Kilroy Realty Corporation

02/11/2026 | Press release | Distributed by Public on 02/11/2026 05:04

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

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 7. 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 NOI 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 us and 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 could materially adversely affect the Company's and the Operating Partnership's business and financial performance, see the discussion below, as well as in "Item 1A. Risk Factors," and in our 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.
Company Overview
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 99.1% and 99.0% common general partnership interest in the Operating Partnership as of December 31, 2025 and 2024, respectively. All of our properties are held in fee except for the fourteen office buildings that are held subject to long-term ground leases for the land (see Note 17 "Commitments and Contingencies" to our consolidated financial statements included in this report for additional information regarding our ground lease obligations).
2025 Operational Highlights
Throughout 2025, we remained focused on creating value for our stockholders through leasing and strategic capital allocation. We also continued to maintain a strong balance sheet and elevate our leadership position in sustainable operations.
Leasing. We executed new and renewal leases totaling 1.8 million square feet, excluding short-term leases, which is comprised of 1.2 million square feet of second generation leases signed within the stabilized portfolio and 0.6 million square feet of first generation, major repositioning, and development leases. For the 1.2 million square feet of leases signed within the stabilized portfolio, revenue recognized under U.S. generally accepted accounting principles ("GAAP") and contractual rents decreased 9.3% and 18.4%, respectively. Our stabilized office portfolio was 81.6% occupied and 83.8% leased as of December 31, 2025.
Strategic Capital Allocation. In 2025, we completed the sale of three operating properties, comprised of six buildings, in three transactions to unaffiliated third parties for gross proceeds totaling approximately $466.0 million. Additionally, during the year ended December 31, 2025, we acquired two operating properties, comprised of five buildings, in two transactions for a cash purchase price of $397.3 million.
We also continued to execute on our development and redevelopment program during 2025. We added two completed redevelopment projects to our stabilized portfolio totaling 100,488 rentable square feet of life science space. We had one development project, Kilroy Oyster Point (Phase 2) ("KOP 2"), in the tenant improvement phase. During the year, we executed approximately 384,000 square feet of leases at KOP 2, bringing the project to 44% leased.
Financing. In 2025, we issued $400.0 million of new debt at a stated interest rate of 5.875% and we exercised our option to extend the maturity date of our unsecured term loan facility by 12 months to October 3, 2026. Additionally, we repaid in full the $400.0 million aggregate principal amount outstanding of our 4.375% senior notes due 2025.
Stabilized Portfolio Information
As of December 31, 2025, our stabilized portfolio was comprised of 121 office, life science, and mixed-use properties encompassing an aggregate of approximately 16.3 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.
As of December 31, 2025, the following properties and projects were excluded from our stabilized portfolio:
Number of
Properties / Projects
Actual / Estimated
Rentable Square Feet (1)
Properties held for sale(2)
1 427,764
In-process development project - tenant improvement 1 871,738
________________________
(1)For the property classified as held for sale, represents actual rentable square feet and consists of three buildings. For the in-process development project in the tenant improvement phase, represents estimated rentable square feet upon completion.
(2)See Note 4 "Dispositions and Held For Sale" to our consolidated financial statements included in this report for additional information.
Our stabilized portfolio also excludes our future development pipeline, which, as of December 31, 2025, was comprised of eight potential development sites on which we believe we could develop approximately 6.0 million rentable square feet of commercial real estate space and approximately 1,750 residential units.
The following table reconciles the changes in the rentable square feet in our stabilized portfolio of operating properties from December 31, 2024 to December 31, 2025, excluding our residential portfolio:
Number of
Buildings 		Rentable
Square Feet
Total as of December 31, 2024 (1)
123 17,142,721
Acquisitions 5 538,532
Completed redevelopment properties placed in-service
2 100,488
Dispositions and Held For Sale
(9) (1,495,505)
Remeasurements (2)
- 5,928
Total as of December 31, 2025(1)
121 16,292,164
________________________
(1)Includes four properties owned by consolidated property partnerships (see Note 2 "Basis of Presentation and Significant Accounting Policies" to our consolidated financial statements included in this report for additional information).
(2)Represents a recalculation of a property's rentable square footage using updated industry measurement standards.
Occupancy Information
The following table sets forth certain information regarding our stabilized portfolio, excluding our residential portfolio, as of the end of the period presented:
Stabilized Portfolio Occupancy
Region
December 31, 2025
December 31, 2024
Buildings
Rentable
Square Feet
Occupancy
Buildings
Rentable
Square Feet
Occupancy
Los Angeles
52 4,242,386 75.1 % 53 4,340,302 75.0 %
San Diego
28 2,728,209 83.7 % 26 2,876,502 89.2 %
San Francisco Bay Area 30 5,564,971 86.2 % 33 6,170,595 87.4 %
Seattle
10 2,997,623 80.0 % 10 2,996,347 80.5 %
Austin
1 758,975 82.2 % 1 758,975 74.7 %
Total
121 16,292,164 81.6 % 123 17,142,721 82.8 %
The following table sets forth the average occupancy of certain property groups within our stabilized portfolio for the periods presented:
Average Occupancy
Year Ended December 31,
2025 2024
Stabilized Portfolio (1)
80.9 % 83.9 %
Same Property Portfolio (1) (2)
81.4 % 83.8 %
Residential Portfolio(3)
94.1 % 92.5 %
_____________________
(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 December 31, 2025, and exclude our residential portfolio. See discussion under "Results of Operations" for additional information.
(3) Our residential portfolio consists of our 200-unit Columbia Square Living property and 193-unit Jardine property in Hollywood, California and 608 residential units at our One Paseo mixed-use property in San Diego, California.
