KRC 10-Q
Kilroy Realty Corp (KRC)
10-Q
2025-10-28
For: 2025-09-30
View Original
Added on
April 11, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2025
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 1-12675 (Kilroy Realty Corporation)
Commission File Number: 000-54005 (Kilroy Realty, L.P.)
(Exact name of registrant as specified in its charter)
| Kilroy Realty Corporation | |||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| Kilroy Realty, L.P. | |||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
(Address of principal executive offices) (Zip Code)
(310 ) 481-8400
| (Registrant's telephone number, including area code) | ||||||||
| N/A | ||||||||
| (Former name, former address and former fiscal year, if changed since last report) | ||||||||
| Securities registered pursuant to Section 12(b) of the Act: | |||||||||||
| Registrant | Title of each class | Name of each exchange on which registered | Ticker Symbol | ||||||||
| Kilroy Realty Corporation | |||||||||||
| Securities registered pursuant to Section 12(g) of the Act: | |||||
| Registrant | Title of each class | ||||
| Kilroy Realty, L.P. | |||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Kilroy Realty Corporation Yes ☑ No ☐
Kilroy Realty, L.P. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Kilroy Realty Corporation Yes ☑ No ☐
Kilroy Realty, L.P. Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Kilroy Realty Corporation
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Kilroy Realty, L.P.
Large accelerated filer ☐ Accelerated filer ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Kilroy Realty Corporation Yes ☐ No ☑
Kilroy Realty, L.P. Yes ☐ No ☑
As of October 24, 2025, 118,305,702 shares of Kilroy Realty Corporation common stock, par value $.01 per share, were outstanding.
EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the period ended September 30, 2025 of Kilroy Realty Corporation and Kilroy Realty, L.P. Unless stated otherwise or the context otherwise requires, references to “Kilroy Realty Corporation” or the “Company,” “we,” “our,” and “us” mean Kilroy Realty Corporation, a Maryland corporation, and its controlled and consolidated subsidiaries, and references to “Kilroy Realty, L.P.” or the “Operating Partnership” mean Kilroy Realty, L.P., a Delaware limited partnership and its controlled and consolidated subsidiaries.
The Company is a real estate investment trust, or REIT, and the general partner of the Operating Partnership. As of September 30, 2025, the Company owned an approximate 99.0% common general partnership interest in the Operating Partnership. The remaining approximate 1.0% common limited partnership interests are owned by non-affiliated investors. As the sole general partner of the Operating Partnership, the Company exercises exclusive and complete discretion over the Operating Partnership’s day-to-day management and control and can cause it to enter into certain major transactions, including acquisitions, dispositions, and refinancings and cause changes in its line of business, capital structure, and distribution policies.
There are a few differences between the Company and the Operating Partnership that are reflected in the disclosures in this Form 10-Q. We believe it is important to understand the differences between the Company and the Operating Partnership in the context of how the Company and the Operating Partnership operate as an interrelated, consolidated company. The Company is a REIT, the only material asset of which is the partnership interests it holds in the Operating Partnership. As a result, the Company generally does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing equity from time to time and guaranteeing certain debt of the Operating Partnership. The Company itself is not directly obligated under any indebtedness, but generally guarantees all of the debt of the Operating Partnership. The Operating Partnership owns substantially all of the assets of the Company either directly or through its subsidiaries, conducts the operations of the Company’s business, and is structured as a limited partnership with no publicly traded equity. Except for net proceeds from equity issuances by the Company, which the Company generally contributes to the Operating Partnership in exchange for units of partnership interest, the Operating Partnership generates the capital required by the Company’s business through the Operating Partnership’s operations, by the Operating Partnership’s incurrence of indebtedness, or through the issuance of units of partnership interest.
Noncontrolling interests, stockholders’ equity, and partners’ capital are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The common limited partnership interests in the Operating Partnership are accounted for as partners’ capital in the Operating Partnership’s financial statements and, to the extent not held by the Company, as noncontrolling interests in the Company’s financial statements. The differences between stockholders’ equity, partners’ capital, and noncontrolling interests result from the differences in the equity issued by the Company and the Operating Partnership.
We believe combining the quarterly reports on Form 10-Q of the Company and the Operating Partnership into this single report results in the following benefits:
•Combined reports better reflect how management and the analyst community view the business as a single operating unit;
•Combined reports enhance investors’ understanding of the Company and the Operating Partnership by enabling them to view the business as a whole and in the same manner as management;
•Combined reports are more efficient for the Company and the Operating Partnership and result in savings in time, effort, and expense; and
•Combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review.
To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:
•consolidated financial statements;
•the following notes to the consolidated financial statements:
◦Note 12, Net Income Available to Common Stockholders Per Share of the Company;
◦Note 13, Net Income Available to Common Unitholders Per Unit of the Operating Partnership;
◦Note 14, Supplemental Cash Flows Information of the Company; and
◦Note 15, Supplemental Cash Flows Information of the Operating Partnership;
i
•“Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
◦—Liquidity and Capital Resources of the Company;” and
◦—Liquidity and Capital Resources of the Operating Partnership.”
This report also includes separate sections under “Part I – Financial Information, Item 4. Controls and Procedures” and separate Exhibit 31 and Exhibit 32 certifications for the Company and the Operating Partnership to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Company and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. §1350.
Available Information
We use our website (www.kilroyrealty.com) as a routine channel of distribution of company information, including press releases, presentations, and supplemental information, as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor our website in addition to following press releases, SEC filings, and public conference calls and webcasts. Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts.
ii
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
QUARTERLY REPORT FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2025
TABLE OF CONTENTS
| Page | |||||||||||
| PART I – FINANCIAL INFORMATION | |||||||||||
| Item 1. | |||||||||||
| Item 1. | |||||||||||
| Item 2. | |||||||||||
| Item 3. | |||||||||||
| Item 4. | |||||||||||
| PART II – OTHER INFORMATION | |||||||||||
| Item 1. | |||||||||||
| Item 1A. | |||||||||||
| Item 2. | |||||||||||
| Item 3. | |||||||||||
| Item 4. | |||||||||||
| Item 5. | |||||||||||
| Item 6. | |||||||||||
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) OF KILROY REALTY CORPORATION
KILROY REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except share data)
| September 30, 2025 | December 31, 2024 | ||||||||||
ASSETS | |||||||||||
REAL ESTATE ASSETS (Notes 2 and 3): | |||||||||||
| Land and improvements | $ | $ | |||||||||
| Buildings and improvements | |||||||||||
| Undeveloped land and construction in progress | |||||||||||
| Total real estate assets held for investment | |||||||||||
| Accumulated depreciation and amortization | ( | ( | |||||||||
| Total real estate assets held for investment, net | |||||||||||
CASH AND CASH EQUIVALENTS (Note 14) | |||||||||||
MARKETABLE SECURITIES (Note 11) | |||||||||||
| CURRENT RECEIVABLES, NET | |||||||||||
| DEFERRED RENT RECEIVABLES, NET | |||||||||||
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Note 2) | |||||||||||
| RIGHT OF USE GROUND LEASE ASSETS | |||||||||||
PREPAID EXPENSES AND OTHER ASSETS, NET (Notes 2 and 4) | |||||||||||
| TOTAL ASSETS | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| LIABILITIES: | |||||||||||
Secured debt, net (Notes 5 and 11) | $ | $ | |||||||||
Unsecured debt, net (Notes 5 and 11) | |||||||||||
Accounts payable, accrued expenses, and other liabilities | |||||||||||
| Ground lease liabilities | |||||||||||
| Accrued dividends and distributions | |||||||||||
Deferred revenue and acquisition-related intangible liabilities, net (Note 2) | |||||||||||
| Rents received in advance and tenant security deposits | |||||||||||
| Total liabilities | |||||||||||
COMMITMENTS AND CONTINGENCIES (Note 10) | |||||||||||
| EQUITY: | |||||||||||
Stockholders’ Equity (Note 6): | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Total stockholders’ equity | |||||||||||
Noncontrolling Interests (Notes 1 and 7): | |||||||||||
| Common units of the Operating Partnership | |||||||||||
| Noncontrolling interests in consolidated property partnerships | |||||||||||
| Total noncontrolling interests | |||||||||||
| Total equity | |||||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | |||||||||
See accompanying notes to consolidated financial statements.
1
KILROY REALTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except share and per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| REVENUES | |||||||||||||||||||||||
Rental income (Note 9) | $ | $ | $ | $ | |||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| EXPENSES | |||||||||||||||||||||||
| Property expenses | |||||||||||||||||||||||
| Real estate taxes | |||||||||||||||||||||||
| Ground leases | |||||||||||||||||||||||
General and administrative expenses (Note 8) | |||||||||||||||||||||||
| Leasing costs | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| OTHER INCOME (EXPENSES) | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
Interest expense (Note 5) | ( | ( | ( | ( | |||||||||||||||||||
Other income (expense) (Note 1) | ( | ( | |||||||||||||||||||||
Gains on sales of depreciable operating properties (Note 3) | |||||||||||||||||||||||
| Total other expenses | ( | ( | |||||||||||||||||||||
| NET INCOME | |||||||||||||||||||||||
| Net income attributable to noncontrolling common units of the Operating Partnership | ( | ( | ( | ( | |||||||||||||||||||
| Net income attributable to noncontrolling interests in consolidated property partnerships | ( | ( | ( | ( | |||||||||||||||||||
| Total income attributable to noncontrolling interests | ( | ( | ( | ( | |||||||||||||||||||
| NET INCOME AVAILABLE TO COMMON STOCKHOLDERS | $ | $ | $ | $ | |||||||||||||||||||
Net income available to common stockholders per share – basic (Note 12) | $ | $ | $ | $ | |||||||||||||||||||
Net income available to common stockholders per share – diluted (Note 12) | $ | $ | $ | $ | |||||||||||||||||||
Weighted average shares of common stock outstanding – basic (Note 12) | |||||||||||||||||||||||
Weighted average shares of common stock outstanding – diluted (Note 12) | |||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
2
KILROY REALTY CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited; in thousands, except share and per share/unit data)
| Common Stock | Total Stock- holders’ Equity | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||
| Number of Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | ||||||||||||||||||||||||||||||||||||||
| BALANCE AS OF DECEMBER 31, 2024 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||
| Issuance of share-based compensation awards | |||||||||||||||||||||||||||||||||||||||||
Non-cash amortization of share-based compensation (Note 8) | |||||||||||||||||||||||||||||||||||||||||
| Settlement of restricted stock units for shares of common stock | ( | ||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock and restricted stock units | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests in consolidated property partnerships | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Adjustment for noncontrolling interest | ( | ||||||||||||||||||||||||||||||||||||||||
Dividends declared per share of common stock and common unit ($ | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| BALANCE AS OF MARCH 31, 2025 | |||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||
| Issuance of share-based compensation awards | |||||||||||||||||||||||||||||||||||||||||
Non-cash amortization of share-based compensation (Note 8) | |||||||||||||||||||||||||||||||||||||||||
| Settlement of restricted stock units for shares of common stock | — | — | |||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock and restricted stock units | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests in consolidated property partnerships | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Adjustment for noncontrolling interest | ( | ( | |||||||||||||||||||||||||||||||||||||||
Dividends declared per common share and common unit ($ | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| BALANCE AS OF JUNE 30, 2025 | |||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||
| Issuance of share-based compensation awards | |||||||||||||||||||||||||||||||||||||||||
Non-cash amortization of share-based compensation (Note 8) | |||||||||||||||||||||||||||||||||||||||||
| Settlement of restricted stock units for shares of common stock | — | — | |||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock, stock options and restricted stock units | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests in consolidated property partnerships | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Adjustment for noncontrolling interest | ( | ( | |||||||||||||||||||||||||||||||||||||||
Dividends declared per common share and common unit ($ | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| BALANCE AS OF SEPTEMBER 30, 2025 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
3
| Common Stock | Total Stock- holders’ Equity | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||||||
| Number of Shares | Common Stock | Additional Paid-in Capital | Retained Earnings | ||||||||||||||||||||||||||||||||||||||
| BALANCE AS OF DECEMBER 31, 2023 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||
| Issuance of share-based compensation awards | |||||||||||||||||||||||||||||||||||||||||
| Non-cash amortization of share-based compensation | |||||||||||||||||||||||||||||||||||||||||
| Settlement of restricted stock units for shares of common stock | ( | ||||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock and restricted stock units | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests in consolidated property partnerships | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Adjustment for noncontrolling interest | ( | ||||||||||||||||||||||||||||||||||||||||
Dividends declared per share of common stock and common unit ($ | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| BALANCE AS OF MARCH 31, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||
| Issuance of share-based compensation awards | |||||||||||||||||||||||||||||||||||||||||
| Non-cash amortization of share-based compensation | |||||||||||||||||||||||||||||||||||||||||
| Settlement of restricted stock units for shares of common stock | — | — | |||||||||||||||||||||||||||||||||||||||
| Repurchase of common stock and restricted stock units | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests in consolidated property partnerships | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Adjustment for noncontrolling interest | ( | ( | |||||||||||||||||||||||||||||||||||||||
Dividends declared per common share and common unit ($ | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| BALANCE AS OF JUNE 30, 2024 | |||||||||||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||||||||
| Issuance of share-based compensation awards | |||||||||||||||||||||||||||||||||||||||||
| Non-cash amortization of share-based compensation | |||||||||||||||||||||||||||||||||||||||||
| Settlement of restricted stock units for shares of common stock | ( | ||||||||||||||||||||||||||||||||||||||||
| Repurchase and cancellation of common stock, stock options, and restricted stock units | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests in consolidated property partnerships | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Adjustment for noncontrolling interest | ( | ||||||||||||||||||||||||||||||||||||||||
Dividends declared per common share and common unit ($ | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| BALANCE AS OF SEPTEMBER 30, 2024 | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
4
KILROY REALTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
| Nine Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization of real estate assets and leasing costs | |||||||||||
Depreciation of non-real estate furniture, fixtures, and equipment | |||||||||||
| Revenues deemed uncollectible | |||||||||||
| Non-cash amortization of deferred revenue related to tenant-funded tenant improvements | ( | ( | |||||||||
| Straight-line rents, net | ( | ||||||||||
| Non-cash amortization of net below market rents | ( | ( | |||||||||
| Non-cash amortization of deferred financing costs and debt discounts | |||||||||||
| Non-cash amortization of share-based compensation awards | |||||||||||
| Amortization of right of use ground lease assets | |||||||||||
Gains on sales of depreciable operating properties (Note 3) | ( | ||||||||||
| Net change in other operating assets | ( | ( | |||||||||
| Net change in other operating liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Expenditures for development and redevelopment properties and undeveloped land | ( | ( | |||||||||
| Expenditures for operating properties and other capital assets | ( | ( | |||||||||
Expenditures for acquisitions of operating properties (Note 2) | ( | ( | |||||||||
Net proceeds received from dispositions (Note 3) | |||||||||||
| Maturity of certificates of deposit | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Distributions to noncontrolling interests in consolidated property partnerships | ( | ( | |||||||||
| Dividends and distributions paid to common stockholders and common unitholders | ( | ( | |||||||||
| Repurchase of common stock and restricted stock units | ( | ( | |||||||||
| Financing costs | ( | ( | |||||||||
| Principal payments and repayments of secured debt | ( | ( | |||||||||
Proceeds from the issuance of unsecured debt (Note 5) | |||||||||||
Repayments of unsecured debt (Note 5) | ( | ( | |||||||||
| Borrowings on unsecured revolving credit facility | |||||||||||
| Repayments on unsecured revolving credit facility | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net increase in cash and cash equivalents and restricted cash | |||||||||||
| Cash and cash equivalents and restricted cash, beginning of period | |||||||||||
| Cash and cash equivalents and restricted cash, end of period | $ | $ | |||||||||
See accompanying notes to consolidated financial statements.
5
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED) OF KILROY REALTY, L.P.
KILROY REALTY, L.P.
CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands, except unit data)
| September 30, 2025 | December 31, 2024 | ||||||||||
ASSETS | |||||||||||
REAL ESTATE ASSETS (Notes 2 and 3): | |||||||||||
| Land and improvements | $ | $ | |||||||||
| Buildings and improvements | |||||||||||
| Undeveloped land and construction in progress | |||||||||||
| Total real estate assets held for investment | |||||||||||
| Accumulated depreciation and amortization | ( | ( | |||||||||
| Total real estate assets held for investment, net | |||||||||||
CASH AND CASH EQUIVALENTS (Note 15) | |||||||||||
MARKETABLE SECURITIES (Note 11) | |||||||||||
| CURRENT RECEIVABLES, NET | |||||||||||
| DEFERRED RENT RECEIVABLES, NET | |||||||||||
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Note 2) | |||||||||||
| RIGHT OF USE GROUND LEASE ASSETS | |||||||||||
PREPAID EXPENSES AND OTHER ASSETS, NET (Notes 2 and 4) | |||||||||||
| TOTAL ASSETS | $ | $ | |||||||||
| LIABILITIES AND CAPITAL | |||||||||||
| LIABILITIES: | |||||||||||
Secured debt, net (Notes 5 and 11) | $ | $ | |||||||||
Unsecured debt, net (Notes 5 and 11) | |||||||||||
Accounts payable, accrued expenses, and other liabilities | |||||||||||
| Ground lease liabilities | |||||||||||
| Accrued distributions | |||||||||||
Deferred revenue and acquisition-related intangible liabilities, net (Note 2) | |||||||||||
| Rents received in advance and tenant security deposits | |||||||||||
| Total liabilities | |||||||||||
COMMITMENTS AND CONTINGENCIES (Note 10) | |||||||||||
| CAPITAL: | |||||||||||
Partner's Capital - Common units, held by common limited partners issued and outstanding | |||||||||||
Noncontrolling interests in consolidated property partnerships (Note 1) | |||||||||||
| Total capital | |||||||||||
| TOTAL LIABILITIES AND CAPITAL | $ | $ | |||||||||
See accompanying notes to consolidated financial statements.
6
KILROY REALTY, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except unit and per unit data)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| REVENUES | |||||||||||||||||||||||
Rental income (Note 9) | $ | $ | $ | $ | |||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| EXPENSES | |||||||||||||||||||||||
| Property expenses | |||||||||||||||||||||||
| Real estate taxes | |||||||||||||||||||||||
| Ground leases | |||||||||||||||||||||||
General and administrative expenses (Note 8) | |||||||||||||||||||||||
| Leasing costs | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| OTHER INCOME (EXPENSES) | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
Interest expense (Note 5) | ( | ( | ( | ( | |||||||||||||||||||
Other income (expense) (Note 1) | ( | ( | |||||||||||||||||||||
Gains on sales of depreciable operating properties (Note 3) | |||||||||||||||||||||||
| Total other expenses | ( | ( | |||||||||||||||||||||
| NET INCOME | |||||||||||||||||||||||
| Net income attributable to noncontrolling interests in consolidated property partnerships | ( | ( | ( | ( | |||||||||||||||||||
| NET INCOME AVAILABLE TO COMMON UNITHOLDERS | $ | $ | $ | $ | |||||||||||||||||||
Net income available to common unitholders per unit – basic (Note 13) | $ | $ | $ | $ | |||||||||||||||||||
Net income available to common unitholders per unit – diluted (Note 13) | $ | $ | $ | $ | |||||||||||||||||||
Weighted average common units outstanding – basic (Note 13) | |||||||||||||||||||||||
Weighted average common units outstanding – diluted (Note 13) | |||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
7
KILROY REALTY, L.P.
