KILROY REALTY CORP - Annual Report: 2019 (Form 10-K)

---

•	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.

---

•	Item 6. Selected Financial Data – Kilroy Realty Corporation;

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

•	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations:

◦	—Liquidity and Capital Resources of the Company; and

◦	—Liquidity and Capital Resources of the Operating Partnership;

•	consolidated financial statements;

•	the following notes to the consolidated financial statements:

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

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

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

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

◦	Note 13, Stockholders’ Equity of the Company;

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

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

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

◦	Note 23, Supplemental Cash Flow Information of the Company;

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

◦	Note 26, Quarterly Financial Information of the Company (Unaudited); and

◦	Note 27, Quarterly Financial Information of the Operating Partnership (Unaudited).

---

---

---

ITEM 1.	BUSINESS

(1)	Estimated rentable square feet upon completion.

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

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

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

---

•	Corporate Governance Guidelines;

•	Code of Business Conduct and Ethics;

•	Audit Committee Charter;

•	Executive Compensation Committee Charter;

•	Nominating / Corporate Governance Committee Charter; and

•	Corporate Social Responsibility and Sustainability Committee Charter.

---

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

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

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

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

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

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

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

---

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

•	structuring leases to maximize returns;

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

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

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

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

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

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

•	own land sites in highly populated, amenity rich locations that are attractive to a broad array of tenants;

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

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

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

•	execute on our development projects under construction and future development pipeline, including expanding entitlements; and

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

---

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

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

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

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

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

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

•	completing financing in advance of the need for capital;

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

•	maintaining our credit ratings.

---

---

*

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

(1)	Full 2019 calendar year energy, water and GHG emissions data is not available until after March 30, 2020.

(2)

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

(3)

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

(4)

Renewable sources include renewable energy the Company directly produced and renewable energy the Company purchased if purchased through a renewable power purchase agreement that explicitly includes renewable energy certificates (“RECs”) or Guarantees of Origin (“GOs”), a Green-e Energy Certified utility or supplier program or other green power products that explicitly include RECs or GOs or for which Green-e Energy Certified RECs are paired with grid electricity. Percentage is based total energy consumption during the applicable year.

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

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

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

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

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

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

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

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

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

---

---

---

---

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

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

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

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

•	one or more lenders under the Operating Partnership’s unsecured revolving credit facility could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all.

---

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

•	inability to collect rent from tenants;

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

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

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

•	costs of complying with changes in governmental regulations;

•	the relative illiquidity of real estate investments;

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

•	changing submarket demographics;

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

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

•	property damage resulting from seismic activity or other natural disasters.

---

---

---

---

---

---

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

---

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

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

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

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

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

---

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

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

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

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

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

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

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

---

•	direct obligations issued by the U.S. Treasury;

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

•	taxable municipal securities;

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

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

•	repurchase agreements collateralized by corporate and asset-backed obligations;

•	both registered and unregistered money market funds; and

•	other highly rated short-term securities.

---

---

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

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

•	result in the theft of funds;

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

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

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

•	damage our reputation among our tenants and investors.

---

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

•	our ability to successfully execute on our development plans;

•	our ability to successfully complete acquisitions and operate acquired properties;

•	earthquakes;

•	changes in our earnings estimates or those of analysts;

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

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

•	increases in market interest rates;

•	changes in market valuations of similar companies;

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

•	additions or departures of key management personnel;

•	actions by institutional investors;

•	speculation in the press or investment community;

•	high levels of volatility in the credit or equity markets;

•	general market and economic conditions; and

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

---

---

---

•

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

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

---

---

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

•	the Company could be subject to increased state and local taxes; and

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

---

---

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

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

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

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

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

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

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

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

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

ITEM 1B.	UNRESOLVED STAFF COMMENTS

---

(1)	Estimated rentable square feet upon completion.

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

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

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

---

---

---

---

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

(2)

Annualized base rental revenue includes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization of deferred revenue related to tenant-funded tenant improvements, amortization of above/below market rents, amortization for lease incentives due under existing leases and expense reimbursement revenue. Excludes month-to-month leases and vacant space as of December 31, 2019. Includes 100% of annualized base rent of consolidated property partnerships.

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

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

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

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

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

(8)	For this property, leases of approximately 15,000 rentable square feet are written on a triple net basis, approximately 6,000 rentable square feet are written on a gross basis, and approximately 5,000 rentable square feet are written on a full service gross basis.

(9)	For this property, leases of approximately 236,000 rentable square feet are written on a modified gross basis and approximately 15,000 rentable square feet are written on a full service gross basis.

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

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

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

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

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

---

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

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

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

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

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

(20)	For this property, leases of approximately 70,000 rentable square feet are written on a full service gross basis and approximately 3,000 rentable square feet are written on a modified gross basis.

(21)	For this property, leases of approximately 49,000 rentable square feet are written on a modified gross basis and approximately 7,000 rentable square feet are written on a triple net basis.

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

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

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

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

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

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

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

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

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

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

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

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

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

---

(1)	The project is comprised of 311,859 square feet of office and 82,481 square feet of PDR space. The office component is 100% occupied by Adobe Systems, Inc. and the PDR component is 86% leased and 41% occupied.

(1)	The % leased is as of the date of this report.

(1)	Represents projects that have reached cold shell condition and are ready for tenant improvements, which may require additional major base building construction before being placed in service.

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

(3)	In the latter half of the second quarter of 2019, the Company delivered and commenced revenue recognition on Phase I of the Exchange on 16th, representing approximately 52% of the 750,000 square foot development project. During the fourth quarter of 2019, the Company delivered and commenced revenue recognition on Phase II, representing approximately 30% of the project.

---

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

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

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

(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.

---

(1)

Annualized base rental revenue includes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization of deferred revenue related tenant-funded tenant improvements, amortization of above/below market rents, amortization for lease incentives due under existing leases, and expense reimbursement revenue. Excludes month-to-month leases and vacant space as of December 31, 2019.

