Business Wire | Apr 28, 2021 05:06PM EDT

Kilroy Realty Corporation Reports First Quarter Financial Results

Apr. 28, 2021

LOS ANGELES--(BUSINESS WIRE)--Apr. 28, 2021--Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its first quarter ended March 31, 2021.

COVID-19 Pandemic Key Business Update

Operations

* Collected 96% of contractual first quarter rent billings across all property types, including 98% from office and life science tenants The collection rate for April across all property types was 95%, including 97% from office and life science tenants, as of the date of this release * Limited lease expiration exposure with an average of approximately 6.7% of total rentable square feet expiring per year through 2025

Balance Sheet / Liquidity Highlights

* As of the date of this release, the company had approximately $2.6 billion of total liquidity comprised of approximately $500.0 million of cash and cash equivalents, $1.0 billion of restricted cash and full availability under the recently amended $1.1 billion unsecured revolving credit facility * No significant debt maturities until 2023 * Weighted average debt maturity of approximately 7.0 years

Development

* $1.5 billion of projects under development 88% leased across office and life science space As of the date of this release, all in-process projects were under active construction Remaining spending to complete the projects of approximately $350.0 million, fully funded with cash and cash equivalents

First Quarter Highlights

Financial Results

* Net income available to common stockholders per share of $4.26, including a $3.92 per share gain on sale of an operating property * Funds from operations available to common stockholders and unitholders ("FFO") per share of $0.98 Both net income available to common stockholders per share and FFO per share included a $0.01 per share charge primarily due to residential and office tenant creditworthiness as a result of the COVID-19 pandemic * Revenues increased to $235.6 million, including the charge noted above

Stabilized Portfolio

* Stabilized portfolio was 91.5% occupied and 93.3% leased at March 31, 2021 * Signed approximately 206,000 square feet of new or renewing leases GAAP and cash rents increased approximately 15.4% and 4.9%, respectively, from prior levels

Dispositions

* On March 30, completed the sale of The Exchange on 16th, an approximately 750,000 square foot operating property in San Francisco's Mission Bay neighborhood for gross proceeds of $1.08 billion, or approximately $1,440 per square foot, and a GAAP gain on sale of an operating property of $457.3 million

Development

* In January, completed construction on and added 9455 Towne Centre Drive, an approximately 160,000 square foot office development project located in the University Towne Center submarket of San Diego, to the stabilized portfolio. The project is 100% leased to a Fortune 50 company * In March, transferred Kilroy Oyster Point - Phase 1, an approximately 656,000 square foot life science development project in South San Francisco, from the under construction phase to the tenant improvement phase. Phase 1 is 100% leased to two tenants

Recent Developments

* In April, Kilroy Realty, L.P., ("Borrower") the company's operating partnership, amended and restated its unsecured revolving credit facility (the "Credit Facility"). The new sustainability-linked Credit Facility includes an increase in size from $750.0 million to $1.1 billion, a reduction in borrowing costs and an extension of the maturity date to July 31, 2025 with two six-month extension options The Credit Facility now bears interest at LIBOR plus 0.900% The Credit Facility also features a sustainability-linked pricing component whereby the pricing can improve if the Borrower meets certain sustainability performance targets * In April, completed construction on Jardine, the 193-unit residential project in the Hollywood submarket of Los Angeles

Results for the Quarter Ended March 31, 2021

For the first quarter ended March 31, 2021, KRC reported net income available to common stockholders of $497.6 million, or $4.26 per share, including a $3.92 per share gain on sale of an operating property, compared to $39.8 million, or $0.37 per share, in the first quarter of 2020. FFO in the first quarter of 2021 was $116.2 million, or $0.98 per share, compared to $110.2 million, or $1.00 per share, in the first quarter of 2020. Current period net income available to common stockholders and FFO per share included a $0.01 per share charge primarily due to residential and office tenant creditworthiness related to the COVID-19 pandemic.

All per share amounts in this report are presented on a diluted basis.

Net Income Available to Common Stockholders / FFO Guidance and Outlook

The company is providing a guidance range of NAREIT-defined FFO per diluted share for its second quarter 2021 of $0.80 to $0.86 per share, with a midpoint of $0.83 per share.



