Kilroy Realty(KRC) - 2025 Q2 - Quarterly Report

Explanatory Note This section clarifies the combined reporting structure for Kilroy Realty Corporation and its Operating Partnership Combined Reporting Structure This report combines Form 10-Q filings for Kilroy Realty Corporation (REIT) and its subsidiary, Kilroy Realty, L.P., viewed as a single operating unit - Kilroy Realty Corporation is a REIT and the general partner of the Operating Partnership, owning a 99.0% interest as of June 30, 2025[11] - The Operating Partnership owns substantially all assets, conducts business operations, and generates capital, while the Company's primary role is acting as the general partner and issuing equity[12] - The main differences in the financial statements between the two entities relate to noncontrolling interests, stockholders' equity, and partners' capital[13] - The combined reporting approach is intended to better reflect how the business is managed, enhance investor understanding, and improve efficiency[14] PART I – FINANCIAL INFORMATION Financial Statements of Kilroy Realty Corporation This section presents Kilroy Realty Corporation's unaudited consolidated financial statements, covering Balance Sheets, Operations, Equity, and Cash Flows Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total real estate assets held for investment, net | $9,542,932 | $9,834,579 | | Total Assets | $10,867,832 | $10,898,357 | | Total Debt, net (Secured + Unsecured) | $4,597,719 | $4,597,765 | | Total Liabilities | $5,274,388 | $5,289,488 | | Total Stockholders' Equity | $5,366,455 | $5,382,046 | | Total Equity | $5,593,444 | $5,608,869 | Consolidated Statements of Operations Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $289,892 | $280,731 | $560,736 | $559,312 | | Total Expenses | $196,736 | $199,378 | $393,728 | $396,291 | | Gain on sale of property | $16,554 | $0 | $16,554 | $0 | | Net Income | $79,568 | $54,547 | $123,249 | $110,247 | | Net Income Available to Common Stockholders | $68,449 | $49,211 | $107,457 | $99,131 | | EPS - basic | $0.58 | $0.41 | $0.91 | $0.83 | | EPS - diluted | $0.57 | $0.41 | $0.90 | $0.83 | Consolidated Statements of Cash Flows Consolidated Cash Flow Summary - Six Months Ended June 30 (in thousands) | Cash Flow Category | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $280,667 | $256,562 | | Net cash (used in) provided by investing activities | ($100,343) | $40,815 | | Net cash (used in) provided by financing activities | ($152,885) | $28,353 | | Net increase in cash and cash equivalents | $27,439 | $325,730 | Financial Statements of Kilroy Realty, L.P. This section presents Kilroy Realty, L.P.'s unaudited consolidated financial statements, largely mirroring the Company's, with equity section differences Consolidated Balance Sheets - The Operating Partnership's total assets, liabilities, and total capital were $10.87 billion, $5.27 billion, and $5.59 billion, respectively, as of June 30, 2025, showing minimal change from year-end 2024[33] Consolidated Statements of Operations Consolidated Statements of Operations Highlights (in thousands) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $289,892 | $280,731 | $560,736 | $559,312 | | Net Income | $79,568 | $54,547 | $123,249 | $110,247 | | Net Income Available to Common Unitholders | $69,112 | $49,669 | $108,495 | $100,091 | Notes to Unaudited Consolidated Financial Statements This section details accounting policies and financial data, covering organization, property dispositions, debt, share-based compensation, and rental income Note 1. Organization, Ownership, and Basis of Presentation - The company is a REIT focused on premier office, life science, and mixed-use properties in Los Angeles, San Diego, the San Francisco Bay Area, Seattle, and Austin[45] Stabilized Portfolio Summary as of June 30, 2025 | Property Type | Count | Rentable Square Feet / Units | Occupancy | | :--- | :--- | :--- | :--- | | Office Properties | 118 buildings | 16,395,491 | 80.8% | | Residential Properties | 3 properties | 1,001 units | 94.5% | - As of June 30, 2025, properties excluded from the stabilized portfolio include one property held for sale (663,460 sq ft) and three development/redevelopment projects in the tenant improvement phase (975,000 sq ft)[48] Note 2. Dispositions and Real Estate Held for Sale - During the six months ended June 30, 2025, the company sold one operating property for a gross price of $40.0 million, realizing a gain of $16.6 million[62][63] - A four-building office property in Silicon Valley (663,460 sq ft) was classified as Held for Sale in Q2 2025, with an expected gross sales price of $365.0 million, anticipated to close in Q3 2025[64] Assets and Liabilities Held for Sale as of June 30, 2025 (in thousands) | Category | Amount | | :--- | :--- | | Total real estate and other assets held for sale, net | $255,795 | | Total liabilities related to real estate assets held for sale | $4,887 | Note 4. Secured and Unsecured Debt of the Operating Partnership Unsecured Revolving Credit Facility Summary as of June 30, 2025 | Metric | Value | | :--- | :--- | | Outstanding Borrowings | $0 | | Remaining Borrowing Capacity | $1.1 billion | | Interest Rate | 5.65% | | Maturity Date | July 31, 2028 | Debt Maturities as of June 30, 2025 (in thousands) | Year | Principal Amount | | :--- | :--- | | Remaining 2025 | $603,153 | | 2026 | $401,317 | | 2027 | $249,125 | | 2028 | $400,000 | | Thereafter | $3,375,000 | | Total Debt, Net | $4,597,719 | - For the six months ended June 30, 2025, the company capitalized $41.9 million of interest expense related to development and redevelopment projects, compared to $40.3 million in the same period of 2024[79] Note 7. Share-Based Compensation - In February 2025, the company awarded 535,398 restricted stock units (RSUs) to certain officers, split between