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

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

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

(5)	The Adobe Systems Inc. leases, which contribute $1.1 million, $5.8 million, and $21.0 million, expire in June 2027, July 2031 and August 2031, respectively.

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

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

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

(9)	The Concur Technologies leases, which contribute $1.8 million and $8.8 million, expire in April 2025 and December 2025, respectively.

---

---

(1)

Annualized base rent includes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization of deferred revenue related tenant-funded tenant improvements, amortization of above/below market rents, amortization for lease incentives due under existing leases and expense reimbursement revenue. Additionally, the underlying leases contain various expense structures including full service gross, modified gross and triple net. Amounts represent percentage of total portfolio annualized contractual base rental revenue.

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

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

(4)	For leases that have been renewed early with existing tenants, the expiration date and annualized base rent information presented takes into consideration the renewed lease terms. Excludes leases not commenced as of December 31, 2019, space leased under month-to-month leases, storage leases, vacant space and future lease renewal options not executed as of December 31, 2019.

ITEM 3.	LEGAL PROCEEDINGS

ITEM 4.	MINE SAFETY DISCLOSURES

---

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

(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 6.	SELECTED FINANCIAL DATA – KILROY REALTY CORPORATION

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

---

(1)

On January 1, 2016, the Company adopted FASB ASU No. 2015-03 and 2015-15 which require deferred financing costs, except costs paid for the unsecured line of credit, to be reclassified as a reduction to the debt liability balance instead of being reported as an asset as historically presented. As a result, total assets and total debt have been adjusted from prior amounts reported to reflect this change for all periods presented.

(2)	On January 1, 2019, the Company adopted FASB Topic 842 and recorded right of use ground lease assets and ground lease liabilities on its consolidate balance sheets. As of December 31, 2019, the consolidated balance sheets included $96.3 million of right of use ground lease assets and $98.4 million of ground lease liabilities.

(3)	Includes the noncontrolling interests of the common units of the Operating Partnership and consolidated property partnerships (see Note 2 “Basis of Presentation and Significant Accounting Policies” to our consolidated financial statements included in this report for additional information).

(4)

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.

(5)	FFO includes amortization of deferred revenue related to tenant-funded tenant improvements of $19.2 million, $18.4 million, $16.8 million, $13.2 million and $13.3 million for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

---

(6)

On January 1, 2017, the Company adopted FASB ASU No. 2016-18 which requires that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, cash flows provided by (used in) investing activities have been adjusted from prior amounts reported to reflect this change for all periods presented.

(7)	For the year ended December 31, 2016, represents occupancy at December 31, 2016.

(1)	The year ended December 31, 2016 includes a special distribution of $1.90 per common unit that was paid on January 13, 2017.

---

(1)

On January 1, 2016, the Company adopted FASB ASU No. 2015-03 and 2015-15 which require deferred financing costs, except costs paid for the unsecured line of credit, to be reclassified as a reduction to the debt liability balance instead of being reported as an asset as historically presented. As a result, total assets and total debt have been adjusted from prior amounts reported to reflect this change for all periods presented.

(2)	On January 1, 2019, the Company adopted FASB Topic 842 and recorded right of use ground lease assets on its consolidated balance sheets. As of December 31, 2019, the consolidated balance sheets included $96.3 million of right of use ground lease assets and $98.4 million of ground lease liabilities.

(3)	Includes the noncontrolling interests in consolidated property partnerships and subsidiaries (see Note 2 “Basis of Presentation and Significant Accounting Policies” to our consolidated financial statements included in this report for additional information).

(4)

On January 1, 2017, the Company adopted FASB ASU No. 2016-18 which requires that a statement of cash flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, cash flows provided by (used in) investing activities have been adjusted from prior amounts reported to reflect this change for all periods presented.

(5)	For the year ended December 31, 2016, represents occupancy at December 31, 2016.

---

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

•	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 remediations;

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

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

---

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

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

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

•	potential losses that may not be covered by insurance;

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

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

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

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

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

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

•	adverse changes to, or enactment or implementations of, tax laws or other applicable laws, regulations or legislation, 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.

---

---

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

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

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

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

---

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

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

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

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

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

---

---

---

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

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

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

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

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

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

•	evidence of material physical damage to the property; and

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

---

•	provide benefit in future periods;

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

•	increase the quality of the asset beyond our original estimates.

---

---

•

100 Hooper, SOMA, San Francisco, California, which we commenced construction on in November 2016. This project encompasses 311,859 square feet of office and 82,481 square feet of production, distribution and repair (“PDR”) space spanning two buildings with a total estimated investment of approximately $275.0 million. The office portion of the project is 100% leased and occupied by Adobe Systems Inc. and the PDR space is 86% leased as of the date of this report. We commenced revenue recognition on the lease with Adobe Systems Inc. on October 1, 2018. Cash rents on Phase I of the lease commenced in March 2019 and cash rents on the remaining phases will commence through the second quarter of 2020.

•

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

•

The Exchange on 16th, Mission Bay, San Francisco, California. We commenced construction on this project in June 2015. This project totals approximately 750,000 gross rentable square feet consisting of 738,000 square feet of office space and 12,000 square feet of retail space at a total estimated investment of $585.0 million. The office space in the project is 100% leased to Dropbox, Inc. During the year ended December 31, 2019, we completed construction and commenced revenue recognition on the first phase of the project in the second quarter of 2019 and on the second phase of the project in the fourth quarter of 2019, totaling approximately 82% of the project. The remaining space is currently expected to stabilize in the third quarter of 2020. Cash rents on the project will continue to commence through the first quarter of 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 of approximately 96,000 square feet of retail space with a total estimated investment of $100.0 million. As of the date of this report, the retail space of the project was 100% leased and 89% occupied. This project will be added to our stabilized portfolio in the first quarter of 2020.

•

Kilroy Oyster Point (Phase I), South San Francisco, California. In March 2019, we commenced construction on Phase I of this 39-acre life science campus situated on the waterfront in South San Francisco. This first phase encompasses approximately 656,000 square feet of office space at a total estimated investment of $570.0 million. In 2019, we executed two 12-year leases for 100% of Phase I of the project. We currently expect this project to stabilize in the fourth quarter of 2021.