CONSOLIDATED STATEMENTS OF CAPITAL
(Unaudited; in thousands, except unit and per unit data)
| Partners’ Capital | Noncontrolling Interests in Consolidated Property Partnerships | ||||||||||||||||||||||
| Number of Common Units | Common Units | Total Capital | |||||||||||||||||||||
| BALANCE AS OF DECEMBER 31, 2024 | $ | $ | $ | ||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Issuance of share-based compensation awards | |||||||||||||||||||||||
Non-cash amortization of share-based compensation (Note 8) | |||||||||||||||||||||||
| Settlement of restricted stock units | — | ||||||||||||||||||||||
| Repurchase of common units and restricted stock units | ( | ( | ( | ||||||||||||||||||||
| Distributions to noncontrolling interests in consolidated property partnerships | ( | ( | |||||||||||||||||||||
Distributions declared per common unit ($ | ( | ( | |||||||||||||||||||||
| BALANCE AS OF MARCH 31, 2025 | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Issuance of share-based compensation awards | |||||||||||||||||||||||
Non-cash amortization of share-based compensation (Note 8) | |||||||||||||||||||||||
| Settlement of restricted stock units | — | ||||||||||||||||||||||
| Repurchase of common units and restricted stock units | ( | ( | ( | ||||||||||||||||||||
| Distributions to noncontrolling interests in consolidated property partnerships | ( | ( | |||||||||||||||||||||
Distributions declared per common unit ($ | ( | ( | |||||||||||||||||||||
| BALANCE AS OF JUNE 30, 2025 | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Issuance of share-based compensation awards | |||||||||||||||||||||||
Non-cash amortization of share-based compensation (Note 8) | |||||||||||||||||||||||
| Settlement of restricted stock units | — | ||||||||||||||||||||||
| Repurchase of common units, stock options and restricted stock units | ( | ( | ( | ||||||||||||||||||||
| Distributions to noncontrolling interests in consolidated property partnerships | ( | ( | |||||||||||||||||||||
Distributions declared per common unit ($ | ( | ( | |||||||||||||||||||||
| BALANCE AS OF SEPTEMBER 30, 2025 | $ | $ | $ | ||||||||||||||||||||
8
| Partners’ Capital | Noncontrolling Interests in Consolidated Property Partnerships | Total Capital | |||||||||||||||||||||
| Number of Common Units | Common Units | ||||||||||||||||||||||
| BALANCE AS OF DECEMBER 31, 2023 | $ | $ | $ | ||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Issuance of share-based compensation awards | |||||||||||||||||||||||
| Non-cash amortization of share-based compensation | |||||||||||||||||||||||
| Settlement of restricted stock units | — | ||||||||||||||||||||||
| Repurchase of common units and restricted stock units | ( | ( | ( | ||||||||||||||||||||
| Distributions to noncontrolling interests in consolidated property partnerships | ( | ( | |||||||||||||||||||||
Distributions declared per common unit ($ | ( | ( | |||||||||||||||||||||
| BALANCE AS OF MARCH 31, 2024 | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Issuance of share-based compensation awards | |||||||||||||||||||||||
| Non-cash amortization of share-based compensation | |||||||||||||||||||||||
| Settlement of restricted stock units | — | ||||||||||||||||||||||
| Repurchase of common units and restricted stock units | ( | ( | ( | ||||||||||||||||||||
| Distributions to noncontrolling interests in consolidated property partnerships | ( | ( | |||||||||||||||||||||
Distributions declared per common unit ($ | ( | ( | |||||||||||||||||||||
| BALANCE AS OF JUNE 30, 2024 | |||||||||||||||||||||||
| Net income | |||||||||||||||||||||||
| Issuance of share-based compensation awards | |||||||||||||||||||||||
| Non-cash amortization of share-based compensation | |||||||||||||||||||||||
| Settlement of restricted stock units | — | ||||||||||||||||||||||
| Repurchase and cancellation of common units, stock options, and restricted stock units | ( | ( | ( | ||||||||||||||||||||
| Distributions to noncontrolling interests in consolidated property partnerships | ( | ( | |||||||||||||||||||||
Distributions declared per common unit ($ | ( | ( | |||||||||||||||||||||
| BALANCE AS OF SEPTEMBER 30, 2024 | $ | $ | $ | ||||||||||||||||||||
See accompanying notes to consolidated financial statements.
9
KILROY REALTY, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
| Nine Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization of real estate assets and leasing costs | |||||||||||
| Depreciation of non-real estate furniture, fixtures, and equipment | |||||||||||
| Revenues deemed uncollectible | |||||||||||
| Non-cash amortization of deferred revenue related to tenant-funded tenant improvements | ( | ( | |||||||||
| Straight-line rents, net | ( | ||||||||||
| Non-cash amortization of net below market rents | ( | ( | |||||||||
| Non-cash amortization of deferred financing costs and debt discounts | |||||||||||
| Non-cash amortization of share-based compensation awards | |||||||||||
| Amortization of right of use ground lease assets | |||||||||||
| Gains on sales of depreciable operating properties (Note 3) | ( | ||||||||||
| Net change in other operating assets | ( | ( | |||||||||
| Net change in other operating liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Expenditures for development and redevelopment properties and undeveloped land | ( | ( | |||||||||
| Expenditures for operating properties and other capital assets | ( | ( | |||||||||
| Expenditures for acquisitions of operating properties (Note 2) | ( | ( | |||||||||
| Net proceeds received from dispositions (Note 3) | |||||||||||
| Maturity of certificates of deposit | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Distributions to noncontrolling interests in consolidated property partnerships | ( | ( | |||||||||
| Distributions paid to common unitholders | ( | ( | |||||||||
| Repurchase of common units and restricted stock units | ( | ( | |||||||||
| Financing costs | ( | ( | |||||||||
| Principal payments and repayments of secured debt | ( | ( | |||||||||
Proceeds from the issuance of unsecured debt (Note 5) | |||||||||||
Repayments of unsecured debt (Note 5) | ( | ( | |||||||||
| Borrowings on unsecured revolving credit facility | |||||||||||
| Repayments on unsecured revolving credit facility | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Net increase in cash and cash equivalents and restricted cash | |||||||||||
| Cash and cash equivalents and restricted cash, beginning of period | |||||||||||
| Cash and cash equivalents and restricted cash, end of period | $ | $ | |||||||||
See accompanying notes to consolidated financial statements.
10
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Ownership, and Basis of Presentation
Kilroy Realty Corporation (the “Company”) is a self-administered real estate investment trust (“REIT”) active in premier office, life science, and mixed-use property types in the United States. The Company’s approach to modern business environments is designed to drive creativity and productivity for some of the world’s leading technology, media, life science, and business services companies and we have been consistently recognized for our leadership in sustainability and building operations. The Company owns, develops, acquires, and manages real estate assets, consisting primarily of premier office and life science properties in the San Francisco Bay Area, Los Angeles, Seattle, San Diego, and Austin, which are markets it believes have strategic advantages and strong barriers to entry. The Company qualifies as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). The Company’s common stock is publicly traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “KRC.”
We own our interests in all of our real estate assets through Kilroy Realty, L.P. (the “Operating Partnership”) and conduct substantially all of our operations through the Operating Partnership. Unless stated otherwise or the context otherwise requires, the terms “Kilroy Realty Corporation” or the “Company,” “we,” “our,” and “us” refer to Kilroy Realty Corporation and its consolidated subsidiaries, including the Operating Partnership, and the term “Operating Partnership” refers to Kilroy Realty, L.P. and its consolidated subsidiaries. The descriptions of our business, employees, and properties apply to both the Company and the Operating Partnership.
Our stabilized portfolio includes all of our properties with the exception of development and redevelopment properties currently committed for construction, under construction, or in the tenant improvement phase, undeveloped land, and real estate assets held for sale, if any. We define redevelopment properties as those properties for which we expect to spend significant development and construction costs pursuant to a formal plan to change its use, the intended result of which is a higher economic return on the property. We define a property in the tenant improvement phase as a development or redevelopment property where the project has reached “cold shell condition” and is ready for tenant improvements, which may require additional major base building modifications before being placed in service. Projects in the tenant improvement phase are moved into our stabilized portfolio once the project reaches the earlier of 95 % occupancy or one year from the date of the cessation of major base building construction activities. Costs capitalized to construction in progress for development and redevelopment properties are transferred to land and improvements, buildings and improvements, and deferred leasing costs on our consolidated balance sheets as the projects or phases of projects are placed in service. We did not have any properties or undeveloped land held for sale at September 30, 2025.
Our stabilized portfolio of operating properties was comprised of the following properties at September 30, 2025:
| Number of Buildings | Rentable Square Feet | Number of Tenants | Percentage Occupied (1) | ||||||||||||||||||||
Stabilized Office Properties (2) | % | ||||||||||||||||||||||
________________________
(1)Represents economic occupancy for space where we have achieved revenue recognition for the associated lease agreements.
(2)Includes stabilized life science and retail space.
Number of Properties | Number of Units | 2025 Average Occupancy | |||||||||||||||
| Stabilized Residential Properties | % | ||||||||||||||||
As of September 30, 2025, the following properties were excluded from our stabilized portfolio:
Number of Projects | Estimated Rentable Square Feet (1) | ||||||||||
| In-process development project - tenant improvement | |||||||||||
________________________
(1)Represents estimated rentable square feet upon completion.
Our stabilized portfolio also excludes our future development pipeline, which, as of September 30, 2025, was comprised of eight potential future development sites, representing approximately 64 gross acres of undeveloped land.
11
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of September 30, 2025, all of our properties and development and redevelopment projects, and all of our business was conducted in the state of California, with the exception of ten stabilized office properties and one future development project located in the state of Washington, and one stabilized office property and one future development project located in Austin, Texas. All of our properties and development and redevelopment projects are 100 % owned, excluding the following four office properties owned by the following three consolidated property partnerships:
| Consolidated Property Partnership | Property Address | Ownership Interest (1) | ||||||||||||
| 100 First Street Member, LLC | 100 1st Street, San Francisco, CA 94105 | |||||||||||||
| 303 Second Street Member, LLC | 303 2nd Street, San Francisco, CA 94107 | |||||||||||||
| Redwood City Partners, LLC | 900 Jefferson Avenue, Redwood City, CA 94063 | |||||||||||||
| 900 Middlefield Road, Redwood City, CA 94063 | ||||||||||||||
________________________
As of September 30, 2025, the Company owned an approximate 99.0 % common general partnership interest in the Operating Partnership. The remaining approximate 1.0 % common limited partnership interest in the Operating Partnership as of September 30, 2025 was owned by non-affiliated investors. Both the general and limited common partnership interests in the Operating Partnership are denominated in common units. Generally, the number of common units held by the Company is equivalent to the number of outstanding shares of the Company’s common stock, and the rights of all the common units to quarterly distributions and payments in liquidation mirror those of the Company’s common stockholders. The common limited partners have certain redemption rights as provided in the Operating Partnership’s Seventh Amended and Restated Agreement of Limited Partnership, as amended (the “Partnership Agreement”). With the exception of the Operating Partnership and our consolidated property partnerships, all of our subsidiaries are wholly-owned.
The accompanying interim financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conjunction with the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying interim financial statements reflect all adjustments of a normal and recurring nature that are considered necessary for a fair presentation of the results for the interim periods presented. However, the results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2025. The interim financial statements for the Company and the Operating Partnership should be read in conjunction with the audited consolidated financial statements and notes thereto included in our annual report on Form 10-K for the year ended December 31, 2024.
Commencing January 1, 2025, the Company began presenting a new line item, Other income (expense), which includes tax expenses, acquisition and disposition expenses, and income or expenses related to environmental and sustainability initiatives, which were previously included in General and administrative expenses. Historical amounts for General and administrative expenses and Other income (expense) have been revised to conform with the current period presentation.
Variable Interest Entities
12
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
million (of which $322.6 million related to real estate held for investment), approximately $22.1 million, and approximately $162.5 million, respectively. Revenues, income, and net assets generated by 100 First LLC and 303 Second LLC may only be used to settle their contractual obligations, which primarily consist of operating expenses, capital expenditures, and required distributions.
At December 31, 2024, the consolidated financial statements of the Company included three VIEs in addition to the Operating Partnership: 100 First LLC, 303 Second LLC, and one entity established during the third quarter of 2024 to facilitate a potential future Section 1031 Exchange. At December 31, 2024, the Company and the Operating Partnership were determined to be the primary beneficiaries of these three VIEs since we had the ability to control the activities that most significantly impact each of the VIEs’ economic performance. At December 31, 2024, the impact of consolidating the VIEs increased the Company’s total assets, liabilities, and noncontrolling interests on our consolidated balance sheet by approximately $435.5 million (of which $357.3 million related to real estate held for investment), approximately $18.0 million, and approximately $169.4 million, respectively.
Recently Issued Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09 “Income Taxes (Topic 740): Improvements to Tax Disclosures.” The ASU is effective for annual periods beginning after December 15, 2024. The Company does not currently anticipate that the guidance will have a material impact on our consolidated financial statements or notes to our consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03 “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” The ASU is effective for annual periods beginning after December 15, 2026. The Company is currently evaluating whether the guidance will have a material impact on our consolidated financial statements or notes to our consolidated financial statements.
13
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
2. Acquisitions
Operating Property Acquisitions
During the nine months ended September 30, 2025, we acquired the operating property listed below from an unrelated third party:
| Property | Date of Acquisition | Number of Buildings | Rentable Square Feet | Purchase Price (in millions) (1) | ||||||||||||||||||||||
| 335-345 N. Maple Drive (Maple Plaza) | September 9, 2025 | $ | ||||||||||||||||||||||||
________________________
The related assets, liabilities, and results of operations of the acquired properties are included in the consolidated financial statements as of the date of acquisition. The following table summarizes the estimated relative fair values of the assets acquired and liabilities assumed as of the date of acquisition, excluding acquisition-related costs:
Total 2025 Operating Property Acquisitions (1) | |||||
| (in thousands) | |||||
| Assets | |||||
| Land and improvements | $ | ||||
Buildings and improvements (2) | |||||
Deferred leasing costs and acquisition-related intangible assets (3) | |||||
| Total assets acquired | $ | ||||
| Liabilities | |||||
Acquisition-related intangible liabilities (4) | $ | ||||
| Total liabilities assumed | $ | ||||
| Net assets and liabilities acquired | $ | ||||
________________________
(1)Represents purchase price net of credits. Excludes acquisition-related costs of $0.5 million.
(2)Represents buildings, building improvements, and tenant improvements.
(3)Represents in-place leases (approximately $28.7 million with a weighted average amortization period of 4.2 years) and above-market leases (approximately $3.2 million with a weighted average amortization period of 4.8 years).
(4)Represents below-market leases (approximately $0.1 million with a weighted average amortization period of 1.4 years).
3. Dispositions
Operating Property Dispositions
The following table summarizes the two operating properties sold during the nine months ended September 30, 2025:
| Property | Month of Disposition | Number of Buildings | Rentable Square Feet | Sales Price (in millions) (1) | ||||||||||||||||||||||
| 501 Santa Monica Boulevard | June | $ | ||||||||||||||||||||||||
| Silicon Valley Campus | September | |||||||||||||||||||||||||
| Total | $ | |||||||||||||||||||||||||
The total gains on the sales of the operating properties sold during the nine months ended September 30, 2025 was $127.0 million.
14
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
4. Prepaid Expenses and Other Assets, Net
Prepaid expenses and other assets, net consisted of the following at September 30, 2025 and December 31, 2024:
| September 30, 2025 | December 31, 2024 | ||||||||||
| (in thousands) | |||||||||||
| Furniture, fixtures and other long-lived assets, net | $ | $ | |||||||||
| Prepaid expenses, net | |||||||||||
Deferred financing costs, net (1) | |||||||||||
| Other assets | |||||||||||
| Total prepaid expenses and other assets, net | $ | $ | |||||||||
5. Secured and Unsecured Debt of the Operating Partnership
The Company generally guarantees all of the Operating Partnership’s unsecured debt obligations, including the unsecured revolving credit facility, the unsecured term loan facility, and all of the unsecured senior notes.
Unsecured Senior Notes - Registered Public Offering
In August 2025, the Operating Partnership issued $400.0 million aggregate principal amount of unsecured senior notes in a registered public offering. The outstanding balance of the unsecured senior notes is included in unsecured debt, net of an initial issuance discount of $4.0 million, on our consolidated balance sheets. The unsecured senior notes, which are scheduled to mature on October 15, 2035, require semi-annual interest payments each April and October based on a stated annual interest rate of 5.875 %. The Operating Partnership may redeem the notes at any time, either in whole or in part, subject to the payment of an early redemption premium with respect to redemptions prior to July 15, 2035. On or after July 15, 2035, the Operating Partnership may redeem the notes at any time, either in whole or in part, at par. In September 2025, the Operating Partnership used the net proceeds from the issuance of the $400.0 million 5.875 % unsecured senior notes to redeem the $400.0 million aggregate principal amount of our outstanding 4.375 % unsecured senior notes.
Unsecured Revolving Credit Facility and Term Loan Facility
The following table summarizes the balance and terms of our unsecured revolving credit facility as of September 30, 2025 and December 31, 2024:
| Unsecured Revolving Credit Facility | |||||||||||
| September 30, 2025 | December 31, 2024 | ||||||||||
| ($ in thousands) | |||||||||||
| Outstanding borrowings | $ | $ | |||||||||
Remaining borrowing capacity (1) | |||||||||||
Total borrowing capacity (1) | $ | $ | |||||||||
Interest rate (2) | % | % | |||||||||
Facility fee-annual rate (3) | |||||||||||
Unamortized deferred financing costs (3) | $ | $ | |||||||||
Maturity date (4) | July 31, 2028 | ||||||||||
________________________
(1)Remaining and total borrowing capacity are further reduced by the amount of our outstanding letters of credit which total approximately $5.2 500.0
(2)Our unsecured revolving credit facility interest rate was calculated using the Secured Overnight Financing Rate (“SOFR”) plus a SOFR adjustment of 0.10 1.100 0.01 % reduction in the interest rate provided we meet certain sustainability goals with respect to the ongoing reduction of greenhouse gas emissions.
(3)Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs in connection with the amendment and restatement of the unsecured revolving credit facility in 2024. These costs are included in Prepaid expenses and other assets, net on our consolidated balance sheets, which remain to be amortized through the maturity date of our unsecured revolving credit facility.
(4)The maturity date may be extended by two six-month
15
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The Operating Partnership intends to borrow under the unsecured revolving credit facility from time to time for general corporate purposes, including, to finance development and redevelopment expenditures, to fund potential acquisitions, to repay long-term debt, and to supplement cash balances in response to market conditions.
The following table summarizes the balance and terms of our 2024 Term Loan Facility as of September 30, 2025:
| 2024 Term Loan Facility | |||||||||||
| September 30, 2025 | December 31, 2024 | ||||||||||
| ($ in thousands) | |||||||||||
Outstanding borrowings (1) | $ | $ | |||||||||
Interest rate (2) | % | % | |||||||||
Unamortized deferred financing costs (3) | $ | $ | |||||||||
Maturity date (4) | October 3, 2026 | October 3, 2025 | |||||||||
(1)We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $130.0
(2)Our 2024 Term Loan Facility interest rate was calculated using Adjusted SOFR plus a margin of 1.200
(3)We incurred debt origination and legal costs in connection with the amendment and restatement of the unsecured revolving credit facility in 2024, which remain to be amortized through the maturity date of the 2024 Term Loan Facility. Additionally, in connection with extending the maturity date, we incurred additional costs which remain to be amortized through the extended maturity date of the 2024 Term Loan Facility.
(4)During the three months ended September 30, 2025, we exercised our option to extend the maturity date by 12 months to October 3, 2026. The maturity date may be extended by an additional 12-month period, at the Operating Partnership’s election.