Factors That May Influence Future Results of Operations
Leasing
Leasing Activity and Changes in Rental Rates. The amount of 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, including sublease space, newly developed or redeveloped properties and newly acquired properties with vacant space. 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. As noted below, the change in rents and cash rents for 2nd Gen Leasing decreased during the year, primarily due to lease arrangements with four tenants. The following tables set forth certain information regarding leasing activity during the year ended December 31, 2025:
Leases Executed (1)
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)
57 50 645,357 523,296 1,168,653 70 $ 59.76 $ 10.24 (9.3) % (18.4) %
1st Gen / Major Repositioning /
In-Process Development & Redevelopment
Leasing(6)
20 - 611,726 - 611,726 158 $ 372.95 $ 28.33
Total 77 50 1,257,083 523,296 1,780,379
Retention Rate Calculations (7)
2025
Retention Rate 34.0 %
Retention Rate, including subtenants(8)
39.6 %
________________________
(1) Includes activities 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 triple net) 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 triple net) 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 short-term leases. Excludes leases executed at space that was vacant when the property was acquired, space not previously leased at recently completed development projects that have been added to the stabilized portfolio, and 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, space that was vacant when the property was acquired, 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 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 downtime in occupancy between leases.
Lease Expirations. The following tables set forth certain information regarding our scheduled lease expirations for our stabilized portfolio, excluding our residential properties, and by region for the next two years:
Lease Expirations (1) (2)
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
26 27,459 N/A N/A N/A N/A
2026 69 1,049,430 8.0 % $ 49,033 6.4 % $ 46.72
2027 67 1,011,066 7.7 % 37,598 4.9 % 37.19
2028 70 1,244,652 9.4 % 77,264 10.1 % 62.08
2029 60 1,420,631 10.8 % 74,160 9.7 % 52.20
2030 67 1,718,698 13.1 % 103,707 13.6 % 60.34
Thereafter
155 6,702,084 51.0 % 422,846 55.3 % 63.09
Total 488 13,146,561 100.0 % $ 764,608 100.0 % $ 58.16
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
Base Rent
per Sq. Ft. (3)
2026
Los Angeles
39 429,910 3.3 % $ 18,243 2.4 % $ 42.43
San Diego
5 31,731 0.2 % 957 0.1 % 30.16
San Francisco Bay Area 13 298,295 2.3 % 18,657 2.4 % 62.55
Seattle
12 289,494 2.2 % 11,176 1.5 % 38.61
Austin
- - - % - - % -
Total 69 1,049,430 8.0 % $ 49,033 6.4 % $ 46.72
2027
Los Angeles
41 797,531 6.0 % $ 28,042 3.7 % $ 35.16
San Diego
10 89,602 0.7 % 4,510 0.6 % 50.33
San Francisco Bay Area 6 33,449 0.3 % 1,596 0.1 % 47.71
Seattle
10 90,484 0.7 % 3,450 0.5 % 38.13
Austin
- - - % - - % -
Total 67 1,011,066 7.7 % $ 37,598 4.9 % $ 37.19
_____________________
(1) Represents all in-place leases as of December 31, 2025, excluding intercompany leases.
(2) Includes 100% of annualized base rent of consolidated property partnerships.
(3) Represents annualized monthly contractual rents from existing tenants in occupancy, 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.
Adjusting for leases that have been backfilled or renewed by a subtenant as of December 31, 2025 but not yet commenced, the expirations for 2026 and 2027 would be 910,164 and 1,005,191 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.
Capital Recycling Program
Our capital recycling program plays a central role in reshaping our portfolio for long-term performance and cash flow durability. By disposing of select non-core or fully-stabilized assets, often in markets where growth prospects have moderated, as well as undeveloped land in our portfolio, we can redeploy capital into opportunities in innovation-driven markets that can realize higher returns. Refer to "Liquidity and Capital Resources of the Operating Partnership" for further discussion of the Company's capital recycling program.
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 opportunities and executing on our future development pipeline.
We have a proactive planning process by which we continually evaluate the size, timing, costs, and scope of our development and redevelopment projects 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 pursue 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.
Stabilized Redevelopment Projects
During the year ended December 31, 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 Projects - Tenant Improvement
As of December 31, 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 $1.2 billion. We expect this property to be added to the stabilized portfolio one year from the date of the cessation of major base building construction activities, which is expected to occur in January 2026. The project is 44% leased.
Future Development Pipeline
As of December 31, 2025, our future development pipeline included the following projects, at which we believe we could develop approximately 6.0 million rentable square feet of commercial real estate space and approximately 1,750 residential units.
Future Development Pipeline Location
Approx. Developable Square Feet / Residential Units (1)
Total Costs
(in millions)
Los Angeles
1633 26th Street (2)
West Los Angeles 190,000 $ 15.8
San Diego
Santa Fe Summit (2)
56 Corridor 600,000 - 650,000 117.0
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 - 1,000,000 251.2
Flower Mart San Francisco CBD 2,300,000 703.7
Seattle
SIX0 Lake Union / Denny Regrade 925,000 and 650 units 201.8
Austin
Stadium Tower Stadium District / Domain 493,000 75.9
TOTAL: $ 1,494.5
________________________
(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)Subject to signed agreements and non-refundable deposits as of the date of this filing. Both development sites are anticipated to close upon receipt of residential entitlements and permits, which is expected to occur beginning in phases in 2026.
Fluctuations in our development activities could cause fluctuations in the average development asset balances qualifying for interest and other carrying costs 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 and other expense. The following table sets forth our capitalized interest and other capitalized costs for our development and redevelopment properties and capital improvement projects in the stabilized portfolio:
Year Ended December 31,
2025 2024
(in thousands)
Capitalized Interest
Average Qualifying Costs $ 1,891,237 $ 1,879,467
Capitalized Interest $ 85,087 $ 82,461
Other Capitalized Costs
Capitalized Internal Overhead Costs(1)
$ 17,243 $ 20,644
Other Capitalized Development Costs(2)
$ 24,214 $ 12,062
________________________
(1)Primarily represents compensation costs capitalized to construction and development and redevelopment projects.
(2)Represents incidental property operating and carry costs capitalized to development and redevelopment projects.
