Kilroy Realty Corp (KRC) 10-Q Quarterly Report October 2018



	Page
Corporate Data and Financial Highlights
Company Background	1
Executive Summary	2
Financial Highlights	3
Net Income Available to Common Stockholders / FFO Guidance and Outlook	4
Common Stock Data	5
Consolidated Balance Sheets	6
Consolidated Statements of Operations	7
Funds From Operations and Funds Available for Distribution	8-9
Portfolio Data
Same Store Analysis	10
Stabilized Portfolio Occupancy Overview by Region	11-15
Information on Leases Commenced & Leases Executed	16
Stabilized Portfolio Capital Expenditures	17
Stabilized Portfolio Lease Expirations	18-20
Top Fifteen Tenants	21
2018 Operating Property Acquisitions	22
Consolidated Ventures (Noncontrolling Property Partnerships)	23
Development
In-Process Development	24
Future Development Pipeline	25
Debt and Capitalization Data
Capital Structure	26
Debt Analysis	27-28
Non-GAAP Supplemental Measures	29-31
Definitions & Reconciliations	32-35

This Supplemental Financial Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include, among other things, information concerning lease expirations, debt maturities, potential investments, development and redevelopment activity, projected construction costs, dispositions and other forward-looking financial data. In some instances, forward-looking statements can be identified by the use of forward-looking terminology such as “expect,” “future,” “will,” “would,” “pursue,” or “project” and variations of such words and similar expressions that do not relate to historical matters. Forward-looking statements are based on Kilroy Realty Corporation’s 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 Kilroy Realty Corporation’s control. Accordingly, actual performance, results and events may vary materially from those indicated in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results or events. Numerous factors could cause actual future performance, results and events to differ materially from those indicated in the forward-looking statements, including, among others: global market and general economic conditions and their effect on our liquidity and financial conditions and those of our tenants; adverse economic or real estate conditions generally, and specifically, in the States of California and Washington; risks associated with our investment in real estate assets, which are illiquid, and with trends in the real estate industry; defaults on or non-renewal of leases by tenants; any significant downturn in tenants’ businesses; our ability to re-lease property at or above current market rates; costs to comply with government regulations, including environmental remediation; 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 implementations of, 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; and our ability to maintain our status as a REIT. These factors 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 Kilroy Realty Corporation’s business and financial performance, see the factors included under the caption “Risk Factors” in Kilroy Realty Corporation’s annual report on Form 10-K for the year ended December 31, 2017, and its other filings with the Securities and Exchange Commission. All forward-looking statements are based on currently available information and speak only as of the date on which they are made. Kilroy Realty Corporation assumes no obligation to update any forward-looking statement made in this Supplemental Financial Report 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.

Kilroy Realty Corporation

Third Quarter 2018 Supplemental Financial Report

Company Background

Kilroy Realty Corporation (NYSE: KRC), a publicly traded real estate investment trust and member of the S&P MidCap 400 Index, is one of the West Coast’s premier landlords. The Company has over 70 years of experience developing, acquiring and managing office and mixed-use real estate assets. At September 30, 2018, the Company’s stabilized portfolio totaled approximately 13.9 million square feet of office space that was 93.5% occupied, located in the coastal regions of Los Angeles, Orange County, San Diego, the San Francisco Bay Area and Greater Seattle and 200 residential units located in the Hollywood submarket of Los Angeles.



Board of Directors		Executive Management Team		Investor Relations
John Kilroy	Chairman	John Kilroy	President and CEO	12200 W. Olympic Blvd., Suite 200 Los Angeles, CA 90064 (310) 481-8400 Web: www.kilroyrealty.com E-mail: investorrelations@kilroyrealty.com
Edward F. Brennan, PhD	Lead Independent	John T. Fucci	Executive VP, Asset Management
Jolie Hunt		Jeffrey C. Hawken	Executive VP and COO
Scott S. Ingraham		Tracy Murphy	Executive VP, Life Science
Gary R. Stevenson		Robert Paratte	Executive VP, Leasing and Business Development
Peter B. Stoneberg		Tyler H. Rose	Executive VP and CFO
		Steve Rosetta	Executive VP and CIO
		Heidi R. Roth	Executive VP and CAO
		Justin W. Smart	Executive VP, Development and Construction Services