Financial Covenants and Restrictions
The unsecured revolving credit facility, unsecured term loan facility, unsecured senior notes, including the private placement notes, and certain other secured debt arrangements contain covenants and restrictions requiring us to meet certain financial ratios and reporting requirements. Some of the more restrictive financial covenants include a maximum ratio of total debt to total asset value, a minimum fixed-charge coverage ratio, a maximum ratio of secured debt to total asset value, a minimum unsecured debt ratio, and a minimum unencumbered asset pool debt service coverage ratio. Noncompliance with one or more of the covenants and restrictions could result in the full principal balance of the associated debt becoming immediately due and payable. We were in compliance with all of our financial covenants as of September 30, 2025.
Debt Maturities
The following table summarizes the stated debt maturities and scheduled amortization payments for all outstanding debt as of September 30, 2025:
| Year | (in thousands) | ||||
| Remaining 2025 | $ | ||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| 2030 | |||||
| Thereafter | |||||
| Total aggregate principal value | |||||
Less: unamortized net discounts and deferred financing costs (1) | ( | ||||
| Total debt, net | $ | ||||
(1)Includes $26.1 million of unamortized deferred financing costs for the unsecured term loan facility, unsecured senior notes, and secured debt, and $11.4 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.
16
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Capitalized Interest
The following table sets forth gross interest expense and capitalized interest for the three and nine months ended September 30, 2025 and 2024. The interest expense capitalized was recorded as a cost of development and redevelopment and increased the carrying value of undeveloped land and construction in progress currently under construction.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Gross interest expense | $ | $ | $ | $ | |||||||||||||||||||
Capitalized interest | ( | ( | ( | ( | |||||||||||||||||||
| Interest expense | $ | $ | $ | $ | |||||||||||||||||||
6. Stockholders’ Equity of the Company
At-The-Market Stock Offering Program
Under our at-the-market (“ATM”) stock offering program (the “2024 ATM Program”), which commenced in March 2024, we may offer and sell shares of our common stock having an aggregate gross sales price up to $500.0 million from time to time in “at-the-market” offerings. In connection with the 2024 ATM Program, the Company may also, at its discretion, enter into forward equity sale agreements. The use of forward equity sale agreements allows the Company to lock in a share price on the sale of shares of our common stock at the time an agreement is executed, but defer settling the forward equity sale agreements and receiving the proceeds from the sale of shares until a later date. The Company did not have any outstanding forward equity sale agreements to be settled at September 30, 2025. Since commencement of the 2024 ATM Program, we have not completed any sales of common stock.
Share Repurchase Program
Under our current share repurchase program, which commenced in February 2024 (the “Share Repurchase Program”), we are authorized to repurchase shares of the Company’s common stock having an aggregate gross purchase price of up to $500.0 million. Under the Share Repurchase Program, repurchases may be made from time to time using a variety of methods, which may include open market purchases and privately negotiated transactions. The specific timing, price, and size of purchases will depend on prevailing stock prices, general economic and market conditions, and other considerations. The Share Repurchase Program does not have a termination date and repurchases may be discontinued at any time. Since commencement of the Share Repurchase Program, we have not completed any common stock repurchases.
7. Noncontrolling Interests on the Company’s Consolidated Financial Statements
Common Units of the Operating Partnership
The Company owned an approximate 99.0 1.0 1,150,574
The noncontrolling common units may be redeemed by unitholders for cash. Except under certain circumstances, we, at our option, may satisfy the cash redemption obligation with shares of the Company’s common stock on a one -for-one basis. If satisfied in cash, the value for each noncontrolling common unit upon redemption is the amount equal to the average of the closing quoted price per share of the Company’s common stock, par value $0.01 per share, as reported on the NYSE for the ten trading days immediately preceding the applicable redemption date. The aggregate value upon redemption of the then-outstanding noncontrolling common units was $50.1 million and $46.8 million as of September 30, 2025 and December 31, 2024, respectively. This redemption value does not necessarily represent the amount that would be distributed with respect to each noncontrolling common unit in the event of our termination or liquidation. In the event of our termination or liquidation, it is generally expected that each common unit would be entitled to a liquidating distribution equal to the liquidating distribution payable in respect of each share of the Company’s common stock.
17
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
8. Share-Based Compensation
Share-Based Incentive Compensation Plan
As of September 30, 2025, we maintained one share-based incentive compensation plan, the Kilroy Realty 2006 Incentive Award Plan, as amended (the “2006 Plan”). The Company has a currently effective registration statement registering 12.6 million shares of our common stock for possible issuance under our 2006 Plan. As of September 30, 2025, approximately 1.9 million shares were available for grant under the 2006 Plan. The calculation of shares available for grant is presented after taking into account a reserve for a sufficient number of shares to cover the vesting and payment of 2006 Plan awards that were outstanding on that date, including performance-based vesting awards at (i) levels actually achieved for the performance conditions (as defined below) for which the performance period has been completed, and (ii) at maximum levels for the other performance and market conditions (as defined below) for awards still in a performance period.
2025 Share-Based Compensation Grants
In February 2025, the Executive Compensation Committee of the Company’s Board of Directors awarded 535,398 restricted stock units to certain officers of the Company under the 2006 Plan, which included 308,671 RSUs (at the target level of performance) that are subject to time, market, and/or performance-based vesting requirements (the “2025 Performance-Based RSUs”) and 226,727 RSUs that are subject to time-based vesting requirements (the “2025 Time-Based RSUs”). Each RSU granted is entitled to earn dividend equivalents in the form of RSUs that vest upon vesting of the underlying RSU award.
2025 Performance-Based RSU Grant
The 2025 Performance-Based RSUs are scheduled to vest at the end of a three year period (consisting of calendar years 2025-2027. A target number of 2025 Performance-Based RSUs were awarded, and the final number of 2025 Performance-Based RSUs that vest (which may be more or less than the target number) will be based upon (i) during the first calendar year of the three year performance measurement period, the achievement of pre-set FFO per share goals that applies to 100 % of the Performance-Based RSUs awarded (the “FFO Performance Condition”), and (ii) a performance measure that applies to 50 % of the award based upon a measure of the Company’s average net debt to EBITDAre ratio for the three year performance period (the “Net Debt to EBITDAre Ratio Performance Condition”), and a market measure that applies to the other 50 % of the award based upon the relative ranking of the Company’s total stockholder return for the three year performance period compared to the total stockholder returns of an established comparison group of companies over the same period (the “Market Condition”). The 2025 Performance-Based RSUs are also subject to a three year service vesting provision (the “service vesting condition”) and are scheduled to cliff vest on the date the final vesting percentage is determined following the end of the three year performance period under the awards. The number of 2025 Performance-Based RSUs ultimately earned could fluctuate from the target number of 2025 Performance-Based RSUs granted based upon the levels of achievement for the FFO Performance Condition, the Net Debt to EBITDAre Ratio Performance Condition, the Market Condition, and the extent to which the service vesting condition is satisfied. The estimate of the number of 2025 Performance-Based RSUs earned is evaluated quarterly during the performance period based on our estimate for each of the performance conditions measured against the applicable goals.
Compensation expense for the 2025 Performance-Based RSUs is recognized on a straight-line basis over the requisite service period for each participant, which is generally the three year service period. During the three and nine months ended September 30, 2025, we recognized $2.1 million and $3.2 million of compensation expense, respectively, for the 2025 Performance-Based RSUs assuming the 2025 FFO Performance Condition is met at 175 % of target level of achievement for one participant and 150 % for all other participants. The 2025 Net Debt to EBITDAre Ratio Performance Condition assumes 100 % of the target level of achievement. In the event we achieve a lower level of performance or fail to meet the FFO Performance Condition, we would reverse a portion or all of the $2.1 million and $3.2 million of compensation expense.
Each 2025 Performance-Based RSU represents the right to receive one share of our common stock in the future subject to, and as modified by, the Company’s level of achievement of the applicable performance and market conditions. The fair value of the portion of the award subject to the Net Debt to EBITDAre Ratio Performance Condition was calculated using the closing price of the Company’s common stock on the valuation date noted below. The fair value of the portion of the award subject to the Market Condition was calculated using a Monte Carlo simulation pricing model based on the assumptions in the table below, which resulted in the following grant date fair value per share.
18
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
| Fair Value Assumptions | |||||
| Valuation date | February 14, 2025 | ||||
Fair value per share on valuation date (1) | $ | ||||
| Expected share price volatility | |||||
| Risk-free interest rate | |||||
________________________
(1)For one participant, the fair value per share on the valuation date for their 2025 Performance-Based RSUs is $38.93 .
The computation of expected volatility was based on a blend of the historical volatility of our shares of common stock over a period of twice the remaining performance period as of the grant date and implied volatility data based on the observed pricing of six month publicly-traded options on shares of our common stock. The risk-free interest rate was based on the yield curve on zero-coupon U.S. Treasury STRIP securities in effect at February 14, 2025.
The fair value of the 2025 Performance-Based RSU grant as of the valuation date noted above, based on a target level of achievement, was $11.2 million. For the three and nine months ended September 30, 2025, we recorded compensation expense based upon the grant date fair value per share for each component multiplied by the estimated number of RSUs to be earned.
2025 Time-Based RSU Grants
The 2025 Time-Based RSUs are scheduled to vest in three equal annual installments beginning on January 5, 2026 through January 5, 2028. Compensation expense for the 2025 Time-Based RSUs is recognized on a straight-line basis over the requisite service period, which is generally the explicit service period. Each 2025 Time-Based RSU represents the right to receive one share of our common stock in the future, subject to continued employment through the applicable vesting date, unless accelerated upon separation of employment, provided certain conditions are met. The total grant date fair value of the 2025 Time-Based RSU awards was $7.9 million, which was based on the $34.91 closing share price of the Company’s common stock on the NYSE on the February 14, 2025 grant date.
2024 and 2023 Performance-Based RSUs
Consistent with the 2025 Performance-Based RSU grant discussed above, the final number of 2024 and 2023 Performance-Based RSUs that vest will be based upon (i) the FFO Performance Condition that applies to 100 % of the Performance-Based RSUs awarded as determined at the end of the first calendar year of the performance measurement period, and (ii) the Net Debt to EBITDA Ratio Performance Condition that applies to 50 % of the award and the Market Condition that applies to the other 50 % of the award, both of which are based on the full three-year performance measurement period. The 2024 FFO Performance Condition was achieved at 175 % of the target level of achievement for one participant and 150 % for all other participants. The 2023 FFO Performance Condition was achieved at 150 % of the target level of achievement for all participants.
Compensation cost for the 2024 Performance-Based RSUs for the three and nine months ended September 30, 2025 assumes the 2024 Net Debt to EBITDA Ratio Performance Condition is met at 158 one 139 150
Share-Based Compensation Cost Recorded During the Period
The total compensation cost for all share-based compensation programs was $6.8 million and $6.7 million for the three months ended September 30, 2025 and 2024, respectively, and $17.7 million and $18.4 million for the nine months ended September 30, 2025 and 2024, respectively. Of the total share-based compensation costs, $1.4 million and $3.7 million were capitalized as part of real estate assets for the three and nine months ended September 30, 2025, respectively, and $2.1 million and $5.1 million was capitalized as part of real estate assets for the three and nine months ended September 30, 2024, respectively. As of September 30, 2025, there was approximately $32.8 million of total unrecognized compensation cost related to nonvested RSUs granted under share-based compensation arrangements. Such amount is based in part upon the estimated future outcome of the performance metrics as of September 30, 2025, and the actual compensation cost ultimately recognized could increase or decrease from this estimate based upon actual performance results. These costs are expected to be recognized over a weighted-average period of 1.9 years. The remaining compensation cost related to these nonvested RSU awards had been recognized in periods prior to September 30, 2025.
19
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
9. Rental Income and Future Minimum Rent
Our rental income is primarily comprised of payments defined under leases and generally are subject to scheduled fixed increases. Additionally, rental income includes variable payments for tenant reimbursements of property-related expenses and payments based on a percentage of tenant sales.
The table below sets forth the allocation of rental income between fixed and variable payments and net collectability recoveries or reserves for the three and nine months ended September 30, 2025 and 2024:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Fixed lease payments | $ | $ | $ | $ | |||||||||||||||||||
| Variable lease payments | |||||||||||||||||||||||
Net collectability recoveries (reserves) (1) | ( | ( | ( | ||||||||||||||||||||
| Total rental income | $ | $ | $ | $ | |||||||||||||||||||
_____________________
(1)Represents adjustments to rental income related to our assessment of the collectability of amounts due under leases with our tenants, including recognition of deferred rent balances associated with tenants moved to / restored from a cash basis of revenue recognition and allowances for uncollectible receivables.
We have operating leases with tenants that expire at various dates through 2055 and may be subject to scheduled fixed increases and future renewal options. Generally, the leases grant tenants renewal options. Leases also provide for additional rents based on certain operating expenses. Future contractual minimum rent under operating leases, which includes amounts contractually due from leases that are on a cash basis of reporting due to creditworthiness considerations, as of September 30, 2025 for future periods is summarized as follows:
| Year Ending | (in thousands) | ||||
| Remaining 2025 | $ | ||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| 2029 | |||||
| 2030 | |||||
| Thereafter | |||||
Total (1) | $ | ||||
_____________________
(1)Excludes residential leases and leases with a term of one year or less.
20
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
10. Commitments and Contingencies
Development and Construction Commitments
As of September 30, 2025, we had commitments of approximately $194.6 million, excluding our ground lease commitments, for contracts and executed leases directly related to our operating and development and redevelopment properties.
Environmental Matters and Asset Retirement Obligations
As of September 30, 2025 and December 31, 2024, we had the following accrued environmental remediation liabilities in connection with certain of our in-process and future development projects, and the following asset retirement obligations associated with certain of our stabilized portfolio properties and in-process and future development projects:
| September 30, 2025 | December 31, 2024 | ||||||||||
| (in thousands) | |||||||||||
| Environmental liabilities | $ | $ | |||||||||
| Asset retirement obligations | $ | $ | |||||||||
11. Fair Value Measurements and Disclosures
The only assets we record at fair value on a recurring basis in our consolidated financial statements are the marketable securities related to our Deferred Compensation Plan. The following table sets forth the fair value of our Deferred Compensation Plan assets as of September 30, 2025 and December 31, 2024:
Fair Value (Level 1) (1) | |||||||||||
| September 30, 2025 | December 31, 2024 | ||||||||||
| Description | (in thousands) | ||||||||||
Deferred Compensation Plan assets (2) | $ | $ | |||||||||
(1) Based on quoted prices in active markets for identical securities.
(2) The Deferred Compensation Plan assets are held in a limited rabbi trust.
Financial Instruments Disclosed at Fair Value
The following table sets forth the carrying value and the fair value of our other financial instruments as of September 30, 2025 and December 31, 2024:
| September 30, 2025 | December 31, 2024 | ||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||
| Liabilities | (in thousands) | ||||||||||||||||||||||
| Secured debt, net | $ | $ | $ | $ | |||||||||||||||||||
| Unsecured debt, net | $ | $ | $ | $ | |||||||||||||||||||
21
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
12. Net Income Available to Common Stockholders Per Share of the Company
The following table reconciles the numerator and denominator in computing the Company’s basic and diluted per-share computations for net income available to common stockholders for the three and nine months ended September 30, 2025 and 2024:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (in thousands, except share and per share amounts) | |||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income available to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
Allocation to participating securities (1) | ( | ( | ( | ( | |||||||||||||||||||
| Numerator for basic and diluted net income available to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Basic weighted average vested shares outstanding | |||||||||||||||||||||||
| Effect of dilutive securities | |||||||||||||||||||||||
| Diluted weighted average vested shares and common stock equivalents outstanding | |||||||||||||||||||||||
| Basic earnings per share: | |||||||||||||||||||||||
| Net income available to common stockholders per share | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per share: | |||||||||||||||||||||||
| Net income available to common stockholders per share | $ | $ | $ | $ | |||||||||||||||||||
________________________
22
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
13. Net Income Available to Common Unitholders Per Unit of the Operating Partnership
The following table reconciles the numerator and denominator in computing the Operating Partnership’s basic and diluted per-unit computations for net income available to common unitholders for the three and nine months ended September 30, 2025 and 2024:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (in thousands, except unit and per unit amounts) | |||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income available to common unitholders | $ | $ | $ | $ | |||||||||||||||||||
Allocation to participating securities (1) | ( | ( | ( | ( | |||||||||||||||||||
| Numerator for basic and diluted net income available to common unitholders | $ | $ | $ | $ | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Basic weighted average vested units outstanding | |||||||||||||||||||||||
| Effect of dilutive securities | |||||||||||||||||||||||
| Diluted weighted average vested units and common unit equivalents outstanding | |||||||||||||||||||||||
| Basic earnings per unit: | |||||||||||||||||||||||
| Net income available to common unitholders per unit | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per unit: | |||||||||||||||||||||||
| Net income available to common unitholders per unit | $ | $ | $ | $ | |||||||||||||||||||
________________________
23
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
14. Supplemental Cash Flows Information of the Company
Supplemental cash flows information as follows (in thousands):
| Nine Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| SUPPLEMENTAL CASH FLOWS INFORMATION: | |||||||||||
Cash paid for interest, net of capitalized interest of $ | $ | $ | |||||||||
| Cash paid for amounts included in the measurement of ground lease liabilities | $ | $ | |||||||||
| NON-CASH INVESTING TRANSACTIONS: | |||||||||||
| Accrual for expenditures for operating properties and development and redevelopment properties | $ | $ | |||||||||
| Tenant improvements funded directly by tenants | $ | $ | |||||||||
| Remeasurement of ground lease liability and related right of use ground lease asset | $ | $ | |||||||||
| NON-CASH FINANCING TRANSACTIONS: | |||||||||||
| Accrual of dividends and distributions payable to common stockholders and common unitholders | $ | $ | |||||||||
The following is a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the nine months ended September 30, 2025 and 2024:
| Nine Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: | |||||||||||
| Cash and cash equivalents at beginning of period | $ | $ | |||||||||
| Restricted cash at beginning of period | |||||||||||
| Cash and cash equivalents and restricted cash at beginning of period | $ | $ | |||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
| Restricted cash at end of period | |||||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | $ | |||||||||
24
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
15. Supplemental Cash Flows Information of the Operating Partnership
Supplemental cash flows information as follows (in thousands):
| Nine Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| SUPPLEMENTAL CASH FLOWS INFORMATION: | |||||||||||
Cash paid for interest, net of capitalized interest of $ | $ | $ | |||||||||
| Cash paid for amounts included in the measurement of ground lease liabilities | $ | $ | |||||||||
| NON-CASH INVESTING TRANSACTIONS: | |||||||||||
| Accrual for expenditures for operating properties and development and redevelopment properties | $ | $ | |||||||||
| Tenant improvements funded directly by tenants | $ | $ | |||||||||
| Remeasurement of ground lease liability and related right of use ground lease asset | $ | $ | |||||||||
| NON-CASH FINANCING TRANSACTIONS: | |||||||||||
| Accrual of distributions payable to common unitholders | $ | $ | |||||||||
The following is a reconciliation of our cash and cash equivalents and restricted cash at the beginning and end of the nine months ended September 30, 2025 and 2024:
| Nine Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in thousands) | |||||||||||
| RECONCILIATION OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH: | |||||||||||
| Cash and cash equivalents at beginning of period | $ | $ | |||||||||
| Restricted cash at beginning of period | |||||||||||
| Cash and cash equivalents and restricted cash at beginning of period | $ | $ | |||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
| Restricted cash at end of period | |||||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | $ | |||||||||
25
KILROY REALTY CORPORATION AND KILROY REALTY, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
16. Segments
Operating segments are defined as components of an enterprise that engage in business activities from which they may earn revenues and incur expenses and about which discrete financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”). The CODM decides how resources are allocated and assesses performance on a recurring basis, at least quarterly. Our CODM is our Chief Executive Officer (“CEO”), who evaluates the operating performance and financial results of our consolidated portfolio based on Net Income through the monthly operations meetings.