Inflation
The majority of the Company's leases require tenants to pay for recoveries and escalation charges based upon the tenant's proportionate share of, and/or increases in, real estate taxes and certain operating costs, which reduce the Company's exposure to increases in operating costs resulting from inflation. The Company's exposure to inflationary impacts is sensitive to fluctuations in the occupancy levels at its properties. Refer to "Part I, Item IA. Risk Factors" included in this report 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.
Results of Operations
Comparison of the Year Ended December 31, 2025 to the Year Ended December 31, 2024
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 revenues less lease termination fees and consolidated operating expenses (property expenses, real estate taxes and ground leases). Commencing January 1, 2025, the Company began excluding lease termination fees from the calculation of rental income for Net Operating Income as they are non-recurring in nature and their 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, which resulted in no change to consolidated net income.
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. 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. Because the Company's Net Operating Income metrics exclude lease termination fees, leasing costs, general and administrative expenses, interest expense, depreciation and amortization, other income and expenses, impairment of real estate assets, and gains and losses, they provide performance measures that, when compared year over year, reflect the consolidated revenues and expenses directly associated with owning and operating commercial real estate and the impact to operations from trends in occupancy rates, rental rates, and operating costs, providing a perspective on operations 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 December 31, 2025, including our three residential properties in Hollywood and San Diego, 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, of the following:
◦One property, comprised of two buildings, acquired in the third quarter of 2024;
◦One property acquired in the third quarter of 2025; and
◦One property, comprised of four buildings, acquired in the fourth quarter of 2025; and
•Disposition and Held For Sale Properties - includes the results of the following:
◦One property disposed of in the second quarter of 2025;
◦One property, comprised of four buildings, disposed of in the third quarter of 2025;
◦One property disposed of in the fourth quarter of 2025; and
◦One property, comprised of three buildings, classified as held for sale as of December 31, 2025.
The following table sets forth certain information regarding the property groups within our stabilized portfolio as of December 31, 2025:
Group # of Buildings Rentable
Square Feet
Same Property Portfolio
112 15,549,413
Re/Development Properties (1)
2 100,488
Acquisition Properties 7 642,263
Total Stabilized Portfolio(2)
121 16,292,164
________________________
(1)Excludes development projects in the tenant improvement phase, our in-process development projects, and future development projects.
(2)Excludes our three residential properties.
The following table summarizes our Net Operating Income for our total portfolio:
Year Ended December 31, 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 $ 276,121 $ 210,969 $ 65,152 30.9 %
Net income attributable to noncontrolling common units of the Operating Partnership 2,682 2,062 620 30.1 %
Net income attributable to noncontrolling interests in consolidated property partnerships 23,837 19,923 3,914 19.6 %
Net income $ 302,640 $ 232,954 $ 69,686 29.9 %
Lease termination fees(1)
(13,110) (7,066) (6,044) 85.5 %
General and administrative expenses 73,108 71,074 2,034 2.9 %
Leasing costs 10,352 8,764 1,588 18.1 %
Depreciation and amortization 354,854 356,182 (1,328) (0.4) %
Interest income (6,970) (37,752) 30,782 (81.5) %
Interest expense 126,292 145,287 (18,995) (13.1) %
Other (income) expense
(168) 992 (1,160) (116.9) %
Gains on sales of depreciable operating properties (127,038) - (127,038) 100.0 %
Impairment of real estate assets 16,259 - 16,259 100.0 %
Gain on sale of long-lived assets
- (5,979) 5,979 (100.0) %
Net Operating Income
$ 736,219 $ 764,456 $ (28,237) (3.7) %
____________________
(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:
Year Ended December 31,
2025 2024
Same Property
Re/
Develop-
ment
Acquisi-
tion
Disposi-
tion &
Held for
Sale
Total Same Property
Re/
Develop-
ment
Acquisi-
tion
Disposi-
tion &
Held for
Sale
Total
(in thousands)
Operating revenues:
Rental income (1)
$ 1,009,015 $ 454 $ 13,308 $ 57,700 $ 1,080,477 $ 1,034,762 $ 1,148 $ 1,579 $ 73,560 $ 1,111,049
Other property income 16,991 1,014 181 894 19,080 16,122 449 - 943 17,514
Total 1,026,006 1,468 13,489 58,594 1,099,557 1,050,884 1,597 1,579 74,503 1,128,563
Property and related expenses:
Property expenses 224,133 1,658 3,169 14,766 243,726 226,132 1,147 198 15,964 243,441
Real estate taxes 97,026 2,954 1,224 6,360 107,564 98,603 2,148 111 8,089 108,951
Ground leases 12,048 - - - 12,048 11,715 - - - 11,715
Total 333,207 4,612 4,393 21,126 363,338 336,450 3,295 309 24,053 364,107
Net Operating Income (Loss)
$ 692,799 $ (3,144) $ 9,096 $ 37,468 $ 736,219 $ 714,434 $ (1,698) $ 1,270 $ 50,450 $ 764,456
____________________
(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 years ended December 31, 2025 and 2024 excludes $13.1 million and $7.1 million of lease termination fees from total Net Operating Income, respectively, related to the Same Property portfolio.
Year Ended December 31, 2025 as compared to the Year Ended December 31, 2024
Same Property
Re/Development
Acquisition
Disposition &
Held for Sale
Total
Dollar Change Percent Change Dollar Change Dollar Change
Dollar Change
Dollar Change
($ in thousands)
Operating revenues:
Rental income (1)
$ (25,747) (2.5) % $ (694) $ 11,729 $ (15,860) $ (30,572)
Other property income 869 5.4 % 565 181 (49) 1,566
Total (24,878) (2.4) % (129) 11,910 (15,909) (29,006)
Property and related expenses:
Property expenses (1,999) (0.9) % 511 2,971 (1,198) 285
Real estate taxes (1,577) (1.6) % 806 1,113 (1,729) (1,387)
Ground leases 333 2.8 % - - - 333
Total (3,243) (1.0) % 1,317 4,084 (2,927) (769)
NOI Impact
$ (21,635) (3.0) % $ (1,446) $ 7,826 $ (12,982) $ (28,237)
__________________
(1)Beginning January 1, 2025, the Company began excluding lease termination fees from the calculation of rental income for Net Operating Income. The years ended December 31, 2025 and 2024 excludes $13.1 million and $7.1 million of lease termination fees from total Net Operating Income, respectively, related to the Same Property portfolio.
