility, unsecured senior notes and secured debt and $6.0 million of unamortized discounts for the unsecured senior notes.

Capitalized Interest and Loan Fees

The following table sets forth gross interest expense, including debt discount/premium and deferred financing cost amortization, net of capitalized interest, for the three and six months ended June 30, 2020March 31, 2021 and 2019.2020. The interest expense capitalized was recorded as a cost of development and increased the carrying value of undeveloped land and construction in progress.
Three Months Ended March 31,
20212020
(in thousands)
Gross interest expense$39,242 $35,862 
Capitalized interest and deferred financing costs(16,908)(21,418)
Interest expense$22,334 $14,444 
 Three Months Ended June 30, Six Months Ended June 30,
 2020 2019 2020 2019
 (in thousands)
Gross interest expense$36,400
 $32,607
 $72,262
 $63,287
Capitalized interest and deferred financing costs(20,516) (20,880) (41,934) (40,317)
Interest expense$15,884
 $11,727
 $30,328
 $22,970


15
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KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




4.5.    Stockholders’ Equity of the Company

Increase in Authorized Shares

On May 19, 2020, the Company’s stockholders approved a proposal to amend and restate the Company’s charter to increase the number of authorized shares of common stock that the Company has the authority to issue from 150,000,000 shares to 280,000,000 shares.

Forward Equity Offering and Settlement

On February 18, 2020, the Company entered into forward equity sale agreements with certain financial institutions acting as forward purchasers in connection with an offering of 5,750,000 shares of common stock at an initial gross offering price of $494.5 million, or $86.00 per share, before underwriting discounts, commissions and offering expenses. The forward purchasers borrowed and sold an aggregate of 5,750,000 shares of common stock in the offering. The Company did not receive any proceeds from the sale of its shares of common stock by the forward purchasers at the time of the offering.

On March 25, 2020, the Company physically settled these forward equity sale agreements. Upon settlement, the Company issued 5,750,000 shares of common stock for net proceeds of $474.9 million and contributed the net proceeds to the Operating Partnership in exchange for an equal number of units in the Operating Partnership.

At-The-Market Stock Offering Program

Under our at-the-market stock offering program, which commenced in June 2018, we may offer and sell shares of our common stock having an aggregate gross sales price up to $500.0 million from time to time in “at-the-market” offerings. In connection with our at-the-market program, the Company may enter into forward equity sale agreements with certain financial institutions acting as forward purchasers whereby, at our discretion, the forward purchasers may borrow and sell shares of our common stock under our at-the-market program. The use of a forward equity sale agreement allows the Company to lock in a share price on the sale of shares of our common stock at the time the agreement is executed but defer settling the forward equity sale agreements and receiving the proceeds from the sale of shares until a later date.

During the year ended December 31, 2019, the The Company executed various 12-monthdid not have any outstanding forward equity sale agreements under our at-the-market program with financial institutions acting as forward purchasers to sell an aggregate of 3,147,110 shares of common stockbe settled at a weighted average sales price of $80.08 per share before commissions and offering expenses. The Company did not receive any proceeds from the sale of its shares of common stock by the forward purchasers at the time of sale.March 31, 2021.

In March 2020, the Company physically settled all forward equity sale agreements entered into in 2019. Upon settlement, the Company issued 3,147,110 shares of common stock for net proceeds of $247.3 million and contributed the net proceeds to the Operating Partnership in exchange for an equal number of units in the Operating Partnership. We did not enter into any forward equity sale agreements under our at-the-market program during the six months ended June 30, 2020.

Since commencement of our current at-the-market program, we have completed sales of 3,594,576 shares of common stock through June 30, 2020.March 31, 2021. As of June 30, 2020,March 31, 2021, 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 not0t complete any direct sales of common stock under the program during the three or six months ended June 30, 2020. The following table sets forth information regarding settlements of forward equity sale agreements under our at-the-market offering program for the six months ended June 30, 2020:March 31, 2021.

 Six Months Ended June 30, 2020
 (in millions, except share and per share data)
Shares of common stock settled during the period3,147,110
Weighted average price per share of common stock$80.08
Aggregate gross proceeds$252.0
Aggregate net proceeds after selling commissions$247.3



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




The proceeds from sales will be used to fund development expenditures and general corporate purposes. 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.

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

Common Units of the Operating Partnership

The Company owned an approximate 98.3%99.0%, 98.1%99.0%, and 98.0%98.3% common general partnership interest in the Operating Partnership as of June 30, 2020,March 31, 2021, December 31, 20192020 and June 30, 2019,March 31, 2020, respectively. The remaining approximate 1.7%1.0%, 1.9%1.0%, and 2.0%1.7% common limited partnership interest as of June 30, 2020,March 31, 2021, December 31, 20192020 and June 30, 2019,March 31, 2020, respectively, was owned by non-affiliated investors and certain of our executive officers and directors in the form of noncontrolling common units. There were 1,934,586, 2,023,2871,150,574, 1,150,574 and 2,023,2872,021,287 common units outstanding held by these investors, executive officers and directors as of June 30, 2020, March 31, 2021, December 31, 20192020 and June 30, 2019,March 31, 2020, respectively.

The noncontrolling common units may be redeemed by unitholders for cash. Except under certain circumstances, we, at our option, may satisfy the cash redemption obligation with shares of the Company’s common stock on a one-for-one basis. If satisfied in cash, the value for each noncontrolling common unit upon redemption is the amount equal to the average of the closing quoted price per share of the Company’s common stock, par value $.01 per share, as reported on the NYSE for the 10 trading days immediately preceding the applicable redemption date. The aggregate value upon redemption of the then-outstanding noncontrolling common units was $118.0$76.6 million and $167.7$65.4 million as of June 30, 2020March 31, 2021 and December 31, 2019,2020, 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.

6.7.    Partners’ Capital of the Operating Partnership

Common Units Outstanding

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

March 31, 2021December 31, 2020March 31, 2020
Company owned common units in the Operating Partnership116,450,370 116,035,827 115,067,924 
Company owned general partnership interest99.0 %99.0 %98.3 %
Noncontrolling common units of the Operating Partnership1,150,574 1,150,574 2,021,287 
Ownership interest of noncontrolling interest1.0 %1.0 %1.7 %
 June 30, 2020 December 31, 2019 June 30, 2019
Company owned common units in the Operating Partnership115,176,538
 106,016,287
 100,972,035
Company owned general partnership interest98.3% 98.1% 98.0%
Noncontrolling common units of the Operating Partnership1,934,586
 2,023,287
 2,023,287
Ownership interest of noncontrolling interest1.7% 1.9% 2.0%


For further discussion of the noncontrolling common units as of June 30, 2020March 31, 2021 and December 31, 2019,2020, refer to Note 5.6.


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




7.8.    Share-Based Compensation

Stockholder Approved Share-Based Incentive Compensation Plan

As of June 30, 2020,March 31, 2021, we maintained 1 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 andPlan. As of March 31, 2021, approximately 1.61.3 million shares arewere available for grant under the 2006 Plan. The calculation of shares available for grant is presented after taking into account a reserve for a sufficient number of shares to cover the vesting and payment of 2006 Plan awards that were outstanding on that date, including performance-based vesting awards at (i) levels actually achieved for the performance conditions (as defined below) for which the performance period has been completed and (ii) at maximum levels for the other performance and market conditions (as defined below) for awards still in a performance period.

20202021 Share-Based Compensation Grants

In January 2020,and February 2021, the Executive Compensation Committee of the Company’s Board of Directors awarded 263,626332,707 restricted stock units (“RSUs”) to certain officers of the Company under the 2006 Plan, which included 154,267172,430 RSUs (at the target level of performance) that are subject to market and/or performance-based vesting requirements (the “2020“2021 Performance-Based RSUs”) and 109,359160,277 RSUs that are subject to time-based vesting requirements (the “2020“2021 Time-Based RSUs”). During the three months ended June 30, 2020, 1,514 of the 2020 Time-Based RSUs were forfeited and in July 2020, 12,263 of the 2020 Performance-Based RSUs were forfeited.

20202021 Performance-Based RSU Grant

The 20202021 Performance-Based RSUs are scheduled to vest at the end of a three year period (consisting of calendar years 2020-2022)2021-2023). A target number of 20202021 Performance-Based RSUs were awarded, and the final number of 20202021 Performance-Based RSUs that vest (which may be more or less than the target number) will be based upon (1) the achievement of pre-set FFO per share goals for the year ending December 31, 20202021 that applies to 100% of the Performance-Based RSUs awarded (the “FFO performance condition”) and (2) a performance measure that applies to 50% of the award based upon a measure of the Company’s average debt to EBITDA ratio for the three year performance period (the “debt to EBITDA ratio performance condition”) and a market measure that applies to the other 50% of the award based upon the relative ranking of the Company’s total stockholder return for the three year performance period compared to the total stockholder returns of an established comparison group of companies over the same period (the “market condition”). The 20202021 Performance-Based RSUs are also subject to a three year service vesting provision (the “service vesting condition”) and are scheduled to cliff vest on the date the final vesting percentage is determined following the end of the three year performance period under the awards. The number of 20202021 Performance-Based RSUs ultimately earned could fluctuate from the target number of 20202021 Performance-Based RSUs granted based upon the levels of achievement for the FFO performance condition, the debt to EBITDA ratio performance condition, the market condition, and the extent to which the service vesting condition is satisfied. The estimate of the number of 20202021 Performance-Based RSUs earned is evaluated quarterly during the performance period based on our estimate for each of the performance conditions measured against the applicable goals. During the sixthree months ended June 30, 2020,March 31, 2021, we recognized $2.0$1.0 million of compensation expense for the 20202021 Performance-Based RSU grant. In the event we achieve a lower level of performance or fail to meet the FFO performance condition, we would reverse a portion or all of the $2.0$1.0 million of compensation expense in the second half of 2020.expense. Compensation expense for the 20202021 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 vesting period.period, except for 1 participant whose compensation expense is recognized on a rolling twelve-month basis.

Each 20202021 Performance-Based RSU represents the right, subject to the applicable vesting conditions, to receive 1 share of our common stock in the future. The determination of the grant date fair value of the portion of the 20202021 Performance-Based RSU grants covered by the debt to EBITDA ratio performance condition was based on the $82.57$57.85 share price on the January 31, 2020February 18, 2021 grant date. The determination of the grant date fair value of the portion of the 20202021 Performance-Based RSU grants covered by the market condition was calculated using a Monte Carlo simulation pricing model based on the assumptions in the table below, which resulted in a $84.54the following grant date fair value per share.

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




Fair Value Assumptions
Valuation dateJanuary 31, 2020February 18, 2021
Expected share price volatility17.0%35.0%
Risk-free interest rate1.35%0.20%
Fair value per share on valuation date (1)
$84.5463.93
________________________
(1)Using the same Monte Carlo methodology and assumptions, the grant date fair value of one participant’s 2021 Performance-Based RSU grants was calculated as $66.95 per share.

________________________
(1)Using the same Monte Carlo methodology and assumptions, the grant date fair value of one participant’s 2020 Performance-Based RSU grants was calculated as $85.52 per share.

The computation of expected volatility is based on a blend of the historical volatility of our shares of common stock over approximately 5.82.9 years, as that is expected to be most consistent with future volatility and equates to a time period twice as long as the approximate 2.9-year performance period of the RSUs, and implied volatility data based on the observed pricing of six month publicly-traded options on our shares of common stock. The risk-free interest rate is based on the yield curve on zero-coupon U.S. Treasury STRIP securities in effect at January 31, 2020.

February 18, 2021.

The total grant date fair value of the 20202021 Performance-Based RSU awards was $12.9$10.6 million on the January 31, 2020February 18, 2021 grant date of the awards. For the three and sixmonths ended June 30, 2020,March 31, 2021, 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.


20202021 Time-Based RSU Grant

The 20202021 Time-Based RSUs are scheduled to vest in 3 equal annual installments beginning on January 5, 20212022 through January 5, 2023.2024. Compensation expense for the 20202021 Time-Based RSUs is recognized on a straight-line basis over the requisite service period for each participant, which is generally the three year service vesting period.period, except for 1 participant whose compensation expense is recognized on a rolling twelve-month basis. Each 20202021 Time-Based RSU represents the right to receive 1 share of our common stock in the future. The total grant date fair value of the 20202021 Time-Based RSU awards was $9.0$9.1 million, which was based on the $82.57$56.63 and $57.85 closing share priceprices of the Company’s common stock on the NYSE on the January 31, 29, 2021 and February 18, 2021 grant dates, respectively.

2020 grant date of the awards.

2019 and 20182019 Performance-Based RSUs

Total compensationCompensation cost for 2019 and 2018the 2020 performance-based RSUs for the three and sixmonths ended June 30, 2020March 31, 2021 assumes the 2019 and 20182020 debt to EBITDA ratio performance conditions arecondition is met at 125% of the target level of achievement (137.5% for one participant). Compensation cost for the 2019 performance-based RSUs for the three months ended March 31, 2021 assumes the 2019 debt to EBITDA ratio performance condition is met at the maximum level of achievement.

Share-Based Compensation Cost Recorded During the Period

Share-based compensation costs for the three and six months ended June 30, 2020 include $4.1 million and $4.3 million, respectively, of accelerated share-based compensation costs related to severance packages, including for the previously announced executive officer departure. The total compensation cost for all share-based compensation programs was $13.6$9.6 million and $8.7 million for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively, and $22.2 million and $17.5 million for the six months ended June 30, 2020 and 2019, respectively. Of the total share-based compensation costs, $2.0$1.7 million and $3.9$1.9 millionwas capitalized as part of real estate assets for the three and six months ended June 30,March 31, 2021 and 2020, and $1.9 million and $3.5 million was capitalized as part of real estate assets for the three and six months ended June 30, 2019, respectively. As of June 30, 2020,March 31, 2021, there was approximately $52.1$47.2 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 1.91.6 years. The remaining compensation cost related to these nonvested incentive awards had been recognized in periods prior to June 30, 2020.March 31, 2021.

16
Severance Compensation

For the three and six months ended June 30, 2020, compensation costs included in general and administrative expenses on our consolidated statements of operations include $14.1 million of cash severance costs related to the previously announced executive officer departure, in addition to the accelerated share-based compensation costs noted in the paragraph above.


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




8.9.    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.

Under ASC Topic 842, we must perform a binary assessment of whether or not substantially all of the amounts due under a
tenant’s lease agreement are probable of collection. Such assessment involves using a methodology that incorporates a specific identification analysis and an aging analysis and considers the current economic and business environment. This determination requires significant judgment and estimates about matters that are uncertain at the time the estimates are made, including the creditworthiness of specific tenants, specific industry trends and conditions, and general economic trends and conditions. For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For leases that are deemed not probable of collection, revenue is recorded as the lesser of (i) the amount which would be recognized on a straight-line basis or (ii) cash that has been received from the tenant, with any tenant and deferred rent receivable balances charged as a direct write-off against rental income in the period of the change in the collectability determination.

For tenant and deferred rent receivables associated with leases whose rents are deemed probable of collection under Topic 842, we may record an allowance under other authoritative GAAP using a methodology that incorporates a specific identification analysis and an aging analysis and considers the current economic and business environment. This determination requires significant judgment and estimates about matters that are uncertain at the time the estimates are made, including the creditworthiness of specific tenants, specific industry trends and conditions, and general economic trends and conditions. Tenant and deferred rent receivables deemed probable of collection are carried net of allowances for uncollectible accounts, with increases or decreases in the allowances recorded through rental income on our consolidated statements of operations.

The table below sets forth the allocation of rental income between fixed and variable payments and collectability reversals or recoveries for the three and six months ended June 30,March 31, 2021 and 2020:
Three Months Ended March 31,
20212020
(in thousands)
Fixed lease payments$204,216 $193,475 
Variable lease payments31,475 31,645 
Collectability reversals (1)
(1,035)(6,487)
Total rental income$234,656 $218,633 
_____________________
(1)Represents adjustments to rental income related to our assessment of the collectability of amounts due under leases with our tenants. For the three months ended March 31, 2021 and 2020, includes a reduction in revenue of $1.0 million and 2019:$6.5 million, respectively, primarily as a result of the COVID-19 pandemic.

 Three Months Ended June 30, Six Months Ended June 30,
 2020 2019 2020 2019
 (in thousands)
Fixed lease payments$194,486
 $173,230
 $387,961
 $342,180
Variable lease payments29,764
 24,616
 61,409
 52,184
Collectability (reversals) recoveries(5,894) (217) (12,381) 2,647
Total rental income$218,356
 $197,629
 $436,989
 $397,011
______________
(1)Represents adjustments to rental income related to our assessment of the collectability of amounts due under leases with our tenants. For the three and six months ended June 30, 2020, includes a reduction in revenue of $5.9 million and $12.4 million, respectively, primarily as a result of the COVID-19 pandemic.

We have operating leases with tenants that expire at various dates through 2044. Generally, the leases grant tenants renewal options. 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 June 30, 2020March 31, 2021 for future periods is summarized as follows:

Year Ending(in thousands)
Remaining 2021$517,323 
2022759,071 
2023739,603 
2024699,571 
2025662,622 
2026609,838 
Thereafter2,334,046 
Total (1)
$6,322,074 
_____________________
Year Ending(in thousands)
Remaining 2020$348,479
2021727,344
2022802,787
2023788,673
2024746,047
2025714,321
Thereafter3,420,018
Total (1)
$7,547,669
(1)Excludes residential leases and leases with a term of one year or less.
______________
(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)




9.10.    Commitments and Contingencies

General

As of June 30, 2020,March 31, 2021, we had commitments of approximately $814.8$456.3 million, excluding our ground lease commitments, for contracts and executed leases directly related to our operating and development properties.