We conduct our business in one operating segment and therefore have one reportable segment. Asset information by segment is not reported because the Company does not use this measure to assess performance.
Our reportable segment derives its revenues primarily from rental revenue and other related income through the leasing of office space to tenants. We recognize revenue from base rent (fixed lease payments), additional rent (variable lease payments, which consist of amounts due from tenants for common area maintenance, real estate taxes, and other recoverable costs), parking, and other lease-related revenue.
The following table presents Net Income for the three and nine months ended September 30, 2025 and 2024:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| REVENUES: | |||||||||||||||||||||||
| Rental income | $ | $ | $ | $ | |||||||||||||||||||
| Other property income | |||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| EXPENSES: | |||||||||||||||||||||||
| Property expenses | |||||||||||||||||||||||
| Real estate taxes | |||||||||||||||||||||||
| Ground leases | |||||||||||||||||||||||
| General and administrative expenses | |||||||||||||||||||||||
| Leasing costs | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| OTHER INCOME (EXPENSES): | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Other income (expense) | ( | ( | |||||||||||||||||||||
| Gains on sales of depreciable operating properties | |||||||||||||||||||||||
| Total other expenses | ( | ( | |||||||||||||||||||||
| NET INCOME | $ | $ | $ | $ | |||||||||||||||||||
26
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion relates to our consolidated financial statements and should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. The results of operations discussion is combined for the Company and the Operating Partnership because there are no material differences in the results of operations between the two reporting entities.
Forward-Looking Statements
Statements contained in this “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are not historical facts may be forward-looking statements. Forward-looking statements include, among other things, statements or information concerning our plans, objectives, capital resources, portfolio performance, results of operations, projected future occupancy and rental rates, lease expirations, debt maturities, potential investments, strategies such as capital recycling, development and redevelopment activity, projected construction costs, projected construction commencement and completion dates, projected square footage of space that could be constructed on undeveloped land that we own, projected rentable square footage of or number of units in properties under construction or in the development pipeline, anticipated proceeds from capital recycling activity or other dispositions and anticipated dates of those activities or dispositions, projected increases in the value of properties, dispositions, future executive incentive compensation, pending, potential or proposed acquisitions, plans to grow our Net Operating Income and FFO, our ability to re-lease properties at or above current market rates, anticipated market conditions and demographics and other forward-looking financial data, as well as the discussion in “—Factors That May Influence Future Results of Operations,” “—Liquidity and Capital Resource of the Company,” and “—Liquidity and Capital Resources of the Operating Partnership.” Forward-looking statements can be identified by the use of words such as “believes,” “expects,” “projects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates”, or “anticipates” and the negative of these words and phrases and similar expressions that do not relate to historical matters. Forward-looking statements are based on our current expectations, beliefs, and assumptions, and are not guarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends, and factors that are difficult to predict, many of which are outside of our control. Accordingly, actual performance, results, and events may vary materially from those indicated or implied in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results, or events. Numerous factors could cause actual future performance, results, and events to differ materially from those indicated in the forward-looking statements, including, among others: global market and general economic conditions, including actual and potential tariffs and periods of heightened inflation, and their effect on our liquidity and financial conditions and those of our tenants; adverse economic or real estate conditions generally, and specifically, in the states of California, Texas, and Washington; risks associated with our investment in real estate assets, which are illiquid, and with trends in the real estate industry; defaults on or non-renewal of leases by tenants; any significant downturn in tenants’ businesses, including bankruptcy, lack of liquidity or lack of funding, and the impact labor disruptions or strikes, such as episodic strikes in the media industry, may have on our tenants’ businesses; our ability to re-lease property at or above current market rates; reduced demand for office space, including as a result of remote working and flexible working arrangements that allow work from remote locations other than an employer’s office premises; costs to comply with government regulations, including environmental remediation; the availability of cash for distribution and debt service, and exposure to risk of default under debt obligations; increases in interest rates and our ability to manage interest rate exposure; changes in interest rates and 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; risks associated with climate change and our sustainability strategies, and our ability to achieve our sustainability goals; and our ability to maintain our status as a REIT. The factors included in this report are not exhaustive and additional factors could adversely affect our business and financial performance. For a discussion of additional factors that
27
could materially adversely affect the Company’s and the Operating Partnership’s business and financial performance, see the discussion below, as well as in “Part I, Item 1A. Risk Factors” and “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s and the Operating Partnership’s annual report on Form 10-K for the year ended December 31, 2024, and their respective other filings with the SEC. All forward-looking statements are based on currently available information and speak only as of the dates on which they are made. We assume no obligation to update any forward-looking statement that becomes untrue because of subsequent events, new information, or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws.
Overview and Background
We are a self-administered REIT active in premier office, life science, and mixed-use property types in the United States. We own, develop, acquire, and manage real estate assets, consisting primarily of premier office and life science properties in the San Francisco Bay Area, Los Angeles, Seattle, San Diego, and Austin, which are markets we believe have strategic advantages and strong barriers to entry. We own our interests in all of our real estate assets through the Operating Partnership and conduct substantially all of our operations through the Operating Partnership. We owned an approximate 99.0% common general partnership interest in the Operating Partnership as of September 30, 2025 and December 31, 2024. As of September 30, 2025, all of our properties are held in fee except for the fourteen office buildings that are held subject to long-term ground leases.
Stabilized Portfolio Information
As of September 30, 2025, our stabilized portfolio was comprised of 121 office, life science, and mixed-use buildings encompassing an aggregate of approximately 16.8 million rentable square feet and 1,001 residential units. Our stabilized portfolio includes all of our properties with the exception of development and redevelopment properties currently committed for construction, under construction, or in the tenant improvement phase, undeveloped land, and real estate assets held for sale, if any. We define redevelopment properties as those properties for which we expect to spend significant development and construction costs pursuant to a formal plan to change its use, the intended result of which is a higher economic return on the property. We define a property in the tenant improvement phase as a development or redevelopment property where the project has reached “cold shell condition” and is ready for tenant improvements, which may require additional major base building modifications before being placed in service. Projects in the tenant improvement phase are moved into our stabilized portfolio once the project reaches the earlier of 95% occupancy or one year from the date of the cessation of major base building construction activities. Costs capitalized to construction in progress for development and redevelopment properties are transferred to land and improvements, buildings and improvements, and deferred leasing costs on our consolidated balance sheets as the projects or phases of projects are placed in service. We did not have any properties or undeveloped land held for sale at September 30, 2025.
As of September 30, 2025, the following properties were excluded from our stabilized portfolio:
Number of Projects | Estimated Rentable Square Feet (1) | ||||||||||
| In-process development project - tenant improvement | 1 | 871,738 | |||||||||
________________________
(1)Represents estimated rentable square feet upon completion.
Our stabilized portfolio also excludes our future development pipeline, which, as of September 30, 2025, was comprised of eight potential development sites, representing approximately 64 gross acres of undeveloped land, on which we believe we could develop more than 6.0 million rentable square feet of office space and approximately 1,750 residential units.
The following table reconciles the changes in the rentable square feet in our stabilized office portfolio of operating properties from September 30, 2024 to September 30, 2025:
| Number of Buildings | Rentable Square Feet | ||||||||||
Total as of September 30, 2024 (1) | 123 | 17,140,465 | |||||||||
| Acquisitions | 1 | 306,366 | |||||||||
| Completed redevelopment properties placed in-service | 2 | 100,488 | |||||||||
| Dispositions | (5) | (741,969) | |||||||||
| Remeasurement | — | 6,417 | |||||||||
Total as of September 30, 2025 (1) | 121 | 16,811,767 | |||||||||
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________________________
(1)Includes four properties owned by consolidated property partnerships (see Note 1 “Organization, Ownership, and Basis of Presentation” to our consolidated financial statements included in this report for additional information).
Occupancy Information
The following table sets forth certain information regarding our stabilized portfolio as of the end of the period presented:
| September 30, 2025 | June 30, 2025 | |||||||||||||||||||||||||||||||||||||
| Region | Number of Buildings | Rentable Square Feet | Occupancy | Number of Buildings | Rentable Square Feet | Occupancy | ||||||||||||||||||||||||||||||||
Los Angeles | 53 | 4,568,159 | 74.0 | % | 52 | 4,261,793 | 74.4 | % | ||||||||||||||||||||||||||||||
San Diego | 27 | 2,923,315 | 82.8 | % | 26 | 2,871,241 | 85.0 | % | ||||||||||||||||||||||||||||||
| San Francisco Bay Area | 30 | 5,564,971 | 85.7 | % | 29 | 5,507,135 | 84.8 | % | ||||||||||||||||||||||||||||||
Seattle | 10 | 2,996,347 | 80.6 | % | 10 | 2,996,347 | 78.5 | % | ||||||||||||||||||||||||||||||
| Austin | 1 | 758,975 | 82.2 | % | 1 | 758,975 | 79.9 | % | ||||||||||||||||||||||||||||||
| Total Stabilized Portfolio | 121 | 16,811,767 | 81.0 | % | 118 | 16,395,491 | 80.8 | % | ||||||||||||||||||||||||||||||
The following table sets forth the average occupancy of certain property groups within our stabilized portfolio for the periods presented:
| Average Occupancy | |||||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
Stabilized Office Portfolio (1) | 80.7 | % | 84.1 | % | 81.0 | % | 84.1 | % | |||||||||||||||
Same Property Portfolio (1)(2) | 80.9 | % | 83.3 | % | 80.8 | % | 83.4 | % | |||||||||||||||
Residential Portfolio (3) | 93.2 | % | 92.0 | % | 94.1 | % | 92.6 | % | |||||||||||||||
________________________
(1)Occupancy percentages reported are calculated as the average of the daily ending occupancy percentages for the period presented. Represents economic occupancy for space where we have achieved revenue recognition for the associated lease agreements.
(2)Occupancy percentages reported are based on properties owned and stabilized as of January 1, 2024 and still owned and stabilized as of September 30, 2025, and exclude our residential portfolio. See discussion under “Results of Operations” for additional information.
(3)Our residential portfolio consists of our 200-unit residential tower and 193-unit Jardine property in Hollywood, California and 608 residential units at our One Paseo mixed-use property in Del Mar, California.
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Significant Tenants
The following table sets forth information about our 20 largest tenants based upon annualized base rental revenues, as defined below, as of September 30, 2025:
Tenant Name (1) | Region | Annualized Base Rental Revenue (in thousands) (2) | Rentable Square Feet | Percentage of Total Annualized Base Rental Revenue (2) | Percentage of Total Rentable Square Feet | Year(s) of Significant Lease Expiration(s) (3) | Weighted Average Remaining Lease Term (Years) | ||||||||||||||||||||||||||||||||||||||||
| 1 | Global technology company | Seattle / San Diego | $ | 44,851 | 849,826 | 5.8 | % | 5.1 | % | 2032 - 2033 / 2037 | 7.8 | ||||||||||||||||||||||||||||||||||||
| 2 | Cruise LLC | San Francisco Bay Area | 35,449 | 374,618 | 4.5 | % | 2.2 | % | 2031 | 6.2 | |||||||||||||||||||||||||||||||||||||
| 3 | Stripe, Inc. | San Francisco Bay Area | 33,110 | 425,687 | 4.2 | % | 2.5 | % | 2034 | 8.8 | |||||||||||||||||||||||||||||||||||||
| 4 | Adobe Systems, Inc. | San Francisco Bay Area / Seattle | 27,897 | 537,799 | 3.6 | % | 3.2 | % | 2027 / 2031 | 5.6 | |||||||||||||||||||||||||||||||||||||
| 5 | Salesforce, Inc. | San Francisco Bay Area / Seattle | 24,706 | 472,988 | 3.2 | % | 2.8 | % | 2029 - 2030 / 2032 | 4.6 | |||||||||||||||||||||||||||||||||||||
| 6 | Okta, Inc. | San Francisco Bay Area | 24,206 | 293,001 | 3.1 | % | 1.7 | % | 2028 | 3.1 | |||||||||||||||||||||||||||||||||||||
| 7 | DoorDash, Inc. | San Francisco Bay Area | 23,842 | 236,759 | 3.1 | % | 1.4 | % | 2032 | 6.3 | |||||||||||||||||||||||||||||||||||||
| 8 | Netflix, Inc. | Los Angeles | 21,854 | 361,388 | 2.8 | % | 2.1 | % | 2032 | 6.8 | |||||||||||||||||||||||||||||||||||||
| 9 | Cytokinetics, Inc. | San Francisco Bay Area | 18,167 | 234,892 | 2.3 | % | 1.4 | % | 2033 | 8.1 | |||||||||||||||||||||||||||||||||||||
| 10 | Box, Inc. | San Francisco Bay Area | 16,853 | 287,680 | 2.2 | % | 1.7 | % | 2028 | 2.3 | |||||||||||||||||||||||||||||||||||||
| 11 | DIRECTV, LLC | Los Angeles | 16,085 | 532,956 | 2.1 | % | 3.2 | % | 2026 (4) - 2027 | 1.9 | |||||||||||||||||||||||||||||||||||||
| 12 | Tandem Diabetes Care, Inc. | San Diego | 15,884 | 181,949 | 2.0 | % | 1.1 | % | 2035 | 9.6 | |||||||||||||||||||||||||||||||||||||
| 13 | Synopsys, Inc. | San Francisco Bay Area | 15,492 | 342,891 | 2.0 | % | 2.0 | % | 2030 | 4.9 | |||||||||||||||||||||||||||||||||||||
| 14 | Neurocrine Biosciences, Inc. | San Diego | 14,397 | 273,021 | 1.9 | % | 1.6 | % | 2029 / 2031 | 5.5 | |||||||||||||||||||||||||||||||||||||
| 15 | Viacom International, Inc. | Los Angeles | 13,718 | 220,330 | 1.8 | % | 1.3 | % | 2028 | 3.3 | |||||||||||||||||||||||||||||||||||||
| 16 | Indeed, Inc. | Austin CBD | 13,430 | 330,394 | 1.7 | % | 2.0 | % | 2034 | 9.3 | |||||||||||||||||||||||||||||||||||||
| 17 | Sony Group Corporation | San Francisco Bay Area / Los Angeles | 13,382 | 131,642 | 1.7 | % | 0.8 | % | 2030 | 4.5 | |||||||||||||||||||||||||||||||||||||
| 18 | Amazon.com | Seattle | 12,921 | 284,307 | 1.7 | % | 1.7 | % | 2030 | 4.4 | |||||||||||||||||||||||||||||||||||||
| 19 | Nektar Therapeutics, Inc. | San Francisco Bay Area | 12,297 | 135,974 | 1.6 | % | 0.8 | % | 2030 | 4.3 | |||||||||||||||||||||||||||||||||||||
| 20 | Riot Games, Inc. | Los Angeles | 12,234 | 197,676 | 1.6 | % | 1.2 | % | 2026 (5) / 2031 | 3.0 | |||||||||||||||||||||||||||||||||||||
| Total | $ | 410,775 | 6,705,778 | 52.9 | % | 39.8 | % | 5.7 | |||||||||||||||||||||||||||||||||||||||
________________________
(1)Includes subsidiaries of the tenant listed.
(2)Annualized base rental revenue is calculated as the annualized monthly contractual rents from existing tenants, including the impact of straight-lined rent escalations and the amortization of free rent periods and excluding 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. Includes 100% of the annualized base rental revenues of consolidated property partnerships.
(3)Significant lease expirations include those greater than 25,000 rentable square feet.
(4)The 2026 lease expiration represents 49,255 rentable square feet that expires on September 30, 2026.
(5)The 2026 lease expiration represents 110,834 rentable square feet that expires on November 30, 2026. Subsequent to quarter end, the Company signed a 78,900 square foot renewal .
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Factors That May Influence Future Results of Operations
Leasing Activity and Changes in Rental Rates
The amount of net rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space, newly developed or redeveloped properties, newly acquired properties with vacant space, and space available from unscheduled lease terminations. The amount of rental income we generate also depends on our ability to maintain or increase rental rates at our properties. Negative trends in one or more of these factors could adversely affect our rental income in future periods. The following tables set forth certain information regarding leasing activity during the three and nine months ended September 30, 2025:
Leases Executed (1)
| Quarter to Date | Number of Leases | Rentable Square Feet | Weighted Average Lease Term (in months) | TI / LC per Sq. Ft. (2) | TI / LC per Sq. Ft. / Year (2) | Changes in Rents (3) | Changes in Cash Rents (4) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| New | Renewal | New | Renewal | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
2nd Gen Leasing (5) | 9 | 13 | 114,336 | 196,310 | 310,646 | 77 | $ | 83.74 | $ | 13.05 | 5.0 | % | (9.6) | % | |||||||||||||||||||||||||||||||||||||||||||||
1st Gen / Major Repositioning / In-Process Development & Redevelopment Leasing (6) | 4 | — | 111,941 | — | 111,941 | 144 | $ | 431.21 | $ | 35.93 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | 13 | 13 | 226,277 | 196,310 | 422,587 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of Leases | Rentable Square Feet | Weighted Average Lease Term (in months) | TI / LC per Sq. Ft. (2) | TI / LC per Sq. Ft. / Year (2) | Changes in Rents (3) | Changes in Cash Rents (4) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Year to Date | New | Renewal | New | Renewal | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
2nd Gen Leasing (5) | 44 | 39 | 390,761 | 404,745 | 795,506 | 66 | $ | 62.43 | $ | 11.35 | (6.3) | % | (15.2) | % | |||||||||||||||||||||||||||||||||||||||||||||
1st Gen / Major Repositioning / In-Process Development & Redevelopment Leasing (6) | 12 | — | 217,339 | — | 217,339 | 128 | $ | 293.09 | $ | 27.48 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | 56 | 39 | 608,100 | 404,745 | 1,012,845 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retention Rate Calculations (7) | Quarter to Date | Year to Date | ||||||||||||
| Retention Rate | 60.2 | % | 35.1 | % | ||||||||||
Retention Rate, including subtenants (8) | 60.2 | % | 38.9 | % | ||||||||||
________________________
(1)Includes 100% of consolidated property partnerships. Excludes leases with a lease term of less than one year (i.e. short-term leases).
(2)Includes tenant improvements and third-party leasing commissions and excludes tenant-funded tenant improvements and indirect leasing costs.
(3)Calculated as the change between the expiring GAAP rent and the new GAAP rent for the same space. When necessary, lease structures are modified (adjusted for NNN) for comparability. Space that was vacant when the property was acquired is excluded from these calculations.
(4)Calculated as the change between the expiring cash rent and the new cash rent for the same space. When necessary, lease structures are modified (adjusted for NNN) for comparability. Space that was vacant when the property was acquired is excluded from these calculations.
(5)Represents leases executed at properties in the stabilized portfolio during the period, excluding leases with a lease term of less than one year. Excludes leases executed at space not previously leased at recently completed development projects that have been added to the stabilized portfolio and at space in the stabilized portfolio for which we are incurring significant non-recurring capital expenditures to reposition and is expected to result in additional revenue generated when re-leased. Tenant improvement and leasing commission capital expenditures for projects classified as Major Repositioning are captured in 2nd Gen Capital Expenditures.
(6)Represents leases executed at space not previously leased, recently completed development projects that have been added to the stabilized portfolio, at space in the stabilized portfolio for which we are incurring significant non-recurring capital expenditures to reposition and is expected to result in additional revenue generated when re-leased, and at projects in our development and redevelopment portfolios.