•

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

---

•

Netflix & Living // On Vine, Hollywood, California. We commenced construction on the office component of this mixed-use project in January 2018, which includes the project’s overall infrastructure and site work and approximately 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 commenced construction on the residential component of the project in December 2018, which encompasses 193 residential units at a total estimated investment of $195.0 million. We currently expect this project to stabilize in the first quarter of 2021, and the residential component is currently expected to be completed in the fourth quarter of 2020.

•

333 Dexter, South Lake Union, Seattle, Washington. We commenced construction on this project in June 2017. This project encompasses approximately 635,000 square feet of office space at a total estimated investment of $410.0 million. During the year ended December 31, 2019, we executed a lease for 100% of the project with a Fortune 50 publicly traded company. Construction is currently in progress and the project is currently estimated to move into the tenant improvement phase in the first quarter of 2020 and stabilize in the second half of 2022.

•

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

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

(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 December 31, 2019.

---

---

---

(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 355,829 and 215,640 rentable square feet, respectively, for the year ended December 31, 2019, for which the space was vacant longer than one year or being leased for the first time. Space vacant for more than one year is excluded from our change in rents calculations to provide a more meaningful market comparison.

(8)	Calculated as the change between stated rents for new/renewed leases and the expiring stated rents for the same space. Excludes leases for which the space was vacant longer than one year or vacant when the property was acquired.

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

---

(1)	For leases that have been renewed early with existing tenants, the expiration date and annualized base rent information presented takes into consideration the renewed lease terms. Excludes leases not commenced as of December 31, 2019, space leased under month-to-month leases, storage leases, vacant space and future lease renewal options not executed as of December 31, 2019.

(2)

Annualized base rent includes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization of deferred revenue related tenant-funded tenant improvements, amortization of above/below market rents, amortization for lease incentives due under existing leases, and expense reimbursement revenue. Additionally, the underlying leases contain various expense structures including full service gross, modified gross and triple net. Percentages represent percentage of total portfolio annualized contractual base rental revenue. For additional information on tenant improvement and leasing commission costs incurred by the Company for the current reporting period, please see further discussion under the caption “Information on Leases Commenced and Executed.”

(3)	Includes 100% of annualized base rent of consolidated property partnerships.

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

---

(1)	Estimated rentable square feet upon completion.

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

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

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

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

---

(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, 2018 and still owned and stabilized as of December 31, 2019. 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 237 recently completed residential units that are not yet stabilized.

---

•	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, 2018 and still owned and included in the stabilized portfolio as of December 31, 2019, including our residential tower in Hollywood, California;

•

Development Properties – includes the results generated by our stabilized development projects, certain of our in-process development projects and expenses for certain of our future development projects, including one office and one retail project in the tenant improvement phase that commenced revenue recognition in the second quarter of 2019, one office development project that was added to the stabilized portfolio in the second quarter of 2019 and the first phase of our residential development project that was completed in the third quarter of 2019.

•	Acquisition Properties – includes the results, from the dates of acquisition through the periods presented, for the 19-building creative office campus we acquired during 2019 and the four office buildings we acquired in 2018; and

•	Disposition Properties – includes the results of the 11 properties disposed of in the fourth quarter of 2018, the one property disposed of in the second quarter of 2019 and the one property disposed of in the fourth quarter of 2019.

---

(1)	Excludes development projects in the tenant improvement phase, our in-process development projects and future development projects.

---

*	Percentage not meaningful.

---

•	An increase of $26.1 million attributable to the Same Store Properties primarily resulting from:

•	An increase in total operating revenues of $43.9 million or 6.3% primarily due to the following:

◦	$20.0 million increase primarily due to new leases and renewals at higher average rental rates in the San Francisco Bay Area, Greater Seattle and Los Angeles regions;

◦	$12.0 million increase due to the adoption of Topic 842 on January 1, 2019, resulting in the gross-up of tenant direct billbacks, which were previously presented net in operating expenses. These billbacks are also included in property expenses and have no net impact on operating income;

◦	$5.2 million increase due to tenant recoveries of the new Proposition C gross receipts tax for San Francisco effective January 1, 2019; and

◦	$3.1 million increase due to higher recoveries of recurring expenses related to property taxes, repairs and maintenance, security, utilities, parking and various other recurring expenses at certain properties;

◦

$3.1 million net increase primarily due to a $4.2 million increase in revenue related to the improved credit quality of a tenant for which the Company recorded a bad debt reserve in 2018, partially offset by a $1.1 million decrease in revenue for other tenants with diminished credit quality during the year ended December 31, 2019. The provision for bad debts is included in rental income beginning January 1, 2019 in connection with the adoption of Topic 842; and

◦	$2.5 million increase in parking revenue primarily due to higher tenant parking at certain properties; partially offset by

◦	$2.1 million decrease in early lease termination fees primarily due to early terminations for two tenants in 2018;

•	An increase in property and related expenses of $17.8 million or 8.9% primarily resulting from:

•	An increase of $21.2 million in property expenses primarily due to:

◦	$12.0 million increase due to the adoption of Topic 842 on January 1, 2019, resulting in the gross-up of tenant direct billbacks, which were previously presented net in property expenses. These billbacks are also included in operating revenues and have no net impact on net operating income;

◦	$5.2 million increase due to the new Proposition C gross receipts tax in San Francisco passed through to tenants which became effective on January 1, 2019; and

◦	$3.7 million increase primarily due to higher reimbursable expenses including utilities, security, repairs and maintenance and various other recurring expenses;

•	An increase of $0.5 million in real estate taxes primarily due to:

◦	$1.1 million increase due to higher supplemental taxes assessed in 2019 for the 2016 to 2019 tax years at two properties in the Greater Los Angeles area;

◦	$1.0 million increase from regular annual property tax increases in 2019; offset by

---

◦	$1.9 million decrease due to the adoption of Topic 842 on January 1, 2019, which resulted in property taxes related to properties where the Company is the lessee under a ground lease to be presented in ground lease expense;

•	An increase in ground leases of $1.8 million primarily due to the adoption of Topic 842 on January 1, 2019, which resulted in property taxes related to properties where the Company is the lessee under a ground lease to be presented in ground lease expense; partially offset by

•	A decrease of $5.7 million due to 2018 reserves primarily related to one tenant. The provision for bad debts was included in operating expenses prior to the adoption of Topic 842 on January 1, 2019;

•	An increase of $40.7 million attributable to the Development Properties; and

•	An increase of $15.5 million attributable to the Acquisition Properties; partially offset by

•	A decrease of $22.0 million attributable to the Disposition Properties.