Ground Leases

The following table summarizes our properties that are held subject to long-term noncancellable ground lease obligations and the respective contractual expiration dates:
Property
Contractual Expiration Date (1)
601 108th Ave NE, Bellevue, WANovember 2093
701, 801 and 837 N. 34th Street, Seattle, WA (2)
December 2041
1701 Page Mill Road and 3150 Porter Drive, Palo Alto, CADecember 2067
Kilroy Airport Center Phases I, II, and III, Long Beach, CAJuly 2084
3243 S. La Cienega Boulevard, Los Angeles, CAOctober 2106
____________________
(1)Reflects the contractual expiration date prior to the impact of any extension or purchase options held by the Company.
(2)The Company has 3 10-year and 1 45-year extension options for this ground lease, which if exercised would extend the expiration date to December 2116. These extension options are not assumed to be exercised in our calculation of the present value of the future minimum lease payments for this lease.
(1)    Reflects the contractual expiration date prior to the impact of any extension or purchase options held by the Company.
(2)    The Company has 3 10-year and 1 45-year extension options for this ground lease, which if exercised would extend the expiration date to December 2116. These extension options are not assumed to be exercised in our calculation of the present value of the future minimum lease payments for this lease.

To determine the discount rates used to calculate the present value of the minimum future lease payments for our ground leases, we used a hypothetical curve derived from unsecured corporate borrowing rates over the lease term. The weighted average discount rate used to determine the present value of our minimum lease payments was 5.11%. As of June 30, 2020,March 31, 2021, the weighted average remaining lease term of our ground leases is 5554 years. For the three months ended June 30,March 31, 2021 and 2020, and 2019, variable lease costs totaling $0.9$0.4 million and $0.8$0.9 million, respectively, were recorded to ground lease expense on our consolidated statements of operations. For the six months ended June 30, 2020 and 2019, variable lease costs totaling $1.7 million and $1.5 million, respectively, were recorded to ground leases expense on our consolidated statements of operations.

The minimum commitment under our ground leases as of June 30, 2020March 31, 2021 for future periods is summarized as follows:
Year Ending
(in thousands) 
Year Ending
(in thousands)
Remaining 2020$2,821
20215,641
Remaining 2021Remaining 2021$4,230 
20225,642
20225,642 
20235,662
20235,662 
20245,662
20245,662 
20255,662
20255,662 
202620265,662 
Thereafter280,723
Thereafter275,062 
Total undiscounted cash flows (1)(2)(3)(4)(5)(6)
311,813
Total undiscounted cash flows (1)(2)(3)(4)(5)(6)
307,582 
Present value discount(213,720)Present value discount(209,965)
Ground lease liabilities$98,093
Ground lease liabilities$97,617 
________________________
(1)Excludes contingent future rent payments based on gross income or adjusted gross income and reflects the minimum ground lease obligations before the impact of ground lease extension options.
(2)One of our ground lease obligations is subject to a fair market value adjustment every five years; however, the lease includes ground rent subprotection and infrastructure rent credits which currently limit our annual rental obligations to $1.0 million. The contractual obligations for that ground lease included above assumes the lesser of $1.0 million or annual lease rental obligation in effect as of June 30, 2020.
(3)One of our ground lease obligations includes a component which is based on the percentage of gross income that exceeds the minimum ground rent. The minimum rent is subject to increases every five years based on 50% of the average annual percentage rent for the previous five years. The contractual obligations for that lease included above assume the current annual ground lease obligation in effect at June 30, 2020 for the remainder of the lease term since we cannot predict future adjustments.
(4)One of our ground lease obligations is subject to a fair market value adjustment every five years based on a combination of CPI adjustments and third-party appraisals limited to maximum increases annually. The contractual obligations for that lease included above assume the current annual ground lease obligation in effect at June 30, 2020 for the remainder of the lease term since we cannot predict future adjustments.
(5)One of our ground lease obligations includes a component which is based on the percentage of adjusted gross income that exceeds the minimum ground rent. The minimum rent is subject to increases every ten years by an amount equal to 60% of the average annual percentage rent for the previous three years. The contractual obligations for this lease included above assume the current annual ground lease obligation in effect at June 30, 2020 for the remainder of the lease term since we cannot predict future adjustments.
(6)One of our ground lease obligations is subject to fixed 5% ground rent increases every five years, with the next increase occurring on December 1, 2022.

(1)Excludes contingent future rent payments based on gross income or adjusted gross income and reflects the minimum ground lease obligations before the impact of ground lease extension options.
(2)One of our ground lease obligations is subject to a fair market value adjustment every five years; however, the lease includes ground rent subprotection and infrastructure rent credits, which currently limit our annual rental obligations to $1.0 million. The contractual obligations for that ground lease included above assumes the lesser of $1.0 million or annual lease rental obligation in effect as of March 31, 2021.
(3)One of our ground lease obligations includes a component that is based on the percentage of gross income that exceeds the minimum ground rent. The minimum rent is subject to increases every five years based on 50% of the average annual percentage rent for the previous five years. The contractual obligations for that lease included above assume the current annual ground lease obligation in effect at March 31, 2021 for the remainder of the lease term since we cannot predict future adjustments.
(4)One of our ground lease obligations is subject to a fair market value adjustment every five years based on a combination of CPI adjustments and third-party appraisals limited to maximum increases annually. The contractual obligations for that lease included above assume the current annual ground lease obligation in effect at March 31, 2021 for the remainder of the lease term since we cannot predict future adjustments.
(5)One of our ground lease obligations includes a component that is based on the percentage of adjusted gross income that exceeds the minimum ground rent. The minimum rent is subject to increases every ten years by an amount equal to 60% of the average annual percentage rent for the previous three years. The contractual obligations for this lease included above assume the current annual ground lease obligation in effect at March 31, 2021 for the remainder of the lease term since we cannot predict future adjustments.
(6)One of our ground lease obligations is subject to fixed 5% ground rent increases every five years, with the next increase occurring on December 1, 2022.


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




Environmental Matters

We follow the policy of monitoring all of our properties, including acquisition, development and existing stabilized portfolio properties, for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist, we are not currently aware of any environmental liability with respect to our stabilized portfolio properties that would have a material adverse effect on our financial condition, results of operations and cash flow, or that we believe would require additional disclosure or the recording of a loss contingency.

As of June 30, 2020,March 31, 2021, we had accrued environmental remediation liabilities of approximately $61.9$72.3 million recorded on our consolidated balance sheets in connection with certain of our in-process and future development projects. The accrued environmental remediation liabilities represent the remaining costs we estimate we will incur prior to and during the development process at various development acquisition sites. These estimates, which we developed with the assistance of third party experts, consist primarily of the removal of contaminated soil, performing environmental closure activities, constructing remedial systems and other related costs since we are required to dispose of any existing contaminated soil and sometimes perform other environmental closure or remedial activities when we develop new buildings at these sites.

We record estimated environmental remediation obligations for acquired properties at the acquisition date when we are aware of such costs and when such costs are probable of being incurred and can be reasonably estimated. Estimated costs related to development environmental remediation liabilities are recorded as an increase to the cost of the development project. Actual costs are recorded as a decrease to the liability when incurred. These accruals are adjusted as an increase or decrease to the development project costs and as an increase or decrease to the accrued environmental remediation liability if we obtain further information or circumstances change. The environmental remediation obligations recorded at June 30, 2020March 31, 2021 were not discounted to their present values since the amount and timing of cash payments are not fixed. It is possible that we could incur additional environmental remediation costs in connection with these development projects.  However, potential additional environmental costs for these development projects cannot be reasonably estimated at this time and certain changes in estimates could occur as the site conditions, final project timing, design elements, actual soil conditions and other aspects of the projects, which may depend upon municipal and other approvals beyond the control of the Company, are determined.

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.

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




10.11.    Fair Value Measurements and Disclosures

Assets and Liabilities Reported at Fair Value

The only assets we record at fair value on our consolidated financial statements are the marketable securities related to our Deferred Compensation Plan. The following table sets forth the fair value of our marketable securities as of June 30, 2020March 31, 2021 and December 31, 2019:2020:

Fair Value (Level 1) (1)
Fair Value (Level 1) (1)
June 30, 2020 December 31, 2019March 31, 2021December 31, 2020
Description(in thousands)Description(in thousands)
Marketable securities (2)
$23,175
 $27,098
Marketable securities (2)
$24,089 $27,481 
________________________
(1)Based on quoted prices in active markets for identical securities.
(2)The marketable securities are held in a limited rabbi trust.
(1)    Based on quoted prices in active markets for identical securities.
(2)    The marketable securities are held in a limited rabbi trust.

We report the change in the fair value of the marketable securities at the end of each accounting period in interest income and other net investment gain (loss) in the consolidated statements of operations.

We also adjust the related Deferred Compensation Plan liability to fair value at the end of each accounting period based on the performance of the benchmark funds selected by each participant, which results in a corresponding increase or decrease to compensation cost included in general and administrative expenses on our consolidated statements of operations for the period.

The following table sets forth the net gain (loss) on marketable securities recorded during the three and six months ended June 30, 2020March 31, 2021 and 2019:2020:

Three Months Ended March 31,
20212020
Description(in thousands)
Net gain (loss) on marketable securities$1,305 $(3,226)
 Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019
Description(in thousands) (in thousands)
Net gain (loss) on marketable securities$2,662
 $544
 $(564) $2,225


Financial Instruments Disclosed at Fair Value

The following table sets forth the carrying value and the fair value of our other financial instruments as of June 30, 2020March 31, 2021 and December 31, 2019:2020:

June 30, 2020 December 31, 2019March 31, 2021December 31, 2020
Carrying
Value		 
Fair
Value (1)
 Carrying
Value		 
Fair
Value (1)
Carrying
Value
Fair
Value (1)
Carrying
Value
Fair
Value (1)
(in thousands)(in thousands)
Liabilities       Liabilities
Secured debt, net$256,113
 $269,707
 $258,593
 $272,997
Secured debt, net$252,298 $272,050 $253,582 $282,559 
Unsecured debt, net$3,399,105
 $3,591,247
 $3,049,185
 $3,252,217
Unsecured debt, net$3,671,094 $3,931,186 $3,670,099 $4,089,339 
Unsecured line of credit$—
 $—
 $245,000
 $245,195
________________________
(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.
(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.

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




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

The following table reconciles the numerator and denominator in computing the Company’s basic and diluted per-share computations for net income available to common stockholders for the three and six months ended June 30, 2020March 31, 2021 and 2019:2020:

 Three Months Ended June 30, Six Months Ended June 30,
 2020 2019 2020 2019
 (in thousands, except share and per share amounts)
Numerator:       
Net income available to common stockholders$19,618
 $42,194
 $59,435
 $79,097
Allocation to participating securities (1)
(542) (543) (1,085) (1,052)
Numerator for basic and diluted net income available to common stockholders$19,076
 $41,651
 $58,350
 $78,045
Denominator:       
Basic weighted average vested shares outstanding115,084,897
 100,972,355
 110,980,066
 100,937,069
Effect of dilutive securities454,828
 837,186
 484,581
 681,884
Diluted weighted average vested shares and common stock equivalents outstanding115,539,725
 101,809,541
 111,464,647
 101,618,953
Basic earnings per share:       
Net income available to common stockholders per share$0.17
 $0.41
 $0.53
 $0.77
Diluted earnings per share:       
Net income available to common stockholders per share$0.17
 $0.41
 $0.52
 $0.77

 Three Months Ended March 31,
 20212020
 (in thousands, except share and per share amounts)
Numerator:
Net income available to common stockholders$497,631 $39,817 
Allocation to participating securities (1)
(365)(543)
Numerator for basic and diluted net income available to common stockholders$497,266 $39,274 
Denominator:  
Basic weighted average vested shares outstanding116,344,375 106,875,234 
Effect of dilutive securities457,009 514,341 
Diluted weighted average vested shares and common stock equivalents outstanding116,801,384 107,389,575 
Basic earnings per share:  
Net income available to common stockholders per share$4.27 $0.37 
Diluted earnings per share:  
Net income available to common stockholders per share$4.26 $0.37 
________________________ 
(1)Participating securities include nonvested shares, 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 securities are considered in our diluted earnings per share calculation for the three and six months ended June 30, 2020March 31, 2021 and 2019.2020. Certain market measure-based RSUs are not included in dilutive securities for the three and six months ended June 30,March 31, 2021 and 2020, and 2019, as not all performance metrics had been met by the end of the applicable reporting periods. See Note 78 “Share-Based Compensation” for additional information regarding share-based compensation.


24
21
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




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

The following table reconciles the numerator and denominator in computing the Operating Partnership’s basic and diluted per-unit computations for net income available to common unitholders for the three and six months ended June 30, 2020March 31, 2021 and 2019:2020:

 Three Months Ended June 30, Six Months Ended June 30,
 2020 2019 2020 2019
 (in thousands, except unit and per unit amounts)
Numerator:       
Net income available to common unitholders$19,838
 $42,901
 $60,227
 $80,409
Allocation to participating securities (1)
(542) (543) (1,085) (1,052)
Numerator for basic and diluted net income available to common unitholders$19,296
 $42,358
 $59,142
 $79,357
Denominator:       
Basic weighted average vested units outstanding117,098,562
 102,995,642
 112,997,795
 102,960,599
Effect of dilutive securities454,828
 837,186
 484,581
 681,884
Diluted weighted average vested units and common unit equivalents outstanding117,553,390
 103,832,828
 113,482,376
 103,642,483
Basic earnings per unit:       
Net income available to common unitholders per unit$0.16
 $0.41
 $0.52
 $0.77
Diluted earnings per unit:       
Net income available to common unitholders per unit$0.16
 $0.41
 $0.52
 $0.77

 Three Months Ended March 31,
 20212020
 (in thousands, except unit and per unit amounts)
Numerator:
Net income available to common unitholders$502,517 $40,389 
Allocation to participating securities (1)
(365)(543)
Numerator for basic and diluted net income available to common unitholders$502,152 $39,846 
Denominator:  
Basic weighted average vested units outstanding117,494,949 108,897,027 
Effect of dilutive securities457,009 514,341 
Diluted weighted average vested units and common unit equivalents outstanding117,951,958 109,411,368 
Basic earnings per unit:
Net income available to common unitholders per unit$4.27 $0.37 
Diluted earnings per unit:  
Net income available to common unitholders per unit$4.26 $0.36 
________________________ 
(1)
(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 securities are considered in our diluted earnings per share calculation for the three and six months ended June 30, 2020March 31, 2021 and 2019.2020. Certain market measure-based RSUs are not included in dilutive securities for the three and six months ended June 30,March 31, 2021 and 2020, and 2019, as not all performance metrics had been met by the end of the applicable reporting periods. See Note 78 “Share-Based Compensation” for additional information regarding share-based compensation.


25
22
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




13.14.    Supplemental Cash Flow Information of the Company

Supplemental cash flow information follows (in thousands):

Three Months Ended March 31,
20212020
SUPPLEMENTAL CASH FLOWS INFORMATION:  
Cash paid for interest, net of capitalized interest of $16,131 and $20,403 as of March 31, 2021 and 2020, respectively$12,387 $10,035 
Cash paid for amounts included in the measurement of ground lease liabilities$1,455 $1,332 
NON-CASH INVESTING TRANSACTIONS:  
Accrual for expenditures for operating properties and development properties$57,675 $129,251 
Tenant improvements funded directly by tenants$2,570 $2,081 
NON-CASH FINANCING TRANSACTIONS: 
Accrual of dividends and distributions payable to common stockholders and common unitholders (Note 16)$59,472 $57,620 
Exchange of common units of the Operating Partnership into shares of the Company’s common stock$0 $81 
 Six Months Ended June 30,
 2020 2019
SUPPLEMENTAL CASH FLOWS INFORMATION:   
Cash paid for interest, net of capitalized interest of $39,952 and $38,780 as of June 30, 2020 and 2019, respectively$25,494
 $23,009
Cash paid for amounts included in the measurement of ground lease liabilities$2,905
 $2,699
NON-CASH INVESTING TRANSACTIONS:   
Accrual for expenditures for operating properties and development properties$131,892
 $129,500
Tenant improvements funded directly by tenants$7,210
 $7,017
Initial measurement of operating right of use ground lease assets$—
 $82,938
Initial measurement of operating ground lease liabilities$—
 $87,409
NON-CASH FINANCING TRANSACTIONS:   
Accrual of dividends and distributions payable to common stockholders and common unitholders (Note 15)$57,600
 $50,800
Exchange of common units of the Operating Partnership into shares of the Company’s common stock$3,843
 $78


The following is a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the sixthree months ended June 30, 2020March 31, 2021 and 2019.2020.