(7)Calculated as the percentage of square footage renewed by existing tenants at lease expiration or termination divided by the square footage of space renewed by existing tenants and lease expirations during the period. Excludes square footage of short-term leases.
(8)Represents the retention rate, inclusive of leases with subtenants where the Company does not expect to experience significant downtime in occupancy between leases.
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Lease Expirations (1)(2)
The following tables set forth certain information regarding our scheduled lease expirations for our stabilized portfolio, excluding our residential properties, for the remainder of 2025 and the next five years and by region for the remainder of 2025 and in 2026:
| Year of Lease Expiration | Number of Expiring Leases | Total Square Feet | % of Total Leased Sq. Ft. | Annualized Base Rent (in thousands) (3) | % of Total Annualized Base Rent (3) | Annualized Base Rent per Sq. Ft. (3) | ||||||||||||||||||||||||||||||||
| Month-to-Month | 30 | 29,252 | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||||||||||
| Remainder of 2025 | 17 | 181,854 | 1.3 | % | $ | 10,462 | 1.3 | % | $ | 57.53 | ||||||||||||||||||||||||||||
| 2026 | 75 | 1,117,670 | 8.3 | % | 52,655 | 6.7 | % | 47.11 | ||||||||||||||||||||||||||||||
| 2027 | 83 | 1,142,867 | 8.6 | % | 45,185 | 5.9 | % | 39.54 | ||||||||||||||||||||||||||||||
| 2028 | 74 | 1,274,358 | 9.4 | % | 78,052 | 10.0 | % | 61.25 | ||||||||||||||||||||||||||||||
| 2029 | 56 | 1,281,536 | 9.5 | % | 69,840 | 8.9 | % | 54.50 | ||||||||||||||||||||||||||||||
| 2030 | 76 | 1,825,587 | 13.5 | % | 106,416 | 13.6 | % | 58.29 | ||||||||||||||||||||||||||||||
| Total | 381 | 6,823,872 | 50.6 | % | $ | 362,610 | 46.4 | % | $ | 53.14 | ||||||||||||||||||||||||||||
| Year | Region | Number of Expiring Leases | Total Square Feet | % of Total Leased Sq. Ft. | Annualized Base Rent (in thousands) (3) | % of Total Annualized Base Rent (3) | Annualized Rent per Sq. Ft. (3) | |||||||||||||||||||||||||||||||||||||
| 2025 | Los Angeles | 10 | 30,504 | 0.1 | % | $ | 2,045 | 0.3 | % | $ | 67.03 | |||||||||||||||||||||||||||||||||
| San Diego | 2 | 6,826 | 0.1 | % | 359 | — | % | 52.61 | ||||||||||||||||||||||||||||||||||||
| San Francisco Bay Area | 4 | 96,035 | 0.7 | % | 6,312 | 0.8 | % | 65.73 | ||||||||||||||||||||||||||||||||||||
| Seattle | 1 | 48,489 | 0.4 | % | 1,746 | 0.2 | % | 36.01 | ||||||||||||||||||||||||||||||||||||
| Austin | — | — | — | % | — | — | % | — | ||||||||||||||||||||||||||||||||||||
| Total | 17 | 181,854 | 1.3 | % | $ | 10,462 | 1.3 | % | $ | 57.53 | ||||||||||||||||||||||||||||||||||
| 2026 | Los Angeles | 42 | 507,389 | 3.8 | % | $ | 22,098 | 2.8 | % | $ | 43.55 | |||||||||||||||||||||||||||||||||
San Diego | 8 | 42,725 | 0.3 | % | 2,111 | 0.3 | % | 49.41 | ||||||||||||||||||||||||||||||||||||
| San Francisco Bay Area | 11 | 274,208 | 2.0 | % | 17,086 | 2.1 | % | 62.31 | ||||||||||||||||||||||||||||||||||||
Seattle | 14 | 293,348 | 2.2 | % | 11,360 | 1.5 | % | 38.73 | ||||||||||||||||||||||||||||||||||||
| Austin | — | — | — | % | — | — | % | — | ||||||||||||||||||||||||||||||||||||
| Total | 75 | 1,117,670 | 8.3 | % | $ | 52,655 | 6.7 | % | $ | 47.11 | ||||||||||||||||||||||||||||||||||
________________________
(1)Represents all in-place leases as of September 30, 2025, excluding intercompany leases.
(2)Includes 100% of annualized base rent of consolidated property partnerships.
(3)Represents annualized monthly contractual rents from existing tenants, including the impact of straight-lined rent escalations and the amortization of free rent periods and excluding 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. 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. 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 “Leases Executed.”
Adjusting for leases that have been backfilled or renewed by a subtenant as of September 30, 2025 but not yet commenced, the remaining 2025, 2026, and 2027 expirations would be 124,324, 1,116,398, and 1,136,992 square feet, respectively.
Our rental rates and occupancy are impacted by general economic conditions, including the pace of regional economic growth and access to capital. Therefore, we cannot guarantee that leases will be renewed or that available space will be re-leased at rental rates equal to or above the current market rates.
Sublease Space
Of our occupied space as of September 30, 2025, approximately 1.8 million rentable square feet, or 10.5% of the square footage in our stabilized portfolio, was available for sublease, primarily in the San Francisco Bay Area, in addition to the rentable square feet currently subleased. Of the approximately 1.8 million rentable square feet available for sublease as of September 30, 2025, no leases are scheduled to expire in 2025 and approximately 117,369 rentable square feet representing two leases are scheduled to expire in 2026.
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Capital Recycling Program
We continuously evaluate opportunities for the potential disposition of non-core properties and undeveloped land in our portfolio, or the formation of strategic ventures, with the intent of using the proceeds generated to acquire new operating and development properties, to finance development and redevelopment expenditures, to repay long-term debt, and for other general corporate purposes. We continue to evaluate strategic opportunities and remain a disciplined buyer of core, value-add, and strategic operating properties. We historically have focused on markets populated by knowledge and creative-based tenants in a variety of industries, including technology, media, healthcare, life sciences, and business services. As part of our capital recycling strategy, we may attempt to enter into transactions intended to qualify as like-kind exchanges pursuant to Section 1031 of the Code (“Section 1031 Exchanges”), and other tax deferred transaction structures, when possible, to defer some or all of the taxable gains on the sales, if any, for federal and state income tax purposes. See the “Liquidity and Capital Resources of the Operating Partnership – Liquidity Sources” section for further discussion of our capital recycling activities.
The timing of any potential future disposition or strategic venture transactions will depend on market conditions and other factors, including, but not limited to, our capital needs, the availability of financing for potential buyers (which has been and may continue to be constrained due to current economic and market conditions), and our ability to absorb or defer some or all of the taxable gains on the sales. We cannot assure that we will dispose of any additional properties, enter into any additional strategic ventures, or that we will be able to effect a Section 1031 Exchange or be able to use other tax deferred structures in connection with our strategy. See the “Liquidity and Capital Resources of the Operating Partnership – Liquidity Sources” section for further information.
In connection with our capital recycling strategy, we may have one or more potential acquisitions of properties and/or undeveloped land under consideration that are in varying stages of negotiation and due diligence review, or under contract, at any point in time. However, we cannot guarantee that we will enter into any agreements to acquire properties or undeveloped land, or that the potential acquisitions contemplated by any agreements we may enter into in the future will be completed. In addition, acquisitions are subject to various risks and uncertainties, and we may be unable to complete an acquisition after making a nonrefundable deposit or incurring acquisition-related costs.
Development and Redevelopment Programs
We believe that a portion of our long-term future growth will indirectly continue to come from the completion of our in-process development and redevelopment projects and, subject to market conditions, from identifying new redevelopment opportunities and executing on our future development pipeline. Our future development pipeline may also expand in the future through targeted acquisitions of development opportunities on the West Coast and in Austin, Texas, subject to market conditions.
We have a proactive planning process by which we continually evaluate the size, timing, costs, and scope of our development and redevelopment programs and, as necessary, scale activity to reflect the economic conditions and the real estate fundamentals that exist in our submarkets. We expect to execute on our development and redevelopment programs with prudence and will be pursuing opportunities with attractive economic returns in strategic locations with proximity to public transportation or transportation access, retail amenities, and in markets with strong fundamentals and visible demand. We generally plan to develop projects in phases, as appropriate, and we favor starting projects with significant pre-leasing activity.
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Stabilized Redevelopment Projects
During the nine months ended September 30, 2025, we completed and added the following redevelopment projects to our stabilized portfolio:
•4690 Executive Drive, University Towne Center, San Diego, California. In March 2022, we began the phased redevelopment of this property and completed base building components during the third quarter of 2024. This project is comprised of 52,074 square feet of life science space with a total estimated investment of $30.0 million, inclusive of the depreciated basis of the building. We added the building to the stabilized portfolio in the third quarter of 2025 upon reaching one year since substantial completion. The project is 47% leased.
•4400 Bohannon Drive, Menlo Park, California. In December 2022, we began the redevelopment of this property in the Other Peninsula submarket and completed base building components during the third quarter of 2024. This project is comprised of 48,414 square feet of life science space with a total estimated investment of $55.0 million, inclusive of the depreciated basis of the building. We added the building to the stabilized portfolio in the third quarter of 2025 upon reaching one year since substantial completion.
In-Process Development - Tenant Improvement
As of September 30, 2025, we had one development project in the tenant improvement phase:
•Kilroy Oyster Point (Phase 2), South San Francisco, California. In June 2021, we commenced construction on Phase 2 of this 39-acre life science campus situated on the waterfront in South San Francisco and progressed the property to the tenant improvement phase during the first quarter of 2025. The second phase encompasses 871,738 square feet of office and life science space across three buildings with a total estimated investment of $1.0 billion. We expect this property to be added to the stabilized portfolio upon the completion of the 12-month lease up period which is expected to end in the first quarter of 2026. The project is 8% leased.
Future Development Pipeline
As of September 30, 2025, our future development pipeline included eight future projects located in Los Angeles, San Diego, the San Francisco Bay Area, Seattle, and Austin with an aggregate cost basis of approximately $1.5 billion, at which we believe we could develop more than 6.0 million rentable square feet of office space and approximately 1,750 residential units.
The following table sets forth information about our future development pipeline:
| Future Development Pipeline | Location | Approx. Developable Square Feet / Residential Units (1) | Total Costs (in millions) (2) | |||||||||||||||||
| Los Angeles | ||||||||||||||||||||
1633 26th Street (3) | West Los Angeles | 190,000 | $ | 15.4 | ||||||||||||||||
| San Diego | ||||||||||||||||||||
Santa Fe Summit (3)(4) | 56 Corridor | 600,000 - 650,000 | 116.7 | |||||||||||||||||
| 2045 Pacific Highway | Little Italy / Point Loma | 275,000 | 61.1 | |||||||||||||||||
| Kilroy East Village | East Village | 1,100 units | 68.0 | |||||||||||||||||
| San Francisco Bay Area | ||||||||||||||||||||
| Kilroy Oyster Point - Phases 3 and 4 | South San Francisco | 875,000 - 1,000,000 | 247.6 | |||||||||||||||||
| Flower Mart | San Francisco CBD | 2,300,000 | 693.3 | |||||||||||||||||
| Seattle | ||||||||||||||||||||
| SIX0 | Lake Union / Denny Regrade | 925,000 and 650 units | 201.8 | |||||||||||||||||
| Austin | ||||||||||||||||||||
| Stadium Tower | Stadium District / Domain | 493,000 | 76.0 | |||||||||||||||||
| TOTAL: | $ | 1,479.9 | ||||||||||||||||||
________________________
(1)Project scope, including the estimated developable square feet or number of residential units, could change materially from estimates provided due to one or more of the following: significant changes in the economy, market conditions, tenant requirements and demands, construction costs, new supply, regulatory and entitlement processes, or project design.
(2)Represents costs incurred, net of municipal bonds proceeds received related to public infrastructure improvements, including accrued liabilities in accordance with GAAP, as of September 30, 2025.
(3)Subject to a signed agreement and non-refundable deposit as of the date of this filing. Both development sites are anticipated to close upon receipt of entitlements, which is expected to occur in 2026.
(4)Approximately five acres of the 22-acre future development site is under contract.
34
Fluctuations in our development activities could cause fluctuations in the average development asset balances qualifying for interest and other carrying cost and internal cost capitalization in future periods. A slowdown in development activities could result in fewer projects qualifying for interest capitalization under GAAP, resulting in higher interest expense. The following table sets forth our capitalized interest and internal overhead cost capitalization in our stabilized portfolio:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||
| Capitalized Interest | ||||||||||||||||||||||||||
| Average Qualifying Costs | $ | 1,974,224 | $ | 1,943,642 | $ | 1,918,482 | $ | 1,860,982 | ||||||||||||||||||
| Capitalized Interest | $ | 22,574 | $ | 20,827 | $ | 64,455 | $ | 61,149 | ||||||||||||||||||
| Capitalized Internal Overhead Costs | ||||||||||||||||||||||||||
| Development & Redevelopment Projects | $ | 1,948 | $ | 3,390 | $ | 6,055 | $ | 9,332 | ||||||||||||||||||
| Capital Improvement Projects | $ | 2,734 | $ | 2,082 | $ | 7,068 | $ | 6,698 | ||||||||||||||||||
Incentive Compensation
Our Executive Compensation Committee determines compensation, including cash bonuses and equity incentives, for our executive officers, as defined in Rule 16 under the Exchange Act. For 2025, the annual cash bonus program was structured to allow the Executive Compensation Committee to evaluate the Company’s performance against pre-established goals under a variety of key quantitative and qualitative metrics at the end of the year and make a determination based on the Company’s and management’s overall performance. Our Executive Compensation Committee also grants equity incentive awards from time to time that include performance-based and/or market-measure-based vesting requirements and time-based vesting requirements. As a result, accrued incentive compensation and compensation expense for future awards may be affected by our operating and development performance, financial results, stock price, market conditions, liquidity measures, and other factors. Consequently, we cannot predict the amounts that will be recorded in future periods related to such incentive compensation.
As of September 30, 2025, there was approximately $32.8 million of total unrecognized compensation costs related to outstanding nonvested RSUs granted under share-based compensation arrangements. Such amount is based in part upon the estimated future outcome of the performance metrics as of September 30, 2025, and the actual compensation cost ultimately recognized could increase or decrease from this estimate based upon actual performance results. These costs are expected to be recognized over a weighted-average period of 1.9 years. The $32.8 million of unrecognized compensation cost does not reflect the future compensation costs for any share-based awards that may be granted subsequent to September 30, 2025. Share-based compensation expense for potential future awards could be affected by our operating and development performance, financial results, stock price, market conditions, and other factors. For additional information regarding our equity incentive awards, see Note 8 “Share-Based Compensation” to our consolidated financial statements included in this report.
35
Results of Operations
Net Operating Income
Management internally evaluates the operating performance and financial results of our stabilized portfolio based on Net Operating Income. We define “Net Operating Income” as consolidated operating revenues (rental income and other property income) less consolidated operating expenses (property expenses, real estate taxes, and ground leases). Commencing January 1, 2025, the Company also began excluding lease termination fees from the calculation of rental income for Net Operating Income as they are non-recurring in nature and its exclusion will provide a measure that we believe is more indicative of our core operating performance. Historical amounts for Net Operating Income have been revised to conform with current period presentation.
Net Operating Income is considered by management to be an important and appropriate supplemental performance measure to net income because we believe it helps both investors and management to understand the core operations of our properties excluding corporate and financing-related costs and non-cash depreciation and amortization. Net Operating Income is an unlevered operating performance metric of our properties and allows for a useful comparison of the operating performance of individual assets or groups of assets. This measure thereby provides an operating perspective not immediately apparent from net income. In addition, Net Operating Income is considered by many in the real estate industry to be a useful starting point for determining the value of a real estate asset or group of assets. Other real estate companies may use different methodologies for calculating Net Operating Income and, accordingly, our presentation of Net Operating Income may not be comparable to other real estate companies. Because of the exclusion of the items shown in the reconciliation below, Net Operating Income should only be used as a supplemental measure of our financial performance and not as an alternative to GAAP net income.
Management further evaluates Net Operating Income by evaluating the performance from the following property groups:
•Same Property Portfolio – includes the consolidated results of all of the 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, 2024 and still owned and included in the stabilized portfolio as of September 30, 2025, including our three residential properties in Hollywood and Del Mar, California;
•Re/Development Properties – includes the results generated by certain of our in-process development and redevelopment projects, and expenses for certain of our future development projects and the results generated by the two stabilized redevelopment properties that were added to the stabilized portfolio in the third quarter of 2025;
•Acquisition Properties – includes the results, from the date of acquisition through the periods presented, for the one property acquired in the third quarter of 2024 and the one property acquired in the third quarter of 2025; and
•Disposition Properties – includes the results of the one property disposed of in the second quarter of 2025, and the one property, comprised of four buildings, disposed of in the third quarter of 2025.
The following table sets forth certain information regarding the property groups within our stabilized office portfolio as of September 30, 2025:
| Group | # of Buildings | Rentable Square Feet | ||||||||||||
| Same Property Portfolio | 116 | 16,301,182 | ||||||||||||
Re/Development Properties (1) | 2 | 100,488 | ||||||||||||
| Acquisition Properties | 3 | 410,097 | ||||||||||||
| Total Stabilized Portfolio | 121 | 16,811,767 | ||||||||||||
________________________
(1)Excludes development projects in the tenant improvement phase, our in-process development projects, and future development projects.
36
Comparison of the Three Months Ended September 30, 2025 to the Three Months Ended September 30, 2024
The following table summarizes our Net Operating Income for our total portfolio for the three months ended September 30, 2025 and 2024:
| Three Months Ended September 30, | Dollar Change | Percentage Change | |||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| Reconciliation of Net Income Available to Common Stockholders to Net Operating Income, as defined: | |||||||||||||||||||||||
| Net Income Available to Common Stockholders | $ | 156,220 | $ | 52,378 | $ | 103,842 | 198.3 | % | |||||||||||||||
| Net income attributable to noncontrolling common units of the Operating Partnership | 1,524 | 509 | 1,015 | 199.4 | % | ||||||||||||||||||
| Net income attributable to noncontrolling interests in consolidated property partnerships | 4,538 | 4,786 | (248) | (5.2) | % | ||||||||||||||||||
| Net income | $ | 162,282 | $ | 57,673 | $ | 104,609 | 181.4 | % | |||||||||||||||
| Unallocated expense (income): | |||||||||||||||||||||||
Lease termination fees (1) | (309) | (1,461) | 1,152 | (78.9) | % | ||||||||||||||||||
| General and administrative expenses | 18,247 | 17,981 | 266 | 1.5 | % | ||||||||||||||||||
| Leasing costs | 2,610 | 2,353 | 257 | 10.9 | % | ||||||||||||||||||
| Depreciation and amortization | 87,487 | 91,879 | (4,392) | (4.8) | % | ||||||||||||||||||
| Interest income | (3,119) | (9,688) | 6,569 | (67.8) | % | ||||||||||||||||||
| Interest expense | 32,152 | 36,408 | (4,256) | (11.7) | % | ||||||||||||||||||
| Other income (expense) | (91) | 85 | (176) | (207.1) | % | ||||||||||||||||||
| Gains on sales of depreciable operating properties | (110,484) | — | (110,484) | 100.0 | % | ||||||||||||||||||
| Net Operating Income | $ | 188,775 | $ | 195,230 | $ | (6,455) | (3.3) | % | |||||||||||||||
(1)Commencing January 1, 2025, the Company began excluding lease termination fees from the calculation of rental income for Net Operating Income. Net Operating Income as presented has been conformed to our new definition.