Equity Research Coverage

Bank of America Merrill Lynch		Green Street Advisors
James Feldman	(646) 855-5808	Daniel Ismail	(949) 640-8780
BMO Capital Markets Corp.		J.P. Morgan
John P. Kim	(212) 885-4115	Anthony Paolone	(212) 622-6682
BTIG		KeyBanc Capital Markets
Thomas Catherwood	(212) 738-6140	Craig Mailman	(917) 368-2316
Citigroup Investment Research		RBC Capital Markets
Michael Bilerman	(212) 816-1383	Mike Carroll	(440) 715-2649
D. A. Davidson		Robert W. Baird & Co.
Barry Oxford	(212) 240-9871	David B. Rodgers	(216) 737-7341
Evercore ISI		Stifel, Nicolaus & Company
Steve Sakwa	(212) 446-9462	John W. Guinee III	(443) 224-1307
Goldman Sachs & Co.		Wells Fargo
Andrew Rosivach	(212) 902-2796	Blaine Heck	(443) 263-6529

Kilroy Realty Corporation is followed by the analysts listed above. Please note that any opinions, estimates or forecasts regarding Kilroy Realty Corporation’s performance made by these analysts are theirs alone and do not represent opinions, forecasts or predictions of Kilroy Realty Corporation or its management. Kilroy Realty Corporation does not by its reference above or distribution imply its endorsement of or concurrence with such information, conclusions or recommendations.

Kilroy Realty Corporation

Third Quarter 2018 Supplemental Financial Report

Executive Summary




Quarterly Financial Highlights		Quarterly Operating Highlights

• Net income available to common stockholders per share of $0.33		• Stabilized portfolio was 93.5% occupied and 96.6% leased at quarter-end

• FFO per share of $0.90		• 386,063 square feet of leases commenced in the stabilized portfolio

• Revenues of $186.6 million		• 334,957 square feet of leases executed in the stabilized portfolio

• Same Store GAAP NOI increased 2.3% compared to the prior year		- GAAP rents increased approximately 35.2% from prior levels

• Same Store Cash NOI increased 2.4% compared to the prior year		- Cash rents increased approximately 16.0% from prior levels










Capital Markets Highlights		Strategic Highlights

• In August, issued 98,000 shares of common stock under the ATM offering program		• The retail space at the One Paseo mixed-used development project in the Del Mar
at a weighted average price of $73.24 per share, generating net proceeds of $7.1 million		submarket of San Diego is now 82% leased
million
		• In October, commenced GAAP revenue recognition on all 312,000 square feet of
• In August, completed a public offering of 5,000,000 shares of common stock priced		the office space at 100 Hooper, the company’s recently completed development
at $72.10 per share structured as a 12-month forward sale; no shares were sold		project in the SOMA district of San Francisco
during the third quarter

• In October, drew the entire $200.0 million of eight-year, 4.35% unsecured senior
notes privately placed in May 2018

• As of the date of this report, $165.0 million was outstanding on our unsecured
revolving credit facility

________________________

Note: Definitions for commonly used terms in this Supplemental Financial Report are on pages 32-33 “Definitions Included in Supplemental.”

Kilroy Realty Corporation

Third Quarter 2018 Supplemental Financial Report

Financial Highlights

(unaudited, $ in thousands, except per share amounts)