Three Months Ended March 31,
20212020
(in thousands)
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:  
Cash and cash equivalents at beginning of period$731,991 $60,044 
Restricted cash at beginning of period91,139 16,300 
Cash and cash equivalents and restricted cash at beginning of period$823,130 $76,344 
Cash and cash equivalents at end of period$657,819 $762,134 
Restricted cash at end of period1,028,759 16,300 
Cash and cash equivalents and restricted cash at end of period$1,686,578 $778,434 
 Six Months Ended June 30,
 2020 2019
 (in thousands)
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:   
Cash and cash equivalents at beginning of period$60,044
 $51,604
Restricted cash at beginning of period16,300
 119,430
Cash and cash equivalents and restricted cash at beginning of period$76,344
 $171,034
    
Cash and cash equivalents at end of period$605,012
 $52,415
Restricted cash at end of period16,300
 6,300
Cash and cash equivalents and restricted cash at end of period$621,312
 $58,715


14.15.    Supplemental Cash Flow Information of the Operating Partnership:

Supplemental cash flow information follows (in thousands):

 Three Months Ended March 31,
 20212020
SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest, net of capitalized interest of $16,131 and $20,403 as of March 31, 2021 and 2020, respectively$12,387 $10,035 
Cash paid for amounts included in the measurement of ground lease liabilities$1,455 $1,332 
NON-CASH INVESTING TRANSACTIONS:
Accrual for expenditures for operating properties and development properties$57,675 $129,251 
Tenant improvements funded directly by tenants$2,570 $2,081 
NON-CASH FINANCING TRANSACTIONS:
Accrual of distributions payable to common unitholders (Note 16)$59,472 $57,620 
 Six Months Ended June 30,
 2020 2019
SUPPLEMENTAL CASH FLOWS INFORMATION:   
Cash paid for interest, net of capitalized interest of $39,952 and $38,780 as of June 30, 2020 and 2019, respectively$25,494
 $23,009
Cash paid for amounts included in the measurement of ground lease liabilities$2,905
 $2,699
NON-CASH INVESTING TRANSACTIONS:   
Accrual for expenditures for operating properties and development properties$131,892
 $129,500
Tenant improvements funded directly by tenants$7,210
 $7,017
Initial measurement of operating right of use ground lease assets$—
 $82,938
Initial measurement of operating ground lease liabilities$—
 $87,409
NON-CASH FINANCING TRANSACTIONS:   
Accrual of distributions payable to common unitholders (Note 15)$57,600
 $50,800

23
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 sixthree months ended June 30, 2020March 31, 2021 and 2019.2020.

Three Months Ended March 31,
20212020
(in thousands)
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:  
Cash and cash equivalents at beginning of period$731,991 $60,044 
Restricted cash at beginning of period91,139 16,300 
Cash and cash equivalents and restricted cash at beginning of period$823,130 $76,344 
Cash and cash equivalents at end of period$657,819 $762,134 
Restricted cash at end of period1,028,759 16,300 
Cash and cash equivalents and restricted cash at end of period$1,686,578 $778,434 

26
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)




 Six Months Ended June 30,
 2020 2019
 (in thousands)
RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH:   
Cash and cash equivalents at beginning of period$60,044
 $51,604
Restricted cash at beginning of period16,300
 119,430
Cash and cash equivalents and restricted cash at beginning of period$76,344
 $171,034
    
Cash and cash equivalents at end of period$605,012
 $52,415
Restricted cash at end of period16,300
 6,300
Cash and cash equivalents and restricted cash at end of period$621,312
 $58,715


15.16.    Subsequent Events

On July 15, 2020,April 14, 2021, aggregate dividends, distributions and dividend equivalents of $57.6$59.4 million were paid to common stockholders, common unitholders and RSU holders of record on June 30, 2020.March 31, 2021.



In April 2021, the Operating Partnership amended and restated the terms of its unsecured revolving credit facility. The amendment and restatement increased the size of the unsecured revolving credit facility from $750.0 million to $1.1 billion, reduced the borrowing costs, extended the maturity date of the unsecured revolving credit facility to July 2025, with 2 six-month extension options, and added a sustainability-linked pricing component whereby the interest rate is lowered by 0.01% if certain sustainability performance targets are met. The LIBOR replacement provisions of the unsecured revolving credit facility permit the use of rates based on the secured overnight financing rate (“SOFR”) administered by the Federal Reserve Bank of New York. The unsecured revolving credit facility was undrawn at closing.
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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 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 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 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-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, as well as business and consumer reactions to such changes; risks associated with joint venture investments, including our lack of sole decision-making authority, our reliance on co-venturers’ financial condition and disputes between us and our co-venturers; environmental uncertainties and risks related to natural disasters; our ability to maintain our status as a 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’s and the Operating Partnership’s business and financial performance, see the discussion below, and in “Part II – Other Information, Item 1A. Risk Factors” of this report, as well as in “Part I, Item 1A. Risk Factors” and “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, 20192020 and their respective other filings with the SEC. All
25

forward-looking statements are based on information that was available and speak only as of the dates on which they were made. We assume no obligation

28

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.

Overview and Background

We are a self-administered REIT active in premier office and mixed-use submarkets along the West Coast. We own, develop, acquire and manage real estate assets, consisting primarily of Class A properties in the coastal regions of Greater Los Angeles, San Diego County, the San Francisco Bay Area and Greater Seattle, which we believe have strategic advantages and strong barriers to entry. We own our interests in all of our real 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 98.3%99.0%, 98.1%99.0%, and 98.0%98.3% general partnership interest in the Operating Partnership as of June 30, 2020, March 31, 2021, December 31, 20192020 and June 30, 2019.March 31, 2020. All of our properties are held in fee except for the fourteen office buildings that are held subject to long-term ground leases for the land.

COVID-19 Response

In accordance with local and state government guidance and social distancing recommendations, the majority of our employees have worked remotely sincebeginning in March 2020. Our robust technology infrastructure was capable of supporting this model.property management teams have returned to our offices on a full-time basis and we have begun transitioning our corporate employees back to our offices on a rotational basis in compliance with local and state government density restrictions. We implemented rigorous protocols for remote work across the Company, including increased frequency of team update calls and frequent communication across leadership and working levels. We are leveragingcontinue to leverage technology to ensure our teams stay connected and productive, and that our culture remains strong even inunder these unusual circumstances.

During the three months ended June 30,Since March 2020, we werehave been highly focused on planning for the health and safety of our tenants and employees and preparing our buildings in accordance with the policies, protocols and applicable legal requirements in our regions. We hold our occupants’ health at the highest level of importance and have taken extensive steps to facilitate safe work environments. We engaged aan industrial hygienist to assist us in designing new standard operating procedures for our buildings that include, but are not limited to, air filtration, water quality, janitorial products and procedures, social separation and screening during building access and elevator use, the use of personal protective equipment, signage, and management of construction activities. Our buildings have remained open to tenants and we have begun to see certain tenants returning to the workplace. We have been in communication with tenants regarding return to work protocols and safety measures, which meet or exceed local and state government guidelines. Our properties received the highest level of pandemic preparedness review through a third-party who verified that all recommended CDC and WHO measures have been successfully implemented, including on-site air, water and germ testing.

During the three months ended June 30, 2020, weWe have implemented a rent relief program for the majority of our retail tenants whereby we deferred rent for the months ofsince April to July 2020 in exchange for a four-monthan extension of their current lease term for an equivalent number of months at future rental rates. We expect that we will continue to offer deferralssome form of rent relief to the majority of our retail tenants, given that most cannot resume full operations in certain of our markets where strong statelocal and localstate government restrictions remain or were put back into effect.remain. We did not create such a program for our office tenants and wetenants. We evaluate office rent relief requests on a specific case by case basis. Our top 15 tenants represent 47.4% of our total annualized base rental revenuesbasis and as of June 30, 2020 we had collected 100% of the rent due from our top 15 tenants since the beginning of the COVID-19 pandemic.only consider those which have a justifiable financial basis. For residential tenants, deferrals of gross rent billings have been extended in accordance with the applicable local orders, which often require repayment within 12 months if such local ordinances are not extended.

We analyze our total lease receivable balances, tenant creditworthiness, specific industry trends and conditions, and current economic trends and conditions in order to evaluate whether we believe substantially all of the amounts due under a tenant’s lease agreement are deemed probable of collection over the term of the lease. For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the lease term. For leases that are deemed not probable of collection, revenue is recorded as the lesser of (i) the amount whichthat would be recognized on a straight-line basis or (ii) cash that has been received from the tenant, with any tenant and deferred rent receivable balances charged as a direct write-off against rental income in the period of the change in the collectability determination.

The following table sets forth information regarding the percent of contractual base rent and common area maintenance (“CAM”) billings (“gross rent billings”) billed, collected, forgiven, and deferred for the three months ended June 30, 2020:
      
COVID-19 Modifications (3)
 
Non-COVID-19 Modifications (4)
  
Property Type 
Gross Rent Billings (1)
(in thousands)
 
Rent Collected (2)
 
Rent Forgiven (5)
 Rent Deferred Rent Deferred 
Rent Outstanding (8)
 
Collected (6)
 
Outstanding (7)
 
Collected (6)
 
Outstanding (7)
 
                 
Office $190,245
 97.7% —
 — 0.4% — — 1.9%
Residential 4,226
 88.0% —
 — 7.6% — — 4.4%
Retail 7,521
 32.3% 3.5% — 34.5% — — 29.7%
                 
Total $201,992
 95.1% 0.1% — 1.8% — — 3.0%
                 

29

________________________
(1)Gross rent billings represents the total contractual base rent (including tenant direct-billed parking) and CAM billings before any COVID-19 related rent concessions for the three months ended June 30, 2020.
(2)Cash collections through June 30, 2020 as a percentage of gross rent billings.
(3)Rent concessions that qualify for the accounting relief provided by the FASB (as described in Note 1 “Organization and Basis of Presentation” to our consolidated financial statements included in this report), as total amounts due under the lease agreement are substantially the same or less than those that existed in the contract before modification.
(4)Rent concessions that do not qualify for the accounting relief provided by the FASB (as described in Note 1 “Organization and Basis of Presentation” to our consolidated financial statements included in this report), as total amounts due under the lease agreement are not substantially the same as those that existed in the contract before modification, or other modifications unrelated to the COVID-19 pandemic have been included.
(5)Amounts permanently forgiven as a percentage of gross rent billings.
(6)Collections of amounts deferred under repayment plans (as described above) and through lease term extensions as a percentage of gross rent billings.
(7)Remaining amounts deferred under repayment plans and through lease term extensions as a percentage of gross rent billings.
(8)Uncollected gross rent billings that have not been forgiven and are not subject to deferral arrangements as a percentage of gross rent billings. Such amounts are subject to the Company’s allowance for uncollectible accounts.
Deferrals of gross rent billings that have been extended to office and retail tenants during the period have been formalized by the execution of lease amendments that generally provide for repayment of deferred amounts through an extension of the lease term by an equivalent period of months to the deferral period.

As of the date of this report, across Not all property types,tenant relief requests will ultimately result in lease amendments and we have not relinquished our contractual rights under our lease agreements where rent concessions have not
26

yet been granted. Our rent collections and rent relief requests to-date may not be indicative of collections, concessions or requests in future periods.

For the three months ended March 31, 2021, we collected approximately 95%96% of our July 2020 gross rent billings, including 100% from all ofwhich is consistent with our top 15 tenants.2020 collections. Gross rent billings represents the total contractual base rent (including tenant direct-billed parking) and CAM billings before any COVID-19 related rent concessions for the three months ended March 31, 2021. Excluding rent relief provided to certain tenants, across all property types, we collected 96%97% of our July 2020 gross rent billings.billings for the three months ended March 31, 2021. We are continuing to monitor the potential impact of the COVID-19 pandemic, and restrictions intended to prevent its spread, on occupancy, rental rates and rent collections. Although we are and will continue to be actively engaged in rent collection efforts related to uncollected rent for such period, as well as working with certain tenants who have requested rent deferrals, we can provide no assurance that such efforts or our efforts in future periods will be successful, particularly in the event that the COVID-19 pandemic, and restrictions intended to prevent its spread, continue for a prolonged period. During the last few months, several vaccines for COVID-19 received emergency use authorization from the FDA and are currently being administered across the country. Despite growing vaccination rates, we believe COVID-19 will continue to impact the normal operations of our tenants. The continued impact of the pandemic on our and our tenants’ businesses is largely dependent on efforts to stem the spread of COVID-19, including governmental efforts to distribute vaccines and overall vaccination rates in the areas in which we own properties and/or have development projects. Refer to “Part II – Other Information,I, Item IA. Risk Factors” included in thisour annual report on Form 10-K for the year ended December 31, 2020 for additional information about the potential impact of the COVID-19 pandemic, and restrictions intended to prevent its spread, on our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to pay dividends and distributions to security holders.

Factors That May Influence Future Results of Operations

Development Program

We believe that a portion of our long-term future growth will continue to come from the completion of our in-process development projects and, subject to market conditions, executing on our future development pipeline, including expanding entitlements. Over the past several years, we increased our focus on development opportunities and expanded our future development pipeline through targeted acquisitions of development opportunities on the West Coast.

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

The global impact of the COVID-19 pandemic has been rapidly evolving and, as cases of the illness caused by the virus have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines and restrictions on travel. In addition, all the states where we own properties and/or have development projects (i.e., California and Washington), have reacted to the COVID-19 pandemic by instituting quarantines, restrictions on travel, “shelter in place” rules, density limitations, social distancing measures, restrictions on types of business that may continue to operate and/or restrictions on types of construction projects that may continue, although, in certain cases, exceptions are available for essential retail, research and laboratory activities, essential building services, such as cleaning and maintenance, and certain essential construction projects. OurConsistent with 2020, our development portfolio was largely unaffected by the COVID-19 pandemic during the sixthree months ended June 30, 2020;March 31, 2021; however, the COVID-19 pandemic, and future restrictions intended to prevent its spread if case rates surge again, may cause delays or increase costs associated with building materials or construction services necessary for construction which could adversely impact our ability to continue or complete construction as planned, on budget or at all for our development projects, and may delay the start of construction on our future development pipeline projects. Refer to “Part II – Other Information,I, Item IA. Risk Factors” included in thisour annual report on Form 10-K for the year ended December 31, 2020 for additional information about the potential impact of the COVID-19 pandemic, and restrictions intended to prevent its spread, on our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to pay dividends and distributions to security holders.


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Stabilized Development Projects

During the sixthree months ended June 30, 2020,March 31, 2021, we completed and added the following projectsproject to our stabilized portfolio:

•9455 Towne Centre Drive, University Towne Center, San Diego, California. In March 2019, we commenced construction on this project, which totals approximately160,444square feet of office space at a total estimated investment of $95.0 million. The Exchange on 16th, Mission Bay, San Francisco, California.project is 100% leased to a Fortune 50 publicly traded company. We completed construction and commenced revenue recognition during the three months ended March 31, 2021.

In-Process Development Projects - Tenant Improvement

As of March 31, 2021, the following projects were in the tenant improvement phase:

•333 Dexter, South Lake Union, Seattle, Washington. We commenced construction on this project in June 2015.2017. This project totalsencompasses approximately 750,370 gross rentable square feet consisting of 738,081635,000 square feet of office space and 12,289 square feet of retail space at a total estimated investment of $585.0 million. The office space in$410.0 million and 100% of the project is 100% leased to Dropbox, Inc. Wea Fortune 50 publicly traded company. In June 2020, we completed construction and commenced revenue recognition on the first two phases comprising approximately 82% of the project in 2019 and on the final phase of the project, during the three months ended March 31, 2020.

One Paseo (Retail) - Del Mar, San Diego, California. We commenced construction on the retail component of this mixed-use project in December 2016, which is comprised ofrepresenting approximately 95,871 square feet of retail space with a total estimated investment of $100.0 million. At June 30, 2020, the retail space49% of the project was 100% leased and 90% occupied.

Completed Residential Development Projects

As of June 30, 2020, we had completedproject. The remaining two of the three phases of the following residential development project:

One Paseo (Residential Phases I & II) - Del Mar, San Diego, California. We commenced construction on Phases I and II of the residential component of this mixed-use projectare currently expected to reach stabilization in December 2016 which are comprised of 237 and 225 residential units, respectively. We completed the first phase during the third quarter of 2019 and the second phase during the first quarterhalf of 2020. The total estimated investment for these phases of the residential component of the project is approximately $290.0 million. As of June 30, 2020, 68% of the Phase I units were leased and 21% of the Phase II units were leased.2022.

In-Process Development Projects - Tenant Improvement

As of June 30, 2020, the following projects were in the tenant improvement phase:

Netflix // On Vine, Hollywood, California. We commenced construction on the office component of this mixed-use project in January 2018, which includes the project’s overall infrastructure and site work and approximately 355,000 square feet of office space for a total estimated investment of $300.0 million. The office space of this project is 100% leased to Netflix, Inc. We currently expect this project to stabilize in the first quarter of 2021.

•
333 Dexter, South Lake Union, Seattle, Washington. We commenced construction on this project in June 2017. This project encompasses approximately 635,000 square feet of office space at a total estimated investment of $410.0 million and 100% of the project is leased to a Fortune 50 publicly traded company. During the three months ended June 30, 2020, we completed construction and commenced revenue recognition on the first phase of the project, representing approximately 49% of the project. The remaining two phases are currently expected to stabilize in the second halves of 2021 and 2022.

One Paseo (Office) -, Del Mar, San Diego, California. We commenced construction on the office component of this project in December 2018, which encompasses 285,000 square feet of office space at a total estimated investment of $205.0 million. At June 30, 2020,March 31, 2021, the office component of the project was 91%93% leased. During the three months ended June 30, 2020, weWe completed construction and commenced revenue recognition on 22,000 square feet, representing approximately 8% of the project. In Julyin June 2020 we commenced revenue recognition on an additional 36,000 square feet, bringing the total revenue commenced on this project to approximately 20%and as of the date of his report.this report, we have commenced revenue recognition on approximately 87% of the project. We currently expect the project to stabilizereach stabilization in the secondthird quarter of 2021.

In-Process Development Projects - Under Construction

As of June 30, 2020, we had five projects in our in-process development pipeline that were under construction:

•Kilroy Oyster Point (Phase I)1), South San Francisco, California. In March 2019, we commenced construction on Phase I1 of this 39-acre life science campus situated on the waterfront in South San Francisco. This first phase encompasses approximately 656,000 square feet of office space at a total estimated investment of $570.0 million and is 100% leased to two tenants. We currently expect this project to stabilizereach stabilization in the fourth quarter of 2021.


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In-Process Development Projects - Under Construction
9455 Towne Centre Drive, University Towne Center, San Diego, California. In
As of March 2019,31, 2021, we commenced construction on this project which totals approximately 160,000 square feet of office space at a total estimated investment of $110.0 million. The project is 100% leased to a Fortune 50 publicly traded company. We currently expect this project to stabilizehad two projects in the first quarter of 2021.our in-process development pipeline that were under construction:

Living // On Vine,•Jardine, Hollywood, California. We commenced construction on the residential component of this project in December 2018, which encompasses 193 residential units at a total estimated investment of $195.0$185.0 million. We currently expect the residential component to be completed construction on this project in the first quarter ofApril 2021.