The following tables summarize our Net Operating Income for our total portfolio for the three months ended September 30, 2025 and 2024:
| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Same Property | Re/Develop- ment | Acquisi- tion | Disposi- tion | Total | Same Property | Re/Develop- ment | Acquisi- tion | Disposi- tion | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating revenues: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rental income (1) | $ | 263,874 | $ | 33 | $ | 2,597 | $ | 8,096 | $ | 274,600 | $ | 273,415 | $ | 82 | $ | 64 | $ | 10,929 | $ | 284,490 | |||||||||||||||||||||||||||||||||||||||
| Other property income | 4,598 | 236 | 1 | — | 4,835 | 3,825 | 115 | — | 47 | 3,987 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | 268,472 | 269 | 2,598 | 8,096 | 279,435 | 277,240 | 197 | 64 | 10,976 | 288,477 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Property and related expenses: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property expenses | 59,993 | 345 | 656 | 770 | 61,764 | 62,288 | 218 | 10 | 1,077 | 63,593 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Real estate taxes | 23,789 | 720 | 234 | 1,135 | 25,878 | 24,799 | 601 | — | 1,277 | 26,677 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Ground leases | 3,018 | — | — | — | 3,018 | 2,977 | — | — | — | 2,977 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | 86,800 | 1,065 | 890 | 1,905 | 90,660 | 90,064 | 819 | 10 | 2,354 | 93,247 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Operating Income | $ | 181,672 | $ | (796) | $ | 1,708 | $ | 6,191 | $ | 188,775 | $ | 187,176 | $ | (622) | $ | 54 | $ | 8,622 | $ | 195,230 | |||||||||||||||||||||||||||||||||||||||
(1)Beginning January 1, 2025, the Company began excluding lease termination fees from the calculation of rental income for Net Operating Income. Net Operating Income as presented has been conformed to our new definition. The three months ended September 30, 2025 and 2024 excludes $0.3 million and $1.5 million of lease termination fees from total Net Operating Income, respectively, related to the Same Property portfolio.
37
Three Months Ended September 30, 2025 as compared to the Three Months Ended September 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Same Property | Re/Development | Acquisition | Disposition | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dollar Change | Percent Change | Dollar Change | Percent Change | Dollar Change | Percent Change | Dollar Change | Percent Change | Dollar Change | Percent Change | ||||||||||||||||||||||||||||||||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating revenues: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rental income (1) | $ | (9,541) | (3.5) | % | $ | (49) | (59.8) | % | $ | 2,533 | NM* | $ | (2,833) | (25.9) | % | $ | (9,890) | (3.5) | % | ||||||||||||||||||||||||||||||||||||||||
| Other property income | 773 | 20.2 | % | 121 | 105.2 | % | 1 | 100.0 | % | (47) | (100.0) | % | 848 | 21.3 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Total | (8,768) | (3.2) | % | 72 | 36.5 | % | 2,534 | NM* | (2,880) | (26.2) | % | (9,042) | (3.1) | % | |||||||||||||||||||||||||||||||||||||||||||||
| Property and related expenses: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property expenses | (2,295) | (3.7) | % | 127 | 58.3 | % | 646 | NM* | (307) | (28.5) | % | (1,829) | (2.9) | % | |||||||||||||||||||||||||||||||||||||||||||||
| Real estate taxes | (1,010) | (4.1) | % | 119 | 19.8 | % | 234 | 100.0 | % | (142) | (11.1) | % | (799) | (3.0) | % | ||||||||||||||||||||||||||||||||||||||||||||
| Ground leases | 41 | 1.4 | % | — | — | % | — | — | % | — | — | % | 41 | 1.4 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Total | (3,264) | (3.6) | % | 246 | 30.0 | % | 880 | NM* | (449) | (19.1) | % | (2,587) | (2.8) | % | |||||||||||||||||||||||||||||||||||||||||||||
| Net Operating Income | $ | (5,504) | (2.9) | % | $ | (174) | (28.0) | % | $ | 1,654 | NM* | $ | (2,431) | (28.2) | % | $ | (6,455) | (3.3) | % | ||||||||||||||||||||||||||||||||||||||||
* Percentage not meaningful.
(1)Beginning January 1, 2025, the Company began excluding lease termination fees from the calculation of rental income for Net Operating Income. The three months ended September 30, 2025 and 2024 excludes $0.3 million and $1.5 million of lease termination fees from total Net Operating Income, respectively, related to the Same Property portfolio.
Net Operating Income decreased $6.5 million, or 3.3%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, primarily resulting from:
•A decrease in Net Operating Income of $5.5 million, or 2.9%, attributable to the Same Property portfolio, which was driven by the following activity:
•A decrease in total operating revenues of $8.8 million, or 3.2%, primarily due to a(n):
•$4.2 million decrease in settlement and restoration fee income;
•$2.7 million decrease in net base rent, primarily due to a $5.1 million decrease due to lease expirations and a $1.2 million decrease in cash rent due to newly commenced leases with rent abatements mainly in the San Diego, San Francisco Bay Area, and Los Angeles regions, partially offset by a $3.6 million increase from higher rates;
•$1.6 million decrease in amortization of deferred income and tenant funded improvements, mainly resulting from tenant move outs;
•$1.2 million decrease in revenue associated with tenant creditworthiness considerations that resulted in higher non-recurring charges in 2025; and
•$0.8 million decrease in straight-line rent, primarily due to aging leases where cash rent now exceeds GAAP rent on a straight-line basis, partially offset by the above-mentioned $1.2 million increase due to newly commenced leases with rent abatements.
Partially offset by:
•$1.3 million increase in revenues, primarily from contractual and transient parking; and
•$0.4 million increase in revenues from recoverable operating expenses.
•A decrease in property and related expenses of $3.3 million, or 3.6%, primarily due to a(n):
•$2.3 million decrease in property expenses, primarily due to a decrease in insurance premiums, repairs and maintenance, and residential expenses; and
38
•$1.0 million decrease in real estate taxes, primarily due to a net increase in refunds of $1.3 million received in 2025, partially offset by a $0.3 million increase resulting from higher assessed property values.
•A decrease in Net Operating Income of $2.4 million, or 28.2%, attributable to the Disposition Properties; and
•A decrease in Net Operating Income of $0.2 million, or 28.0%, attributable to the Re/Development Properties.
Partially offset by:
•An increase in Net Operating Income of $1.7 million, attributable to the Acquisition Properties.
Unallocated Expenses and Income
Lease Termination Fees
Lease termination fees decreased $1.2 million, or 78.9%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, primarily due to a lease termination fee recognized for one tenant in 2024 in the San Diego region.
General and Administrative Expenses
General and administrative expenses remained generally consistent for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024.
Depreciation and Amortization
Depreciation and amortization decreased $4.4 million, or 4.8%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, primarily due to the following:
•A decrease of $4.6 million attributable to the Same Property Portfolio; and
•A decrease of $2.2 million attributable to the Disposition Properties; partially offset by
•An increase of $2.4 million attributable to the Acquisition Properties.
Interest Income
Interest income decreased $6.6 million, or 67.8%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, primarily due to carrying lower balances in our interest-bearing accounts.
Interest Expense
The following table sets forth our gross interest expense and capitalized interest for the three months ended September 30, 2025 and 2024:
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2025 | 2024 | Dollar Change | Percentage Change | ||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| Gross interest expense | $ | 54,726 | $ | 57,235 | $ | (2,509) | (4.4) | % | |||||||||||||||
Capitalized interest | (22,574) | (20,827) | (1,747) | 8.4 | % | ||||||||||||||||||
| Interest expense | $ | 32,152 | $ | 36,408 | $ | (4,256) | (11.7) | % | |||||||||||||||
| Average Qualifying Costs | $ | 1,974,224 | $ | 1,943,642 | $ | 30,582 | 1.6 | % | |||||||||||||||
| Weighted Average Interest and Loan Fee Amortization Rate | 4.54 | % | 4.42 | % | 0.12 | % | |||||||||||||||||
Gross interest expense, before the effect of capitalized interest, decreased $2.5 million, or 4.4%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, primarily due to a decrease in the average outstanding debt balance for the three months ended September 30, 2025.
39
Capitalized interest increased $1.7 million, or 8.4%, for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024, primarily due to an increase in the average aggregate cost basis on in-process development and redevelopment projects and future development pipeline projects as well as the weighted average interest rate during the three months ended September 30, 2025. Capitalized interest will vary based on the current status of active development or redevelopment projects and our future development pipeline. For additional information about the potential impact of inflation on our interest expense and construction costs, and the impact on our business, financial condition, results of operations, cash flows, liquidity, and ability to satisfy our debt service obligations, refer to “Part I, Item IA. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2024.
Net Income Attributable to Noncontrolling Interests in Consolidated Property Partnerships
Net income attributable to noncontrolling interests in consolidated property partnerships remained generally consistent for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. The amounts reported for the three months ended September 30, 2025 and 2024 are comprised of the share of net income attributable to noncontrolling interests for 100 First LLC, 303 Second LLC, and Redwood LLC. See Note 1 “Organization, Ownership, and Basis of Presentation” to our consolidated financial statements included in this report for additional information.
40
Comparison of the Nine Months Ended September 30, 2025 to the Nine Months Ended September 30, 2024
The following table summarizes our Net Operating Income for our total portfolio for the nine months ended September 30, 2025 and 2024:
| Nine Months Ended September 30, | Dollar Change | Percentage Change | |||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| Reconciliation of Net Income Available to Common Stockholders to Net Operating Income, as defined: | |||||||||||||||||||||||
| Net Income Available to Common Stockholders | $ | 263,677 | $ | 151,509 | $ | 112,168 | 74.0 | % | |||||||||||||||
| Net income attributable to noncontrolling common units of the Operating Partnership | 2,562 | 1,469 | 1,093 | 74.4 | % | ||||||||||||||||||
| Net income attributable to noncontrolling interests in consolidated property partnerships | 19,292 | 14,942 | 4,350 | 29.1 | % | ||||||||||||||||||
| Net income | $ | 285,531 | $ | 167,920 | $ | 117,611 | 70.0 | % | |||||||||||||||
| Unallocated expense (income): | |||||||||||||||||||||||
Lease termination fees (1) | (11,569) | (4,597) | (6,972) | 151.7 | % | ||||||||||||||||||
| General and administrative expenses | 53,623 | 54,097 | (474) | (0.9) | % | ||||||||||||||||||
| Leasing costs | 7,760 | 6,751 | 1,009 | 14.9 | % | ||||||||||||||||||
| Depreciation and amortization | 262,231 | 267,061 | (4,830) | (1.8) | % | ||||||||||||||||||
| Interest income | (4,765) | (32,962) | 28,197 | (85.5) | % | ||||||||||||||||||
| Interest expense | 94,144 | 112,042 | (17,898) | (16.0) | % | ||||||||||||||||||
| Other income (expense) | (124) | 499 | (623) | (124.8) | % | ||||||||||||||||||
| Gains on sales of depreciable operating properties | (127,038) | — | (127,038) | 100.0 | % | ||||||||||||||||||
| Net Operating Income | $ | 559,793 | $ | 570,811 | $ | (11,018) | (1.9) | % | |||||||||||||||
(1)Commencing January 1, 2025, the Company began excluding lease termination fees from the calculation of rental income for Net Operating Income. Net Operating Income as presented has been conformed to our new definition.
The following tables summarize our Net Operating Income for our total portfolio for the nine months ended September 30, 2025 and 2024:
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Same Property | Re/Develop- ment | Acquisi- tion | Disposi- tion | Total | Same Property | Re/Develop- ment | Acquisi- tion | Disposi- tion | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating revenues: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rental income (1) | $ | 781,299 | $ | 295 | $ | 5,721 | $ | 27,340 | $ | 814,655 | $ | 798,084 | $ | 1,039 | $ | 64 | $ | 32,976 | $ | 832,163 | |||||||||||||||||||||||||||||||||||||||
| Other property income | 13,395 | 676 | 1 | 184 | 14,256 | 12,075 | 303 | — | 112 | 12,490 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | 794,694 | 971 | 5,722 | 27,524 | 828,911 | 810,159 | 1,342 | 64 | 33,088 | 844,653 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Property and related expenses: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property expenses | 173,638 | 1,075 | 1,176 | 3,164 | 179,053 | 175,978 | 745 | 10 | 3,459 | 180,192 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Real estate taxes | 74,663 | 2,247 | 447 | 3,651 | 81,008 | 79,612 | 1,543 | — | 3,770 | 84,925 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Ground leases | 9,057 | — | — | — | 9,057 | 8,725 | — | — | — | 8,725 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total | 257,358 | 3,322 | 1,623 | 6,815 | 269,118 | 264,315 | 2,288 | 10 | 7,229 | 273,842 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Operating Income | $ | 537,336 | $ | (2,351) | $ | 4,099 | $ | 20,709 | $ | 559,793 | $ | 545,844 | $ | (946) | $ | 54 | $ | 25,859 | $ | 570,811 | |||||||||||||||||||||||||||||||||||||||
____________________
(1)Beginning January 1, 2025, the Company began excluding lease termination fees from the calculation of rental income for Net Operating Income. Net Operating Income as presented has been conformed to our new definition. The nine months ended September 30, 2025 and 2024 excludes $11.6 million and $4.6 million of lease termination fees from total Net Operating Income, respectively, related to the Same Property portfolio.
41
Nine Months Ended September 30, 2025 as compared to the Nine Months Ended September 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Same Property | Re/Development | Acquisition | Disposition | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dollar Change | Percent Change | Dollar Change | Percent Change | Dollar Change | Percent Change | Dollar Change | Percent Change | Dollar Change | Percent Change | ||||||||||||||||||||||||||||||||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating revenues: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Rental income (1) | $ | (16,785) | (2.1) | % | $ | (744) | (71.6) | % | $ | 5,657 | NM* | $ | (5,636) | (17.1) | % | $ | (17,508) | (2.1) | % | ||||||||||||||||||||||||||||||||||||||||
| Other property income | 1,320 | 10.9 | % | 373 | 123.1 | % | 1 | 100.0 | % | 72 | 64.3 | % | 1,766 | 14.1 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Total | (15,465) | (1.9) | % | (371) | (27.6) | % | 5,658 | NM* | (5,564) | (16.8) | % | (15,742) | (1.9) | % | |||||||||||||||||||||||||||||||||||||||||||||
| Property and related expenses: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property expenses | (2,340) | (1.3) | % | 330 | 44.3 | % | 1,166 | NM* | (295) | (8.5) | % | (1,139) | (0.6) | % | |||||||||||||||||||||||||||||||||||||||||||||
| Real estate taxes | (4,949) | (6.2) | % | 704 | 45.6 | % | 447 | 100.0 | % | (119) | (3.2) | % | (3,917) | (4.6) | % | ||||||||||||||||||||||||||||||||||||||||||||
| Ground leases | 332 | 3.8 | % | — | — | % | — | — | % | — | — | % | 332 | 3.8 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Total | (6,957) | (2.6) | % | 1,034 | 45.2 | % | 1,613 | NM* | (414) | (5.7) | % | (4,724) | (1.7) | % | |||||||||||||||||||||||||||||||||||||||||||||
| Net Operating Income | $ | (8,508) | (1.6) | % | $ | (1,405) | (148.5) | % | $ | 4,045 | NM* | $ | (5,150) | (19.9) | % | $ | (11,018) | (1.9) | % | ||||||||||||||||||||||||||||||||||||||||
* Percentage not meaningful.
(1)Beginning January 1, 2025, the Company began excluding lease termination fees from the calculation of rental income for Net Operating Income. The nine months ended September 30, 2025 and 2024 excludes $11.6 million and $4.6 million of lease termination fees from total Net Operating Income, respectively, related to the Same Property portfolio.
Net Operating Income decreased $11.0 million, or 1.9%, for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, primarily resulting from:
•A decrease in Net Operating Income of $8.5 million, or 1.6%, attributable to the Same Property portfolio, which was driven by the following activity:
•A decrease in total operating revenues of $15.5 million, or 1.9%, primarily due to a(n):
•$13.0 million decrease in straight-line rent, primarily due to the burn-off of $4.9 million in abated rent, mainly in the San Francisco Bay Area, Los Angeles, and San Diego regions, and aging leases where cash rent now exceeds GAAP rent on a straight-line basis;
•$3.5 million decrease in amortization of deferred revenue and tenant funded improvements, mainly resulting from tenant move outs;
•$2.6 million decrease in revenues from recoverable operating expenses;
•$2.6 million decrease in settlement and restoration fee income; and
• $1.9 million decrease in net base rent, primarily due to a $16.4 million decrease due to lease expirations, partially offset by a $9.6 million increase from higher rates and the $4.9 million increase in cash rent due to the burn-off of abated rent mentioned above.
Partially offset by:
•$6.2 million increase in revenue associated with tenant creditworthiness considerations that resulted in higher non-recurring charges in 2024; and
•$1.9 million increase in revenues primarily from transient parking and residential income.
•A decrease in property and related expenses of $7.0 million, or 2.6%, primarily due to a(n):
•$5.0 million decrease in real estate taxes, primarily due to a net increase in refunds of $2.6 million received in 2025 and a $2.4 million decrease resulting from lower assessed property values; and
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•$2.0 million decrease in property expenses, primarily due to a decrease in insurance premiums and residential expenses.
•A decrease in Net Operating Income of $5.2 million, or 19.9%, attributable to the Disposition Properties; and
•A decrease in Net Operating Income of $1.4 million, or 148.5%, attributable to the Re/Development Properties.
Partially offset by:
•An increase in Net Operating Income of $4.0 million, attributable to the Acquisition Properties.
Unallocated Expenses and Income
Lease Termination Fees
Lease termination fees increased $7.0 million, or 151.7%, for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, primarily due to a lease termination fee recognized for one tenant in 2025 in the San Francisco Bay Area region.
General and Administrative Expenses
General and administrative expenses remained generally consistent, for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024
Leasing Costs
Leasing costs increased $1.0 million, or 14.9%, for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, primarily due to an increase in development leasing and leasing overhead during the nine months ended September 30, 2025.
Depreciation and Amortization
Depreciation and amortization decreased $4.8 million, or 1.8%, for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, primarily due to the following:
•A decrease of $6.6 million attributable to the Same Property Portfolio, primarily due to early lease terminations and fully depreciated assets; and
•A decrease of $2.9 million attributable to Disposition Properties; partially offset by
•An increase of $4.5 million attributable to Acquisition Properties; and
•An increase of $0.2 million attributable to the Re/Development Properties.
Interest Income
Interest income decreased $28.2 million, or 85.5%, for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, primarily due to carrying lower balances in our interest-bearing accounts.
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Interest Expense
The following table sets forth our gross interest expense and capitalized interest for the nine months ended September 30, 2025 and 2024:
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2025 | 2024 | Dollar Change | Percentage Change | ||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| Gross interest expense | $ | 158,599 | $ | 173,191 | $ | (14,592) | (8.4) | % | |||||||||||||||
| Capitalized interest | (64,455) | (61,149) | (3,306) | 5.4 | % | ||||||||||||||||||
| Interest expense | $ | 94,144 | $ | 112,042 | $ | (17,898) | (16.0) | % | |||||||||||||||
| Average Qualifying Costs | $ | 1,918,482 | $ | 1,860,982 | $ | 57,500 | 3.1 | % | |||||||||||||||
| Weighted Average Interest and Loan Fee Amortization Rate | 4.49 | % | 4.44 | % | 0.05 | % | |||||||||||||||||
Gross interest expense, before the effect of capitalized interest, decreased $14.6 million, or 8.4%, for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, primarily due to a decrease in the average outstanding debt balance for the nine months ended September 30, 2025.