Net Operating Income decreased $28.2 million, or 3.7%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024, primarily resulting from:
•A decrease of $21.6 million, or 3.0%, attributable to the Same Property Portfolio which was driven by the following activity:
•A decrease in operating revenues of $24.9 million, or 2.4%, primarily due to a(n):
•$11.8 million decrease in straight-line rent;
•$7.0 million decrease in settlement and restoration fee income;
•$6.6 million decrease in base rent, primarily due to a $19.8 million decrease from lease expirations, partially offset by a $13.2 million increase from higher rates;
•$4.7 million decrease in amortization of deferred income and tenant funded improvements, mainly resulting from tenant move outs; and
•$1.4 million decrease in revenues from recoverable operating expenses.
Partially offset by a:
•$3.8 million increase in revenue associated with tenant creditworthiness considerations resulting in higher non-recurring charges in 2024; and
•$2.8 million increase in revenues primarily due to transient parking and residential income.
•A decrease in property and related expenses of $3.2 million, or 1.0%, primarily due to a(n):
•$2.0 million decrease in property expenses, primarily due to a decrease in insurance premiums and residential expenses; and
•$1.6 million decrease in real estate taxes, primarily due to a net increase in refunds of $2.5 million received in 2025, partially offset by a $0.9 million increase resulting from higher assessed property values.
Partially offset by a:
•$0.3 million increase in ground lease expense.
•A decrease of $13.0 million, attributable to the Disposition and Held for Sale Properties, primarily due to one property, comprised of four-buildings, disposed of during the third quarter of 2025; and
•A decrease of $1.4 million, attributable to the Re/Development Properties, primarily due to non-recurring revenue from settlement fee income received from one tenant in 2024.
Partially offset by:
•An increase of $7.8 million, attributable to the Acquisition Properties, primarily due to one property acquired during the third quarter of 2025 and one property acquired in the third quarter of 2024.
Lease Termination Fees
Lease termination fees increased $6.0 million, or 85.5%, for the year ended December 31, 2025, as compared to the year ended December 31, 2024, primarily due to a lease termination fee recognized for one tenant in the second quarter of 2025 in the San Francisco Bay Area region.
General and Administrative Expenses
General and administrative expenses increased $2.0 million, or 2.9%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024, primarily due to lower compensation costs capitalized to construction and development and redevelopment projects in 2025 as compared to 2024.
Leasing Costs
Leasing costs increased $1.6 million, or 18.1%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024, primarily due to an increase in leasing overhead during the year ended December 31, 2025. See the "Factors that May Influence Future Results of Operations - Leases Executed" and "Liquidity and Capital Resources of the Operating Partnership - Liquidity Uses" sections for further information.
Depreciation and Amortization
Depreciation and amortization decreased by approximately $1.3 million, or 0.4%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024, primarily due to the following:
•A decrease of $5.7 million attributable to the Same Property Portfolio, primarily due to an early lease termination in the third quarter of 2024; and
•A decrease of $5.6 million attributable to the Disposition Properties, primarily due to the one property, comprised of four-buildings, disposed of during the third quarter of 2025.
Partially offset by:
•An increase of $9.4 million attributable to the Acquisition Properties, primarily due to the one property acquired during the third quarter of 2025, and the one property acquired in the third quarter of 2024; and
•An increase of $0.6 million attributable to the Re/Development Properties.
Interest Income
Interest income decreased $30.8 million, or 81.5%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024, primarily due to carrying lower balances on our interest bearing accounts.
Interest Expense
The following table sets forth our gross interest expense and capitalized interest:
Year Ended December 31, Dollar
Change 		Percentage
Change
2025 2024
($ in thousands)
Gross interest expense $ 211,379 $ 227,748 $ (16,369) (7.2) %
Capitalized interest
(85,087) (82,461) (2,626) 3.2 %
Interest expense $ 126,292 $ 145,287 $ (18,995) (13.1) %
Average Qualifying Costs
$ 1,891,237 $ 1,879,467 $ 11,770 0.6 %
Weighted Average Interest and Loan Fee Amortization Rate
4.50 % 4.39 % 0.11 %
Gross interest expense, before the effect of capitalized interest, decreased $16.4 million, or 7.2%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024, primarily due to a decrease in the average outstanding debt balance for the year ended December 31, 2025.
Capitalized interest increased $2.6 million, or 3.2%, for the year ended December 31, 2025 as compared to the year ended December 31, 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 year ended December 31, 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".
Net Income Attributable to Noncontrolling Interests in Consolidated Property Partnerships
Net income attributable to noncontrolling interests in consolidated property partnerships increased $3.9 million, or 19.6%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024, primarily due to lease termination fee income received from one tenant in 2025. The amounts reported for the years ended December 31, 2025 and 2024 are comprised of the share of net income attributable to noncontrolling interests for the
Consolidated Property Partnerships. See Note 10 "Noncontrolling Interests on the Company's Consolidated Financial Statements" to our consolidated financial statements included in this report for additional information.
Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023
Refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -Results of Operations" in our Form 10-K for the year ended December 31, 2024 for a discussion of the year ended December 31, 2024 compared to the year ended December 31, 2023.
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.
Our liquidity, access to capital, and ability to execute our business strategy are subject to a variety of risks and uncertainties. Our ability to obtain financing, raise capital through dispositions or joint ventures, recycle capital through tax-deferred transaction structures, fund development activity, or pursue acquisition opportunities will depend on a number of factors, many of which are outside of our control. These factors include conditions in the public and private capital markets, interest rate and inflation trends, the availability and cost of debt and equity financing, the demand for our properties, the timing and pricing of potential dispositions, the performance of our development projects, and broader macroeconomic and geopolitical conditions.