•
One Paseo (Residential Phase III) - Del Mar, San Diego, California. We commenced construction on Phase III of the residential component of this mixed-use project in December 2016, which is comprised of 146 residential units. The total estimated investment for Phase III of the residential component of the project is approximately$100.0 million. Phase III was completed and delivered in July 2020.

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


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Future Development Pipeline

As of June 30, 2020,March 31, 2021, our future development pipeline included fivesix future projects located in Greater Seattle, the San Francisco Bay Area and San Diego County with an aggregate cost basis of approximately $1.0$1.1 billion at which we believe we could develop more than 6.0 million rentable square feet for a total estimated investment of approximately $5.0 billion to $7.0 billion, depending on successfully obtaining entitlements and market conditions.

The following table sets forth information about our future development pipeline.

Future Development Pipeline Location 
Approx. Developable Square Feet (1)
 
Total Costs
as of 6/30/2020
($ in millions) (2)
Future Development PipelineLocation
Approx. Developable Square Feet (1)
Total Costs
as of 3/31/2021
($ in millions) (2)
  
San Diego County  San Diego County
Santa Fe Summit – Phases II and III 56 Corridor 600,000 - 650,000 $81.6
1335 Broadway & 901 Park Boulevard East Village TBD 46.6
Santa Fe Summit – Phases 2 and 3Santa Fe Summit – Phases 2 and 356 Corridor600,000 - 650,000$81.6 
Kilroy East VillageKilroy East VillageEast VillageTBD48.9 
9514 Towne Centre Drive9514 Towne Centre DriveUniversity Towne CenterTBD6.4
San Francisco Bay Area  San Francisco Bay Area
Kilroy Oyster Point - Phases II - IV South San Francisco 1,750,000 - 1,900,000 331.3
Kilroy Oyster Point - Phases 2 - 4Kilroy Oyster Point - Phases 2 - 4South San Francisco1,750,000 - 1,900,000367.4 
Flower Mart SOMA 2,300,000 418.7
Flower MartSOMA2,300,000440.8 
Greater Seattle  Greater Seattle
SIX0 - Office & Residential Seattle CBD TBD 141.8
SIX0 - Office & ResidentialSeattle CBDTBD147.1 
TOTAL: 
 $1,020.0
TOTAL:$1,092.2 
________________________
(1)The developable square feet and scope of projects could change materially from estimated data provided due to one or more of the following: any significant changes in the economy, market conditions, our markets, tenant requirements and demands, construction costs, new supply, regulatory and entitlement processes or project design.
(2)Represents cash paid and costs incurred, including accrued liabilities in accordance with GAAP, as of June 30, 2020.
(1)The developable square feet and scope of projects could change materially from estimated data provided due to one or more of the following: any significant changes in the economy, market conditions, our markets, tenant requirements and demands, construction costs, new supply, regulatory and entitlement processes or project design.
(2)Represents cash paid and costs incurred, including accrued liabilities in accordance with GAAP, as of March 31, 2021.

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 six months ended June 30,March 31, 2021 and 2020, we capitalized interest on in-process development projects and future development pipeline projects with an average aggregate cost basis of approximately $2.1$1.7 billion and $2.2 billion, respectively, as it was determined these projects qualified for interest and other carrying cost capitalization under GAAP. During the three and six months ended June 30, 2019, we capitalized interest on in-process development projects and future development pipeline projects with an average aggregate cost basis of approximately $2.0 billion and $1.9 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 activities, such projects may potentially no longer qualify for capitalization of interest or other carrying costs. However, a cessation of development 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. For the three and six months ended June 30,March 31, 2021 and 2020, we capitalized $20.5$16.9 million and $41.9$21.4 million, respectively, of interest to our qualifying development projects. For the three and six months ended June 30, 2019, we capitalized $20.9 millionMarch 31, 2021 and $40.3 million, respectively, of interest to our qualifying development projects. For the three and six months ended June 30, 2020, we capitalized $6.2$5.5 million and $11.3 million, respectively, of internal

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costs to our qualifying development projects. For the three and six months ended June 30, 2019, we capitalized $6.3 million and $12.9$5.1 million, respectively, of internal costs to our qualifying development projects.

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.

In connection with our capital recycling strategy, during the three months ended March 31, 2021, we completed the sale of one operating property in San Francisco, California to an unaffiliated third party for gross proceeds of $1.08 billion, or approximately $1,440 per square foot. The timing of any potential future disposition or strategic venture transactions will depend on market conditions and other factors, including but not limited to our capital needs, the availability of financing for potential buyers (which has been and may continue to be constrained for some potential buyers due to the ongoing COVID-19 pandemic’s impact on economic and market conditions, including the financial markets), and our ability to defer some or all of the taxable gains on the sales. We cannot assure that we will dispose of any additional properties, enter into any additional strategic ventures, or that we will be able to identify and complete the acquisition of a suitable replacement property to effect a Section 1031 Exchange or be able to use other tax deferred structures in connection with our strategy. See the “Liquidity and Capital Resources of the Operating Partnership – Liquidity Sources” section for further information.

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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.  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 program and selectively evaluate opportunities that either add immediate Net Operating Income to our portfolio or play a strategic role in our future growth.

In 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 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.
Incentive Compensation. Our Executive Compensation Committee determines compensation, including cash bonuses and equity incentives, for our executive officers, as defined in Rule 16 under the Exchange Act. For 2020,2021, 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 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, forfeitures and other factors. Consequently, we cannot predict the amounts that will be recorded in future periods related to such incentive compensation.

As of June 30, 2020,March 31, 2021, there was approximately $52.1$47.2 million of 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 of 1.91.6 years. The ultimate 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 $52.1$47.2 million of unrecognized compensation cost does not reflect the future compensation cost for any potential share-based awards that may be issued subsequent to June 30, 2020. 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.March 31, 2021. For additional information regarding our equity incentive awards, see Note 78 “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 six months ended June 30, 2020.March 31, 2021.

For Leases Commenced
1st & 2nd Generation (1)(2)
2nd Generation (1)(2)
Number of Leases (3)
Rentable Square Feet (3)
Retention Rates (4)
TI/LC per
Sq. Ft. (5)
TI/LC per Sq. Ft. / Year
Changes in
Rents (6)(7)
Changes in
Cash Rents (8)
Weighted Average Lease Term (in months)
NewRenewalNewRenewal
Three Months Ended
March 31, 2021		12 13 455,753 140,700 41.7 %$79.80 $11.13 56.8 %33.7 %86 
 
1st & 2nd Generation (1)(2)
 
2nd Generation (1)(2)
 
Number of Leases (3)
 
Rentable Square Feet (3)
 
Retention Rates (4)
 
TI/LC per
Sq. Ft. (5)
 TI/LC per Sq. Ft. / Year 
Changes in
Rents (6)(7)
 
Changes in
Cash Rents (8)
 
Weighted Average Lease Term (in months) 
 New Renewal New Renewal  
Three Months Ended
June 30, 2020		13
 9
 111,968
 233,263
 50.1% $61.16
 $10.05
 37.2% 15.4% 73
Six Months Ended
June 30, 2020		23
 18
 159,894
 323,330
 40.4% $54.49
 $8.38
 36.4% 16.6% 78

For Leases Executed (9)
 
1st & 2nd Generation (1)(2)
 
2nd Generation (1)(2)
 
Number of Leases (3)
 
Rentable Square Feet (3)
 
TI/LC per Sq. Ft. (5)
 TI/LC per Sq. Ft. / Year 
Changes in
Rents (6)(7)
 
Changes in
Cash Rents (8)
 
Weighted Average Lease Term
(in months)
 New Renewal New Renewal    
Three Months Ended
June 30, 2020		5
 9
 53,214
 233,263
 $54.10
 $9.02
 30.0% 10.7% 72
Six Months Ended
June 30, 2020		12
 18
 184,875
 323,330
 $56.72
 $8.62

36.9% 18.6% 79
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, 2021		9 13 65,410 140,700 $14.90 $4.83 15.4 %4.9 %37 
________________________
(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. Excludes leases for which the space was vacant longer than one year or vacant when the property was acquired.
(7)
Excludes commenced leases of approximately 48,603
(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. Excludes leases for which the space was vacant longer than one year or vacant when the property was acquired.
(7)Excludes commenced and executed leases of approximately 167,737 and 1,866 rentable square feet, respectively, for the three months ended March 31, 2021, for which the space was vacant longer than one year or being leased for the first time. Space vacant for more than one year is excluded from our change in rents calculations to provide a more meaningful market comparison.
(8)Calculated as the change between stated rents for new/renewed leases and the expiring stated rents for the same space. Excludes leases for which the space was vacant longer than one year or vacant when the property was acquired.
(9)During the three months ended March 31, 2021, 6 new leases totaling 55,795 rentable square feet were signed but not commenced as of March 31, 2021.

 rentable square feet for the three months ended June 30, 2020 and commenced and executed leases of approximately 87,355 and 70,868 rentable square feet, respectively, for the six months ended June 30, 2020, for which the space was vacant longer than one year or being leased for the first time. Space vacant for more than one year is excluded from our change in rents calculations to provide a more meaningful market comparison.
(8)Calculated as the change between stated rents for new/renewed leases and the expiring stated rents for the same space. Excludes leases for which the space was vacant longer than one year or vacant when the property was acquired.
(9)During the three months ended June 30, 2020, 4 new leases totaling 51,726 square feet were signed but not commenced as of June 30, 2020. For the six months ended June 30, 2020, 11 new leases totaling 178,626 square feet were signed but not commenced as of June 30, 2020.

Our rental rates and occupancy are impacted by general economic conditions, including the pace of regional economic growth, access to capital, and potentially the current COVID-19 pandemic and restrictions intended to prevent its spread. 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. In addition, due to uncertaintythe low level of current market eventsrecent transaction volume as a result of the COVID-19 pandemic, and the impact it has had on recent transaction volume in our markets, we are currently unable to provide meaningful information on the weighted average cash rental rates for our total stabilized portfolio compared to current market rates at June 30, 2020.March 31, 2021. In addition, it is possible that the COVID-19 pandemic may have an adverse impact on our ability to renew leases or re-lease available space in our properties on favorable terms or at all in the future, including as a result of a deterioration in the economic and market conditions due to restrictions intended to prevent the spread of COVID-19. As these restrictions began to be lifted during the three months ended March 31, 2021, we saw an increase in prospective tenant tours and inquiries. 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 and the economic uncertainty caused by the COVID-19 pandemic has impacted the timing and volume of leasing and may continue to do so in the future. 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 tables set forth certain information regarding our lease expirations for our stabilized portfolio for the remainder of 20202021 and the next five years and by region for the remainder of 20202021 and in 2021.2022.

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 2021 (4)
49 457,807 3.6 %$20,688 3.1 %$45.19 
2022 (4)
74 811,278 6.4 %34,299 5.1 %42.28 
202378 1,203,098 9.5 %63,926 9.5 %53.13 
202458 944,681 7.5 %45,640 6.8 %48.31 
202554 735,835 5.8 %36,545 5.4 %49.66 
202640 1,663,226 13.1 %76,411 11.3 %45.94 
Total353 5,815,925 45.9 %$277,509 41.2 %$47.72 
Year of Lease Expiration 
Number of
Expiring
Leases
 Total Square Feet % of Total Leased Sq. Ft. 
Annualized Base Rent (2)(3)
 
% of Total Annualized Base Rent (2)
 
Annualized Base Rent per Sq. Ft. (2)
        (in thousands)    
Remainder of 2020 
 35
 395,942
 3.1% $17,080
 2.5% $43.14
2021 78
 764,334
 5.8% 32,319
 4.6% 42.28
2022 65
 749,808
 5.8% 32,351
 4.7% 43.15
2023 81
 1,299,381
 10.0% 68,853
 9.9% 52.99
2024 58
 945,844
 7.3% 46,338
 6.6% 48.99
2025 53
 663,871
 5.1% 32,304
 4.6% 48.66
Total 370
 4,819,180
 37.1% $229,245
 32.9% $47.57


Year Region 
# of
Expiring Leases
 
Total
Square Feet
 
% of Total
Leased Sq. Ft.
 
Annualized
Base Rent (2)(3)
 
% of Total
Annualized
Base Rent (2)
 
Annualized Rent
per Sq. Ft. (2)
2020 Greater Los Angeles 22
 243,813
 1.9% $9,465
 1.4% $38.82
 San Diego 7
 61,044
 0.5% 2,340
 0.3% 38.33
 San Francisco Bay Area 5
 68,651
 0.5% 4,545
 0.7% 66.20
 Greater Seattle 1
 22,434
 0.2% 730
 0.1% 32.54
 Total 35
 395,942
 3.1% $17,080
 2.5% $43.14
               
2021 Greater Los Angeles 49
 330,964
 2.5% $13,084
 1.8% $39.53
 San Diego 15
 187,468
 1.4% 6,795
 1.0% 36.25
 San Francisco Bay Area 10
 234,125
 1.8% 11,947
 1.7% 51.03
 Greater Seattle 4
 11,777
 0.1% 493
 0.1% 41.86
 Total 78
 764,334
 5.8% $32,319
 4.6% $42.28
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)
2021 (4)
Greater Los Angeles30 178,787 1.4 %$7,212 1.1 %$40.34 
San Diego County10 47,573 0.4 %1,858 0.3 %39.06 
San Francisco Bay Area7 227,480 1.8 %11,466 1.7 %50.40 
Greater Seattle2 3,967 — %152 — %38.32 
Total49 457,807 3.6 %$20,688 3.1 %$45.19 
2022 (4)
Greater Los Angeles53 490,605 3.9 %$21,473 3.2 %$43.77 
San Diego County8 205,700 1.6 %7,212 1.0 %35.06 
San Francisco Bay Area5 50,108 0.4 %3,180 0.5 %63.46 
Greater Seattle8 64,865 0.5 %2,434 0.4 %37.52 
Total74 811,278 6.4 %$34,299 5.1 %$42.28 
________________________ 
(1)For leases that have been renewed early with existing tenants, the expiration date and annualized base rent information presented takes into consideration the renewed lease terms. Excludes leases not commenced as of June 30, 2020, space leased under month-to-month leases, storage leases, vacant space and future lease renewal options not executed as of June 30, 2020.
(2)Annualized base rent includes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization of deferred revenue related tenant-funded tenant improvements, amortization of above/below market rents, amortization for lease incentives due under existing leases and expense reimbursement revenue. Additionally, the underlying leases contain various expense structures including full service gross, modified gross and triple net. Percentages represent percentage of total portfolio annualized contractual base rental revenue. For additional information on tenant improvement and leasing commission costs incurred by the Company for the current reporting period, please see further discussion under the caption “Information on Leases Commenced and Executed.”
(3)Includes 100% of annualized base rent of consolidated property partnerships.
(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, 2021, space leased under month-to-month leases, storage leases, vacant space and future lease renewal options not executed as of March 31, 2021.
(2)Annualized base rent includes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization of deferred revenue related tenant-funded tenant improvements, amortization of above/below market rents, amortization for lease incentives due under existing leases and expense reimbursement revenue. Additionally, the underlying leases contain various expense structures including full service gross, modified gross and triple net. Percentages represent percentage of total portfolio annualized contractual base rental revenue. For additional information on tenant improvement and leasing commission costs incurred by the Company for the current reporting period, please see further discussion under the caption “Information on Leases Commenced and Executed.”
(3)Includes 100% of annualized base rent of consolidated property partnerships.
(4)Adjusting for leases executed as of March 31, 2021 but not yet commenced, the 2021 and 2022 expirations would be reduced by 78,759 and 41,379 square feet, respectively.

In addition to the 1.11.2 million rentable square feet, or 7.7%8.5%, of currently available space in our stabilized portfolio, leases representing approximately 3.1%3.6% and 5.8%6.4% of the occupied square footage of our stabilized portfolio are scheduled to expire during the remainder of 20202021 and in 2021,2022, respectively. The leases scheduled to expire during the remainder of 20202021 and in 20212022 represent approximately 1.21.3 million rentable square feet or 7.1%8.2% of our total annualized base rental revenue. Adjusting for leases executed as of June 30, 2020March 31, 2021 but not yet commenced, the remaining 20202021 and 20212022 expirations would be 290,226379,048 and 587,282769,899 square feet, respectively.
Sublease Space.  Of our leased space as of June 30, 2020,March 31, 2021, approximately 849,3071,537,862 rentable square feet, or 5.9%10.9% of the square footage in our stabilized portfolio, was available for sublease, primarily in the San Francisco Bay Area and Greater Seattle regions. Of the 5.9%10.9% of available sublease space in our stabilized portfolio as of June 30, 2020,March 31, 2021, approximately 2.7%7.7% was vacant space, and the remaining 3.2% was occupied. Of the approximately 849,3071,537,862 rentable square feet available for sublease as of June 30, 2020,March 31, 2021, approximately 17,13711,450 rentable square feet representing two4 leases are scheduled to expire in 2020,2021, and approximately 15,90764,670 rentable square feet representing five11 leases are scheduled to expire in 2021.2022.