•	A decrease of $10.6 million primarily due to lower executive retirement benefit expense; offset by

•	An increase of $5.7 million related to the mark-to-market adjustment for the Company’s deferred compensation plan which is offset by gains on the underlying marketable securities included in interest income and other net investment gains in the consolidated statements of operations; and

•	A net increase of $2.6 million due to higher compensation and other expenses related to the growth of the Company offset by lower legal fees in 2019 compared to 2018.

•	An increase of $4.9 million attributable to the Same Store Properties;

•	An increase of $12.8 million attributable to the Acquisition Properties;

•	An increase of $13.3 million attributable to the Development Properties; partially offset by

•	A decrease of $12.2 million attributable to the Disposition Properties.

---

---

---

---

(1)	Represents gross aggregate principal amount due at maturity before the effect of the following at December 31, 2019: $20.3 million of unamortized deferred financing costs on the unsecured term loan facility, unsecured senior notes and secured debt, $6.5 million of unamortized discounts for the unsecured senior notes.

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

(3)	Value based on closing price per share of our common stock of $83.90 as of December 31, 2019.

(4)	Shares of common stock outstanding exclude 3,147,110 shares of common stock sold under forward equity sale agreements that remain to be settled as of December 31, 2019.

•	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.

•	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.

•	During the year ended December 31, 2019, we completed the sale of two office buildings to unaffiliated third parties for gross sales proceeds totaling approximately $133.8 million.

•	In addition to obtaining funding from our capital recycling program during 2019, we successfully completed the following financing and capital raising activities to fund our continued growth. We continued to strengthen our balance sheet and lower our overall cost of capital.

•	Fully physically settled the forward equity sale agreements entered into in August 2018. Upon settlement, the Company issued 5,000,000 shares of common stock for net proceeds of $354.3 million;

•	Issued $500.0 million aggregate principal amount of 10-year 3.050% unsecured senior notes due February 2030 in an underwritten public offering; and

---

•

Executed various 12-month forward equity sale agreements throughout 2019, under our at-the-market stock offering program, with financial institutions acting as forward purchasers to sell 3,147,110 shares of common stock at a weighted average sales price of $80.08 per share before underwriting discounts, commissions, and offering expenses. We currently expect to fully physically settle the forward equity sale agreements and receive cash proceeds upon one or more settlement dates, at the Company’s discretion, prior to the final settlement dates in the first quarter of 2020 through the first quarter of 2021.

(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 December 31, 2019 and 2018, respectively.

(3)

Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs. As of December 31, 2019 and 2018, $3.4 million and $4.7 million of unamortized deferred financing costs, respectively, which are included in prepaid expenses and other assets, net on our consolidated balance sheets, remained to be amortized through the maturity date of our unsecured revolving credit facility.

(1)	As of December 31, 2019 and 2018, $0.7 million and $0.9 million of unamortized deferred financing costs, respectively, remained to be amortized through the maturity date of our unsecured term loan facility.

(2)	Our unsecured term loan facility interest rate was calculated based on the contractual rate of LIBOR plus 1.100% as of December 31, 2019 and 2018.

---

---

---

(1)	Includes $20.3 million of unamortized deferred financing costs on the unsecured term loan facility, unsecured senior notes, and secured debt, $6.5 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.

(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)	Represents gross aggregate principal amount before the effect of deferred financing costs of approximately and $0.9 million as of December 31, 2019.

(2)	Represents gross aggregate principal amount before the effect of the unamortized discount and deferred financing costs of approximately $6.5 million and $19.4 million as of December 31, 2019.

(3)	As of December 31, 2019, 89.0% of our debt was contractually fixed. The information in the table above reflects our projected interest rate obligations for these fixed-rate payments based on the contractual interest rates on an accrual basis and scheduled maturity dates.

(4)

As of December 31, 2019, 4.2% of our debt bore interest at variable rates which was incurred under the unsecured term loan facility. The variable interest rate payments are based on the contractual rate of LIBOR plus 1.100% as of December 31, 2019. The information in the table above reflects our projected interest rate obligations for these variable-rate payments based on the outstanding principal balance as of December 31, 2019, the scheduled interest payment dates and the contractual maturity date.

(5)

As of December 31, 2019, 6.8% of our debt bore interest at variable rates which was incurred under the unsecured revolving credit facility. The variable interest rate payments are based on the contractual rate of LIBOR plus 1.000% as of December 31, 2019. The information in the table above reflects our projected interest rate obligations for these variable-rate payments based on the outstanding principal balances as of December 31, 2019, the scheduled interest payment dates and the contractual maturity date.

(6)	Reflects minimum lease payments through the contractual lease expiration date before the impact of extension options. See Note 18 “Commitments and Contingencies” to our consolidated financial statements included in this report for further information.

(7)	Amounts represent cash commitments under signed leases and contracts for operating properties, excluding tenant-funded tenant improvements, and for other contractual commitments. The timing of these expenditures may fluctuate.

(8)	Amounts represent commitments under signed leases for pre-leased development projects and contractual commitments for projects in the tenant improvement phase and under construction as of December 31, 2019. The timing of these expenditures may fluctuate based on the ultimate progress of construction. We may start additional construction in 2020 (see “—Development” for additional information).

---

---

(1)	Excludes development properties and includes 100% of consolidated property partnerships.