There can be no assurance that capital will be available to us on favorable terms, or at all, that planned dispositions or development activities will be completed as currently contemplated, or that we will be able to execute our investment or financing strategy as intended. If we are unable to access capital or generate proceeds from asset sales or other transactions when needed, our liquidity, ability to meet our obligations, and capacity to pursue our strategic objectives could be adversely affected.
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 year ended December 31, 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 December 31, 2025, we had approximately $179.3 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.
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 making, 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. In 2025, the Company's distributions exceeded 100% of its taxable income, resulting in a return of capital to its stockholders (See Note 22 "Tax Treatment of Distributions" to our consolidated financial statements included in this report for additional information). 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 2026. 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, 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 November 18, 2025, the Board of Directors declared a regular quarterly cash dividend of $0.54 per share of common stock. The regular quarterly cash dividend was payable to stockholders of record on December 31, 2025 and a corresponding cash distribution of $0.54 per Operating Partnership unit was payable to holders of the Operating Partnership's common limited partnership interests of record on December 31, 2025, including those owned by the Company. The total cash quarterly dividends and distributions paid on January 7, 2026 were $64.5 million.
The covenants contained within certain of our unsecured debt obligations generally prohibit the Company from making distribution payments during an event of default, except to the extent that such payments result in distributions sufficient 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.
Capitalization
As of December 31, 2025, our total debt as a percentage of total market capitalization was 50.8%, as shown in the following table:
Shares / Units at
December 31, 2025
Aggregate
Principal
Amount or
$ Value
Equivalent 		% of Total
Market
Capitalization
($ in thousands)
Debt: (1) (2)
2024 Term Loan Facility due 2026 (3)
$ 200,000 2.2 %
Unsecured Senior Notes Series A & B due 2026 250,000 2.7 %
Unsecured Senior Notes Series A & B due 2027 & 2029 250,000 2.7 %
Unsecured Senior Notes due 2031 350,000 3.9 %
Unsecured Senior Notes due 2028(4)
400,000 4.4 %
Unsecured Senior Notes due 2029 400,000 4.4 %
Unsecured Senior Notes due 2030 500,000 5.5 %
Unsecured Senior Notes due 2032 (4)
425,000 4.7 %
Unsecured Senior Notes due 2033 (4)
450,000 5.0 %
Unsecured Senior Notes due 2035
400,000 4.4 %
Unsecured Senior Notes due 2036
400,000 4.4 %
Secured debt 600,442 6.5 %
Total debt $ 4,625,442 50.8 %
Equity and Noncontrolling Interests in the Operating Partnership: (5)
Common limited partnership units outstanding (6)
1,133,562 $ 42,361 0.5 %
Shares of common stock outstanding 118,372,451 4,423,578 48.7 %
Total Equity and Noncontrolling Interests in the Operating Partnership $ 4,465,939 49.2 %
Total Market Capitalization $ 9,091,381 100.0 %
_____________________
(1)Represents gross aggregate principal amount due at maturity before the effect of the following at December 31, 2025: $25.0 million of unamortized deferred financing costs for the unsecured term loan facility, unsecured senior notes, and secured debt and $11.0 million of unamortized discounts for the unsecured senior notes.
(2)As of December 31, 2025, there was no outstanding balance on the unsecured revolving credit facility.
(3)During the year ended December 31, 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 $37.37 as of December 31, 2025.
(6)Includes common units of the Operating Partnership not owned by the Company. Excludes noncontrolling interests in consolidated property partnerships.
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 our capital recycling program, including the disposition of assets and the formation of strategic ventures;
•Proceeds from additional secured or unsecured debt financings;
•Borrowings under the Operating Partnership's unsecured revolving credit facility; and
•Proceeds from equity or preferred equity securities.
Liquidity Uses
•Debt service and principal payments, including debt maturities, debt repurchases, and redemptions;
•Capital expenditures, tenant improvements, and leasing costs;
•Development and redevelopment costs;
•Operating property or undeveloped land acquisitions;
•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 disciplined capital structure 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.
2025 Capital and Financing Transactions
We continue to be active in the capital markets to finance potential acquisitions and our development activity, as well as our continued desire to extend our debt maturities. This was primarily a result of the following activity:
•During the third quarter of 2025, issued $400.0 million aggregate principal amount of unsecured senior notes in a registered public offering; and
•During the third quarter of 2025, elected to extend the maturity date on our unsecured term loan facility by 12 months to October 3, 2026.
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 $4.0 million, on our consolidated balance sheets. The unsecured senior notes, which are scheduled to mature on October 15, 2035, require semi-annual interest payments each April and October based on a stated annual interest rate of 5.875%. The Operating Partnership may redeem the notes at any time, either in whole or in part, subject to the payment of an early redemption premium with respect to redemptions prior to July 15, 2035. On or after July 15, 2035, the Operating Partnership may redeem the notes at any time, either in whole or in part, at par.
Unsecured Revolving Credit Facility and Term Loan Facility
The following table summarizes the balance and terms of our unsecured revolving credit facility:
Unsecured Revolving Credit Facility
December 31, 2025 December 31, 2024
($ 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)
5.07 % 5.69 %
Annual facility fee (3)
0.250%
Unamortized deferred financing costs (3)
$ 9,150 $ 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 December 31, 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 $500.0 million under an accordion feature pursuant to the terms of the unsecured revolving credit facility.
(2)Our unsecured revolving credit facility interest rate was calculated using the Secured Overnight Financing Rate ("SOFR") plus a SOFR adjustment of 0.10% (together, "Adjusted SOFR") and a margin of 1.100% based on our credit rating as of December 31, 2025 and 2024. We may be entitled to a temporary 0.01% reduction in the interest rate provided we meet certain sustainability goals with respect to the ongoing reduction of greenhouse gas emissions.