35
32


Stabilized Portfolio Information

As of June 30, 2020,March 31, 2021, our stabilized portfolio was comprised of 114117 office properties encompassing an aggregate of approximately 14.314.0 million rentable square feet and 200808 residential units at our residential tower in Hollywood, California.units. Our stabilized portfolio includes all of our properties with the exception of development and redevelopment properties currently committed for construction, under construction, or in the tenant improvement phase, undeveloped land recently completed residential properties not yet stabilized and real estate assets held for sale. We define redevelopment properties as those properties for which we expect to spend significant development and construction costs on the existing or acquired buildings pursuant to a formal plan, the intended result of which is a higher economic return on the property. We define properties in the tenant improvement phase as office and life science properties that we are developing or redeveloping where the project has reached cold shell condition and is ready for tenant improvements, which may require additional major base building construction before being placed in service. Projects in the tenant improvement phase are added to our stabilized portfolio once the project reaches the earlier of 95% occupancy or one year from the date of the cessation of major base building construction activities. Costs capitalized to construction in progress for development and redevelopment properties are transferred to land and improvements, buildings and improvements, and deferred leasing costs on our consolidated balance sheets as the historical cost of the property as the projects or phases of projects are placed in service.

We did not have any redevelopment or held for sale properties at June 30, 2020.March 31, 2021. Our stabilized portfolio also excludes our future development pipeline, which as of June 30, 2020March 31, 2021 was comprised of fivesix potential development sites, representing approximately 6163 gross acres of undeveloped land on which we believe we have the potential to develop more than 6.0 million rentable square feet, depending upon economic conditions.
As of June 30, 2020,March 31, 2021, the following properties were excluded from our stabilized portfolio:
Number of
Properties/Projects
Estimated Rentable
Square Feet (1)
Number of
Properties/Projects
 
Estimated Rentable
Square Feet (1) / Units
In-process development projects - tenant improvement3 1,275,000
In-process development projects - tenant improvement31,576,000 
In-process development projects - under construction (2)
5 1,016,000
In-process development projects - under construction (2)
2200,000 
Completed residential development project (3)
2 462 units
________________________
(1)Estimated rentable square feet upon completion.
(2)In addition to the estimated office and life science rentable square feet noted above, development projects under construction also include 339 residential units.
(3)Represents recently completed residential phases I and II at our mixed-use development in San Diego, California that are not yet stabilized.
(1)Estimated rentable square feet upon completion.
(2)In addition to the estimated office and life science rentable square feet noted above, development projects under construction also include 193 residential units.

The following table reconciles the changes in the rentable square feet in our stabilized office portfolio of operating properties from June 30, 2019March 31, 2020 to June 30, 2020:March 31, 2021:
Number of
Buildings		Rentable
Square Feet
Total as of March 31, 2020Total as of March 31, 2020114 14,323,572 
Number of
Buildings
 
Rentable
Square Feet
Total as of June 30, 201994
 13,546,615
Acquisitions19
 151,908
Completed development properties placed in-service2
 846,241
Completed development properties placed in-service5 521,832 
Dispositions(1) (271,556)Dispositions(2)(837,517)
Remeasurement—
 54,664
Remeasurement— 41,698 
Total as of June 30, 2020 (1)
114
 14,327,872
Total as of March 31, 2021 (1)
Total as of March 31, 2021 (1)
117 14,049,585 
________________________
(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).
(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) 
3/31/202112/31/20209/30/2020
Greater Los Angeles55 4,403,815 87.5 %88.1 %90.8 %
San Diego County23 2,316,258 87.4 %85.2 %86.7 %
San Francisco Bay Area31 5,527,722 94.3 %94.5 %94.2 %
Greater Seattle8 1,801,790 97.8 %94.7 %94.7 %
Total Stabilized Office Portfolio117 14,049,585 91.5 %91.2 %92.2 %

33
Region Number of
Buildings		 Rentable Square Feet 
Occupancy at (1) 
 6/30/2020 3/31/2020 12/31/2019
Greater Los Angeles 51
 4,029,919
 91.2% 94.0% 95.2%
San Diego County 22
 2,146,253
 87.4% 88.3% 89.7%
San Francisco Bay Area 33
 6,349,910
 93.7% 94.3% 95.0%
Greater Seattle 8
 1,801,790
 95.9% 95.5% 97.7%
Total Stabilized Office Portfolio 114
 14,327,872
 92.3% 93.5% 94.6%


36

Average OccupancyAverage Occupancy
Three Months Ended June 30, Six Months Ended June 30,Three Months Ended March 31,
2020 2019 2020 201920212020
Stabilized Office Portfolio (1)
92.8% 93.5% 93.2% 93.3%
Stabilized Office Portfolio (1)
91.5 %93.7 %
Same Store Portfolio (2)
92.5% 93.9% 93.1% 93.6%
Same Store Portfolio (2)
90.8 %93.5 %
Residential Portfolio (3)
85.0% 76.5% 89.3% 73.4%
Residential Portfolio (3)
69.1 %93.5 %
________________________
(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, 2019 and still owned and stabilized as of June 30, 2020 and exclude our residential tower. See discussion under “Results of Operations” for additional information.
(3)Our residential portfolio consists of our 200-unit residential tower located in Hollywood, California and excludes 462 recently completed residential units that are not yet stabilized.
(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. Represents physical and economic occupancy.
(2)Occupancy percentages reported are based on office properties owned and stabilized as of January 1, 2020 and still owned and stabilized as of March 31, 2021 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 located 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 15 largest tenants based upon annualized base rental revenues, as defined below, as of June 30, 2020. We have collected July 2020 contractual rents from all of our top 15 tenants.March 31, 2021.
Tenant Name Region 
Annualized Base Rental Revenue (1) (2)
 Rentable Square Feet Percentage of Total Annualized Base Rental Revenue Percentage of Total Rentable Square Feet Year(s) of Lease ExpirationTenant 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)       (in thousands)
Dropbox, Inc. San Francisco Bay Area $55,998
 738,081
 7.9% 5.0% 2033
GM Cruise, LLC San Francisco Bay Area 36,337
 374,618
 5.1% 2.6% 2031GM Cruise, LLCSan Francisco Bay Area$36,337 374,618 5.3 %2.6 %2031
LinkedIn Corporation / Microsoft Corporation San Francisco Bay Area 29,752
 663,460
 4.2% 4.5% 2024 / 2026LinkedIn Corporation / Microsoft CorporationSan Francisco Bay Area29,752 663,460 4.3 %4.6 %2024 / 2026
Adobe Systems, Inc. San Francisco Bay Area / Greater Seattle 27,897
 513,111
 3.9% 3.5% 2027 / 2031Adobe Systems, Inc.San Francisco Bay Area / Greater Seattle27,897 513,111 4.0 %3.6 %2027 / 2031
salesforce.com, inc. San Francisco Bay Area 24,076
 451,763
 3.4% 3.1% 2031 / 2032salesforce.com, inc.San Francisco Bay Area24,076 451,763 3.5 %3.1 %2031 / 2032
DIRECTV, LLC Greater Los Angeles 23,152
 684,411
 3.3% 4.7% 2027
DIRECTV, LLC (3)
DIRECTV, LLC (3)
Greater Los Angeles23,152 684,411 3.4 %4.8 %2027
Fortune 50 Publicly-Traded CompanyFortune 50 Publicly-Traded CompanyGreater Seattle / San Diego County23,060 472,427 3.3 %3.3 %2032 / 2033
Box, Inc. San Francisco Bay Area 22,441
 371,792
 3.2% 2.5% 2021 / 2028Box, Inc.San Francisco Bay Area22,441 372,673 3.3 %2.6 %2021 / 2028
Okta, Inc. San Francisco Bay Area 18,263
 218,100
 2.6% 1.5% 2028Okta, Inc.San Francisco Bay Area22,387 273,371 3.2 %1.9 %2028
Netflix, Inc.Netflix, Inc.Greater Los Angeles21,959 362,868 3.2 %2.5 %2021 / 2032
DoorDash, Inc.DoorDash, Inc.San Francisco Bay Area18,650 184,968 2.7 %1.3 %2032
Synopsys, Inc.Synopsys, Inc.San Francisco Bay Area15,492 342,891 2.2 %2.4 %2030
Riot Games, Inc. Greater Los Angeles 15,554
 251,509
 2.2% 1.7% 2020 / 2023 / 2024Riot Games, Inc.Greater Los Angeles15,152 243,051 2.2 %1.7 %2023 / 2024
Synopsys, Inc. San Francisco Bay Area 15,492
 340,913
 2.2% 2.3% 2030
Fortune 50 Publicly-Traded Company (3)
 Greater Seattle 15,355
 311,983
 2.2% 2.1% 2033
Amazon.comAmazon.comGreater Seattle14,760 348,880 2.1 %2.4 %2023 / 2030
Viacom International, Inc. Greater Los Angeles 13,718
 211,343
 1.9% 1.4% 2028Viacom International, Inc.Greater Los Angeles13,718 211,343 2.0 %1.5 %2028
DoorDash, Inc. San Francisco Bay Area 13,531
 135,137
 1.9% 0.9% 2032
Amazon.com Greater Seattle 12,397
 277,399
 1.7% 1.9% 2030
Nektar Therapeutics, Inc. San Francisco Bay Area 12,297
 135,350
 1.7% 0.9% 2030Nektar Therapeutics, Inc.San Francisco Bay Area12,297 135,350 1.8 %0.9 %2030
Total $336,260
 5,678,970
 47.4% 38.6% Total$321,130 5,635,185 46.5 %39.2 %
________________________
(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 June 30, 2020.
(2)Includes 100% of the annualized base rental revenues of consolidated property partnerships.
(3)In June, the Company commenced GAAP revenue recognition on Phase I of this tenant’s lease at 333 Dexter, which represents approximately 49% of the 635,000 square foot project located in the South Lake Union submarket of Seattle.

(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, 2021.

(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.

37




34


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 and other property income) less consolidated operating expenses (property expenses, real estate taxes 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, 20192020 and still owned and included in the stabilized portfolio as of June 30, 2020,March 31, 2021, including our residential tower in Hollywood, California;

•Development Properties – includes the results generated by certain of our in-process development projects, expenses for certain of our future development project and the results generated by our 462 completed residential units that are not yet stabilized and the following stabilized development properties:
◦One office development project that was added to the stabilized portfolio in the second quarter of 2019;
◦One office development project that was added to the stabilized portfolio in the first quarter of 2020; and
◦One retail development project that was added to the stabilized portfolio in the first quarter of 2020;

◦One office development project that was added to the stabilized portfolio in the fourth quarter of 2020;
Acquisition Properties – includes◦One office development project that was added to the results, fromstabilized portfolio in the datesfirst quarter of acquisition through2021; and
◦608 residential units at our One Paseo mixed-use project in Del Mar, California that were added to the periods presented, forstabilized portfolio in the 19-building creative office campus we acquired during 2019;third quarter of 2020; and

•Disposition Properties– includes the results of the one property disposed of in the second quarter of 2019 and the one property disposed of in the fourth quarter of 2019.2020 and one property disposed of in the first quarter of 2021.

The following table sets forth certain information regarding the property groups within our stabilized office portfolio as of June 30, 2020:March 31, 2021:
Group# of BuildingsRentable
Square Feet
Same Store Properties11113,431,882 
Stabilized Development Properties (1)
6 617,703 
Total Stabilized Portfolio11714,049,585 
________________________
(1)Excludes development projects in the tenant improvement phase, our in-process development projects and future development projects.
35
Group # of Buildings 
Rentable
Square Feet
Same Store Properties 92
 12,935,383
Stabilized Development Properties 3
 1,240,581
Acquisition Properties 19
 151,908
Total Stabilized Portfolio 114
 14,327,872


38

Comparison of the Three Months Ended June 30, 2020March 31, 2021 to the Three Months Ended June 30, 2019

March 31, 2020

The following table summarizes our Net Operating Income, as defined, for our total portfolio for the three months ended June 30, 2020March 31, 2021 and 2020.
 Three Months Ended March 31,Dollar
Change		Percentage
Change
 20212020
 ($ in thousands)
Reconciliation of Net Income Available to Common Stockholders to Net Operating Income, as defined:
Net Income Available to Common Stockholders$497,631 $39,817 $457,814 1,149.8 %
Net income attributable to noncontrolling common units of the Operating Partnership4,886 705 4,181 593.0 %
Net income attributable to noncontrolling interests in consolidated property partnerships4,894 4,896 (2)— %
Net income$507,411 $45,418 $461,993 1,017.2 %
Unallocated expense (income):
General and administrative expenses21,985 19,010 2,975 15.6 %
Leasing costs692 1,456 (764)(52.5)%
Depreciation and amortization75,932 74,370 1,562 2.1 %
Interest income and other net investment (gain) loss(1,373)3,128 (4,501)(143.9)%
Interest expense22,334 14,444 7,890 54.6 %
Gain on sale of depreciable operating property(457,288)— (457,288)100.0 %
Net Operating Income, as defined$169,693 $157,826 $11,867 7.5 %
2019.

 Three Months Ended June 30, 
Dollar
Change
 
Percentage
Change
 2020 2019 
 ($ in thousands)
Reconciliation of Net Income Available to Common Stockholders to Net Operating Income, as defined:      

Net Income Available to Common Stockholders$19,618
 $42,194
 $(22,576) (53.5)%
Net income attributable to noncontrolling common units of the Operating Partnership367
 871
 (504) (57.9)%
Net income attributable to noncontrolling interests in consolidated property partnerships4,367
 4,150
 217
 5.2 %
Net income$24,352
 $47,215
 $(22,863) (48.4)%
Unallocated expense (income):       
General and administrative expenses38,597
 19,857
 18,740
 94.4 %
Leasing costs1,330
 2,650
 (1,320) (49.8)%
Depreciation and amortization80,085
 68,252
 11,833
 17.3 %
Interest income and other net investment gain(2,838) (616) (2,222) 360.7 %
Interest expense15,884
 11,727
 4,157
 35.4 %
Gains on sales of depreciable operating properties—
 (7,169) 7,169
 (100.0)%
Net Operating Income, as defined$157,410
 $141,916
 $15,494
 10.9 %

The following tables summarize our Net Operating Income, as defined, for our total portfolio for the three months ended June 30, 2020March 31, 2021 and 2020.
Three Months Ended March 31,
 20212020
Same StoreDevelop-mentDispositionTotalSame StoreDevelop-mentDispositionTotal
(in thousands)
Operating revenues:
Rental income$192,769 $21,834 $20,053 $234,656 $196,270 $3,416 $18,947 $218,633 
Other property income765 213 12 990 2,263 149 283 2,695 
Total193,534 22,047 20,065 235,646 198,533 3,565 19,230 221,328 
Property and related expenses:
Property expenses33,720 3,090 2,049 38,859 36,211 1,215 1,557 38,983 
Real estate taxes18,822 3,694 2,750 25,266 18,806 908 2,488 22,202 
Ground leases1,828 — — 1,828 2,317 — — 2,317 
Total54,370 6,784 4,799 65,953 57,334 2,123 4,045 63,502 
Net Operating Income, as defined$139,164 $15,263 $15,266 $169,693 $141,199 $1,442 $15,185 $157,826 
2019.

36
 Three Months Ended June 30,
 2020 2019
 Same Store Develop-ment Acquisi-tion Disposi-tion Total Same Store Develop-ment Acquisi-tion Disposi-tion Total
 (in thousands)
Operating revenues:                   
Rental income$182,323
 $32,962
 $3,071
 $—
 $218,356
 $185,711
 $9,169
 $—
 $2,749
 $197,629
Other property income922
 149
 (4) —
 1,067
 2,291
 253
 —
 319
 2,863
Total183,245
 33,111
 3,067
 —
 219,423
 188,002
 9,422
 —
 3,068
 200,492
Property and related expenses:                   
Property expenses32,936
 4,649
 244
 —
 37,829
 36,154
 1,609
 —
 773
 38,536
Real estate taxes17,214
 4,120
 520
 —
 21,854
 17,067
 554
 —
 305
 17,926
Ground leases2,121
 —
 209
 —
 2,330
 2,114
 —
 —
 —
 2,114
Total52,271
 8,769
 973
 —
 62,013
 55,335
 2,163
 —
 1,078
 58,576
Net Operating Income,
as defined
$130,974
 $24,342
 $2,094
 $—
 $157,410
 $132,667
 $7,259
 $—
 $1,990
 $141,916


39

 Three Months Ended June 30, 2020 as compared to the Three Months Ended June 30, 2019
 Same Store Development Acquisition Disposition Total
 Dollar Change Percent Change Dollar Change Percent Change Dollar Change Percent Change Dollar Change Percent Change Dollar Change Percent Change
 ($ in thousands)
Operating revenues:                   
Rental income$(3,388) (1.8)% $23,793
 259.5 % $3,071
 100.0 % $(2,749) (100.0)% $20,727
 10.5 %
Other property income(1,369) (59.8)% (104) (41.1)% (4) (100.0)% (319) (100.0)% (1,796) (62.7)%
Total(4,757) (2.5)% 23,689
 251.4 % 3,067
 100.0 % (3,068) (100.0)% 18,931
 9.4 %
Property and related expenses:                   
Property expenses(3,218) (8.9)% 3,040
 188.9 % 244
 100.0 % (773) (100.0)% (707) (1.8)%
Real estate taxes147
 0.9 % 3,566
 643.7 % 520
 100.0 % (305) (100.0)% 3,928
 21.9 %
Ground leases7
 0.3 % —
 — % 209
 100.0 % —
 — % 216
 10.2 %
Total(3,064) (5.5)% 6,606
 305.4 % 973
 100.0 % (1,078) (100.0)% 3,437
 5.9 %
Net Operating Income,
as defined
$(1,693) (1.3)% $17,083
 235.3 % $2,094
 100.0 % $(1,990) (100.0)% $15,494
 10.9 %