		Three Months Ended
		9/30/2018			6/30/2018 ⁽¹⁾			3/31/2018			12/31/2017 ⁽¹⁾			9/30/2017 ⁽¹⁾
INCOME ITEMS:
	Revenues	$	186,562		$	187,072		$	182,822		$	177,561		$	181,534
	Lease Termination Fees, net	431			1,093			60			198			760
	Net Operating Income ⁽²⁾	131,020			129,465			132,709			127,522			129,495
	Capitalized Interest and Debt Costs	19,156			15,811			13,582			13,436			12,180
	Net Income Available to Common Stockholders	34,400			27,549			36,246			28,529			66,558
	EBITDA, as adjusted ^{(2) (3)}	112,085			108,473			117,184			112,565			116,956
	Funds From Operations^{(3) (4) (5) (6)}	94,247			88,629			96,285			86,539			89,547
	Net Income Available to Common Stockholders per common share – diluted⁽⁵⁾	$	0.33		$	0.27		$	0.36		$	0.28		$	0.67
	Funds From Operations per common share – diluted^{(3) (5) (6)}	$	0.90		$	0.86		$	0.94		$	0.85		$	0.88
LIQUIDITY ITEMS:
	Funds Available for Distribution ^{(4) (5) (7)}	$	68,758		$	51,953		$	75,537		$	51,177		$	60,508
	Dividends per common share ⁽⁵⁾	$	0.455		$	0.455		$	0.425		$	0.425		$	0.425
RATIOS:
	Net Operating Income Margins	70.2		%	69.2		%	72.6		%	71.8		%	71.3		%
	Interest Coverage Ratio	3.8x			3.9x			4.5x			4.2x			4.3x
	Fixed Charge Coverage Ratio	3.8x			3.9x			4.5x			4.2x			4.2x
	FFO Payout Ratio^{(3) (6)}	49.6		%	52.7		%	44.5		%	49.5		%	47.7		%
	FAD Payout Ratio ⁽⁷⁾	68.0		%	89.9		%	56.8		%	83.6		%	70.6		%
ASSETS:
	Real Estate Held for Investment before Depreciation	$	8,329,580		$	8,138,413		$	7,645,666		$	7,417,777		$	7,239,856
	Total Assets	7,562,236			7,384,784			6,965,932			6,802,838			6,838,299
CAPITALIZATION: ⁽⁸⁾
	Total Debt	$	2,891,725		$	2,807,627		$	2,563,517		$	2,364,395		$	2,449,025
	Total Common Equity and Noncontrolling Interests in the Operating Partnership	7,367,745			7,762,978			7,160,602			7,517,070			7,144,676
	Total Market Capitalization	10,259,470			10,570,605			9,724,119			9,881,465			9,593,701
	Total Debt / Total Market Capitalization	28.2		%	26.6		%	26.4		%	23.9		%	25.5		%

______________________________________________________

Note: Definitions for commonly used terms in this Supplemental Financial Report are on pages 32-33 “Definitions Included in Supplemental.”


(1)	Net Income Available to Common Stockholders includes $5.6 million of provision for bad debts for the three months ended June 30, 2018, $37.3 million of gains on sales of depreciable operating properties and a $0.4 million gain on sale of land for the three months ended September 30, 2017, and a $5.3 million loss on early extinguishment of debt for the three months ended December 31, 2017.


(2)	Please refer to pages 34-35 for reconciliations of GAAP Net Income Available to Common Stockholders to Net Operating Income and EBITDA, as adjusted.


(3)	EBITDA, as adjusted, and Funds From Operations include $5.6 million of provision for bad debts and a $0.4 million gain on sale of land for the three months ended June 30, 2018 and September 30, 2017, respectively. The Company’s calculation of EBITDA, as adjusted, is the same as EBITDAre, as defined by NAREIT, as the Company does not have any unconsolidated joint ventures.

(4)

Please refer to page 8 for reconciliations of GAAP Net Income Available to Common Stockholders to Funds From Operations available to common stockholders and unitholders and Funds Available for Distribution to common stockholders and unitholders and page 9 for a reconciliation of GAAP Net Cash Provided by Operating Activities to Funds Available for Distribution to common stockholders and unitholders.


(5)	Reported amounts are attributable to common stockholders, common unitholders and restricted stock unit holders.


(6)	Funds From Operations for the three months ended December 31, 2017 includes a $5.3 million loss on early extinguishment of debt. Funds From Operations for the three months ended September 30, 2017 includes a $3.7 million or $0.04 per share non-cash charge related to the original issuance costs of Series H preferred stock that was redeemed on August 15, 2017.