(2)	Includes tenants with lease terms of 12 months or longer. Excludes leases for month-to-month and first generation tenants.

(3)	Excludes leases for which the space was vacant for longer than one year, or vacant when the property was acquired by the Company.

---

•	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.

---

---

(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 $19.2 million, $18.4 million, $16.8 million, $13.2 million and $13.3 million for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

---

---

ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

---

ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

---

ITEM 9A.	CONTROLS AND PROCEDURES

---

---

---

---

ITEM 9B.	OTHER INFORMATION

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11.	EXECUTIVE COMPENSATION

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

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

ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES

---

ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

---

---

---

---

---

---

---

---

---

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

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

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

–	Testing documentation supporting the nature of tenant improvements.

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

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

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

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

---

---

---

---

---

---

---

---

---

---

1.	Organization and Ownership

---

(1)	Estimated rentable square feet upon completion.

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

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

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

2.	Basis of Presentation and Significant Accounting Policies

---

---

---

---

---

---

•	For office and retail development and redevelopment properties that are pre-leased, we cease capitalization when revenue recognition commences, which is upon substantial completion of tenant improvements deemed to be the Company’s asset for accounting purposes.

•

For office and retail development and redevelopment properties that are not pre-leased, we may not immediately build out the tenant improvements. Therefore, we cease capitalization when revenue recognition commences upon substantial completion of the tenant improvements deemed to be the Company's asset for accounting purposes, but in any event, no later than one year after the cessation of major construction activities. We also cease capitalization on a development or redevelopment property when activities necessary to prepare the property for its intended use have been suspended.

---

•	For office and retail development or redevelopment properties with multiple tenants and staged leasing, we cease capitalization and begin depreciation on the portion of the development or redevelopment property for which revenue recognition has commenced.

•	For residential development properties, we cease capitalization when the property is substantially complete and available for occupancy.

(1)	Tenant improvements are amortized over the shorter of the lease term or the estimated useful life.

---

---

---

---

•	Level 1 – quoted prices for identical instruments in active markets;

•	Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

•	Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

---

---

---

3.	Acquisitions

(1)	Excludes acquisition-related costs.

(2)	The results of operations for the properties acquired during 2019 contributed $3.7 million to revenue and a net loss of $0.1 million primarily due to a write-off of lease-related intangible assets as a result of an early lease termination.

(3)	At December 31, 2018, this property was temporarily being held in a separate VIE to facilitate potential Section 1031 Exchanges. During January 2019, the Company completed the Section 1031 Exchange related to this VIE.

(4)	The results of operations for the properties acquired during 2018 contributed $8.0 million and $1.7 million to revenue and net income, respectively, for the year ended December 31, 2018.

(1)	The purchase price of the acquisition completed during the year ended December 31, 2019 was less than 10% of the Company’s total assets as of December 31, 2018.

(2)	The purchase price of the two acquisitions completed during the year ended December 31, 2018 were individually less than 5% and in aggregate less than 10% of the Company’s total assets as of December 31, 2017.

(3)	Represents buildings, building improvements and tenant improvements.

(4)

For the 2019 operating property acquisition, represents in-place leases (approximately $9.2 million with a weighted average amortization period of 3.3 years) and leasing commissions (approximately $2.9 million with a weighted average amortization period of 3.5 years). For the 2018 operating property acquisitions, represents in-place leases (approximately $11.8 million with a weighted average amortization period of 1.3 years) and leasing commissions (approximately $1.8 million with a weighted average amortization period of 6.6 years).

---

(5)

We evaluated the ground lease assumed in connection with the 2019 operating property acquisition and concluded it met the criteria to be classified as an operating lease. The discount rate used in determining the present value of the minimum future lease payments was 4.79%. The right of use asset ground lease asset is equal to the ground lease liability adjusted for above and below market intangibles and deferred leasing costs. Refer to Note 18 “Commitments and Contingencies” for further discussion of the Company's ground lease obligations.

(6)	For the 2019 operating property acquisition, represents below-market leases (approximately $10.0 million with a weighted average amortization period of 3.5 years). For the 2018 operating property acquisitions, represents below-market leases (approximately $8.9 million with a weighted average amortization period of 9.8 years).

(1)

Excludes acquisition-related costs. In connection with this acquisition, we also recorded $4.0 million in accrued liabilities and environmental remediation liabilities at the date of acquisition, which are not included in the purchase price above. As of December 31, 2019, the purchase price and our current estimate of assumed liabilities are included in undeveloped land and construction in progress and the assumed liabilities are included in accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets.

(2)

Excludes acquisition-related costs. In connection with this acquisition, we also recorded $6.3 million in accrued liabilities and environmental remediation liabilities at the date of acquisition, which are not included in the purchase price above. As of December 31, 2019, the purchase price and our current estimate of assumed liabilities are included in undeveloped land and construction in progress and the assumed liabilities are included in accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets. In addition, as of December 31, 2019, the Company had $10.0 million in restricted cash, which is excluded from the purchase price above, related to this acquisition which may be payable to the seller only if certain events occur within three years following the date of acquisition.

(3)

Excludes acquisition-related costs. In connection with this acquisition, we also recorded $40.6 million in accrued liabilities and environmental remediation liabilities at the date of acquisition, which are not included in the purchase price above. As of December 31, 2018, the purchase price and our current estimate of assumed liabilities are included in undeveloped land and construction in progress and the assumed liabilities are included in accounts payable, accrued expenses and other liabilities on the Company’s consolidated balance sheets.

---

(1)	Represents gross sales price before broker commissions and closing costs.

(2)	The Plaza Yarrow Bay Properties include the following properties: 10210, 10220 and 10230 NE Points Drive & 3933 Lake Washington Boulevard NE in Kirkland, Washington.

(3)	The Sorrento Mesa and Mission Valley Properties includes the following properties: 10390, 10394, 10398, 10421, 10445 and 10455 Pacific Center Court, 2355, 2365, 2375 and 2385 Northside Drive and Pacific Corporate Center - Lot 8, a 5.0 acre undeveloped land parcel.