 Three Months Ended March 31, 2021 as compared to the Three Months Ended March 31, 2020
Same StoreDevelopmentDispositionTotal
Dollar ChangePercent ChangeDollar ChangePercent ChangeDollar ChangePercent ChangeDollar ChangePercent Change
 ($ in thousands)
Operating revenues:
Rental income$(3,501)(1.8)%$18,418 539.2 %$1,106 5.8 %$16,023 7.3 %
Other property income(1,498)(66.2)%64 43.0 %(271)(95.8)%(1,705)(63.3)%
Total(4,999)(2.5)%18,482 518.4 %835 4.3 %14,318 6.5 %
Property and related expenses:
Property expenses(2,491)(6.9)%1,875 154.3 %492 31.6 %(124)(0.3)%
Real estate taxes16 0.1 %2,786 306.8 %262 10.5 %3,064 13.8 %
Ground leases(489)(21.1)%— — %— — %(489)(21.1)%
Total(2,964)(5.2)%4,661 219.5 %754 18.6 %2,451 3.9 %
Net Operating Income, as defined$(2,035)(1.4)%$13,821 958.5 %$81 0.5 %$11,867 7.5 %

Net Operating Income increased $15.5$11.9 million, or 10.9%7.5%, for the three months ended June 30, 2020March 31, 2021 as compared to the three months ended June 30, 2019March 31, 2020 resulting from:


•A decrease in Net Operating Income of $1.7$2.0 million attributable to the Same Store Properties, which was driven by the following activity:

•A decrease in rental incometotal operating revenues of $3.4$5.0 million primarily due to:

$3.7 million of reversals of revenue related to the creditworthiness of certain tenants primarily as a result of the COVID-19 pandemic;

$3.0•A net $2.2 million decrease due to an early lease termination fee received in 2019 forresulting from a tenant in the San Francisco Bay Area;

$2.0$4.5 million decrease due to lower occupancy primarily in the Greater Los Angeles San Francisco Bay Area, and San Diego County regions;

$1.6 million decrease in recoveries of recurring expenses related to property taxes, repairs and maintenance, security, janitorial, utilities, parking and various other recurring expenses primarily due to the following:

$0.8 million decrease due to tenants on a cash basis of revenue recognition and abatements given due to the COVID-19 pandemic;

$0.5 million decrease due to lower operating expenses resulting from COVID-19 stay-at-home orders; and

$0.6 million decrease primarily due to new tenants with 2020 base years;

$1.1 million decrease due to lower parking income resulting from a reduction in the number of monthly parking spaces rented as a result of COVID-19 stay-at-home orders;regions partially offset by

$8.1 a $2.3 million increase from new leases and renewals at higher rates primarily in the San Francisco Bay Area and San Diego County regions;

•$7.9 million decrease related to the impact of COVID-19, comprised of:

•$3.7 million decrease due to tenants on a cash basis of revenue recognition and Greater Seattle regions;abatements provided to tenants;

A•$3.5 million decrease in other propertydue to lower parking income, of $1.4which $2.0 million primarily duerelates to a reduction in the number of monthly parking spaces rented as a result of COVID-19 stay-at-home orders and $1.5 million relates to lower transient and special event parking income at a number of properties in the San Francisco Bay Area, Greater Seattle and Greater Los Angeles regions.properties. We expect daily, special event and transient parking to be impacted while restrictions intended to prevent the spread of COVID-19 remain in effect; and

•$0.7 million decrease primarily due to lower reimbursable operating expenses resulting from COVID-19 stay-at-home orders; and

•$0.5 million decrease in the tenant reimbursement component of rental income related to a property tax exemption for one tenant; partially offset by

•$5.6 million increase primarily due to a reduction in revenue during the three months ended March 31, 2020 related to the cumulative impact of transitioning one co-working tenant to a cash basis of revenue recognition; partially offset by

•A decrease in property and related expenses of $3.1$3.0 million primarily due to the following:

40


•$2.82.5 million decrease in reimbursable property expenses including janitorial, utilities, engineering, parking, and various other recurring expenses due toas a result of several tenants implementing work from home policies due to the COVID-19 pandemic. We anticipate lower reimbursable property expenses and corresponding tenant recoveries as a result of lower usage of our buildings by tenants while restrictions intended to prevent the spread of COVID-19 are in effect; and

37

•$0.40.5 million decrease in ground lease expense due to insurance reimbursements received in 2020a reassessment of land value at one ground lease and lower property taxes for expenses incurred in 2019;one ground lease; offset by

•An increase in Net Operating Income of $17.1$13.8 million attributable to the Development Properties driven by the following activity:Properties; and

$23.8 million increase in rental income primarily related to one office development project that was added to the stabilized portfolio in the first quarter of 2020; partially offset by

$6.6 million increase in property and related expenses primarily due to higher property expenses and real estate taxes related to one office development project that was added to the stabilized portfolio in the first quarter of 2020 and ceased capitalization of real estate taxes;

•An increase in Net Operating Income of $2.1 million attributable to the Acquisition Properties; and

A decrease in Net Operating Income of $2.0$0.1 million attributable to the Disposition Properties.

Other Expenses and Income

General and Administrative Expenses

General and administrative expenses increased by approximately $18.7$3.0 million, or 94.4%15.6%, for the three months ended June 30, 2020March 31, 2021 compared to the three months ended June 30, 2019March 31, 2020 primarily due to:

Anto an increase of $18.4 million in severance costs related to the previously announced departure of an executive officer and the departure of certain other employees;

A increase of $1.2$2.4 million related to the mark-to-marketmarket-to-market adjustment offor the Company’s deferred compensation plan, and the resultant impact of reducing compensation expense, which is offset by the lossesgains on the underlying marketable securities which are included in interest income and other net investment gain (loss)gains in the consolidated statements of operations;operations. Additionally, a $1.9 million increase in compensation related expenses primarily attributable to the timing of stock compensation amortization was partially offset by a $1.3 million reduction in professional service fees and general office expenses.

A decrease of $1.0 million primarily due to lower incentive compensation accruals and other related cost cutting measures as a result of COVID-19.

Leasing Costs

Leasing costs decreased by $1.3$0.8 million or 49.8%52.5%, for the three months ended June 30, 2020March 31, 2021 compared to the three months ended June 30, 2019March 31, 2020 primarily due to changes in personnel and a higherlower level of leasing activity during the three months ended June 30, 2019 and changes in personnel.March 31, 2021.

Depreciation and Amortization

Depreciation and amortization increased $11.8$1.6 million, or 17.3%2.1%, for the three months ended June 30, 2020March 31, 2021 compared to the three months ended June 30, 2019March 31, 2020 primarily due to the following:

•An increase of $4.4$0.4 million attributable to the Same Store Properties; and

•An increase of $6.3$5.1 million attributable to the Development Properties; and

An increase of $2.2 million attributable to the Acquisition Properties; partially offset by


41

•A decrease of $1.1$3.9 million attributable to the Disposition Properties.

Interest Expense

The following table sets forth our gross interest expense, including debt discounts and deferred financing cost amortization, and capitalized interest, including capitalized debt discounts and deferred financing cost amortization, for the three months ended June 30, 2020March 31, 2021 and 2020:
Three Months Ended March 31,
 20212020Dollar
Change
Percentage
Change 
 (in thousands)
Gross interest expense$39,242 $35,862 $3,380 9.4 %
Capitalized interest and deferred financing costs(16,908)(21,418)4,510 (21.1)%
Interest expense$22,334 $14,444 $7,890 54.6 %
2019:

 Three Months Ended June 30,    
 2020 2019 
Dollar
Change
 
Percentage
Change 
 (in thousands)    
Gross interest expense$36,400
 $32,607
 $3,793
 11.6 %
Capitalized interest and deferred financing costs(20,516) (20,880) 364
 (1.7)%
Interest expense$15,884
 $11,727
 $4,157
 35.4 %

Gross interest expense, before the effect of capitalized interest and deferred financing costs, increased $3.8$3.4 million, or 11.6%9.4%,for the three months ended June 30, 2020March 31, 2021 as compared to the three months ended June 30, 2019March 31, 2020 primarily due to an increase in the average outstanding debt balancefor the three months ended June 30, 2020.March 31, 2021.


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Capitalized interest and deferred financing costs decreased $0.4$4.5 million, or 1.7%21.1%,for the three months ended June 30, 2020March 31, 2021 compared to the three months ended June 30, 2019March 31, 2020 primarily due to a decrease in the weighted average interest rateaggregate cost basis during the three months ended June 30, 2020.March 31, 2021. During the three months ended June 30,March 31, 2021 and 2020, and 2019, we capitalized interest on in-process development projects and future development pipeline projects with an average aggregate cost basis of approximately $2.1$1.7 billion and $2.0$2.2 billion, respectively. In the event of an extended cessation of development 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 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. Refer to “Part II – Other Information,I, Item IA. Risk Factors” included in thisour annual report on Form 10-K for the year ended December 31, 2020 for additional information about the potential impact of the COVID-19 pandemic, and restrictions intended to prevents its spread, on our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to pay dividends and distributions to security holders.

Net Income Attributable to Noncontrolling Interests in Consolidated Property Partnerships

Net income attributable to noncontrolling interests in consolidated property partnerships increased by $0.2 million or 5.2%remained consistent for the three months ended June 30, 2020March 31, 2021 compared to the three months ended June 30, 2019 primarily due to a new lease at a higher rate at one property held in a property partnership inMarch 31, 2020.The amounts reported for the three months ended June 30,March 31, 2021 and 2020 and 2019 are comprised of the noncontrolling interest'sinterest’s share of net income for 100 First Street Member, LLC (“100 First LLC”) and 303 Second Street Member, LLC (“303 Second LLC”) and the noncontrolling interest's share of net income for Redwood City Partners, LLC (“Redwood LLC”).


39

42

Comparison of the Six Months Ended June 30, 2020 to the Six Months Ended June 30, 2019

The following table summarizes our Net Operating Income, as defined, for our total portfolio for the six months ended June 30, 2020 and 2019.

 Six Months Ended June 30, 
Dollar
Change
 
Percentage
Change
 2020 2019 
 ($ in thousands)
Reconciliation of Net Income Available to Common Stockholders to Net Operating Income, as defined:       
Net Income Available to Common Stockholders$59,435
 $79,097
 $(19,662) (24.9)%
Net income attributable to noncontrolling common units of the Operating Partnership1,072
 1,571
 (499) (31.8)%
Net income attributable to noncontrolling interests in consolidated property partnerships9,263
 8,341
 922
 11.1 %
Net income$69,770
 $89,009
 $(19,239) (21.6)%
Unallocated expense (income):       
General and administrative expenses57,607
 43,198
 14,409
 33.4 %
Leasing Costs2,786
 4,407
 (1,621) (36.8)%
Depreciation and amortization154,455
 134,387
 20,068
 14.9 %
Interest income and other net investment loss (gain)290
 (2,444) 2,734
 (111.9)%
Interest expense30,328
 22,970
 7,358
 32.0 %
Gains on sales of depreciable operating properties—
 (7,169) 7,169
 (100.0)%
Net Operating Income, as defined$315,236
 $284,358
 $30,878
 10.9 %

The following tables summarize our Net Operating Income, as defined, for our total portfolio for the six months ended June 30, 2020 and 2019.

 Six Months Ended June 30,
 2020 2019
 Same Store Develop-ment Acquisi-tion Disposi-tion Total Same Store Develop-ment Acquisi-tion Disposi-tion Total
 (in thousands)
Operating revenues:                   
Rental income$368,737
 $61,390
 $6,862
 $—
 $436,989
 $374,153
 $17,194
 $—
 $5,664
 $397,011
Other property income3,102
 581
 79
 —
 3,762
 4,002
 320
 —
 361
 4,683
Total371,839
 61,971
 6,941
 —
 440,751
 378,155
 17,514
 —
 6,025
 401,694
Property and related expenses:                   
Property expenses67,693
 8,492
 627
 —
 76,812
 72,449
 2,671
 —
 1,565
 76,685
Real estate taxes34,460
 8,538
 1,058
 —
 44,056
 34,177
 1,766
 —
 622
 36,565
Ground leases4,230
 —
 417
 —
 4,647
 4,086
 —
 —
 —
 4,086
Total106,383
 17,030
 2,102
 —
 125,515
 110,712
 4,437
 —
 2,187
 117,336
Net Operating Income,
as defined
$265,456
 $44,941
 $4,839
 $—
 $315,236
 $267,443
 $13,077
 $—
 $3,838
 $284,358


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 Six Months Ended June 30, 2020 as compared to the Six Months Ended June 30, 2019
 Same Store Development Acquisition Disposition Total
 Dollar Change Percent Change Dollar Change Percent Change Dollar Change Percent Change Dollar Change Percent Change Dollar Change Percent Change
 ($ in thousands)
Operating revenues:                   
Rental income$(5,416) (1.4)% $44,196
 257.0% $6,862
 100.0% $(5,664) (100.0)% $39,978
 10.1 %
Other property income(900) (22.5)% 261
 81.6% 79
 100.0% (361) (100.0)% (921) (19.7)%
Total(6,316) (1.7)% 44,457
 253.8% 6,941
 100.0% (6,025) (100.0)% 39,057
 9.7 %
Property and related expenses:                   
Property expenses(4,756) (6.6)% 5,821
 217.9% 627
 100.0% (1,565) (100.0)% 127
 0.2 %
Real estate taxes283
 0.8 % 6,772
 383.5% 1,058
 100.0% (622) (100.0)% 7,491
 20.5 %
Ground leases144
 3.5 % —
 —% 417
 100.0% —
 — % 561
 13.7 %
Total(4,329) (3.9)% 12,593
 283.8% 2,102
 100.0% (2,187) (100.0)% 8,179
 7.0 %
Net Operating Income,
as defined
$(1,987) (0.7)% $31,864
 243.7% $4,839
 100.0% $(3,838) (100.0)% $30,878
 10.9 %

Net Operating Income increased $30.9 million, or 10.9%, for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 primarily resulting from:

A decrease of $2.0 million attributable to the Same Store Properties primarily resulting from:

A decrease in rental income of $5.4 million primarily due to:

$8.6 million of reversals of revenue related to the creditworthiness of certain tenants primarily as a result of the COVID-19 pandemic;

$4.2 million net decrease primarily related to the improved credit quality of a tenant in 2019 for which the Company recorded a bad debt reserve in 2018;

$6.2 million decrease primarily due to an early lease termination fee received in 2019 for a tenant in the San Francisco Bay Area;

$0.9 million decrease due to lower parking income resulting from a reduction in the number of monthly parking spaces rented as a result of COVID-19 stay-at-home orders;

$3.1 million decrease in the tenant reimbursement component of rental income due to the following:

$2.5 million decrease due to a tenant in the San Francisco Bay Area’s change from a triple net lease to a modified net lease, resulting in payment of expenses directly to vendors, and new tenants with 2020 base years; and

$0.6 million decrease due to abatements provided to tenants and lower operating expenses as a result of the COVID-19 pandemic; partially offset by

$17.6 million increase from new leases and renewals at higher rates at various properties across the portfolio;

A decrease in other property income of $0.9 million primarily due to lower transient and special event parking income at a number of properties in the San Francisco Bay Area, Greater Seattle and Greater Los Angeles regions. We expect daily, special event and transient parking to be impacted while restrictions intended to prevent the spread of COVID-19 are in effect;

A decrease in property and related expenses of $4.3 million primarily due to the following:

$4.8 million decrease in property expenses primarily due to the following:


44

$4.4 million decrease in reimbursable expenses such as utilities, parking, janitorial, security, and various other recurring expenses due to several tenants implementing work from home policies due to the COVID-19 pandemic. We anticipate lower reimbursable property expenses and corresponding tenant recoveries as a result of lower usage of our buildings by tenants in while restrictions intended to prevent the spread of COVID-19 are in effect;

$0.4 million decrease primarily due to insurance reimbursements received in 2020 for expenses incurred in 2019;

An increase of $31.9 million attributable to the Development Properties; and

An increase of $4.8 million attributable to the Acquisition Properties; partially offset by

A decrease of $3.8 million attributable to the Disposition Properties.
Other Expenses and Income

General and Administrative Expenses

General and administrative expenses increased $14.4 million, or 33.4%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the following:

An increase of $18.9 million in severance costs related to the previously announced departure of an executive officer and the departure of certain other employees; partially offset by

A decrease of $3.4 million due to lower compensation accruals and other related cost-cutting measures as a result of COVID-19; and

A decrease of $1.4 million related to the mark-to-market adjustment of the Company’s deferred compensation plan and the resultant impact of reducing compensation expense, which is offset by the losses on the underlying marketable securities which are included in interest income and other net investment gain (loss) in the consolidated statements of operations.

Leasing Costs

Leasing costs decreased by $1.6 million or 36.8%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to a higher level of leasing activity during the six months ended June 30, 2019 and changes in personnel.

Depreciation and Amortization

Depreciation and amortization increased $20.1 million, or 14.9%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to the following:

An increase of $0.6 million attributable to the Same Store Properties;

An increase of $16.8 million attributable to the Development Properties; and

An increase of $4.9 million attributable to the Acquisition Properties; partially offset by

A decrease of $2.2 million attributable to the Disposition Properties.


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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 six months ended June 30, 2020 and 2019:

 Six Months Ended June 30,    
 2020 2019 
Dollar
Change
 
Percentage
Change 
 (in thousands)    
Gross interest expense$72,262
 $63,287
 $8,975
 14.2%
Capitalized interest and deferred financing costs(41,934) (40,317) (1,617) 4.0%
Interest expense$30,328
 $22,970
 $7,358
 32.0%

Gross interest expense, before the effect of capitalized interest and deferred financing costs, increased $9.0 million or 14.2%for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019 primarily due to an increase in our average debt balance for the six months ended June 30, 2020.

Capitalized interest and deferred financing costs increased $1.6 million or 4.0%, for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to an increase in the average development asset balances qualifying for interest capitalization for the six months ended June 30, 2020. During the six months ended June 30, 2020 and 2019, we capitalized interest on in-process development projects and future development pipeline projects with an average aggregate cost basis of approximately$2.2 billionand$1.9 billion, respectively.