(7)	Funds Available for Distribution for the three months ended December 31, 2017 includes a $5.0 million cash loss on early extinguishment of debt.


(8)	Please refer to page 26 for additional information regarding our capital structure.

Kilroy Realty Corporation

Third Quarter 2018 Supplemental Financial Report

Net Income Available to Common Stockholders / FFO Guidance and Outlook

(unaudited, $ and shares/units in thousands, except per share amounts)

The Company is providing an updated guidance range of NAREIT-defined FFO per diluted share for its fiscal year 2018 of $3.54 to $3.61 per share with a midpoint of $3.58 per share.



	Full Year 2018 Range at September 30, 2018
	Low End			High End
Net income available to common stockholders per share - diluted	$	1.30		$	1.36

Weighted average common shares outstanding - diluted⁽¹⁾	100,700			100,700

Net income available to common stockholders	$	131,000		$	137,000
Adjustments:
Net income attributable to noncontrolling common units of the Operating Partnership	2,600			3,000
Net income attributable to noncontrolling interests in consolidated property partnerships	14,500			15,500
Depreciation and amortization of real estate assets	244,000			244,000
Gains on sales of depreciable real estate	—			—
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships	(23,500		)	(24,500		)
Funds From Operations ⁽²⁾	$	368,600		$	375,000

Weighted average common shares and units outstanding - diluted ⁽³⁾	104,000			104,000

FFO per common share/unit - diluted ⁽³⁾	$	3.54		$	3.61

Key 2018 assumptions include:


•	Dispositions of approximately $375.0 million


•	Same store cash net operating income growth of 2% to 3% ⁽²⁾


•	Year-end occupancy of 94.0% to 94.5%


•	Net operating income margin of approximately 70.5% to 71.0% ⁽²⁾


•	Remaining development spending of approximately $125.0 million to $150.0 million

________________________


(1)	Calculated based on estimated weighted average shares outstanding including non-participating share-based awards.


(2)	See pages 29-31 for Management Statements on Funds From Operations, Same Store Cash Net Operating Income and Net Operating Income and page 33 for the definition of Net Operating Income Margin.

(3)

Calculated based on weighted average shares outstanding including participating and non-participating share-based awards, dilutive impact of stock options, contingently issuable shares, and shares issuable under forward equity sale agreements and assuming the exchange of all common limited partnership units outstanding. Reported amounts are attributable to common stockholders, common unitholders and restricted stock unitholders.

The Company’s guidance estimates for the full year 2018, and the reconciliation of net income available to common stockholders per share - diluted and FFO per share and unit - diluted included within this report, reflect management’s views on current and future market conditions, including assumptions with respect to rental rates, occupancy levels, and the earnings impact of the events referenced in this report. Although these guidance estimates reflect the impact on the Company’s operating results of an assumed range of future disposition activity, these guidance estimates do not include any estimates of possible future gains or losses from possible future dispositions because the magnitude of gains or losses on sales of depreciable operating properties, if any, will depend on the sales price and depreciated cost basis of the disposed assets at the time of disposition, information that is not known at the time the Company provides guidance, and the timing of any gain recognition will depend on the closing of the dispositions, information that is also not known at the time the Company provides guidance and may occur after the relevant guidance period. We caution you not to place undue reliance on our assumed range of future disposition activity because any potential future disposition transactions will ultimately depend on the market conditions and other factors, including but not limited to the Company’s capital needs, the particular assets being sold and the Company’s ability to defer some or all of the taxable gain on the sales. These guidance estimates also do not include the impact on operating results from potential future acquisitions, possible capital markets activity, possible future impairment charges or any events outside of the Company’s control. There can be no assurance that the Company’s actual results will not differ materially from these estimates.