(3)Our annual facility fee is paid on a quarterly basis and is calculated based on total borrowing capacity. In addition to the facility fee, we incurred debt origination and legal costs in connection with the amendment and restatement of the unsecured revolving credit facility in 2024. These costs are included in Prepaid expenses and other assets, net on our consolidated balance sheets, and will continue to be amortized through the maturity date of our unsecured revolving credit facility.
(4)The maturity date may be extended by two six-month periods, at the Operating Partnership's election.
The Operating Partnership intends to borrow under the unsecured revolving credit facility from time to time for general corporate purposes, including, to finance development and redevelopment expenditures, to fund potential acquisitions, to repay long-term debt, and to supplement cash balances in response to market conditions.
The following table summarizes the balance and terms of our 2024 Term Loan Facility:
2024 Term Loan Facility
December 31, 2025 December 31, 2024
($ in thousands)
Outstanding borrowings (1)
$ 200,000 $ 200,000
Interest rate (2)
5.02 % 5.70 %
Unamortized deferred financing costs (3)
$ 277 $ 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, 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 December 31, 2025 and 2024.
(3)We incurred debt origination and legal costs in connection with the amendment and restatement of the 2024 Term Loan Facility in 2024, which remain to be amortized through the maturity date. Additionally, in connection with extending the maturity date in September 2025, we incurred additional costs which will continue to be amortized through the extended maturity date of the 2024 Term Loan Facility.
(4)During the year ended December 31, 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.
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, finance development and redevelopment expenditures, repay long-term debt, and for other general corporate purposes.
In connection with our capital recycling strategy, during the year ended December 31, 2025, we completed the sale of three operating properties, comprised of six buildings, in three transactions to unaffiliated third parties for gross proceeds totaling approximately $466.0 million.As of December 31, 2025, we had one operating property, comprised of three buildings, classified as held for sale, with a gross sales price of $124.5 million. The sale of this property closed in January 2026. Additionally, during the year ended December 31, 2025, we acquired two operating properties, comprised of five buildings, in two transactions for a cash purchase price of $397.3 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.
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. 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.
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 December 31, 2025. Since commencement of the 2024 ATM Program, we have not completed any sales of common stock.
Liquidity Uses
Contractual Obligations
The following table provides information with respect to our contractual obligations as of December 31, 2025. The table: (i) indicates the maturities and scheduled principal repayments of our secured and unsecured debt outstanding as of December 31, 2025; (ii) indicates the scheduled interest payments of our fixed-rate and variable-rate debt as of December 31, 2025; (iii) provides information about the minimum commitments due in connection with our ground lease obligations and other lease and contractual commitments; and (iv) provides estimated in-process and recently completed development commitments as of December 31, 2025. Note that the table: (i) does not reflect our available debt maturity extension options; (ii) reflects gross aggregate principal amounts before the effect of unamortized discounts/premiums; and (iii) does not reflect potential future leasing costs associated with space that has not yet been leased:
Payment Due by Period
Less than
1 Year
(2026)
2-3 Years
(2027-2028) 		4-5 Years
(2029-2030) 		More than
5 Years
(After 2030) 		Total
(in thousands)
Principal payments: secured debt (1)
$ 151,317 $ 74,125 $ - $ 375,000 $ 600,442
Principal payments: unsecured debt (2)
450,000 575,000 975,000 2,025,000 4,025,000
Interest payments: fixed-rate debt (3)
184,140 325,516 244,352 375,890 1,129,898
Interest payments: variable-rate debt (4)
7,608 - - - 7,608
Ground lease obligations (5)
6,809 13,719 13,738 360,875 395,141
Lease and other contractual commitments (6)
105,680 613 - - 106,293
In-process and recently completed development commitments (7)
157,566 20,000 - - 177,566
Total $ 1,063,120 $ 1,008,973 $ 1,233,090 $ 3,136,765 $ 6,441,948
_____________________
(1)Represents gross aggregate principal amount before the effect of deferred financing costs of approximately $7.8 million as of December 31, 2025.
(2)Represents gross aggregate principal amount before the effect of the unamortized discount and deferred financing costs of approximately $11.0 million and $17.2 million as of December 31, 2025. As of December 31, 2025, there was no outstanding balance on our unsecured revolving credit facility.
(3)As of December 31, 2025, 95.7% of our debt was contractually fixed. The information in the table above reflects our projected interest rate obligations for these fixed-rate payments based on the contractual interest rates on an accrual basis and scheduled maturity dates.
(4)As of December 31, 2025, 4.3% of our debt bore interest at variable rates which was incurred under the 2024 Term Loan Facility. The variable interest rate payments are based on the contractual rate of Adjusted SOFR plus a margin of 1.200% as of December 31, 2025. The information in the table above reflects our projected interest rate obligations for those variable-rate payments based on the outstanding principal balance as of December 31, 2025, the scheduled payment interest payment dates, and the contractual maturity date.
(5)Reflects minimum lease payments through the contractual lease expiration date before the impact of extension options. See Note 17 "Commitments and Contingencies" to our consolidated financial statements included in this report for further information about our ground lease obligations.
(6)Amounts represent cash commitments under signed leases and contracts for operating properties, excluding tenant-funded tenant improvements, and for other contractual commitments. The timing of these expenditures may fluctuate.
(7)Amounts represent commitments under signed leases for pre-leased development and redevelopment projects and contractual commitments for projects in the tenant improvement phase and under construction as of December 31, 2025. The timing of these expenditures may fluctuate based on the ultimate progress of construction. We may start additional construction in 2026 (see "-Development" for additional information).
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.
For the year ended December 31, 2025, we spent approximately $120.1 million on capital improvements, tenant improvements, and leasing commissions for properties within our stabilized portfolio, excluding capital improvements on major repositioning projects, and all costs for development and redevelopment properties. The amount we ultimately spend for 2026 will depend on leasing activity during 2026.