---

5.	Deferred Leasing Costs and Acquisition-Related Intangible Assets and Liabilities, net

(1)

Upon adoption of Topic 842 on January 1, 2019 (refer to Note 2 “Basis of Presentation and Significant Accounting Policies”), we no longer separately recognize above or below-market ground lease obligations. Such amounts are reflected in the net book value of the right of use ground lease asset on our consolidated balance sheets. Refer to Note 18 “Commitments and Contingencies” for further discussion of our ground lease obligations.

(2)	Included in deferred revenue and acquisition-related intangible liabilities, net in the consolidated balance sheets.

---

(1)	The amortization of deferred leasing costs and in-place leases is recorded to depreciation and amortization expense and the amortization of lease incentives is recorded as a reduction to rental income in the consolidated statements of operations for the periods presented.

(2)	The amortization of above-market operating leases is recorded as a decrease to rental income in the consolidated statements of operations for the periods presented.

(3)	Upon adoption of Topic 842 on January 1, 2019 (refer to Note 2 “Basis of Presentation and Significant Accounting Policies”), we no longer separately recognize above or below-market ground lease obligations. Refer to Note 18 “Commitments and Contingencies” for further discussion of our ground lease obligations.

(4)	The amortization of below-market operating leases is recorded as an increase to rental income in the consolidated statements of operations for the periods presented.

(1)	Represents estimated annual amortization related to above-market operating leases. Amounts will be recorded as a decrease to rental income in the consolidated statements of operations.

(2)	Represents estimated annual amortization related to below-market operating leases. Amounts will be recorded as an increase to rental income in the consolidated statements of operations.

---

6.	Receivables

(1)	Refer to Note 2 “Basis of Presentation and Significant Accounting Policies” for discussion of our accounting policies related to the allowance for uncollectible tenant receivables and Note 20 “Other Significant Transactions” for additional information regarding changes in our allowance for uncollectible tenant receivables.

(1)	Refer to Note 2 “Basis of Presentation and Significant Accounting Policies” for discussion of our accounting policies related to the allowance for deferred rent receivables and Note 20 “Other Significant Transactions” for additional information regarding changes in our allowance for deferred rent receivables.

7.	Prepaid Expenses and Other Assets, Net

(1)	Notes receivable are shown net of a valuation allowance of approximately $3.6 million and $2.9 million as of December 31, 2019 and 2018, respectively.

---

(1)	All interest rates presented are fixed-rate interest rates.

(2)	Represents the effective interest rate including the amortization of initial issuance discounts/premiums excluding the amortization of deferred financing costs.

(3)	The secured debt and the related properties that secure the debt are held in a special purpose entity and the properties are not available to satisfy the debts and other obligations of the Company or the Operating Partnership.

(4)	In February 2019, the Company repaid this mortgage note payable at par.

---

(1)	Represents the effective interest rate including the amortization of initial issuance discounts, excluding the amortization of deferred financing costs.

(2)	Interest on these notes is payable semi-annually in arrears on February 15th and August 15th of each year, beginning on February 15, 2020.

(3)	Interest on these notes is payable semi-annually in arrears on June 15th and December 15th of each year.

(4)	Interest on these notes is payable semi-annually in arrears on April 18th and October 18th of each year.

(5)	Interest on these notes is payable semi-annually in arrears on June 15th and December 15th of each year.

(6)	Interest on these notes is payable semi-annually in arrears on February 17th and August 17th of each year.

(7)	Interest on these notes is payable semi-annually in arrears on April 1st and October 1st of each year.

(8)	Interest on these notes is payable semi-annually in arrears on February 15th and August 15th of each year.

(9)	Interest on these notes is payable semi-annually in arrears on January 15th and July 15th of each year.

---

---

(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 December 31, 2019 and 2018.

(3)

Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs. As of December 31, 2019 and 2018, $3.4 million and $4.7 million of unamortized deferred financing costs, respectively, which are included in prepaid expenses and other assets, net on our consolidated balance sheets, remained to be amortized through the maturity date of our unsecured revolving credit facility.

(1)	As of December 31, 2019 and 2018, $0.7 million and $0.9 million of unamortized deferred financing costs, respectively, remained to be amortized through the maturity date of our unsecured term loan facility.

(2)	Our unsecured term loan facility interest rate was calculated based on the contractual rate of LIBOR plus 1.100% as of December 31, 2019 and 2018.

---

(1)	Includes gross principal balance of outstanding debt before the effect of the following at December 31, 2019: $20.3 million of unamortized deferred financing costs for the unsecured term loan facility, unsecured senior notes and secured debt and $6.5 million of unamortized discounts for the unsecured senior notes.

---

10.	Deferred Revenue and Acquisition-Related Intangible Liabilities, net

(1)	See Note 5 “Deferred Leasing Costs and Acquisition-Related Intangible Assets and Liabilities, net” for additional information regarding our acquisition-related intangible liabilities.

---

---

13.	Stockholders’ Equity of the Company

---

(1)	The amount includes the value of the dividend equivalents that will be paid with additional RSUs (see Note 15 “Share-Based Compensation” for additional information).

(1)	The amount includes nonvested shares.

---

(2)	The amount includes nonvested RSUs. Does not include 932,675 and 1,018,337 market measure-based RSUs because not all the necessary performance conditions have been met as of December 31, 2019 and 2018, respectively. Refer to Note 15 “Share-Based Compensation” for additional information.

14.	Partners’ Capital of the Operating Partnership

---

(1)	The amount includes the value of the dividend equivalents that will be paid with additional RSUs (see Note 15 “Share-Based Compensation” for additional information).

(1)	Does not include 932,675 and 1,018,337 market measure-based RSUs because not all the necessary performance conditions have been met as of December 31, 2019 and 2018, respectively. Refer to Note 15 “Share-Based Compensation” for additional information.