Second Quarter 2021 Range at March 31, 2021

Low End High End

Net income available to common stockholders $ 0.28 $ 0.34 per share - diluted



Weighted average common shares outstanding - 117,600 117,600 diluted ^(1)



Net income available to common stockholders $ 33,000 $ 40,000

Adjustments:

Net income attributable to noncontrolling 450 650 common units of the Operating Partnership

Net income attributable to noncontrolling interests in consolidated property 5,000 6,000 partnerships

Depreciation and amortization of real estate 65,000 65,000 assets

Gains on sales of depreciable real estate - -

Funds From Operations attributable to noncontrolling interests in consolidated (8,500 ) (9,500 ) property partnerships

Funds From Operations ^(2) $ 94,950 $ 102,150



Weighted average common shares/units 118,800 118,800 outstanding - diluted ^(3)



Funds From Operations per common share/unit - $ 0.80 $ 0.86 diluted ^(3)



Key 2Q 2021 assumptions include:

* Same Store Cash NOI growth of 1.0% to 2.0% (4) * Quarter-end occupancy of 91.3% to 91.5% * Total development spending of approximately $100.0 million to $125.0 million * No acquisitions or dispositions assumed

________________________

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

(2) See management statement for Funds From Operations at end of release.

Calculated based on weighted average shares outstanding including participating and non-participating share-based awards, dilutive impact of(3) stock options and contingently issuable shares, and assuming the exchange of all common limited partnership units outstanding. Reported amounts are attributable to common stockholders, common unitholders and restricted stock unitholders.

See management statement for Same Store Cash Net Operating Income on page(4) 32 of our Supplemental Financial Report furnished on Form 8-K with this press release.

The company's guidance estimates for the second quarter 2021, and the reconciliation of net income available to common stockholders per share - diluted and FFO per share and unit - diluted included within this press release, reflect management's views on current and future market conditions, including assumptions with respect to rental rates, occupancy levels, and the earnings impact of the events referenced in this press release. Although these guidance estimates reflect the impact on the company's operating results of an assumed range of future disposition activity, these guidance estimates do not include any estimates of possible future gains or losses from possible future dispositions because the magnitude of gains or losses on sales of depreciable operating properties, if any, will depend on the sales price and depreciated cost basis of the disposed assets at the time of disposition, information that is not known at the time the company provides guidance, and the timing of any gain recognition will depend on the closing of the dispositions, information that is also not known at the time the company provides guidance and may occur after the relevant guidance period. We caution you not to place undue reliance on our assumed range of future disposition activity because any potential future disposition transactions will ultimately depend on the market conditions and other factors, including but not limited to the company's capital needs, the particular assets being sold and the company's ability to defer some or all of the taxable gain on the sales. These guidance estimates also do not include the impact on operating results from potential future acquisitions, possible capital markets activity, possible future impairment charges or any events outside of the company's control. There can be no assurance that the company's actual results will not differ materially from these estimates.

Conference Call and Audio Webcast

KRC management will discuss first quarter results and the current business environment during the company's April 29, 2021 earnings conference call. The call will begin at 10:00 a.m. Pacific Time and last approximately one hour. Those interested in listening via the Internet can access the conference call at https://services.choruscall.com/links/krc210429.html. It may be necessary to download audio software to hear the conference call. Those interested in listening via telephone can access the conference call at (866) 312-7299. International callers should dial (412) 317-1070. In order to bypass speaking to the operator on the day of the call, please pre-register anytime at https://dpregister.com/sreg/10148265/d9aa7e7f41. A replay of the conference call will be available via telephone on April 29, 2021 through May 6, 2021 by dialing (877) 344-7529 and entering passcode 10148265. International callers should dial (412) 317-0088 and enter the same passcode. The replay will also be available on our website at http://investors.kilroyrealty.com/shareholders/investor-events/default.aspx.

About Kilroy Realty Corporation

Kilroy Realty Corporation (NYSE: KRC, the "company", "KRC") is a leading West Coast landlord and developer, with a major presence in San Diego, Greater Los Angeles, the San Francisco Bay Area, and the Pacific Northwest. The company has earned global recognition for sustainability, building operations, innovation and design. As pioneers and innovators in the creation of a more sustainable real estate industry, the company's approach to modern business environments helps drive creativity, productivity and employee retention for some of the world's leading technology, entertainment, life science and business services companies.

KRC is a publicly traded real estate investment trust ("REIT") and member of the S&P MidCap 400 Index with more than seven decades of experience developing, acquiring and managing office and mixed-use projects.