The following table sets forth our historical actual capital expenditures and tenant improvements and leasing commissions for deals commenced, excluding tenant-funded tenant improvements, for renewed and re-tenanted space within our stabilized portfolio on a per square foot basis:
Year Ended December 31,
2025 2024 2023
Office Properties:(1)
Capital Expenditures:
Capital expenditures per square foot $ 2.32 $ 2.39 $ 2.09
Tenant Improvement and Leasing Commissions (2)
Replacement tenant square feet (3)
717,925 392,651 512,626
Tenant improvements per square foot commenced $ 56.58 $ 71.99 $ 68.15
Leasing commissions per square foot commenced $ 18.53 $ 19.67 $ 20.71
Total per square foot $ 75.11 $ 91.66 $ 88.86
Renewal tenant square feet 523,296 466,780 568,443
Tenant improvements per square foot commenced $ 36.32 $ 18.84 $ 11.08
Leasing commissions per square foot commenced $ 18.73 $ 9.60 $ 12.81
Total per square foot $ 55.05 $ 28.44 $ 23.89
Weighted average total per square foot per year
$ 11.27 $ 11.09 $ 9.12
Weighted average remaining lease term (in years)
5.9 5.2 6.0
_____________________
(1)Includes activities of consolidated property partnerships.
(2)Includes tenants with lease terms of 12 months or longer. Excludes leases for month-to-month and recently completed development and redevelopment properties that have been added to the stabilized portfolio. Also excludes tenant improvement and leasing commission capital expenditures for leasing classified as major repositioning.
(3)Excludes leases for which the space was vacant when the property was acquired by the Company. Excludes tenant improvement and leasing commission capital expenditures for leasing classified as major repositioning.
Capital expenditures per square foot for 2025 were consistent with 2024 levels. We currently anticipate capital expenditures per square foot for 2026 to be consistent with 2025 levels. Replacement tenant improvements and leasing commissions per square foot decreased in 2025 as compared to 2024, primarily due to a large lease with a long-term tenant that commenced in the San Francisco Bay Area in 2024. Renewal tenant improvements and leasing commissions per square foot increased in 2025 as compared to 2024, primarily due to a large lease that renewed in the San Diego region in 2025. Costs incurred for tenant improvement and leasing commissions in 2026 will depend upon the current economic environment, market conditions in each of our submarkets, and actual leasing activity.
Development
We believe we may spend between $150 million to $200 million on development projects throughout 2026. 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.
Debt Composition
The composition of the Operating Partnership's aggregate debt balances between secured and unsecured and fixed-rate and variable-rate debt was as follows:
Percentage of Total Debt (1) (2)
Weighted Average Interest Rate (1) (2)
December 31, 2025
December 31, 2024
December 31, 2025
December 31, 2024
Secured vs. unsecured:
Unsecured 87.0 % 86.9 % 4.1 % 4.0 %
Secured 13.0 % 13.1 % 5.1 % 5.1 %
Variable-rate vs. fixed-rate:
Variable-rate 4.3 % 4.3 % 5.0 % 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 December 31, 2025 and 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 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.
Distribution Requirements
For a discussion of our dividend and distribution requirements, see "Liquidity and Capital Resources of the Company -Distribution Requirements."
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 macroeconomy, the state of the credit and equity markets, significant tenant defaults, a decline in the demand for commercial real estate 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" of this report for additional information). These events could result in the following:
•A decrease 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 December 31, 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.
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 15. "Exhibits and Financial Statement Schedules" 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 is as follows:
Year Ended December 31,
2025 2024 Dollar
Change 		Percentage
Change
($ in thousands)
Net cash provided by operating activities $ 566,313 $ 541,149 $ 25,164 4.7 %
Net cash used in investing activities (240,025) (225,044) (14,981) 6.7 %
Net cash used in financing activities
(312,662) (660,578) 347,916 (52.7) %
Net increase (decrease) in cash and cash equivalents
$ 13,626 $ (344,473) $ 358,099 (104.0) %
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 and redevelopment 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 $25.2 million, or 4.7%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024, primarily due to an increase in accrued property taxes payable during the year ended December 31, 2025, as well as the settlement of the retirement liability associated with our former CEO during the year ended December 31, 2024, who departed the Company in early 2024. These decreases are partially offset by a decrease in interest accruals due to the net repayment of unsecured debt during the year ended December 31, 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, recurring and nonrecurring capital expenditures for our operating properties, and include net proceeds received from dispositions of real estate assets. Our net cash used in investing activities increased by $15.0 million, or 6.7%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024, primarily due to higher expenditures for acquisition properties and expenditures for operating properties and other corporate activities during the year ended December 31, 2025, and the maturity of certificates of deposit during the year ended December 31, 2024, partially offset by higher net proceeds from our capital recycling program and a reduction in expenditures for development and redevelopment projects during the year ended December 31, 2025.
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. During the year ended December 31, 2025, our net cash used in financing activities decreased by $347.9 million, or 52.7%, as compared to the year ended December 31, 2024, primarily due to decreased repayments of unsecured debt during the year ended December 31, 2025. During the year ended December 31, 2025, we repaid the $400.0 million aggregate principal amount of the Operating Partnership's outstanding 4.375% unsecured senior notes due in October 2025. During the year ended December 31, 2024, we repaid both the $403.7 million aggregate remaining principal balance of the 3.450% $425.0 million unsecured senior notes due December 15, 2024 and an aggregate $320.0 million outstanding under our term loan facilities.
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.
The following table presents our FFO:
Year ended December 31,
2025 2024
(in thousands)
Net income available to common stockholders $ 276,121 $ 210,969
Adjustments:
Net income attributable to noncontrolling common units of the Operating Partnership
2,682 2,062
Net income attributable to noncontrolling interests in consolidated property partnerships
23,837 19,923
Depreciation and amortization of real estate assets
349,271 349,828
Gains on sales of depreciable operating properties
(127,038) -
Impairment of real estate assets
16,259 -
Funds From Operations attributable to noncontrolling interests in consolidated property
partnerships
(35,212) (31,149)
Funds From Operations (1) (2)
$ 505,920 $ 551,633
____________________
(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 $14.6 million and $19.1 million for the years ended December 31, 2025 and 2024, respectively.