performance-based and time-based vesting requirements[85] Share-Based Compensation Cost (in millions) | Period | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Compensation Cost | $5.7 | $6.9 | $10.8 | $11.7 | - As of June 30, 2025, there was approximately $33.4 million of total unrecognized compensation cost related to nonvested RSUs, expected to be recognized over a weighted-average period of 2.0 years[95] Note 8. Rental Income and Future Minimum Rent Future Contractual Minimum Rent as of June 30, 2025 (in thousands) | Year | Amount | | :--- | :--- | | Remaining 2025 | $389,469 | | 2026 | $768,433 | | 2027 | $746,063 | | 2028 | $701,989 | | 2029 | $609,393 | | Thereafter | $1,644,306 | | Total | $4,859,653 | Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial condition and operating results, including portfolio, tenants, leasing, development, and liquidity Overview and Background Stabilized Portfolio Occupancy by Region as of June 30, 2025 | Region | Rentable Square Feet | Occupancy | | :--- | :--- | :--- | | Los Angeles | 4,261,793 | 74.4% | | San Diego | 2,871,241 | 85.0% | | San Francisco Bay Area | 5,507,135 | 84.8% | | Seattle | 2,996,347 | 78.5% | | Austin | 758,975 | 79.9% | | Total Stabilized Portfolio | 16,395,491 | 80.8% | - The top 20 tenants accounted for 54.6% of total annualized base rental revenue as of June 30, 2025, with a weighted average remaining lease term of 5.9 years[130] Factors That May Influence Future Results of Operations Leasing Activity - Six Months Ended June 30, 2025 | Leasing Type | Number of Leases | Total Rentable Square Feet | Change in GAAP Rents | Change in Cash Rents | | :--- | :--- | :--- | :--- | :--- | | 2nd Gen Leasing (New & Renewal) | 61 | 484,860 | (13.1)% | (18.5)% | | 1st Gen / Development | 8 | 105,272 | N/A | N/A | | Total | 69 | 590,132 | | | - Leases representing 12.4% of the occupied square footage of the stabilized portfolio are scheduled to expire during the remainder of 2025 and in 2026[145] - The company has one development project (Kilroy Oyster Point Phase 2, 875,000 sq ft) and two redevelopment projects (90,000 sq ft total) in the tenant improvement phase[154][157] - The future development pipeline includes eight projects with the potential for over 6.0 million sq ft of office space and approximately 1,750 residential units[155] Results of Operations Net Operating Income (NOI) Comparison (in thousands) | Period | Q2 2025 | Q2 2024 | % Change | YTD 2025 | YTD 2024 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total NOI | $190,779 | $187,996 | 1.5% | $371,018 | $375,581 | (1.2)% | - Q2 2025 Same Property NOI increased by $4.0 million (2.2%) YoY, driven by higher revenue from tenant creditworthiness considerations and lower real estate taxes[172] - YTD 2025 Same Property NOI decreased by $3.0 million (0.8%) YoY, primarily due to a $12.1 million decrease in straight-line rent, partially offset by lower real estate taxes[187] - Interest expense decreased by $5.9 million in Q2 2025 and $13.6 million YTD 2025 compared to the prior year periods, mainly due to lower average outstanding debt balances[177][192] Liquidity and Capital Resources - As of June 30, 2025, the company had approximately $193.1 million in cash and cash equivalents and $1.1 billion available under its unsecured revolving credit facility[202] - The company's next significant debt maturities are in October 2025, including a $200.0 million term loan and $400.0 million in unsecured senior notes[234] Debt Composition as of June 30, 2025 | Debt Type | Percentage of Total Debt | Weighted Average Interest Rate | | :--- | :--- | :--- | | Unsecured | 87.0% | 4.0% | | Secured | 13.0% | 5.1% | | Variable-rate | 4.3% | 5.6% | | Fixed-rate | 95.7% | 4.1% | - The company has a $500.0 million share repurchase program, which commenced in February 2024, but has not completed any repurchases under it[240] Non-GAAP Supplemental Financial Measure: Funds From Operations (FFO) Funds From Operations (FFO) (in thousands) | Period | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | FFO | $135,891 | $132,587 | $258,201 | $266,310 | Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures have occurred since the 2024 Annual Report on Form 10-K - There have been no material changes to the market risk information previously disclosed in the 2024 Annual Report on Form 10-K[259] Controls and Procedures Management concluded that disclosure controls and procedures for both entities were effective as of June 30, 2025, with no material changes to internal control - Management concluded that the disclosure controls and procedures for both the Company and the Operating Partnership were effective as of June 30, 2025[261][264] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the internal control over financial reporting[262][265] PART II – OTHER INFORMATION Legal Proceedings The company is subject to routine litigation, with no legal proceedings expected to materially affect its financial condition or operations - As of June 30, 2025, the company is not involved in any legal proceedings expected to have a material adverse effect[267] Risk Factors No material changes to risk factors have been reported since the 2024 Annual Report on Form 10-K - No material changes to risk factors from the 2024 Annual Report on Form 10-K have been reported[268] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities, with common stock purchases solely for tax withholding on vested employee awards Purchases of Equity Securities by the Issuer - Q2 2025 | Period | Total Shares Purchased | Weighted Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 6,205 | $31.89 | | May 2025 | 0 | N/A | | June 2025 | 0 | N/A | | Total | 6,205 | $31.89 | - The shares purchased were remitted to the company to satisfy tax withholding obligations related to vested restricted stock units[271]