As of March 31, 2021, KRC's stabilized portfolio totaled approximately 14.0 million square feet of primarily office and life science space that was 91.5% occupied and 93.3% leased. The company also had 808 residential units in Hollywood and San Diego, which had a quarterly average occupancy of 69.1%. In addition, KRC had five in-process development projects with an estimated total investment of $1.5 billion, totaling approximately 1.8 million square feet of office and life science space. The office and life science space was 88% leased.

A Leader in Sustainability and Commitment to Corporate Social Responsibility

KRC is listed on the Dow Jones Sustainability World Index and has been recognized by industry organizations around the world. KRC's stabilized portfolio was 67% LEED certified, 41% Fitwel certified, the highest of any non-government organization, and 71% of eligible properties were ENERGY STAR certified as of March 31, 2021.

The company has been recognized by GRESB, the Global Real Estate Sustainability Benchmark, as the listed sustainability leader in the Americas for six of the last seven years. Other honors have included the National Association of Real Estate Investment Trust's (NAREIT) Leader in the Light award for six consecutive years and ENERGY STAR Partner of the Year for eight years as well as ENERGY STAR's highest honor of Sustained Excellence, for the past six years.

A big part of the company's foundation is its commitment to enhancing employee growth, satisfaction and wellness while maintaining a diverse and thriving culture. For the second year in a row, the company has been named to Bloomberg's Gender Equality Index-recognizing companies committed to supporting gender equality through policy development, representation, and transparency.

More information is available at http://www.kilroyrealty.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on our current expectations, beliefs and assumptions, and are not guarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult to predict, many of which are outside of our control. Accordingly, actual performance, results and events may vary materially from those indicated or implied in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results or events. Numerous factors could cause actual future performance, results and events to differ materially from those indicated in the forward-looking statements, including, among others: global market and general economic conditions and their effect on our liquidity and financial conditions and those of our tenants; adverse economic or real estate conditions generally, and specifically, in the States of California and Washington; risks associated with our investment in real estate assets, which are illiquid, and with trends in the real estate industry; defaults on or non-renewal of leases by tenants; any significant downturn in tenants' businesses; our ability to re-lease property at or above current market rates; costs to comply with government regulations, including environmental remediation; the availability of cash for distribution and debt service and exposure to risk of default under debt obligations; increases in interest rates and our ability to manage interest rate exposure; the availability of financing on attractive terms or at all, which may adversely impact our future interest expense and our ability to pursue development, redevelopment and acquisition opportunities and refinance existing debt; a decline in real estate asset valuations, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing, and which may result in write-offs or impairment charges; significant competition, which may decrease the occupancy and rental rates of properties; potential losses that may not be covered by insurance; the ability to successfully complete acquisitions and dispositions on announced terms; the ability to successfully operate acquired, developed and redeveloped properties; the ability to successfully complete development and redevelopment projects on schedule and within budgeted amounts; delays or refusals in obtaining all necessary zoning, land use and other required entitlements, governmental permits and authorizations for our development and redevelopment properties; increases in anticipated capital expenditures, tenant improvement and/or leasing costs; defaults on leases for land on which some of our properties are located; adverse changes to, or enactment or implementations of, tax laws or other applicable laws, regulations or legislation, as well as business and consumer reactions to such changes; risks associated with joint venture investments, including our lack of sole decision-making authority, our reliance on co-venturers' financial condition and disputes between us and our co-venturers; environmental uncertainties and risks related to natural disasters; our ability to maintain our status as a REIT; and uncertainties regarding the impact of the COVID-19 pandemic, and restrictions intended to prevent its spread, on our business and the economy generally. These factors are not exhaustive and additional factors could adversely affect our business and financial performance. For a discussion of additional factors that could materially adversely affect our business and financial performance, see the factors included under the caption "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2020 and our other filings with the Securities and Exchange Commission. 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 made in this press release that becomes untrue because of subsequent events, new information or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws.

KILROY REALTY CORPORATION

SUMMARY OF QUARTERLY RESULTS

(unaudited; in thousands, except per share data)



Three Months Ended March 31,

2021 2020

Revenues $ 235,646 $ 221,328



Net income available to common stockholders $ 497,631 $ 39,817



Weighted average common shares outstanding - basic 116,344 106,875

Weighted average common shares outstanding - 116,801 107,390 diluted



Net income available to common stockholders per $ 4.27 $ 0.37 share - basic

Net income available to common stockholders per $ 4.26 $ 0.37 share - diluted



Funds From Operations ^(1)(2) $ 116,244 $ 110,173



Weighted average common shares/units outstanding - 118,333 110,031 basic^ (3)

Weighted average common shares/units outstanding - 118,790 110,546 diluted^ (4)