Kilroy Realty Corporation

Third Quarter 2018 Supplemental Financial Report

Common Stock Data (NYSE: KRC)



	Three Months Ended
	9/30/2018		6/30/2018		3/31/2018		12/31/2017		9/30/2017

High Price	$	76.67	$	77.34	$	74.27	$	76.18	$	75.69
Low Price	$	69.67	$	68.96	$	63.72	$	70.17	$	67.47
Closing Price	$	71.69	$	75.64	$	70.96	$	74.65	$	71.12

Dividends per share – annualized	$	1.82	$	1.82	$	1.70	$	1.70	$	1.70

Closing common shares (in 000’s) ^{(1) (2)}	100,747		100,560		98,840		98,620		98,382
Closing common partnership units (in 000’s) ⁽¹⁾	2,025		2,071		2,071		2,077		2,077
	102,772		102,631		100,911		100,697		100,459

________________________


(1)	As of the end of the period.


(2)	In the third quarter of 2018, the Company issued 98,000 common shares under its ATM offering programs at a weighted average price of $73.24 per share before selling commissions.

Kilroy Realty Corporation

Third Quarter 2018 Supplemental Financial Report

Consolidated Balance Sheets

(unaudited, $ in thousands)



	9/30/2018			6/30/2018			3/31/2018			12/31/2017			9/30/2017
ASSETS:
Land and improvements	$	1,127,100		$	1,127,100		$	1,127,100		$	1,076,172		$	1,076,172
Buildings and improvements	5,056,050			5,017,999			4,987,617			4,908,797			4,871,667
Undeveloped land and construction in progress	2,146,430			1,993,314			1,530,949			1,432,808			1,292,017
Total real estate assets held for investment	8,329,580			8,138,413			7,645,666			7,417,777			7,239,856
Accumulated depreciation and amortization	(1,411,529		)	(1,361,811		)	(1,312,612		)	(1,264,162		)	(1,216,358		)
Total real estate assets held for investment, net	6,918,051			6,776,602			6,333,054			6,153,615			6,023,498
Cash and cash equivalents	86,517			50,817			53,069			57,649			64,954
Restricted cash	—			—			—			9,149			179,276
Marketable securities	23,353			22,519			21,572			20,674			18,851
Current receivables, net	17,519			15,144			17,602			16,926			18,626
Deferred rent receivables, net	261,003			256,558			251,744			246,391			238,959
Deferred leasing costs and acquisition-related intangible assets, net	183,118			186,649			181,567			183,728			185,420
Prepaid expenses and other assets, net	72,675			76,495			107,324			114,706			108,715
TOTAL ASSETS	$	7,562,236		$	7,384,784		$	6,965,932		$	6,802,838		$	6,838,299
LIABILITIES AND EQUITY:
Liabilities:
Secured debt, net	$	336,866		$	338,189		$	339,501		$	340,800		$	465,828
Unsecured debt, net	2,207,049			2,156,521			2,155,794			2,006,263			1,909,381
Unsecured line of credit	330,000			295,000			50,000			—			60,000
Accounts payable, accrued expenses and other liabilities	360,674			278,508			223,973			249,637			271,405
Accrued dividends and distributions	47,411			47,348			43,512			43,448			43,324
Deferred revenue and acquisition-related intangible liabilities, net	149,059			146,741			149,563			145,890			145,556
Rents received in advance and tenant security deposits	56,258			58,604			56,117			56,484			46,925
Total liabilities	3,487,317			3,320,911			3,018,460			2,842,522			2,942,419
Equity:
Stockholders’ Equity
Common stock	1,007			1,006			988			986			984
Additional paid-in capital	3,965,405			3,951,289			3,816,385			3,822,492			3,797,546
Distributions in excess of earnings	(161,654		)	(149,368		)	(130,514		)	(122,685		)	(108,667		)
Total stockholders’ equity	3,804,758			3,802,927			3,686,859			3,700,793			3,689,863
Noncontrolling Interests
Common units of the Operating Partnership	76,486			78,223			77,240			77,948			77,911
Noncontrolling interests in consolidated property partnerships	193,675			182,723			183,373			181,575			128,106
Total noncontrolling interests	270,161			260,946			260,613			259,523			206,017
Total equity	4,074,919			4,063,873			3,947,472			3,960,316			3,895,880
TOTAL LIABILITIES AND EQUITY	$	7,562,236		$	7,384,784		$	6,965,932		$	6,802,838		$	6,838,299