Capitalized interest increased $3.3 million, or 5.4%, for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, primarily due to an increase in the average aggregate cost basis on in-process development and redevelopment projects and future development pipeline projects during the nine months ended September 30, 2025. Capitalized interest will vary based on the current status of active development or redevelopment projects and our future development pipeline. For additional information about the potential impact of inflation on our interest expense and construction costs, and the impact on our business, financial condition, results of operations, cash flows, liquidity, and ability to satisfy our debt service obligations, refer to “Part I, Item IA. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2024.
Net Income Attributable to Noncontrolling Interests in Consolidated Property Partnerships
Net income attributable to noncontrolling interests in consolidated property partnerships increased $4.4 million, or 29.1%, for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, primarily due to lease termination fee income from one tenant in 2025. The amounts reported for the nine months ended September 30, 2025 and 2024 are comprised of the share of net income attributable to noncontrolling interests for 100 First LLC, 303 Second LLC, and Redwood LLC. See Note 1 “Organization, Ownership, and Basis of Presentation” to our consolidated financial statements included in this report for additional information.
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Liquidity and Capital Resources of the Company
In this “Liquidity and Capital Resources of the Company” section, the term the “Company” refers only to Kilroy Realty Corporation on an unconsolidated basis and excludes the Operating Partnership and all other subsidiaries.
The Company’s business is operated primarily through the Operating Partnership. Distributions from the Operating Partnership are the Company’s primary source of capital. The Company believes the Operating Partnership’s sources of working capital, specifically its cash flows from operations, borrowings available under its unsecured revolving credit facility, and funds from its capital recycling program, including strategic ventures, are adequate for it to make its distribution payments to the Company to make dividend payments to its common stockholders for the next twelve months. Cash flows from operating activities generated by the Operating Partnership for the nine months ended September 30, 2025 were sufficient to cover the Company’s payment of cash dividends to its stockholders. However, there can be no assurance that the Operating Partnership’s sources of capital will continue to be available at all or in amounts sufficient to meet its needs, including its ability to make distributions to the Company. The unavailability of capital could adversely affect the Operating Partnership’s ability to make distributions to the Company, which would in turn adversely affect the Company’s ability to pay cash dividends to its stockholders.
The Company is a well-known, seasoned issuer and the Company and the Operating Partnership have an effective shelf registration statement that provides for the public offering and sale from time to time by the Company of its preferred stock, common stock, depositary shares, warrants, and guarantees of debt securities and by the Operating Partnership of its debt securities, in each case in unlimited amounts. The Company evaluates the capital markets on an ongoing basis for opportunities to raise capital, and, as circumstances warrant, the Company and the Operating Partnership may issue securities of all of these types in one or more offerings at any time and from time to time on an opportunistic basis, depending upon, among other things, market conditions, available pricing, and capital needs. Capital raising could be more challenging under current market conditions as uncertainty related to interest rates, inflation rates, economic outlook, geopolitical events, and other factors have contributed and may continue to contribute to significant volatility and negative pressures in financial markets. When the Company receives proceeds from the sales of its preferred or common stock, it generally contributes the net proceeds from those sales to the Operating Partnership in exchange for corresponding preferred or common partnership units of the Operating Partnership. The Operating Partnership may use these proceeds and proceeds from the sale of its debt securities to repay debt, including borrowings under its unsecured revolving credit facility and unsecured term loan facility, to develop new or redevelop existing properties, to make acquisitions of properties or portfolios of properties, or for general corporate purposes.
As the sole general partner with control of the Operating Partnership, the Company consolidates the Operating Partnership for financial reporting purposes, and the Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities and the revenues and expenses of the Company and the Operating Partnership are substantially the same on their respective financial statements. The section entitled “Liquidity and Capital Resources of the Operating Partnership” should be read in conjunction with this section to understand the liquidity and capital resources of the Company on a consolidated basis and how the Company is operated as a whole.
Liquidity Highlights
As of September 30, 2025, we had approximately $372.4 million in cash and cash equivalents and $1.1 billion available under our unsecured revolving credit facility. We believe that our available liquidity makes us well positioned to navigate any additional future uncertainties. In addition, the Company is a well-known, seasoned issuer and has historically been able to raise capital on a timely basis in the public markets, as well as the private markets. Any future financings, however, will depend on market conditions for both capital raises and the investment of such proceeds and there can be no assurances that we will successfully obtain such financings.
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Distribution Requirements
The Company is required to distribute 90% of its taxable income (subject to certain adjustments and excluding net capital gains) on an annual basis to maintain qualification as a REIT for federal income tax purposes and is required to pay income tax at regular corporate rates to the extent it distributes less than 100% of its taxable income (including capital gains). As a result of these distribution requirements, the Operating Partnership cannot rely on retained earnings to fund its on-going operations to the same extent as other companies whose parent companies are not REITs. In addition, the Company may be required to use borrowings under the Operating Partnership’s revolving credit facility, if necessary, to meet REIT distribution requirements and maintain its REIT status. The Company may also need to raise capital to fund the Operating Partnership’s working capital needs, as well as potential developments of new or existing properties or acquisitions.
The Company intends to continue to make, but has not committed to make, regular quarterly cash distributions to common stockholders and, through the Operating Partnership, to common unitholders from the Operating Partnership’s cash flows from operating activities. All such distributions are at the discretion of the Board of Directors. As the Company intends to maintain distributions at a level sufficient to meet the REIT distribution requirements and minimize its obligation to pay income and excise taxes, it will continue to evaluate whether the current levels of distribution are appropriate to do so throughout 2025. In addition, in the event the Company completes additional dispositions in the future and is unable to successfully complete Section 1031 Exchanges to defer some or all of the taxable gains related to property dispositions (or in the event additional legislation is enacted that further modifies or repeals laws with respect to Section 1031 Exchanges), the Company may be required to distribute a special dividend to its common stockholders and common unitholders in order to minimize or eliminate income taxes on such gains. The Company considers market factors and its performance in addition to REIT requirements in determining its distribution levels. Amounts accumulated for distribution to stockholders are invested primarily in interest-bearing accounts and short-term interest-bearing securities, which is consistent with the Company’s intention to maintain its qualification as a REIT. Such investments may include, for example, obligations of the Government National Mortgage Association, other governmental agency securities, certificates of deposit, and interest-bearing bank deposits.
On September 16, 2025, the Board of Directors declared a regular quarterly cash dividend of $0.54 per share of common stock. The regular quarterly cash dividend is payable to stockholders of record on September 30, 2025 and a corresponding cash distribution of $0.54 per Operating Partnership unit is payable to holders of the Operating Partnership’s common limited partnership interests of record on September 30, 2025, including those owned by the Company. The total cash quarterly dividends and distributions paid on October 8, 2025 were $64.5 million.
Debt Covenants
The covenants contained within certain of our unsecured debt obligations generally prohibit the Company from paying dividends during an event of default in excess of an amount which results in distributions to us in an amount sufficient to permit us to pay dividends to our stockholders that we reasonably believe are necessary to (i) maintain our qualification as a REIT for federal and state income tax purposes, and (ii) avoid the payment of federal or state income or excise tax.
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Capitalization
As of September 30, 2025, our total debt as a percentage of total market capitalization was 47.8%, which was calculated based on the closing price per share of the Company’s common stock of $42.25 on September 30, 2025 as shown in the following table:
Shares / Units at September 30, 2025 | Aggregate Principal Amount or $ Value Equivalent | % of Total Market Capitalization | |||||||||||||||
| ($ in thousands) | |||||||||||||||||
Debt: (1)(2) | |||||||||||||||||
Unsecured Term Loan Facility due 2026 (3) | $ | 200,000 | 2.1 | % | |||||||||||||
| Unsecured Senior Notes Series A & B due 2026 | 250,000 | 2.6 | % | ||||||||||||||
| Unsecured Senior Notes Series A & B due 2027 & 2029 | 250,000 | 2.6 | % | ||||||||||||||
| Unsecured Senior Notes due 2031 | 350,000 | 3.6 | % | ||||||||||||||
Unsecured Senior Notes due 2028 (4) | 400,000 | 4.1 | % | ||||||||||||||
| Unsecured Senior Notes due 2029 | 400,000 | 4.1 | % | ||||||||||||||
| Unsecured Senior Notes due 2030 | 500,000 | 5.2 | % | ||||||||||||||
Unsecured Senior Notes due 2032 (4) | 425,000 | 4.4 | % | ||||||||||||||
Unsecured Senior Notes due 2033 (4) | 450,000 | 4.7 | % | ||||||||||||||
| Unsecured Senior Notes due 2035 | 400,000 | 4.1 | % | ||||||||||||||
| Unsecured Senior Notes due 2036 | 400,000 | 4.1 | % | ||||||||||||||
| Secured debt | 602,026 | 6.2 | % | ||||||||||||||
| Total debt | $ | 4,627,026 | 47.8 | % | |||||||||||||
Equity and Noncontrolling Interests in the Operating Partnership: (5) | |||||||||||||||||
Common limited partnership units outstanding (6) | 1,150,574 | $ | 48,612 | 0.5 | % | ||||||||||||
| Shares of common stock outstanding | 118,304,079 | 4,998,347 | 51.7 | % | |||||||||||||
| Total Equity and Noncontrolling Interests in the Operating Partnership | $ | 5,046,959 | 52.2 | % | |||||||||||||
| Total Market Capitalization | $ | 9,673,985 | 100.0 | % | |||||||||||||
(1) Represents gross aggregate principal amount due at maturity before the effect of the following at September 30, 2025: $26.1 million of unamortized deferred financing costs for the unsecured term loan facility, unsecured senior notes, and secured debt and $11.4 million of unamortized discounts for the unsecured senior notes.
(2) As of September 30, 2025, there was no outstanding balance on the unsecured revolving credit facility.
(3) During the three months ended September 30, 2025, we elected to extend the maturity date by 12 months to October 3, 2026. The maturity date may be extended by an additional 12-month period, at the Operating Partnership’s election.
(4) Green bond.
(5) Value based on closing price per share of our common stock of $42.25, as of September 30, 2025.
(6) Includes common units of the Operating Partnership not owned by the Company. Excludes noncontrolling interests in consolidated property partnerships.
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Liquidity and Capital Resources of the Operating Partnership
In this “Liquidity and Capital Resources of the Operating Partnership” section, the terms “we,” “our,” and “us” refer to the Operating Partnership or the Operating Partnership and the Company together, as the context requires.
General
Our primary liquidity sources and uses are as follows:
Liquidity Sources
•Net cash flows from operations;
•Proceeds from additional secured or unsecured debt financings;
•Borrowings under the Operating Partnership’s unsecured revolving credit facility;
•Proceeds from our capital recycling program, including the disposition of assets and the formation of strategic ventures; and
•Proceeds from equity or preferred equity securities.
Liquidity Uses
•Property operating and corporate expenses;
•Capital expenditures, tenant improvements, and leasing costs;
•Development and redevelopment costs;
•Operating property or undeveloped land acquisitions;
•Debt service and principal payments, including debt maturities, debt repurchases, and redemptions;
•Distributions to common security holders; and
•Repurchases and redemptions of outstanding common stock of the Company.
General Strategy
Our general strategy is to maintain a conservative balance sheet with a strong credit profile and to maintain a capital structure that allows for financial flexibility and diversification of capital resources. We manage our capital structure to reflect a long-term investment approach and utilize multiple sources of capital to meet our long-term capital requirements. We believe that our current projected liquidity requirements for the next twelve-month period, as set forth above under the caption “—Liquidity Uses,” will be satisfied using a combination of the liquidity sources listed above, although there can be no assurance in this regard. We believe our conservative leverage and staggered debt maturities provide us with financial flexibility and enhance our ability to obtain additional sources of liquidity if necessary, and, therefore, we are well-positioned to refinance or repay maturing debt and to pursue our strategy of seeking attractive acquisition opportunities, which we may finance, as necessary, with future public and private issuances of debt and equity securities, although there can be no assurance in this regard.
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Liquidity Sources
Unsecured Senior Notes - Registered Public Offering
In August 2025, the Operating Partnership issued $400.0 million aggregate principal amount of unsecured senior notes in a registered public offering. The outstanding balance of the unsecured senior notes is included in unsecured debt, net of an initial issuance discount of $4.0 million, on our consolidated balance sheets. The unsecured senior notes, which are scheduled to mature on October 15, 2035, require semi-annual interest payments each April and October based on a stated annual interest rate of 5.875%. The Operating Partnership may redeem the notes at any time, either in whole or in part, subject to the payment of an early redemption premium with respect to redemptions prior to July 15, 2035. On or after July 15, 2035, the Operating Partnership may redeem the notes at any time, either in whole or in part, at par. In September 2025, the Operating Partnership used the net proceeds from the issuance of the $400.0 million 5.875% unsecured senior notes to redeem the $400.0 million aggregate principal amount of our outstanding 4.375% unsecured senior notes.
Unsecured Revolving Credit Facility and Term Loan Facility
The following table summarizes the balance and terms of our unsecured revolving credit facility as of September 30, 2025 and December 31, 2024:
| Unsecured Revolving Credit Facility | |||||||||||
| September 30, 2025 | December 31, 2024 | ||||||||||
| ($ in thousands) | |||||||||||
| Outstanding borrowings | $ | — | $ | — | |||||||
Remaining borrowing capacity (1) | 1,100,000 | 1,100,000 | |||||||||
Total borrowing capacity (1) | $ | 1,100,000 | $ | 1,100,000 | |||||||
Interest rate (2) | 5.44 | % | 5.69 | % | |||||||
Facility fee-annual rate (3) | 0.250% | ||||||||||
Unamortized deferred financing costs (3) | $ | 10,035 | $ | 12,692 | |||||||
Maturity date (4) | July 31, 2028 | ||||||||||
________________________
(1)Remaining and total borrowing capacity are further reduced by the amount of our outstanding letters of credit which total approximately $5.2 million as of September 30, 2025 and December 31, 2024. We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $500.0 million under an accordion feature pursuant to the terms of the unsecured revolving credit facility.
(2)Our unsecured revolving credit facility interest rate was calculated using the Secured Overnight Financing Rate (“SOFR”) plus a SOFR adjustment of 0.10% (“Adjusted SOFR”) and a margin of 1.100% based on our credit rating as of September 30, 2025 and December 31, 2024. We may be entitled to a temporary 0.01% reduction in the interest rate provided we meet certain sustainability goals with respect to the ongoing reduction of greenhouse gas emissions.
(3)Our facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs in connection with the amendment and restatement of the unsecured revolving credit facility in 2024. These costs are included in Prepaid expenses and other assets, net on our consolidated balance sheets, which remain to be amortized through the maturity date of our unsecured revolving credit facility.
(4)The maturity date may be extended by two six-month periods, at the Operating Partnership’s election.
The Operating Partnership intends to borrow under the unsecured revolving credit facility from time to time for general corporate purposes, including, to finance development and redevelopment expenditures, to fund potential acquisitions, to repay long-term debt, and to supplement cash balances in response to market conditions.
The following table summarizes the balance and terms of our 2024 Term Loan Facility as of September 30, 2025:
| 2024 Term Loan Facility | |||||||||||
| September 30, 2025 | December 31, 2024 | ||||||||||
| ($ in thousands) | |||||||||||
Outstanding borrowings (1) | $ | 200,000 | $ | 200,000 | |||||||
Interest rate (2) | 5.46 | % | 5.70 | % | |||||||
Unamortized deferred financing costs (3) | $ | 368 | $ | 1,229 | |||||||
Maturity date (4) | October 3, 2026 | October 3, 2025 | |||||||||
(1)We may elect to borrow, subject to bank approval and obtaining commitments for any additional borrowing capacity, up to an additional $130.0 million as of September 30, 2025 and December 31, 2024, under an accordion feature pursuant to the terms of the 2024 Term Loan Facility.
(2)Our 2024 Term Loan Facility interest rate was calculated using Adjusted SOFR plus a margin of 1.200% based on our credit rating as of September 30, 2025 and December 31, 2024.
(3)We incurred debt origination and legal costs in connection with the amendment and restatement of the unsecured revolving credit facility in 2024, which remain to be amortized through the maturity date of the 2024 Term Loan Facility. Additionally, in connection with extending the maturity date, we incurred additional costs which remain to be amortized through the extended maturity date of the 2024 Term Loan Facility.
(4)During the three months ended September 30, 2025, we exercised our option to extend the maturity date by 12 months to October 3, 2026. The maturity date may be extended by an additional 12-month period, at the Operating Partnership’s election.
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Capital Recycling Program
As discussed in the section “Factors That May Influence Future Results of Operations - Capital Recycling Program,” we continuously evaluate opportunities for the potential disposition of non-core properties and undeveloped land in our portfolio, or the formation of strategic ventures, with the intent of using the proceeds generated to acquire new operating and development properties, to finance development and redevelopment expenditures, to repay long-term debt, and for other general corporate purposes. As part of this strategy, we may attempt to enter into Section 1031 Exchanges, and other tax deferred transaction structures, when possible, to defer some or all of the taxable gains on the sales, if any, for federal and state income tax purposes.
In connection with our capital recycling strategy, during the nine months ended September 30, 2025, we completed the sale of two operating properties, comprised of five buildings, in two transactions to unaffiliated third parties for gross proceeds totaling approximately $405.0 million. Additionally, during the nine months ended September 30, 2025, we acquired one operating property, comprised of one building, in one transaction for a cash purchase price of $205.3 million. The timing of any potential future disposition or strategic venture transactions will depend on market conditions and other factors, including, but not limited to, our capital needs, the availability of financing for potential buyers (which has been and may continue to be constrained due to current economic and market conditions), and our ability to absorb or defer some or all of the taxable gains on the sales. We cannot assure that we will dispose of any additional properties, enter into any additional strategic ventures, or that we will be able to effect a Section 1031 Exchange or be able to use other tax deferred structures in connection with our strategy. In the event we are unable to complete dispositions as planned, we may raise capital through other sources of liquidity including our available unsecured revolving credit facility or the public or private issuance of unsecured debt.
Shelf Registration Statement
The Company is a well-known, seasoned issuer and the Company and the Operating Partnership have an effective shelf registration statement that provides for the public offering and sale from time to time by the Company of its preferred stock, common stock, depository shares, warrants, and guarantees of debt securities and by the Operating Partnership of its debt securities, in each case in unlimited amounts. The Company evaluates the capital markets on an ongoing basis for opportunities to raise capital, and, as circumstances warrant, the Company and the Operating Partnership may issue securities of all of these types in one or more offerings at any time and from time to time on an opportunistic basis, depending upon, among other things, market conditions, available pricing, and capital needs. Capital raising could be more challenging under current market conditions as uncertainty related to interest rates, inflation rates, economic outlook, geopolitical events, and other factors have contributed and may continue to contribute to significant volatility and negative pressures in financial markets. When the Company receives proceeds from the sales of its preferred or common stock, it generally contributes the net proceeds from those sales to the Operating Partnership in exchange for corresponding preferred or common partnership units of the Operating Partnership. The Operating Partnership may use these proceeds and proceeds from the sale of its debt securities to repay debt, including borrowings under its unsecured revolving credit facility and unsecured term loan facility, to develop new or redevelop existing properties, to make acquisitions of properties or portfolios of properties, or for general corporate purposes. On July 29, 2025, the Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission, which became immediately effective upon filing.