Funds From Operations per common share/unit - basic $ 0.98 $ 1.00 ^(2)

Funds From Operations per common share/unit - $ 0.98 $ 1.00 diluted ^(2)



Common shares outstanding at end of period 116,450 115,068

Common partnership units outstanding at end of 1,151 2,021 period

Total common shares and units outstanding at end of 117,601 117,089 period



March 31, March 31, 2021 2020

Stabilized office portfolio occupancy rates: ^(5)

Greater Los Angeles 87.5 % 94.0 %

San Diego County 87.4 % 88.3 %

San Francisco Bay Area 94.3 % 94.3 %

Greater Seattle 97.8 % 95.5 %

Weighted average total 91.5 % 93.5 %



Total square feet of stabilized office properties owned at end of period: ^(5)

Greater Los Angeles 4,404 4,027

San Diego County 2,316 2,145

San Francisco Bay Area 5,528 6,350

Greater Seattle 1,802 1,802

Total 14,050 14,324

________________________

Reconciliation of Net income available to common stockholders to Funds From(1) Operations available to common stockholders and unitholders and management statement on Funds From Operations are included after the Consolidated Statements of Operations.

(2) Reported amounts are attributable to common stockholders, common unitholders and restricted stock unitholders.

Calculated based on weighted average shares outstanding including(3) participating share-based awards (i.e. nonvested stock and certain time based restricted stock units) and assuming the exchange of all common limited partnership units outstanding.

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

Occupancy percentages and total square feet reported are based on the(5) company's stabilized office portfolio for the periods presented. Occupancy percentages and total square feet shown for March 31, 2020 include the office properties that were sold subsequent to March 31, 2020.

KILROY REALTY CORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited; in thousands)

March 31, 2021

December 31, 2020

ASSETS

REAL ESTATE ASSETS:

Land and improvements

$

1,539,542

$

1,628,848

Buildings and improvements

6,480,857

6,783,092

Undeveloped land and construction in progress

1,771,762

1,778,106

Total real estate assets held for investment

9,792,161

10,190,046

Accumulated depreciation and amortization

(1,838,338

)

(1,798,646

)

Total real estate assets held for investment, net

7,953,823

8,391,400

Cash and cash equivalents

657,819

731,991

Restricted cash

1,028,759

91,139

Marketable securities

24,089

27,481

Current receivables, net

12,855

12,007

Deferred rent receivables, net

370,470

386,658

Deferred leasing costs and acquisition-related intangible assets, net

190,721

210,949

Right of use ground lease assets

95,312

95,523

Prepaid expenses and other assets, net

50,505

53,560

TOTAL ASSETS

$

10,384,353

$

10,000,708

LIABILITIES AND EQUITY

LIABILITIES:

Secured debt, net

$

252,298

$

253,582

Unsecured debt, net

3,671,094

3,670,099

Accounts payable, accrued expenses and other liabilities

408,552

445,100

Ground lease liabilities

97,617

97,778

Accrued dividends and distributions

59,472

59,431

Deferred revenue and acquisition-related intangible liabilities, net

123,794

128,523

Rents received in advance and tenant security deposits

68,634

68,874

Total liabilities

4,681,461

4,723,387

EQUITY:

Stockholders' Equity

Common stock

1,165

1,160

Additional paid-in capital

5,122,584

5,131,916

Retained earnings (distributions in excess of earnings)

334,496

(103,133

)

Total stockholders' equity

5,458,245

5,029,943

Noncontrolling Interests

Common units of the Operating Partnership

53,930

49,875

Noncontrolling interests in consolidated property partnerships

190,717

197,503

Total noncontrolling interests

244,647

247,378

Total equity

5,702,892

5,277,321

TOTAL LIABILITIES AND EQUITY

$

10,384,353

$

10,000,708

KILROY REALTY CORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited; in thousands)

March 31, 2021 December 31, 2020

ASSETS

REAL ESTATE ASSETS:

Land and improvements $ 1,539,542 $ 1,628,848

Buildings and improvements 6,480,857 6,783,092

Undeveloped land and construction in 1,771,762 1,778,106 progress

Total real estate assets held for investment 9,792,161 10,190,046

Accumulated depreciation and amortization (1,838,338 ) (1,798,646 )

Total real estate assets held for 7,953,823 8,391,400 investment, net



Cash and cash equivalents 657,819 731,991

Restricted cash 1,028,759 91,139

Marketable securities 24,089 27,481

Current receivables, net 12,855 12,007

Deferred rent receivables, net 370,470 386,658

Deferred leasing costs and 190,721 210,949 acquisition-related intangible assets, net