Kilroy Realty Corporation

Third Quarter 2018 Supplemental Financial Report

Consolidated Statements of Operations

(unaudited, $ and shares in thousands, except per share amounts)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
REVENUES
Rental income	$	162,288		$	159,954		$	489,674		$	475,527
Tenant reimbursements	21,754			19,665			60,471			58,228
Other property income	2,520			1,915			6,311			7,685
Total revenues	186,562			181,534			556,456			541,440
EXPENSES
Property expenses	35,163			33,070			99,401			97,615
Real estate taxes	17,462			16,371			52,421			50,878
Provision for bad debts	1,338			1,036			6,714			2,743
Ground leases	1,579			1,562			4,726			4,751
General and administrative expenses	19,277			14,514			56,599			43,750
Depreciation and amortization	62,700			62,567			189,421			185,737
Total expenses	137,519			129,120			409,282			385,474
OTHER (EXPENSES) INCOME
Interest income and other net investment gain/loss	342			1,526			1,147			3,629
Interest expense	(11,075		)	(16,151		)	(37,285		)	(51,476		)
Total other (expenses) income	(10,733		)	(14,625		)	(36,138		)	(47,847		)
INCOME FROM OPERATIONS BEFORE GAINS ON SALES OF REAL ESTATE	38,310			37,789			111,036			108,119
Net gain on sale of land	—			449			—			449
Gains on sales of depreciable operating properties	—			37,250			—			39,507
NET INCOME	38,310			75,488			111,036			148,075
Net income attributable to noncontrolling common units of the Operating Partnership	(691		)	(1,394		)	(2,008		)	(2,633		)
Net income attributable to noncontrolling interests in consolidated property partnerships	(3,219		)	(2,984		)	(10,833		)	(9,359		)
Total income attributable to noncontrolling interests	(3,910		)	(4,378		)	(12,841		)	(11,992		)
NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION	34,400			71,110			98,195			136,083
Preferred dividends	—			(808		)	—			(5,774		)
Original issuance costs of redeemed preferred stock	—			(3,744		)	—			(7,589		)
Total preferred dividends	—			(4,552		)	—			(13,363		)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	34,400		$	66,558		$	98,195		$	122,720
Weighted average common shares outstanding – basic	100,677			98,352			99,711			98,009
Weighted average common shares outstanding – diluted	101,228			98,912			100,209			98,591
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS PER SHARE
Net income available to common stockholders per share – basic	$	0.34		$	0.67		$	0.97		$	1.24
Net income available to common stockholders per share – diluted	$	0.33		$	0.67		$	0.97		$	1.23

Kilroy Realty Corporation

Third Quarter 2018 Supplemental Financial Report

Funds From Operations and Funds Available for Distribution

(unaudited, $ in thousands, except per share amounts)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
FUNDS FROM OPERATIONS: ⁽¹⁾
Net income available to common stockholders	$	34,400		$	66,558		$	98,195		$	122,720
Adjustments:
Net income attributable to noncontrolling common units of the Operating Partnership	691			1,394			2,008			2,633
Net income attributable to noncontrolling interests in consolidated property partnerships	3,219			2,984			10,833			9,359
Depreciation and amortization of real estate assets	61,609			61,141			186,242			181,875
Gains on sales of depreciable real estate	—			(37,250		)	—			(39,507		)
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships	(5,672		)	(5,280		)	(18,117		)	(16,832		)
Funds From Operations ⁽¹⁾⁽²⁾	$	94,247		$	89,547		$	279,161		$	260,248
Weighted average common shares/units outstanding – basic ⁽³⁾	103,841			101,618			102,923			101,353
Weighted average common shares/units outstanding – diluted ⁽⁴⁾	104,393			102,178			103,421			101,936
FFO per common share/unit – basic ⁽¹⁾	$	0.91		$	0.88		$	2.71		$	2.57
FFO per common share/unit – diluted⁽¹⁾	$	0.90		$	0.88		$	2.70		$	2.55
FUNDS AVAILABLE FOR DISTRIBUTION: ⁽¹⁾
Funds From Operations ⁽¹⁾⁽²⁾	$	94,247		$	89,547		$	279,161		$	260,248
Adjustments:
Recurring tenant improvements, leasing commissions and capital expenditures	(26,218		)	(22,689		)	(75,066		)	(58,545		)
Amortization of deferred revenue related to tenant-funded tenant improvements ⁽²⁾⁽⁵⁾	(4,811		)	(4,151		)	(13,680		)	(12,394		)
Net effect of straight-line rents	(4,445		)	(9,640		)	(14,612		)	(24,091		)
Amortization of net below market rents ⁽⁶⁾	(2,166		)	(2,423		)	(7,647		)	(6,026		)
Amortization of deferred financing costs and net debt discount/premium	234			438			816			1,261
Non-cash amortization of share-based compensation awards	6,634			4,651			18,901			13,617
Original issuance costs of redeemed preferred stock	—			3,744			—			7,589
Other lease related adjustments, net ⁽⁷⁾	3,447			(205		)	4,001			(598		)
Adjustments attributable to noncontrolling interests in consolidated property partnerships	1,836			1,236			4,374			3,247
Funds Available for Distribution ⁽¹⁾	$	68,758		$	60,508		$	196,248		$	184,308