---

---

---

(1)

Estimated RSUs earned for the 2019 Performance-Based RSUs are based on the actual achievement of the 2019 FFO Performance Condition and for the 2019 Debt to EBITDA Ratio Performance Condition, assumes 125% of the target level of achievement for one participant and 117% of the target level of achievement for all other participants, and target level of achievement of the 2019 Market Condition. Estimated RSUs earned for the 2018 Performance-Based RSUs are based on the actual achievement of the 2018 FFO Performance Condition and assume target level achievement of the 2018 Market Condition and maximum level of achievement of the 2018 Debt to EBITDA Ratio Performance Condition. The 2017 Performance-Based RSUs earned are based on actual performance of the 2017 Performance Conditions and the 2017 Market Condition.

---

---

(1)	The 2018 Time-Based RSUs consist of 56,015 RSUs granted on January 29, 2018 at a fair value per share of $70.37 and 67,818 RSUs granted on February 14, 2018 at a fair value per share of $66.46.

(2)	The 2017 Time-Based RSUs consist of 41,119 RSUs granted on February 3, 2017 at a fair value per share of $73.30 and 57,901 RSUs granted on February 24, 2017 at a fair value per share of $77.16.

(1)

Represents vested RSUs that were settled in shares of the Company’s common stock. Total shares settled include 125,220 shares that were tendered in accordance with the terms of the 2006 Plan to satisfy minimum statutory tax withholding requirements related to the RSUs settled. We accept the return of RSUs at the current quoted closing share price of the Company’s common stock to satisfy tax obligations.

(2)	Represents the issuance of dividend equivalents earned on the underlying RSUs. The dividend equivalents vest based on terms specified under the related RSU award agreement.

(3)

Outstanding RSUs as of December 31, 2019 represent the actual achievement of the FFO performance conditions and assumes target levels for the market and other performance conditions. The number of restricted stock units ultimately earned is subject to change based upon actual performance over the three-year vesting period. Dividend equivalents earned will vest along with the underlying award and are also subject to changes based on the number of RSUs ultimately earned for each underlying award.

---

(1)	Non-vested RSUs granted are based on the actual achievement of the FFO performance conditions and assumes target level achievement for the market and other performance conditions.

(1)

Represents vested RSUs that were settled in shares of the Company’s common stock. Total shares settled include 82,646 shares that were tendered in accordance with the terms of the 2006 Plan to satisfy minimum statutory tax withholding requirements related to the RSUs settled. We accept the return of RSUs at the current quoted closing share price of the Company’s common stock to satisfy tax obligations.

(2)	Represents the issuance of dividend equivalents earned on the underlying RSUs. The dividend equivalents vest based on terms specified under the related RSU award agreement.

(3)	For shares vested but not yet settled, we accept the return of RSUs at the current quoted closing share price of the Company’s common stock to satisfy minimum statutory tax-withholding requirements related to either the settlement or vesting of RSUs in accordance with the terms of the 2006 Plan.

(1)	Total fair value of RSUs vested was calculated based on the quoted closing share price of the Company’s common stock on the NYSE on the day of vesting. Excludes the issuance of dividend equivalents earned on the underlying RSUs. The dividend equivalents vest based on terms specified under the related RSU award agreement.

---

(1)	Total fair value of shares vested was calculated based on the quoted closing share price of the Company’s common stock on the NYSE on the date of vesting.

16.	Employee Benefit Plans

---

17.	Future Minimum Rent

(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.

18.	Commitments and Contingencies

---

(1)	Reflects the contractual expiration date prior to the impact of any extension or purchase options held by the Company.

(2)	The Company has three 10-year and one 45-year extension options for this ground lease, which if exercised would extend the expiration date to December 2116.

(3)	We entered into this ground lease in connection with an operating property acquisition in 2019. Refer to Note 3 “Acquisitions” for additional information.

(1)	Excludes contingent future rent payments based on gross income or adjusted gross income and reflects the minimum ground lease obligations before the impact of ground lease extension options.

(2)

One of our ground lease obligations is subject to a fair market value adjustment every five years; however, the lease includes ground rent subprotection and infrastructure rent credits which currently limit our annual rental obligations to $1.0 million. The contractual obligations for that ground lease included above assumes the lesser of $1.0 million or annual lease rental obligation in effect as of December 31, 2019.

(3)

One of our ground lease obligations includes a component which is based on the percentage of gross income that exceeds the minimum ground rent. The minimum rent is subject to increases every five years based on 50% of the average annual percentage rent for the previous five years. The contractual obligations for that lease included above assume the current annual ground lease obligation in effect at December 31, 2019 for the remainder of the lease term since we cannot predict future adjustments.

(4)

One of our ground lease obligations is subject to a fair market value adjustment every five years based on a combination of CPI adjustments and third-party appraisals limited to maximum increases annually. The contractual obligations for that lease included above assume the current annual ground lease obligation in effect at December 31, 2019 for the remainder of the lease term since we cannot predict future adjustments.

(5)

One of our ground lease obligations includes a component which is based on the percentage of adjusted gross income that exceeds the minimum ground rent. The minimum rent is subject to increases every 10 years by an amount equal to 60% of the average annual percentage rent for the previous three years. The contractual obligations for this lease included above assume the current annual ground lease obligation in effect at December 31, 2019 for the remainder of the lease term since we cannot predict future adjustments.

(6)	One of our ground lease obligations is subject to fixed 5% ground rent increases every five years, with the next increase occurring on December 1, 2022.

---

(1)	Excludes contingent future rent payments based on gross income or adjusted gross income and reflects the minimum ground lease obligations before the impact of ground lease extension options.

(2)

One of our ground lease obligations is subject to a fair market value adjustment every five years; however, the lease includes ground rent subprotection and infrastructure rent credits which currently limit our annual rental obligations to $1.0 million. The contractual obligations for that ground lease included above assumes the lesser of $1.0 million or annual lease rental obligation in effect as of December 31, 2018.