At-The-Market Stock Offering Program
Under our current at-the-market stock offering program (the “2024 ATM Program”), we may currently offer and sell shares of our common stock having an aggregate gross sales price up to $500.0 million from time to time in “at-the-market” offerings. In connection with the 2024 ATM Program, the Company may also, at its discretion, enter into forward equity sale agreements. The use of forward equity sale agreements allows the Company to lock in a share price on the sale of shares of our common stock at the time an agreement is executed, but defer settling the forward equity sale agreements and receiving the proceeds from the sale of shares until a later date. The Company did not have any outstanding forward equity sale agreements to be settled at September 30, 2025. Since commencement of the 2024 ATM Program, we have not completed any sales of common stock.
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Liquidity Uses
Contractual Obligations
Refer to our 2024 Annual Report on Form 10-K for a discussion of our contractual obligations. There have been no material changes outside of the ordinary course of business to these contractual obligations during the nine months ended September 30, 2025.
Other Liquidity Uses
Potential Future Leasing Costs and Capital Improvements
The amounts we incur for tenant improvements and leasing costs depend on leasing activity in each period. Tenant improvements and leasing costs generally fluctuate in any given period depending on factors such as the type and condition of the property, the term of the lease, the type of the lease, the involvement of external leasing agents, and overall market conditions, including the level of inflation. Capital expenditures may fluctuate in any given period subject to the nature, extent, and timing of improvements required to maintain our properties and may be impacted by inflationary pressures on the cost of construction materials.
Development
We believe we may spend between $50.0 million to $100.0 million on development projects throughout the remainder of 2025. The ultimate timing of these expenditures may fluctuate given construction progress and leasing status of the projects, or as a result of events outside our control, such as delays or increased costs as a result of heightened inflation and market conditions. We expect that any material additional development activities will be funded with borrowings under the unsecured revolving credit facility, the public or private issuance of debt or equity securities, the disposition of assets under our capital recycling program, or strategic venture opportunities. We cannot provide assurance that development projects will be completed on the terms, for the amounts, or on the timelines currently contemplated, or at all.
Potential Future Acquisitions
As discussed in the section “—Factors That May Influence Future Results of Operations - Capital Recycling Program,” we continue to evaluate strategic opportunities and remain a disciplined buyer of core, value-add, and strategic operating properties and land, dependent on market conditions and business cycles, among other factors. We focus on growth opportunities primarily in markets populated by knowledge and creative based tenants in a variety of industries, including technology, media, healthcare, life sciences, and business services. We expect that any material acquisitions will be funded with borrowings under the unsecured revolving credit facility, the public or private issuance of debt or equity securities, the disposition of assets under our capital recycling program, the formation of strategic ventures, or through the assumption of existing debt, although there can be no assurance in this regard.
We cannot provide assurance that we will enter into any agreements to acquire properties or undeveloped land, or that potential acquisitions contemplated by any agreements we may enter into in the future will be completed.
Debt Maturities
Our next debt maturities include the $250.0 million series A and B unsecured senior notes, which mature in July and October 2026, respectively, the $200.0 million term loan facility, which matures in October 2026 (before the exercise of the remaining 12-month extension option), and the $150.0 million secured mortgage loan due December 2026. We believe our conservative leverage, staggered debt maturities, and our unsecured revolving credit facility provide us with financial flexibility and enhance our ability to obtain additional sources of liquidity if necessary, and, therefore, we believe we are well-positioned to refinance or repay maturing debt and to pursue our strategy of seeking attractive acquisition opportunities, which we may finance, as necessary, with future public and private issuances of debt and equity securities. However, we can provide no assurance that we will have access to the public or private debt or equity markets in the future on favorable terms or at all. We may, however, repurchase certain of our unsecured senior notes from time to time prior to maturity (depending on prevailing market conditions, our liquidity, contractual restrictions, and other factors) through cash purchases, open-market purchases, privately negotiated transactions, tender offers, or otherwise.
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Unsecured and Secured Debt
The aggregate principal amount of the unsecured and secured debt of the Operating Partnership outstanding as of September 30, 2025 was as follows:
| Aggregate Principal Amount Outstanding | |||||
| (in thousands) | |||||
Unsecured Term Loan Facility due 2026 (1) | $ | 200,000 | |||
| Unsecured Senior Notes Series A & B due 2026 | 250,000 | ||||
| Unsecured Senior Notes Series A & B due 2027 & 2029 | 250,000 | ||||
| Unsecured Senior Notes due 2031 | 350,000 | ||||
Unsecured Senior Notes due 2028 (2) | 400,000 | ||||
| Unsecured Senior Notes due 2029 | 400,000 | ||||
| Unsecured Senior Notes due 2030 | 500,000 | ||||
Unsecured Senior Notes due 2032 (2) | 425,000 | ||||
Unsecured Senior Notes due 2033 (2) | 450,000 | ||||
| Unsecured Senior Notes due 2035 | 400,000 | ||||
Unsecured Senior Notes due 2036 | 400,000 | ||||
| Secured Debt | 602,026 | ||||
Total Unsecured and Secured Debt (3) | 4,627,026 | ||||
Less: Unamortized Net Discounts and Deferred Financing Costs (4) | (37,515) | ||||
| Total Debt, Net | $ | 4,589,511 | |||
________________________
(1)The maturity date may be extended by one 12-month period, at the Operating Partnership’s election.
(2)Green bond.
(3)As of September 30, 2025, there was no outstanding balance on the unsecured revolving credit facility.
(4)Includes $26.1 million of unamortized deferred financing costs on the unsecured term loan facility, unsecured senior notes, and secured debt and $11.4 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.
Debt Composition
The composition of the Operating Partnership’s aggregate debt balances between secured and unsecured and fixed-rate and variable-rate debt as of September 30, 2025 and December 31, 2024 was as follows:
Percentage of Total Debt (1)(2) | Weighted Average Interest Rate (1)(2) | ||||||||||||||||||||||
| September 30, 2025 | December 31, 2024 | September 30, 2025 | December 31, 2024 | ||||||||||||||||||||
| Secured vs. unsecured: | |||||||||||||||||||||||
| Unsecured | 87.0 | % | 86.9 | % | 4.2 | % | 4.0 | % | |||||||||||||||
| Secured | 13.0 | % | 13.1 | % | 5.1 | % | 5.1 | % | |||||||||||||||
| Variable-rate vs. fixed-rate: | |||||||||||||||||||||||
| Variable-rate | 4.3 | % | 4.3 | % | 5.5 | % | 5.7 | % | |||||||||||||||
Fixed-rate (3) | 95.7 | % | 95.7 | % | 4.2 | % | 4.1 | % | |||||||||||||||
| Stated rate | 4.3 | % | 4.2 | % | |||||||||||||||||||
Effective rate (3) | 4.6 | % | 4.5 | % | |||||||||||||||||||
________________________
(1) As of the end of the period presented.
(2) As of September 30, 2025 and December 31, 2024, there was no outstanding balance on the unsecured revolving credit facility.
(3) Includes the impact of an unused facility fee, amortization of deferred financing costs, and amortization of premiums/discounts. .
Share Repurchases
Under our current share repurchase program, which commenced in February 2024 (the “Share Repurchase Program”), we are authorized to repurchase shares of the Company’s common stock having an aggregate gross purchase price of up to $500.0 million. Under the Share Repurchase Program, repurchases may be made from time to time using a variety of methods, which may include open market purchases and privately negotiated transactions. The specific timing, price, and size of purchases will depend on prevailing stock prices, general economic and market conditions, and other considerations. The Share Repurchase Program does not have a termination date and repurchases may be discontinued at any time. Since commencement of the Share Repurchase Program, we have not completed any common stock repurchases.
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Factors That May Influence Future Sources of Capital and Liquidity of the Company and the Operating Partnership
We continue to evaluate sources of financing for our business activities, including borrowings under the unsecured revolving credit facility, the unsecured term loan facility, issuance of public and private equity securities, unsecured debt and fixed-rate secured mortgage financing, proceeds from the disposition of selective assets through our capital recycling program, and the formation of strategic ventures. However, our ability to obtain new financing or refinance existing borrowings on favorable terms could be impacted by various factors, including the state of the macro economy, the state of the credit and equity markets, significant tenant defaults, a decline in the demand for office properties, a decrease in market rental rates or market values of real estate assets in our submarkets, the amount of our future borrowings and uncertainty related to interest rates, inflation rates, geopolitical events, and other factors (refer to “Part I, Item IA. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2024 for additional information). These events could result in the following:
•Decreases in our cash flows from operations, which could create further dependence on the unsecured revolving credit facility;
•An increase in the proportion of variable-rate debt, which could increase our sensitivity to interest rate fluctuations in the future; and
•A decrease in the value of our properties, which could have an adverse effect on the Operating Partnership’s ability to incur additional debt, refinance existing debt at competitive rates, or comply with its existing debt obligations.
In addition to the factors noted above, the Operating Partnership’s credit ratings are subject to ongoing evaluation by credit rating agencies and may be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant.
Financial Covenants and Restrictions
The unsecured revolving credit facility, unsecured term loan facility, unsecured senior notes, and certain other secured debt arrangements contain covenants and restrictions requiring us to meet certain financial ratios and reporting requirements. The Operating Partnership was in compliance with all of its financial covenants as of September 30, 2025. Our current expectation is that the Operating Partnership will continue to meet the requirements of its financial covenants in both the short and long term. However, in the event of an economic slowdown or continued volatility in the credit markets, there is no certainty that the Operating Partnership will be able to continue to satisfy all the covenant requirements.
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Consolidated Historical Cash Flows Summary
The following summary discussion of our consolidated historical cash flows is based on the consolidated statements of cash flows in Item 1. “Financial Statements” and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below. Changes in our cash flows include changes in cash and cash equivalents and restricted cash. Our historical cash flow activity for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024 is as follows:
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2025 | 2024 | Dollar Change | Percentage Change | ||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| Net cash provided by operating activities | $ | 457,235 | $ | 432,912 | $ | 24,323 | 5.6 | % | |||||||||||||||
| Net cash used in investing activities | (10,919) | (133,548) | 122,629 | (91.8) | % | ||||||||||||||||||
| Net cash used in financing activities | (239,590) | (184,132) | (55,458) | 30.1 | % | ||||||||||||||||||
| Net increase in cash and cash equivalents | $ | 206,726 | $ | 115,232 | $ | 91,494 | 79.4 | % | |||||||||||||||
Operating Activities
Our cash flows from operating activities depends on numerous factors including the occupancy level of our portfolio, the rental rates achieved on our leases, the collectability of rent and recoveries from our tenants, the level of operating expenses, the impact of property acquisitions, completed development projects and related financing activities, and other general and administrative costs. See additional information under the caption “—Results of Operations.” Our net cash provided by operating activities increased by $24.3 million, or 5.6%, for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, primarily due to an increase in accrued property taxes payable during the nine months ended September 30, 2025, as well as the settlement of the retirement liability associated with our former CEO, who departed the Company in early 2024, during the nine months ended September 30, 2024, partially offset by a decrease in interest accruals due to the net repayment of unsecured debt during the nine months ended September 30, 2025.
Investing Activities
Our cash flows from investing activities are generally used to fund development and operating property acquisitions, expenditures for development and redevelopment projects, and recurring and nonrecurring capital expenditures for our operating properties, net of proceeds received from dispositions of real estate assets. Our net cash used in investing activities decreased by $122.6 million, or 91.8%, for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, primarily due to higher net proceeds from our capital recycling program and a reduction in expenditures for development and redevelopment projects during the nine months ended September 30, 2025, partially offset by the maturity of certificates of deposit during the nine months ended September 30, 2024.
Financing Activities
Our cash flows from financing activities are principally impacted by our capital raising activities, net of dividends and distributions paid to common stockholders and common unitholders. Our net cash used in financing activities increased by $55.5 million, or 30.1%, for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024, primarily due to increased repayments of unsecured debt, partially offset by a decrease in financing costs incurred during the nine months ended September 30, 2025.
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Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting periods. We base our estimates on historical experience, current market conditions, and various other assumptions that are believed to be reasonable under the circumstances. Actual results could materially differ from these estimates.
In our Annual Report on Form 10-K for the year ended December 31, 2024, we identified certain critical accounting policies that affect certain of our more significant estimates and assumptions used in preparing our consolidated financial statements. We have not made any material changes to our critical accounting policies and estimates during the period covered by this report.
Non-GAAP Supplemental Financial Measure: Funds From Operations (“FFO”)
We calculate FFO available to common stockholders and common unitholders 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 depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. The reconciling items include amounts to adjust earnings from consolidated partially-owned entities and equity in earnings of unconsolidated affiliates to FFO. Our calculation of FFO includes the amortization of deferred revenue related to tenant-funded tenant improvements and excludes the depreciation of the related tenant improvement assets. We also add back net income attributable to noncontrolling common units of the Operating Partnership because we report FFO attributable to common stockholders and common unitholders.
We believe that FFO is a useful supplemental measure of our operating performance. The exclusion from FFO of gains and losses from the sale of operating real estate assets allows investors and analysts to readily identify the operating results of the assets that form the core of our activity and assists in comparing those operating results between periods. Also, because FFO is generally recognized as the industry standard for reporting the operations of REITs, it facilitates comparisons of operating performance to other REITs. However, other REITs may use different methodologies to calculate FFO, and accordingly, our FFO may not be comparable to all other REITs.
Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies using historical cost accounting alone to be insufficient. Because FFO excludes depreciation and amortization of real estate assets, we believe that FFO along with the required GAAP presentations provides a more complete measurement of our performance relative to our competitors and a more appropriate basis on which to make decisions involving operating, financing, and investing activities than the required GAAP presentations alone would provide.
FFO should not be viewed as an alternative measure of our operating performance since it does not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, which are significant economic costs and could materially impact our results from operations.
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The following table presents our FFO for the three and nine months ended September 30, 2025 and 2024:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| Net income available to common stockholders | $ | 156,220 | $ | 52,378 | $ | 263,677 | $ | 151,509 | |||||||||||||||
| Adjustments: | |||||||||||||||||||||||
| Net income attributable to noncontrolling common units of the Operating Partnership | 1,524 | 509 | 2,562 | 1,469 | |||||||||||||||||||
| Net income attributable to noncontrolling interests in consolidated property partnerships | 4,538 | 4,786 | 19,292 | 14,942 | |||||||||||||||||||
| Depreciation and amortization of real estate assets | 86,080 | 90,243 | 258,058 | 262,292 | |||||||||||||||||||
| Gains on sales of depreciable operating properties | (110,484) | — | (127,038) | — | |||||||||||||||||||
| Funds From Operations attributable to noncontrolling interests in consolidated property partnerships | (7,317) | (7,468) | (27,789) | (23,454) | |||||||||||||||||||
Funds From Operations (1)(2) | $ | 130,561 | $ | 140,448 | $ | 388,762 | $ | 406,758 | |||||||||||||||
(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 $3.6 million and $4.2 million for the three months ended September 30, 2025 and 2024, respectively, and $11.1 million and $15.1 million for the nine months ended September 30, 2025 and 2024, respectively.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about our market risk is disclosed in “Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 and is incorporated herein by reference. There have been no material changes for the nine months ended September 30, 2025, to the information provided in “Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
ITEM 4. CONTROLS AND PROCEDURES
Kilroy Realty Corporation
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is processed, recorded, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures as of September 30, 2025, the end of the period covered by this report. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded, as of that time, the disclosure controls and procedures were effective at the reasonable assurance level.
There have been no changes that occurred during the period covered by this report in the Company’s internal control over financial reporting identified in connection with the evaluation referenced above that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Kilroy Realty, L.P.
The Operating Partnership maintains disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Operating Partnership’s reports under the Exchange Act is processed, recorded, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer of its general partner, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), the Operating Partnership carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer of its general partner, of the effectiveness of the design and operation of the disclosure controls and procedures as of September 30, 2025, the end of the period covered by this report. Based on the foregoing, the Chief Executive Officer and Chief Financial Officer of its general partner concluded, as of that time, the disclosure controls and procedures were effective at the reasonable assurance level.
There have been no changes that occurred during the period covered by this report in the Operating Partnership’s internal control over financial reporting identified in connection with the evaluation referenced above that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We and our properties are subject to routine litigation incidental to our business. These matters are generally covered by insurance. As of September 30, 2025, we are not a defendant in, and our properties are not subject to, any legal proceedings that we believe, if determined adversely to us, would have a material adverse effect upon our financial condition, results of operations or cash flows.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors included in the Company’s and the Operating Partnership’s annual report on Form 10-K for the year ended December 31, 2024.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Recent Sales of Unregistered Securities: None.
(b) Use of Proceeds from Registered Securities: None.
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers:
The following table reflects our purchases of common stock during each of the three months in the three-month period ended September 30, 2025:
| Period | Total Number of Shares of Stock Purchased (1) | Weighted Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) that May Yet be Purchased Under the Plans or Programs | ||||||||||||||||||||||
| July 1, 2025 - July 31, 2025 | — | $ | — | — | — | |||||||||||||||||||||
| August 1, 2025 - August 31, 2025 | — | — | — | — | ||||||||||||||||||||||
| September 1, 2025 - September 30, 2025 | 4,883 | 44.18 | — | — | ||||||||||||||||||||||
| Total | 4,883 | $ | 44.18 | — | — | |||||||||||||||||||||
________________________
(1)Represents shares of common stock remitted to the Company to satisfy tax withholding obligations in connection with the distribution of, or the vesting and distribution of, restricted stock units or restricted stock in shares of common stock. The value of such shares of common stock remitted to the Company was based on the closing price of the Company’s common stock on the applicable withholding date.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
(a).None
(b).None
(c).During the three months ended September 30, 2025, no director or officer of the Company adopted terminated
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ITEM 6. EXHIBITS
| Exhibit Number | Description | |||||||
| 3.(i)1 | ||||||||
| 3.(i)2 | ||||||||
| 3.(i)3 | ||||||||
| 3.(ii)1 | Ninth Amended and Restated Bylaws of Kilroy Realty Corporation (previously filed by Kilroy Realty Corporation as an exhibit on Form 8-K as filed with the Securities and Exchange Commission on June 4, 2024) | |||||||
| 3.(ii)2 | ||||||||
| 31.1* | ||||||||
| 31.2* | ||||||||
| 31.3* | ||||||||
| 31.4* | ||||||||
| 32.1* | ||||||||
| 32.2* | ||||||||
| 32.3* | ||||||||
| 32.4* | ||||||||
| 101.1 | The following Kilroy Realty Corporation and Kilroy Realty, L.P. financial information for the quarter ended September 30, 2025, formatted in inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Equity (unaudited), (iv) Consolidated Statements of Capital (unaudited), (v) Consolidated Statements of Cash Flows (unaudited) and (vi) Notes to the Consolidated Financial Statements (unaudited).(1) | |||||||
| 104.1* | Cover Page Interactive Data File - The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | |||||||
_______________
| * | Filed herewith. | ||||
| † | Management contract or compensatory plan or arrangement. | ||||
| (1) | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections. | ||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on October 28, 2025.
| KILROY REALTY CORPORATION | ||||||||
| By: | /s/ Angela M. Aman | |||||||
| Angela M. Aman Chief Executive Officer (Principal Executive Officer) | ||||||||
| By: | /s/ Jeffrey R. Kuehling | |||||||
Jeffrey R. Kuehling Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) | ||||||||
| By: | /s/ Merryl E. Werber | |||||||
| Merryl E. Werber Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) | ||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on October 28, 2025.
| KILROY REALTY, L.P. | ||||||||
| BY: KILROY REALTY CORPORATION | ||||||||
| Its general partner | ||||||||
| By: | /s/ Angela M. Aman | |||||||
| Angela M. Aman Chief Executive Officer (Principal Executive Officer) | ||||||||
| By: | /s/ Jeffrey R. Kuehling | |||||||
Jeffrey R. Kuehling Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) | ||||||||
| By: | /s/ Merryl E. Werber | |||||||
| Merryl E. Werber Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) | ||||||||
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