________________________


(1)	See page 31 for Management Statements on Funds From Operations and Funds Available for Distribution. Reported per common share/unit amounts are attributable to common stockholders, common unitholders and restricted stock unit holders.

(2)

FFO available to common stockholders and unitholders includes amortization of deferred revenue related to tenant-funded tenant improvements of $4.8 million and $4.2 million for the three months ended September 30, 2018 and 2017, respectively, and $13.7 million and $12.4 million for the nine months ended September 30, 2018 and 2017, respectively. These amounts are adjusted out of FFO in our calculation of FAD.


(3)	Calculated based on weighted average shares outstanding including participating share-based awards and assuming the exchange of all common limited partnership units outstanding.


(4)	Calculated based on weighted average shares outstanding including participating and non-participating share-based awards, dilutive impact of stock options, contingently issuable shares, and shares issuable under forward equity sale agreements and assuming the exchange of all common limited partnership units outstanding.


(5)	Represents revenue recognized during the period as a result of the amortization of deferred revenue recorded for tenant-funded tenant improvements.


(6)	Represents the non-cash adjustment related to the acquisition of buildings with above and/or below market rents.


(7)	Includes other cash and non-cash adjustments attributable to lease-related GAAP revenue recognition timing differences.

Kilroy Realty Corporation

Third Quarter 2018 Supplemental Financial Report

Reconciliation of GAAP Net Cash Provided by Operating Activities to Funds Available for Distribution

(unaudited, $ in thousands)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
GAAP Net Cash Provided by Operating Activities	$	128,372		$	98,126		$	317,215		$	276,542
Adjustments:
Recurring tenant improvements, leasing commissions and capital expenditures	(26,218		)	(22,689		)	(75,066		)	(58,545		)
Net gain on sale of land	—			449			—			449
Preferred dividends	—			(808		)	—			(5,774		)
Depreciation of non-real estate furniture, fixtures and equipment	(1,091		)	(1,426		)	(3,179		)	(3,862		)
Provision for uncollectible tenant receivables	(56		)	(677		)	(5,033		)	(1,297		)
Net changes in operating assets and liabilities ⁽¹⁾	(25,520		)	(5,089		)	(15,056		)	(3,000		)
Noncontrolling interests in consolidated property partnerships’ share of FFO and FAD	(3,836		)	(4,044		)	(13,743		)	(13,585		)
Cash adjustments related to investing and financing activities	(2,893		)	(3,334		)	(8,890		)	(6,620		)

Funds Available for Distribution⁽²⁾	$	68,758		$	60,508		$	196,248		$	184,308

_______________________


(1)	Primarily includes changes in the following assets and liabilities: marketable securities; current receivables; prepaid expenses and other assets; accounts payable, accrued expenses and other liabilities; and rents received in advance and tenant security deposits.


(2)	Please refer to page 31 for a Management Statement on Funds Available for Distribution.