Right of use ground lease assets 95,312 95,523

Prepaid expenses and other assets, net 50,505 53,560

TOTAL ASSETS $ 10,384,353 $ 10,000,708



LIABILITIES AND EQUITY

LIABILITIES:

Secured debt, net $ 252,298 $ 253,582

Unsecured debt, net 3,671,094 3,670,099

Accounts payable, accrued expenses and other 408,552 445,100 liabilities

Ground lease liabilities 97,617 97,778

Accrued dividends and distributions 59,472 59,431

Deferred revenue and acquisition-related 123,794 128,523 intangible liabilities, net

Rents received in advance and tenant 68,634 68,874 security deposits

Total liabilities 4,681,461 4,723,387



EQUITY:

Stockholders' Equity

Common stock 1,165 1,160

Additional paid-in capital 5,122,584 5,131,916

Retained earnings (distributions in excess 334,496 (103,133 ) of earnings)

Total stockholders' equity 5,458,245 5,029,943

Noncontrolling Interests

Common units of the Operating Partnership 53,930 49,875

Noncontrolling interests in consolidated 190,717 197,503 property partnerships

Total noncontrolling interests 244,647 247,378

Total equity 5,702,892 5,277,321

TOTAL LIABILITIES AND EQUITY $ 10,384,353 $ 10,000,708

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited; in thousands, except per share data)

Three Months Ended March 31,

2021

2020

REVENUES

Rental income

$

234,656

$

218,633

Other property income

990

2,695

Total revenues

235,646

221,328

EXPENSES

Property expenses

38,859

38,983

Real estate taxes

25,266

22,202

Ground leases

1,828

2,317

General and administrative expenses

21,985

19,010

Leasing costs

692

1,456

Depreciation and amortization

75,932

74,370

Total expenses

164,562

158,338

OTHER INCOME (EXPENSES)

Interest income and other net investment gain (loss)

1,373

(3,128

)

Interest expense

(22,334

)

(14,444

)

Gain on sale of depreciable operating property

457,288

-

Total other income (expenses)

436,327

(17,572

)

NET INCOME

507,411

45,418

Net income attributable to noncontrolling common units of the Operating Partnership

(4,886

)

(705

)

Net income attributable to noncontrolling interests in consolidated property partnerships

(4,894

)

(4,896

)

Total income attributable to noncontrolling interests

(9,780

)

(5,601

)

NET INCOME AVAILABLE TO COMMON STOCKHOLDERS

$

497,631

$

39,817

Weighted average common shares outstanding - basic

116,344

106,875

Weighted average common shares outstanding - diluted

116,801

107,390

Net income available to common stockholders per share - basic

$

4.27

$

0.37

Net income available to common stockholders per share - diluted

$

4.26

$

0.37

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited; in thousands, except per share data)



Three Months Ended March 31,

2021 2020

REVENUES

Rental income $ 234,656 $ 218,633

Other property income 990 2,695

Total revenues 235,646 221,328



EXPENSES

Property expenses 38,859 38,983

Real estate taxes 25,266 22,202

Ground leases 1,828 2,317

General and administrative expenses 21,985 19,010

Leasing costs 692 1,456

Depreciation and amortization 75,932 74,370

Total expenses 164,562 158,338



OTHER INCOME (EXPENSES)

Interest income and other net investment gain 1,373 (3,128 ) (loss)

Interest expense (22,334 ) (14,444 )

Gain on sale of depreciable operating property 457,288 -

Total other income (expenses) 436,327 (17,572 )



NET INCOME 507,411 45,418



Net income attributable to noncontrolling common (4,886 ) (705 ) units of the Operating Partnership

Net income attributable to noncontrolling (4,894 ) (4,896 ) interests in consolidated property partnerships

Total income attributable to noncontrolling (9,780 ) (5,601 ) interests



NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 497,631 $ 39,817



Weighted average common shares outstanding - 116,344 106,875 basic

Weighted average common shares outstanding - 116,801 107,390 diluted



Net income available to common stockholders per $ 4.27 $ 0.37 share - basic

Net income available to common stockholders per $ 4.26 $ 0.37 share - diluted

KILROY REALTY CORPORATION

FUNDS FROM OPERATIONS

(unaudited; in thousands, except per share data)