Net Income Attributable to Noncontrolling Interests in Consolidated Property Partnerships

Net income attributable to noncontrolling interests in consolidated property partnerships increased $0.9 million or 11.1% for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 primarily due to a new lease at a higher rate at one property held in a property partnership in 2020. The amounts reported for the six months ended June 30, 2020 and 2019 are comprised of the noncontrolling interests’ share of net income for 100 First Street Member, LLC (“100 First LLC”), 303 Second Street Member (“303 Second LLC”) and Redwood City Partners, LLC (“Redwood LLC”).

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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 sixthree months ended June 30, 2020March 31, 2021 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 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.

COVID-19 Liquidity Highlights

As of March 31, 2021, we had approximately $657.8 million in cash and cash equivalents and approximately $1.0 billion of restricted cash, which may be released from the qualified intermediary at our direction, should we choose not to complete a Section 1031 Exchange, as a result of the operating property disposition completed during the three months ended March 31, 2021. As of the date of this report, we have no material debt maturities prior to July 2022, at which timehad $1.1 billion available under our recently amended unsecured revolving credit facility and term loan mature. As of July 28, 2020, we had approximately $560.0 millionour next material debt maturity occurs in cash and cash equivalents, with an additional $750.0 million available under our unsecured revolving credit facility, as a result of settling various forward equity sale agreements and the completion of a private placement of $350.0 million in unsecured senior notes during the six months ended June 30, 2020.January 2023. We believe that thisour available liquidity demonstrates a strong balance sheet and makes us well positioned to navigate any additional future uncertainty resulting from the COVID-19 pandemic. In addition, as discussed above, 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, as demonstrated by the completion of a private placement in April 2020.markets. Any future financings, however, will depend on market conditions for both capital raises and for the investment of anysuch proceeds, and there can be no assurances that we will successfully obtain such financings.


40

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.

47


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 appropriate to do so throughout 2020.2021. 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 as a resultthe disposition completed during the three months ended March 31, 2021 for gross proceeds of the COVID-19 pandemic$1.08 billion or any other reason,future 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 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 May 19, 2020,February 8, 2021, the Board of Directors declared a regular quarterly cash dividend of $0.485.$0.50 per share of common stock. The regular quarterly cash dividend is payable to stockholders of record on June 30, 2020March 31, 2021 and a corresponding cash distribution of $0.485$0.50 per Operating Partnership unit is payable to holders of the Operating Partnership’s common limited partnership interests of record on June 30, 2020,March 31, 2021, including those owned by the Company. The total cash quarterly dividends and distributions paid on July 15, 2020 April 14, 2021were $56.8$58.8 million.

Debt Covenants

The covenants contained within certain of our unsecured debt obligations generally prohibit the Company from paying dividends during an event of default in excess of 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 federal or state income or excise tax.


48
41


Capitalization

As of June 30, 2020,March 31, 2021, our total debt as a percentage of total market capitalization was 34.9%33.8%, which was calculated based on the closing price per share of the Company’s common stock of $58.70$65.63 on June 30, 2020March 31, 2021 as shown in the following table:
Shares/Units at 
June 30, 2020
 
Aggregate
Principal
Amount or
$ Value
Equivalent
 
% of Total
Market
Capitalization
Shares/Units at 
March 31, 2021		Aggregate
Principal
Amount or
$ Value
Equivalent		% of Total
Market
Capitalization
($ in thousands)($ in thousands)
Debt: (1)(2)
    
Debt: (1)(2)
Unsecured Term Loan Facility $150,000
 1.4%
Unsecured Senior Notes due 2023 300,000
 2.8%Unsecured Senior Notes due 2023$300,000 2.6 %
Unsecured Senior Notes due 2024 425,000
 4.0%Unsecured Senior Notes due 2024425,000 3.6 %
Unsecured Senior Notes due 2025 400,000
 3.8%Unsecured Senior Notes due 2025400,000 3.4 %
Unsecured Senior Notes Series A & B due 2026 250,000
 2.4%Unsecured Senior Notes Series A & B due 2026250,000 2.1 %
Unsecured Senior Notes due 2028 400,000
 3.8%Unsecured Senior Notes due 2028400,000 3.4 %
Unsecured Senior Notes due 2029 400,000
 3.8%Unsecured Senior Notes due 2029400,000 3.4 %
Unsecured Senior Notes Series A & B due 2027 & 2029 250,000
 2.4%Unsecured Senior Notes Series A & B due 2027 & 2029250,000 2.1 %
Unsecured Senior Notes due 2030 500,000
 4.8%Unsecured Senior Notes due 2030500,000 4.3 %
Unsecured Senior Notes due 2031 350,000
 3.3%Unsecured Senior Notes due 2031350,000 3.0 %
Unsecured Senior Notes due 2032Unsecured Senior Notes due 2032425,000 3.6 %
Secured debt 256,958
 2.4%Secured debt253,049 2.3 %
Total debt $3,681,958
 34.9%Total debt$3,953,049 33.8 %
Equity and Noncontrolling Interests in the Operating Partnership: (3)
    
Equity and Noncontrolling Interests in the Operating Partnership: (3)
Common limited partnership units outstanding (4)
1,934,586 $113,560
 1.1%
Common limited partnership units outstanding (4)
1,150,574$75,512 0.7 %
Shares of common stock outstanding115,176,538 6,760,863
 64.0%Shares of common stock outstanding116,450,3707,642,638 65.5 %
Total Equity and Noncontrolling Interests in the Operating Partnership $6,874,423
 65.1%Total Equity and Noncontrolling Interests in the Operating Partnership$7,718,150 66.2 %
Total Market Capitalization $10,556,381
 100.0%Total Market Capitalization$11,671,199 100.0 %
________________________ 
(1)
Represents gross aggregate principal amount due at maturity before the effect of the following at June 30, 2020: $20.7 millionof unamortized deferred financing costs on the unsecured term loan facility, unsecured senior notes, and secured debt and $6.0
(1)    Represents gross aggregate principal amount due at maturity before the effect of the following at March 31, 2021: $21.7 million of unamortized deferred financing costs on the unsecured senior notes and secured debt and $8.0 million of unamortized discounts for the unsecured senior notes.
(2)
As of June 30, 2020, there was no outstanding balance on the unsecured revolving credit facility.
(3)Value based on closing price per share of our common stock of $58.70 as of June 30, 2020.
(4)Includes common units of the Operating Partnership not owned by the Company; does not include noncontrolling interests in consolidated property partnerships.


(2)    As of March 31, 2021, there was no outstanding balance on the unsecured revolving credit facility.

(3)    Value based on closing price per share of our common stock of $65.63 as of March 31, 2021.

(4)    Includes common units of the Operating Partnership not owned by the Company; does not include noncontrolling interests in consolidated property partnerships.

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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 and term loan facility;
•Proceeds from our capital recycling program, including the disposition of 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 security holders;
•Repurchases and redemptions of outstanding common 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.




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43

Liquidity Sources

Unsecured Revolving Credit Facility and Term Loan Facility

The following table summarizes the balance and terms of our unsecured revolving credit facility as of June 30, 2020March 31, 2021 and December 31, 2019:2020:

June 30, 2020 December 31, 2019March 31, 2021December 31, 2020
(in thousands)(in thousands)
Outstanding borrowings$—
 $245,000
Outstanding borrowings$— $— 
Remaining borrowing capacity750,000
 505,000
Remaining borrowing capacity750,000 750,000 
Total borrowing capacity (1)
$750,000
 $750,000
Total borrowing capacity (1)
$750,000 $750,000 
Interest rate (2)
1.16% 2.76%
Interest rate (2)
1.11 %1.14 %
Facility fee-annual rate (3)
0.200%
Facility fee-annual rate (3)
0.200%
Maturity dateJuly 2022Maturity dateJuly 2022
________________________
(1)We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $600.0 million under an accordion feature under the terms of the unsecured revolving credit facility and unsecured term loan facility.
(2)Our unsecured revolving credit facility interest rate was calculated based the contractual rate of LIBOR plus 1.000% as of June 30, 2020 and December 31, 2019.
(3)Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs. As of June 30, 2020 and December 31, 2019, $2.7 million and $3.4 million of unamortized deferred financing costs, respectively, which are included in prepaid expenses and other assets, net on our consolidated balance sheets, remained to be amortized through the maturity date of our unsecured revolving credit facility.
(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.
(2)Our unsecured revolving credit facility interest rate was calculated based the contractual rate of LIBOR plus 1.000% as of March 31, 2021 and December 31, 2020.
(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, 2021 and December 31, 2020, $1.7 million and $2.1 million of unamortized deferred financing costs, respectively, which are included in prepaid expenses and other assets, net on our consolidated balance sheets, remained to be amortized through the maturity date of our unsecured revolving credit facility.

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

The following table summarizesIn April 2021, the balanceOperating Partnership amended and restated the terms of ourits unsecured term loanrevolving credit facility. The amendment and restatement increased the size of the unsecured revolving credit facility asfrom $750.0 million to $1.1 billion, reduced the borrowing costs, extended the maturity date of June 30, 2020the unsecured revolving credit facility to July 2025, with two six-month extension options, and December 31, 2019:added a sustainability-linked pricing component whereby the interest rate is lowered by 0.01% if certain sustainability performance targets are met. The LIBOR replacement provisions of the unsecured revolving credit facility permit the use of rates based on the secured overnight financing rate (“SOFR”) administered by the Federal Reserve Bank of New York. The unsecured revolving credit facility was undrawn at closing.

 June 30, 2020 December 31, 2019
 (in thousands)
Outstanding borrowings$150,000
 $150,000
Remaining borrowing capacity—
 —
Total borrowing capacity (1)
$150,000
 $150,000
Interest rate (2)
1.28% 2.85%
Undrawn facility fee-annual rate0.200%
Maturity dateJuly 2022
________________________
(1)As of June 30, 2020 and December 31, 2019, $0.5 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.
(2)Our unsecured term loan facility interest rate was calculated based on the contractual rate of LIBOR plus 1.100% as of June 30, 2020 and December 31, 2019.

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 core 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.


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In connection with our capital recycling strategy, during the three months ended March 31, 2021, we completed the sale of one operating property in San Francisco, California to an unaffiliated third party for gross proceeds of $1.08 billion, or approximately $1,440 per square foot. As of March 31, 2021, the approximately $1.0 billion of net proceeds related to the disposition were temporarily being held by a qualified intermediary, at our direction, for the purpose of facilitating a Section 1031 Exchange. Any potential future disposition 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 the ongoing COVID-19 pandemic’s impact on economic and market conditions, including the financial markets), and our ability to defer some or all of the taxable gains on the sales. In addition, we cannot assure you that we will dispose of any additional properties, or that we will be able to identify and complete the acquisitions of suitable replacement properties to effect Section 1031 Exchanges to defer some or all of the taxable gains related to our capital recycling 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.

Forward Equity Offering and Settlement
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On February 18, 2020, the Company entered into forward equity sale agreements with certain financial institutions acting as forward purchasers in connection with an offering of 5,750,000 shares of common stock at an initial gross offering price of $494.5 million, or $86.00 per share, before underwriting discounts, commissions and offering expenses. The forward purchasers borrowed and sold an aggregate of 5,750,000 shares of common stock in the offering.

On March 25, 2020, the Company physically settled these forward equity sale agreements. Upon settlement, the Company issued 5,750,000 shares of common stock for net proceeds of $474.9 million and contributed the net proceeds to the Operating Partnership in exchange for an equal number of units in the Operating Partnership.

At-The-Market Stock Offering Program

Under our current at-the-market stock offering program, which commenced June 2018, we may offer and sell 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.

During the year ended December 31, 2019, we executed various 12-month The Company did not have any outstanding forward equity sale agreements under our at-the-market program with financial institutions acting as forward purchasers to sell an aggregate of 3,147,110 shares of common stockbe settled at a weighted average sales price of $80.08 per share before underwriting discounts, commissions and offering expenses.March 31, 2021.

In March 2020, we physically settled all forward equity sale agreements entered into in 2019. Upon settlement, the Company issued 3,147,110 shares of common stock for net proceeds of $247.3 million and contributed the net proceeds to the Operating Partnership in exchange for an equal number of units in the Operating Partnership. We did not enter into any forward equity sale agreements under our at-the-market program during the six months ended June 30, 2020.

Since commencement of our current at-the-market program, we have completed sales of 3,594,576 shares of common stock through June 30, 2020.March 31, 2021. As of June 30, 2020,March 31, 2021, 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 Companydid not complete any direct sales of common stock under the program during the three or six months ended June 30, 2020. The following table sets forth information regarding settlements of forward equity sale agreements under our at-the-market offering program for the six months ended June 30, 2020:March 31, 2021.

 Six Months Ended June 30, 2020
 (in millions, except share and per share data)
Shares of common stock settled during the period3,147,110
Weighted average price per share of common stock$80.08
Aggregate gross proceeds$252.0
Aggregate net proceeds after selling commissions$247.3

The proceeds from sales will be used to fund development expenditures and general corporate purposes. 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.

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Shelf Registration Statement

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, 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. During the six months ended June 30, 2020, the Company’s stock price ranged from $49.01 to $88.28, an 80% swing, as a result of COVID-19 and the resultant impact on the capital markets and economy. If current conditions continue for an extended period of time, capitalCapital raising could be more challenging under current market conditions than under conditionsthose prior to COVID-19. 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 existing properties, to make acquisitions of properties or portfolios of properties, or for general corporate purposes.

Unsecured and Secured Debt

The aggregate principal amount of the unsecured and secured debt of the Operating Partnership outstanding as of June 30, 2020March 31, 2021 was as follows:
 
Aggregate Principal
 Amount Outstanding
 (in thousands)
Unsecured Term Loan Facility (1)
$150,000
Unsecured Senior Notes due 2023300,000
Unsecured Senior Notes due 2024425,000
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
Secured Debt256,958
Total Unsecured and Secured Debt3,681,958
Less: Unamortized Net Discounts and Deferred Financing Costs (2)
(26,740)
Total Debt, Net$3,655,218
________________________ 
Aggregate Principal
 Amount Outstanding
(in thousands)
(1)As of June 30, 2020, there was no outstanding balance on the unsecured revolving credit facility.
(2)Unsecured Senior Notes due 2023Includes $20.7 million of unamortized deferred financing costs on the unsecured term loan facility, unsecured senior notes,$300,000 
Unsecured Senior Notes due 2024425,000 
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 
Secured Debt253,049 
Total Unsecured and secured debtSecured Debt (1)
3,953,049 
Less: Unamortized Net Discounts and $6.0 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.Deferred Financing Costs (2)
(29,657)
Total Debt, Net$3,923,392 

Unsecured Senior Notes - Private Placement________________________ 

On April 28, 2020, the Operating Partnership entered into a Note Purchase Agreement in connection with the issuance and sale(1)As of $350.0 million principal amount of the Operating Partnership's 4.27% Senior Notes due JanuaryMarch 31, 2031 (the “Notes”), pursuant to a private placement. The Notes mature on their due date, unless earlier redeemed or prepaid pursuant to the terms of the Note Purchase Agreement. Interest2021, there was no outstanding balance on the Notes is payable semi-annuallyunsecured revolving credit facility.
(2)Includes $21.7 million of unamortized deferred financing costs on the unsecured senior notes and secured debt and $8.0 million of unamortized discounts for the unsecured senior notes. Excludes unamortized deferred financing costs on the unsecured revolving credit facility, which are included in arrearsprepaid expenses and other assets, net on April 18 and October 18 of each year beginning October 18, 2020.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 June 30, 2020March 31, 2021 and December 31, 20192020 was as follows:

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Percentage of Total Debt (1)
 
Weighted Average Interest Rate (1)
Percentage of Total Debt (1)
Weighted Average Interest Rate (1)
June 30, 2020 December 31, 2019 June 30, 2020 December 31, 2019
March 31, 2021 (2)
December 31, 2020
March 31, 2021 (2)
December 31, 2020
Secured vs. unsecured:       Secured vs. unsecured:
Unsecured93.0% 92.8% 3.8% 3.8%Unsecured93.6 %93.6 %3.8 %3.8 %
Secured7.0% 7.2% 3.9% 3.9%Secured6.4 %6.4 %3.9 %3.9 %
Variable-rate vs. fixed-rate:       Variable-rate vs. fixed-rate:
Variable-rate4.1% 11.0% 1.3% 2.8%Variable-rate— %— %— %— %
Fixed-rate (2)
95.9% 89.0% 3.9% 3.9%
Stated rate (2)
    3.8% 3.8%
GAAP effective rate (3)
    3.9% 3.8%
Fixed-rate (3)
Fixed-rate (3)
100.0 %100.0 %3.8 %3.8 %
Stated rate (3)
Stated rate (3)
3.8 %3.8 %
GAAP effective rate (4)
GAAP effective rate (4)
3.8 %3.8 %
GAAP effective rate including debt issuance costs    4.0% 4.0%GAAP effective rate including debt issuance costs4.0 %4.0 %
________________________
(1)As of the end of the period presented.
(2)Excludes the impact of the amortization of any debt discounts/premiums and deferred financing costs.
(3)Includes the impact of the amortization of any debt discounts/premiums, excluding deferred financing costs.
(1)    As of the end of the period presented.
(2)    As of March 31, 2021, 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 the amortization of any debt discounts/premiums, excluding deferred financing costs.

Liquidity Uses

Contractual Obligations

Refer to our 20192020 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 sixthree months ended June 30, 2020.March 31, 2021.