Kilroy Realty Corporation

Third Quarter 2018 Supplemental Financial Report

Same Store Analysis ⁽¹⁾

(unaudited, $ in thousands)




		Three Months Ended September 30,								Nine Months Ended September 30,
		2018			2017			% Change		2018			2017			% Change
	Total Same Store Portfolio
	Office Portfolio
	Number of properties	98			98					98			98
	Square Feet	13,380,604			13,380,604					13,380,604			13,380,604
	Percent of Stabilized Portfolio	96.3		%	97.5		%			96.3		%	97.5		%
	Average Occupancy	92.9		%	94.3		%			94.2		%	94.8		%

	Operating Revenues:
	Rental income	$	154,024		$	150,661		2.2	%	$	465,886		$	448,457		3.9	%
	Tenant reimbursements	21,185			19,211			10.3	%	59,313			56,794			4.4	%
	Other property income	2,515			1,693			48.6	%	6,303			6,390			(1.4	)%
	Total operating revenues	177,724			171,565			3.6	%	531,502			511,641			3.9	%
	Operating Expenses:
	Property expenses	33,502			31,148			7.6	%	95,114			92,003			3.4	%
	Real estate taxes	16,892			14,983			12.7	%	49,486			46,919			5.5	%
	Provision for bad debts	107			1,020			(89.5	)%	5,458			2,651			105.9	%
	Ground leases	1,579			1,562			1.1	%	4,726			4,751			(0.5	)%
	Total operating expenses	52,080			48,713			6.9	%	154,784			146,324			5.8	%
	GAAP Net Operating Income	$	125,644		$	122,852		2.3	%	$	376,718		$	365,317		3.1	%


Same Store Analysis (Cash Basis) ⁽²⁾

		Three Months Ended September 30,								Nine Months Ended September 30,
		2018			2017			% Change		2018			2017			% Change
	Total operating revenues	$	166,207		$	159,254		4.4	%	$	499,102		$	479,537		4.1	%
	Total operating expenses	51,972			47,657			9.1	%	149,324			143,544			4.0	%
	Cash Net Operating Income	$	114,235		$	111,597		2.4	%	$	349,778		$	335,993		4.1	%

________________________


(1)	Same Store is defined as all properties owned and included in our stabilized portfolio as of January 1, 2017 and still owned and included in the stabilized portfolio as of September 30, 2018. Same Store includes 100% of consolidated property partnerships as well as the residential tower at Columbia Square.


(2)	Please refer to page 34 for a reconciliation of GAAP Net Income Available to Common Stockholders to Same Store GAAP Net Operating Income and Same Store Cash Net Operating Income.

Kilroy Realty Corporation

Third Quarter 2018 Supplemental Financial Report

Stabilized Portfolio Occupancy Overview by Region



		Portfolio Breakdown					Occupied at				Leased at
STABILIZED OFFICE PORTFOLIO	Buildings	YTD NOI %		SF %		Total SF	9/30/2018		6/30/2018		9/30/2018
Greater Los Angeles
101 Corridor	4	1.0	%	2.2	%	309,438	90.7	%	89.5	%	91.8	%
El Segundo	5	5.1	%	7.9	%	1,093,050	99.3	%	99.3	%	99.5	%
Hollywood	6	6.2	%	5.8	%	806,557	97.3	%	97.8	%	98.4	%
Long Beach	7	3.2	%	6.8	%	949,910	91.3	%	90.8	%	95.1	%
West Hollywood	4	1.9	%	1.3	%	178,699	95.4	%	91.3	%	95.4	%
West Los Angeles	10	7.1	%	6.1	%	844,151	91.5	%	90.9	%	91.5	%
Total Greater Los Angeles	36	24.5	%	30.1	%	4,181,805	94.7	%	94.3	%	95.9	%
Total Orange County	1	1.2	%	2.0	%	271,556	89.6	%	89.6	%	90.3	%
San Diego County

Kilroy Realty Corp (KRC) SEC Filing 10-Q Quarterly report for the period ending Sunday, September 30, 2018

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