Three Months Ended March 31,

2021

2020

Net income available to common stockholders

$

497,631

$

39,817

Adjustments:

Net income attributable to noncontrolling common units of the Operating Partnership

4,886

705

Net income attributable to noncontrolling interests in consolidated property partnerships

4,894

4,896

Depreciation and amortization of real estate assets

74,431

72,438

Gain on sale of depreciable real estate

(457,288

)

-

Funds From Operations attributable to noncontrolling interests in consolidated property partnerships

(8,310

)

(7,683

)

Funds From Operations(1)(2)(3)

$

116,244

$

110,173

Weighted average common shares/units outstanding - basic (4)

118,333

110,031

Weighted average common shares/units outstanding - diluted (5)

118,790

110,546

Funds From Operations per common share/unit - basic (2)

$

0.98

$

1.00

Funds From Operations per common share/unit - diluted (2)

$

0.98

$

1.00

________________________

KILROY REALTY CORPORATION

FUNDS FROM OPERATIONS

(unaudited; in thousands, except per share data)



Three Months Ended March 31,

2021 2020

Net income available to common stockholders $ 497,631 $ 39,817

Adjustments:

Net income attributable to noncontrolling common 4,886 705 units of the Operating Partnership

Net income attributable to noncontrolling 4,894 4,896 interests in consolidated property partnerships

Depreciation and amortization of real estate 74,431 72,438 assets

Gain on sale of depreciable real estate (457,288 ) -

Funds From Operations attributable tononcontrolling interests in consolidated property (8,310 ) (7,683 ) partnerships

Funds From Operations^(1)(2)(3) $ 116,244 $ 110,173



Weighted average common shares/units outstanding 118,333 110,031 - basic ^(4)

Weighted average common shares/units outstanding 118,790 110,546 - diluted ^(5)



Funds From Operations per common share/unit - $ 0.98 $ 1.00 basic ^(2)

Funds From Operations per common share/unit - $ 0.98 $ 1.00 diluted ^(2)

________________________

We calculate Funds From Operations available to common stockholders and common unitholders ("FFO") in accordance with the 2018 Restated White Paper on FFO approved by the Board of Governors of NAREIT. The White Paper defines FFO as net income or loss calculated in accordance with GAAP, excluding extraordinary items, as defined by GAAP, gains and losses from sales of depreciable real estate and impairment write-downs associated with depreciable real estate, plus real estate-related depreciation and(1) amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets) and after adjustment for unconsolidated partnerships and joint ventures. Our calculation of FFO includes the amortization of deferred revenue related to tenant-funded tenant improvements and excludes the depreciation of the related tenant improvement assets. We also add back net income attributable to noncontrolling common units of the Operating Partnership because we report FFO attributable to common stockholders and common unitholders.

We believe that FFO is a useful supplemental measure of our operating performance. The exclusion from FFO of gains and losses from the sale of operating real estate assets allows investors and analysts to readily identify the operating results of the assets that form the core of our activity and assists in comparing those operating results between periods. Also, because FFO is generally recognized as the industry standard for reporting the operations of REITs, it facilitates comparisons of operating performance to other REITs. However, other REITs may use different methodologies to calculate FFO, and accordingly, our FFO may not be comparable to all other REITs.

Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies using historical cost accounting alone to be insufficient. Because FFO excludes depreciation and amortization of real estate assets, we believe that FFO along with the required GAAP presentations provides a more complete measurement of our performance relative to our competitors and a more appropriate basis on which to make decisions involving operating, financing and investing activities than the required GAAP presentations alone would provide.

However, FFO should not be viewed as an alternative measure of our operating performance because it does not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, which are significant economic costs and could materially impact our results from operations.

(2) Reported amounts are attributable to common stockholders, common unitholders and restricted stock unitholders.

FFO available to common stockholders and unitholders includes amortization(3) of deferred revenue related to tenant-funded tenant improvements of $4.2 million and $5.0 million for the three months ended March 31, 2021 and 2020, respectively.

Calculated based on weighted average shares outstanding including(4) participating share-based awards (i.e. certain time based restricted stock units) and assuming the exchange of all common limited partnership units outstanding.

Calculated based on weighted average shares outstanding including(5) participating and non-participating share-based awards, dilutive impact of stock options and contingently issuable shares, and assuming the exchange of all common limited partnership units outstanding.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210428006138/en/

CONTACT: Tyler H. Rose President (310) 481-8484 or Michelle Ngo Senior Vice President, Chief Financial Officer and Treasurer (310) 481-8581