(3)

One of our ground lease obligations includes a component which is based on the percentage of gross income that exceeds the minimum ground rent. The minimum rent is subject to increases every five years based on 50% of the average annual percentage rent for the previous five years. The contractual obligations for that lease included above assume the current annual ground lease obligation in effect at December 31, 2018 for the remainder of the lease term since we cannot predict future adjustments.

(4)

One of our ground lease obligations is subject to a fair market value adjustment every five years based on a combination of CPI adjustments and third-party appraisals limited to maximum increases annually. The contractual obligations for that lease included above assume the current annual ground lease obligation in effect at December 31, 2018 for the remainder of the lease term since we cannot predict future adjustments.

(5)

One of our ground lease obligations includes a component which is based on the percentage of adjusted gross income that exceeds the minimum ground rent. The minimum rent is subject to increases every ten years by an amount equal to 60% of the average annual percentage rent for the previous three years. The contractual obligations for this lease included above assume the current annual ground lease obligation in effect at December 31, 2018 for the remainder of the lease term since we cannot predict future adjustments.

---

(1)	Based on quoted prices in active markets for identical securities.

(2)	The marketable securities are held in a limited rabbi trust.

---

(1)	Fair value calculated using Level II inputs, which are based on model-derived valuations in which significant inputs and significant value drivers are observable in active markets.

---

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

(1)	Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs.

---

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

(1)	Participating securities include nonvested shares, certain time-based RSUs and vested market measure-based RSUs.

---

---

---

(1)

The fourth quarter 2016 dividend of $2.275 per share of common stock consists of a special cash dividend of $1.90 per share of common stock and a regular quarterly cash dividend of $0.375 per share of common stock. The $1.90 per share special distribution is treated as paid in two tax years for income tax purposes: $1.587 is treated as paid on December 31, 2016 and $0.313 is treated as paid on January 13, 2017. The $0.375 per share regular quarterly distribution is considered a 2017 dividend distribution for income tax purposes.

(1)

The Tax Cuts and Jobs Act enacted on December 22, 2017 generally allows a deduction for noncorporate taxpayers equal to 20% of ordinary dividends distributed by a REIT (excluding capital gain dividends and qualified dividend income). The amount of dividend eligible for this deduction is referred to as the Section 199A Dividend.  For the year ended December 31, 2019, the Section 199A Dividend is equal to the total ordinary income dividend.

(2)	Capital gains are comprised entirely of 20% rate gains.

---

26.	Quarterly Financial Information of the Company (Unaudited)

(1)

The summation of the quarterly financial data may not equal the annual number reported on the consolidated statements of operations due to rounding. For the year ended December 31, 2018, the summation of the quarterly net income available to common stockholders per share does not equal the annual number reported on the consolidated statements of operations due to the Company’s at-the-market stock offering activity during the year.

---

27.	Quarterly Financial Information of the Operating Partnership (Unaudited)

(1)

The summation of the quarterly financial data may not equal the annual number reported on the consolidated statements of operations due to rounding. For the year ended December 31, 2018, the summation of the quarterly net income available to common stockholders per share does not equal the annual number reported on the consolidated statements of operations due to the Company’s at-the-market stock offering programs that occurred during the year.

28.	Subsequent Events

---

(1)

On January 1, 2019, the Company adopted Topic 842 on a modified retrospective basis and recognized a cumulative-effect adjustment to distributions in excess of earnings related to the allowances for uncollectible tenant receivables and deferred rent receivables. As such, the ending balances of the allowances for uncollectible tenant receivables and deferred rent receivables at December 31, 2018 do not equal the beginning balances on January 1, 2019.

(2)	For the year ended December 31, 2019, amounts do not reflect leases deemed not probable of collection for which we reversed the associated revenue under Topic 842. In addition, for the years ended December 31, 2019 and 2018, $0.7 million and $2.9 million, respectively, was charged to costs and expenses for a valuation allowance for a note receivable.

---

---

---

---

(1)	The initial costs of buildings and improvements are depreciated over 35 years using a straight-line method of accounting; improvements capitalized subsequent to acquisition are depreciated over the shorter of the lease term or useful life, generally ranging from one to 20 years.

(2)	Represents our date of construction or acquisition, or of our predecessor, the Kilroy Group.

(3)	Includes square footage from our stabilized portfolio.

(4)	These properties include the costs of a shared parking structure for a complex comprised of five office buildings and one residential tower. The costs of the parking structure are allocated amongst the six buildings.

(5)	This property represents the 200-unit Columbia Square - Residential tower that stabilized in 2016.

(6)	These costs represent infrastructure costs incurred in 1989. During the third quarter of 2009, we exercised our option to terminate the ground lease at Kilroy Airport Center, Phase IV in Long Beach, California. We had previously leased this land, which is adjacent to our Office Properties at Kilroy Airport Center, Long Beach, for potential future development opportunities.

(7)	These properties secure a $170.0 million mortgage note.

(8)	This property is currently in the tenant improvement phase of our in-process development projects and not yet in the stabilized portfolio. The estimated rentable square feet for this property is 96,000 rentable square feet.

(9)	This property represents the first completed phase of the One Paseo residential property containing 237 units.

(10)	These properties secure intercompany promissory notes between KRLP and the consolidated property partnerships.

(11)	These properties are owned by Redwood City Partners LLC, a consolidated property partnership.

(12)	This property is owned by 303 Second Street Member LLC, a consolidated property partnership.

(13)	This property is owned by 100 First Street Member LLC, a consolidated property partnership.

(14)	This property is currently in the tenant improvement phase of our in-process development projects and not yet in the stabilized portfolio. The estimated rentable square feet for this property is 750,000 rentable square feet.

(15)	These properties secure a $89.5 million mortgage note.

(16)	Represents gross aggregate principal amount before the effect of the deferred financing costs of $0.9 million as of December 31, 2019.units.

---

(1)	Amounts presented in Improvements, etc. and Other have been revised for the year ended December 31, 2018 to conform to the current year presentation with amounts transferred from undeveloped land and construction in progress to land and improvements and buildings and improvements presented on a net basis, which did not have any impact on total real estate held for investment at December 31, 2018.

---

---

---

---

---