Other Liquidity Uses

Development

As of June 30, 2020,March 31, 2021, we had fivetwo development projects under construction.  These projects have a total estimated investment of approximately $1.1 billion$325.0 million of which we have incurred approximately $638.7$270.0 million, net of retention, and committed an additional $446.0$55.0 million as of June 30, 2020,March 31, 2021, of which $162.0$20.0 million is currently expected to be spent through the end of 2020.2021. In addition, as of June 30, 2020,March 31, 2021, we hadthreedevelopment projects in the tenant improvement phase. These projects have a total estimated investment of approximately $915.0 million$1.2 billion, of which we have incurred approximately $740.0$920.0 million, net of retention, and committed an additional $175.0$265.0 million as of June 30, 2020,March 31, 2021, of which $144.0$126.0 million is currently expected to be spent through the end of 2020.2021. We also had two stabilized development projects and two completed phases of a residential project with a total estimated investment of $1.12 billion$395.0 million, of which we have incurred approximately $1.11 billion, net of retention, and committed an additional $10.0$67.0 million remains to be spent as of June 30, 2020, whichMarch 31, 2021, and is currently expected to be spent through the end of 2020.2021. Furthermore, we currently believe we may spend up to $10.0$100.0 million on future development pipeline projects that we expect we may commence construction on throughout the remainder of 2020.  Ultimate2021. The ultimate timing of these expenditures may fluctuate given construction progress and leasing status of the projects. Additionally,projects, or as a result of events outside our control, such as delays or increased costs as a result of the COVID-19 pandemic, and restrictions intended to prevent its spread, could cause delays or increase costs associated with building materials or construction services necessary for construction in the future, which could adversely impact our ability to continue or complete construction as planned, on budget or at all.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, the disposition of assets under our capital recycling program, or strategic venture opportunities.

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. Refer to “Part II – Other Information, Item IA. Risk Factors” included in this report for additional information about the potential impact of the COVID-19 pandemic, and restrictions intended to prevents its spread, on our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to pay dividends and distributions to security holders. Our next debt maturities occurmaturity occurs in July 2022 and relate to our unsecured revolving credit facility and term loan facility.January 2023.


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Potential Future Acquisitions

As discussed in the section “Factors That May Influence Future Results of Operations - 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.  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.

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.

Share Repurchases

As of June 30, 2020,March 31, 2021, 4,935,826 shares remained eligible for repurchase under a share repurchase 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 incur for tenant improvements and leasing costs depend on leasing 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 our properties. As a result ofWhile the COVID-19 pandemic we believe that for the remainder of 2020, we will likely reduce capital spending as a result of deferring non-essential capital projects at either our or our tenant’s election, and thatrestrictions intended to prevent its spread remain in effect, there may be a reduction incontinued lower level of leasing activity when compared to levels prior to the full year of 2019.COVID-19 pandemic.

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, 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, the amount of our future borrowings and the impact of the COVID-19 pandemic, and restrictions intended to prevents its spread, on capital and credit markets and our tenants (refer to “Part II – Other Information,I, Item IA. Risk Factors” of thisin our annual report on Form 10-K for the year ended December 31, 2020 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, 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 and Term Loan Facility and Private Placement Notes (as defined in the applicable Credit Agreements):Covenant Level
Actual Performance

as of June 30, 2020
March 31, 2021
Total debt to total asset valueless than 60%28%30%
Fixed charge coverage ratiogreater than 1.5x3.4x2.9x
Unsecured debt ratiogreater than 1.67x3.32x3.19x
Unencumbered asset pool debt service coveragegreater than 1.75x4.14x3.60x
Unsecured Senior Notes due 2023, 2024, 2025, 2028, 2029, 2030 and 20302032
(as defined in the applicable Indentures):
Total debt to total asset valueless than 60%34%33%
Interest coveragegreater than 1.5x9.8x7.5x
Secured debt to total asset valueless than 40%2%
Unencumbered asset pool value to unsecured debtgreater than 150%307%311%

The Operating Partnership was in compliance with all of its debt covenants as of June 30, 2020.March 31, 2021. 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. In response to the COVID-19 pandemic, we have completed stress testing of our various financial covenants assuming decreases in rental income and determined that the Operating Partnership has adequate cushion between actual performance and debt covenant levels. 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 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 sixthree months ended June 30, 2020March 31, 2021 as compared to the sixthree months ended June 30, 2019March 31, 2020 is as follows:

 Three Months Ended March 31,
 20212020Dollar
Change		Percentage
Change
 ($ in thousands)
Net cash provided by operating activities$144,152 $122,940 $21,212 17.3 %
Net cash provided by (used in) investing activities812,250 (211,412)1,023,662 484.2 %
Net cash (used in) provided by financing activities(92,954)790,562 (883,516)(111.8)%
Net increase in cash and cash equivalents$863,448 $702,090 $161,358 23.0 %
 Six Months Ended June 30,
 2020 2019 
Dollar
Change
 
Percentage
Change
 ($ in thousands)  
Net cash provided by operating activities$224,022
 $165,660
 $58,362
 35.2%
Net cash used in investing activities(374,341) (417,036) 42,695
 10.2%
Net cash provided by financing activities695,287
 139,057
 556,230
 400.0%
Net increase (decrease) in cash and cash equivalents$544,968
 $(112,319) $657,287
 585.2%

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 $58.4$21.2 million, or 35.2%17.3%, for the sixthree months ended June 30, 2020March 31, 2021 compared to the sixthree months ended June 30, 2019March 31, 2020 primarily dueas a result of net changes in other operating assets and liabilities related to the timing of expenditures and net cash rents received during the six months ended June 30, 2020flow from several tenants who had free rent and beneficial occupancy periods during the six months ended June 30, 2019.operations of development properties that became stabilized subsequent to March 31, 2020. 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 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, 2021 we had net cash provided by investing activities of $812.3 million compared to net cash used in investing activities decreased by $42.7of $211.4 million or 10.2% for the sixthree months ended June 30, 2020March 31, 2021 compared to the sixthree months ended June 30, 2019March 31, 2020 primarily due to lower expenditures for development properties$1.0 billion of net proceeds received and undeveloped landheld by a qualified intermediary from one operating property disposition completed during the sixthree months ended June 30, 2020.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. OurDuring the three months ended March 31, 2021 we had net cash used in financing activities of $93.0 million compared to net cash provided by financing activities increased by $556.2of $790.6 million for the sixthree months ended June 30,March 31, 2020 compared to the six months ended June 30, 2019 primarily due to theas a result of net proceeds received upon physical settlement of our February 2020 forward equity sale agreements pursuant to which we issued 5,750,000 sharesfrom the issuance of common stock and the forward equity sale agreements entered intogenerated during the year ended December 31, 2019 under our at-the-market program pursuant to which we issued 3,147,110 shares of common stock, as well as the issuance of $350.0 million of 4.27% Senior Notes due January 31, 2031 during the sixthree months ended June 30, 2020, partially offset by higher repayments on our unsecured revolving credit facility during the six months ended June 30,March 31, 2020.

Off-Balance Sheet Arrangements

As of June 30, 2020 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 six months ended June 30, 2020March 31, 2021 and 2019:2020:

Three Months Ended June 30, Six Months Ended June 30, Three Months Ended March 31,
2020 2019 2020 2019 20212020
(in thousands) (in thousands)
Net income available to common stockholders$19,618
 $42,194
 $59,435
 $79,097
Net income available to common stockholders$497,631 $39,817 
Adjustments:       Adjustments:
Net income attributable to noncontrolling common units of the Operating Partnership367
 871
 1,072
 1,571
Net income attributable to noncontrolling common units of the Operating Partnership4,886 705 
Net income attributable to noncontrolling interests in consolidated property partnerships4,367
 4,150
 9,263
 8,341
Net income attributable to noncontrolling interests in consolidated property partnerships4,894 4,896 
Depreciation and amortization of real estate assets75,981
 67,011
 148,419
 131,982
Depreciation and amortization of real estate assets74,431 72,438 
Gains on sales of depreciable real estate—
 (7,169) —
 (7,169)
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(7,244) (7,152) (14,927) (14,105)Funds From Operations attributable to noncontrolling interests in consolidated property partnerships(8,310)(7,683)
Funds From Operations (1)(2)
$93,089
 $99,905
 $203,262
 $199,717
Funds From Operations (1)(2)
$116,244 $110,173 
________________________
(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 $8.0 million and $4.4 million for the three months ended June 30, 2020 and 2019, respectively, and $13.0 million and $8.2 million for the six months ended June 30, 2020 and 2019, respectively.

(2)    FFO available to common stockholders and unitholders includes amortization of deferred revenue related to tenant-funded tenant improvements of $4.2 million and $5.0 million for the three months ended March 31, 2021 and 2020, 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 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, 2019,2020, and is incorporated herein by reference. There have been no material changes for the sixthree months ended June 30, 2020,March 31, 2021, to the information provided in “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, 2019.2020.


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 June 30, 2020,March 31, 2021, 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 changes that occurred during the period 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 June 30, 2020,March 31, 2021, the end of the period covered by this report. Based on the foregoing, the Chief Executive Officer and Chief Financial Officer of its general partner concluded, as of that time, the disclosure controls and procedures were effective at the reasonable assurance level.

There have been no changes that occurred during the period 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, the 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 June 30, 2020,March 31, 2021, 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.RISK FACTORS
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, 2019, other than as set forth below, which supplements 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, 2019.2020.

The ongoing COVID-19 pandemic, and restrictions intended to prevent its spread, could adversely impact our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to pay dividends and distributions to security holders. The ongoing COVID-19 pandemic, and restrictions intended to prevent its spread, have already had a significant adverse impact on economic and market conditions around the world in the first half of 2020, including the United States and the markets in which we own properties and/or have development projects. The impact of the COVID-19 pandemic continues to evolve. All the states where we own properties and/or have development projects (i.e., California and Washington) initially reacted to the COVID-19 pandemic by instituting quarantines, restrictions on travel, “shelter in place” rules, stay-at-home orders, density limitations, social distancing measures, restrictions on types of business that may continue to operate and/or restrictions on types of construction projects that may continue. Although some state governments and other authorities were in varying stages of lifting or modifying some of these measures, some have already been forced to, and others may in the future, reinstitute these measures or impose new, more restrictive measures, if the risks, or the perception of the risks, related to the COVID-19 pandemic worsen at any time. Furthermore, although in certain cases, exceptions are available for essential retail, research and laboratory activities, essential building services, such as cleaning and maintenance, and certain essential construction projects, there can be no assurance that such exceptions will enable us to avoid adverse impacts on our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to pay dividends and distributions to security holders. For instance, some of the activities of our parking, retail space, co-working tenants and residential tenants are not covered by the exceptions listed above, and we have seen weakness and a material reduction in rent collections from these tenants that may continue for an indeterminate period pending a cessation of the adverse impacts from the COVID-19 pandemic, and restrictions intended to prevent its spread. In addition, there can be no assurance as to how long restrictions intended to prevent the spread of COVID-19 may remain in place in the states and cities where we own properties, and even if such restrictions are lifted, they may be reinstituted at a later date. If such restrictions remain in place for an extended period of time, we may experience further reductions in rents from our tenants.

Across all property types, as of June 30, 2020, we collected approximately 95% of our total gross rent billings for the three months ended June 30, 2020, including 100% from all of our top 15 tenants and as of the date of this report, we have collected 95% of our total gross rent billings for July 2020, including 100% from all of our top 15 tenants. Although we are and will continue to be actively engaged in rent collection efforts related to uncollected rent, as well as working with certain tenants who have requested rent deferrals (particularly those occupying retail space), we can provide no assurance that such efforts or our efforts in future periods will be successful. In addition, we are and will continue to be actively engaged in discussions with certain tenants regarding the adverse impacts of the COVID-19 pandemic, and restrictions intended to prevent its spread, and may afford certain additional accommodations.

In addition, we may be required to continue to comply with “social distancing” at our properties and development projects and we may be subject to certain conditions, including requiring contractors to develop COVID-19 control, mitigation, and recovery plans and satisfy certain requirements before work can continue or commence, which may increase costs, perhaps substantially. We expect to comply with any state or local requirements. Our development projects could in the future be affected by moratoriums on construction. To the extent any city issues a moratorium, we may be subject to such a moratorium unless the applicable state or city grants an exclusion for these projects because certain of our development projects may qualify as essential construction projects.

The ongoing COVID-19 pandemic, and restrictions intended to prevent its spread, could have significant adverse impacts on our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and

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to pay dividends and distributions to security holders in a variety of ways that are difficult to predict. Such adverse impacts could depend on, among other factors:

the financial condition of our tenants - many of which are in the technology, media, healthcare, life sciences, entertainment and professional services industries - and their ability or willingness to pay rent in full on a timely basis;
state, local, federal and industry-initiated efforts that may adversely affect landlords, including us, and their ability to collect rent and/or enforce remedies for the failure to pay rent;
our need to defer or forgive rent and restructure leases with our tenants and our ability to do so on favorable terms or at all;
significant job losses in the industries of our tenants, which may decrease demand for our office and retail space, causing market rental rates and property values to be negatively impacted;
our ability to stabilize our development projects, renew leases or re-lease available space in our proprieties on favorable terms or at all, including as a result of a general decrease in demand for our office and retail space, deterioration in the economic and market conditions in the markets in which we own properties or due to restrictions intended to prevent the spread of COVID-19 that frustrate our leasing activities;
a severe and prolonged disruption and instability in the global financial markets, including the debt and equity capital markets, all of which have already experienced and may continue to experience significant volatility, or deteriorations in credit and financing conditions, may affect our or our tenants’ ability to access capital necessary to fund our respective business operations or replace or renew maturing liabilities on a timely basis, on attractive terms or at all and may adversely affect the valuation of financial assets and liabilities, any of which could affect our and our tenants’ ability to meet liquidity and capital expenditure requirements;
a refusal or failure of one or more lenders under our revolving credit facility to fund their respective financing commitments to us may affect our ability to access capital necessary to fund our business operations and to meet our liquidity and capital expenditure requirements;
the ability of potential buyers of properties identified for potential future capital recycling transactions to obtain debt financing, which has been and may continue to be constrained for some potential buyers;
a reduction in the values of our properties that could result in impairments or limit our ability to dispose of them at attractive prices or obtain debt financing secured by our properties;
complete or partial shutdowns of one or more of our tenants’ manufacturing facilities or distribution centers, temporary or long-term disruptions in our tenants’ supply chains from local, national and international suppliers or delays in the delivery of products, services or other materials necessary for our tenants’ operations, which could force our tenants to reduce, delay or eliminate offerings of their products and services, reduce or eliminate their revenues and liquidity and/or result in their bankruptcy or insolvency;
our ability to avoid delays or cost increases associated with building materials or construction services necessary for construction that could adversely impact our ability to continue or complete construction as planned, on budget or at all;
our and our tenants’ ability to manage our respective businesses to the extent our and their management or personnel are impacted in significant numbers by the COVID-19 pandemic and are not willing, available or allowed to conduct work; and
our and our tenants’ ability to ensure business continuity in the event our continuity of operations plan is not effective or improperly implemented or deployed during the COVID-19 pandemic.

The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of the COVID-19 pandemic or restrictions intended to prevent its spread. Nevertheless, the ongoing COVID-19 pandemic, and restrictions intended to prevent its spread, and the current financial, economic and capital markets environment and future developments in these and other areas present material risks and uncertainties with respect to our business, financial condition, results of operations, cash flows, liquidity and ability to satisfy our debt service obligations and to pay dividends and distributions to security holders and could also have a material adverse effect on the market value of our securities. Moreover, to the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise, they may also have the effect of heightening many of the other risks set forth in this “Risk Factors” section and beginning on page 15 of the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019.



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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
June 30, 2020.March 31, 2021.
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, 2021 - January 31, 2021235,169 $60.56 — — 
February 1, 2021 - February 28, 2021119,989 56.63 — — 
March 1, 2021 - March 31, 2021— — — — 
Total355,158 $59.23 — — 
________________________
(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
April 1. 2020 - April 30, 2020 2,871
 $61.86
 —
 —
May 1, 2020 - May 31, 2020 —
 —
 —
 —
June 1, 2020 - June 30, 2020 8,797
 63.34
 —
 —
Total 11,668
 $62.97
 —
 —
_______________
(1)Includes shares of common stock remitted to the Company to satisfy tax withholding obligations in connection with the distribution of, or the vesting and distribution of, restricted stock units or restricted stock in shares of common stock. The value of such shares of common stock remitted to the Company was based on the closing price of the Company’s common stock on the applicable withholding date.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES
ITEM 3.DEFAULTS UPON SENIOR SECURITIES

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
Kilroy Realty Corporation Articles of Amendment and Restatement (previouslyof 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 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
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
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
SixthFifth 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)December 30, 2020)
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)
10.1†*10.1*†
SeparationAmended and Restated Employment Agreement and Non-Competition Agreement by and between Kilroy Realty Corporation, Kilroy Realty, L.P. and Jeffrey C. HawkenHeidi R. Roth effective as of January 28, 2016
10.2*
Third Amended and Restated Credit Agreement dated as of July 2, 2020April 20, 2021
31.1*10.3*
Third Amended and Restated Guaranty dated as of April 20, 2021
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 June 30, 2020,March 31, 2021, 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 July 30, 2020.
April 29, 2021.
 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. RoseMichelle Ngo
Tyler H. Rose
ExecutiveMichelle Ngo
Senior Vice President, and Chief Financial Officer
and Treasurer
(Principal Financial Officer)
By:/s/ Merryl E. Werber
Merryl E. Werber

Senior Vice President, Chief Accounting Officer and Controller

(Principal Accounting Officer)
 

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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 July 30, 2020.
April 29, 2021.
 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. RoseMichelle Ngo
Tyler H. Rose
ExecutiveMichelle Ngo
Senior Vice President, and Chief Financial Officer
and Treasurer
(Principal Financial Officer)
By:/s/ Merryl E. Werber
Merryl E. Werber

Senior Vice President, Chief Accounting Officer and Controller

(Principal Accounting Officer)
 


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