The following table presents our weighted average shares of common stock and common units outstanding:
Year Ended December 31,
2025 2024
Weighted average shares of common stock outstanding
118,278,990 117,649,111
Weighted average common units outstanding 1,149,875 1,150,574
Effect of participating securities - nonvested shares and restricted stock units
405,759 928,857
Total basic weighted average shares / units outstanding
119,834,624 119,728,542
Effect of dilutive securities - contingently issuable shares
553,045 507,876
Total diluted weighted average shares / units outstanding
120,387,669 120,236,418
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with GAAP, which requires us to make estimates and assumptions that affect reported amounts. The estimates and assumptions are based on historical experience and on other factors that we believe to be reasonable. Actual results may differ from those estimates. We believe that the following critical accounting policies represent the areas where more significant judgments and estimates are used in the preparation of our consolidated financial statements. Our significant accounting policies, which utilize these critical accounting estimates, are described in Note 2 "Basis of Presentation and Significant Accounting Policies" to our consolidated financial statements included in this report.
Revenue Recognition
Rental revenue for office, life science, retail, and residential operating properties is our principal source of revenue. 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 once all of the following criteria are met: (i) the agreement has been fully executed and delivered, (ii) services have been rendered, (iii) the amount is fixed or determinable, and (iv) payment has been received or the collectability of substantially all of the amount due is probable. Minimum annual rental revenues are recognized in rental revenues on a straight-line basis over the non-cancellable term of the related lease.
Base Rent
The timing of when we commence rental revenue recognition depends largely on our conclusion as to whether we are or the tenant is the owner of tenant improvements at the leased property for accounting purposes. If we are the owner, we capitalize the cost to construct the tenant improvements and commence rental revenue recognition when the tenant takes possession of or controls the finished space. If the tenant is the owner, rental revenue recognition begins when the tenant takes possession or controls the physical use of the leased space. This determination is made on a lease-by-lease basis, considering factors such as approval rights, evidence of costs, reusability, alteration rights, and ownership at lease end.
When we conclude we are the owner these tenant-funded tenant improvements, we record the amount funded by or reimbursed by tenants as deferred revenue, which is amortized and recognized as rental income on a straight-line basis over the term of the related lease beginning upon substantial completion of the leased premises. When we conclude that the tenant is the owner of certain tenant improvements, we record our contribution towards those tenant-owned improvements as a lease incentive, which is included in deferred leasing costs and acquisition-related intangible assets, net on our consolidated balance sheets and amortized as a reduction to rental revenue on a straight-line basis over the term of the related lease beginning upon substantial completion of the leased premises.
When a lease is amended, we determine whether (i) an additional right of use not included in the original lease is being granted as a result of the modification, and (ii) there is an increase in the lease payments that is commensurate with the standalone price for the additional right of use. If both of these conditions are met, the amendment is accounted for as a separate lease contract. If either of those conditions are not met, the amendment is accounted for as a lease modification. Most of our lease amendments are accounted for as modifications of our operating leases, which requires us to reassess both the lease term and fixed lease payments, including any prepaid or deferred rent receivables relating to the original lease, as a part of the lease payments for the modified lease.
Termination options allow tenants to end leases early, usually with advance notice and a termination fee. Termination and restoration fees are recognized on a straight-line basis when amounts are determinable and collectability is probable.
Additional Rent - Reimbursements from Tenants
Leases typically provide for the reimbursement of certain property operating expenses accounted for as additional rent, which consists of amounts due from tenants for common area maintenance, real estate taxes, and other recoverable costs, and is recognized in rental income in the period the recoverable costs are incurred. Additional rent where we pay the associated costs directly to third-party vendors and are reimbursed by our tenants are recognized and recorded on a gross basis, with the associated expense recognized in property expenses or real estate taxes.
Uncollectible Lease Receivables and Allowances for Tenant and Deferred Rent Receivables
Current tenant receivables consist primarily of amounts due for contractual lease payments and reimbursements of common area maintenance expenses, property taxes, and other costs recoverable from tenants. Deferred rent receivables represent the excess of cumulative straight-line rental revenue recorded to date over cash rents billed to date under the lease agreement.
We carry our current and deferred rent receivables net of allowances for amounts that may not be collected, which are adjusted through rental income. The adequacy of these allowances is assessed quarterly using a binary assessment of whether or not substantially all of the amounts due under a tenant's lease agreement are probable of collection. This assessment incorporates specific identification and aging analyses, considering the current economic and business environment, including factors such as the age and nature of the receivables, tenant payment history and financial condition, our assessment of the tenant's ability to meet its lease obligations, and the status of negotiations of any disputes with the tenant.
For leases that are deemed probable of collection, revenue continues to be recorded on a straight-line basis over the non-cancellable lease term, with partial allowances for uncollectible accounts exhibiting a certain level of collection risk. For leases that are deemed not probable of collection, revenue is recorded as the lesser of (i) cash received, or (ii) the amount recognized on a straight-line basis with any tenant and deferred rent receivable balances charged as a direct write-off against rental income in the period of the change in the collectability determination. If the collectability determination subsequently changes to being probable of collection for leases for which revenue is recorded based on cash received from the tenant, we resume recognizing revenue, including deferred revenue, on a straight-line basis and recognize incremental revenue related to the reinstatement of cumulative deferred rent receivable and deferred revenue balances as if revenue had been recorded on a straight-line basis since the inception of the lease.
Acquisitions
Acquisitions of operating properties and development and redevelopment opportunities generally do not meet the definition of a business and are accounted for as asset acquisitions, as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. For these asset acquisitions, we record the acquired tangible and intangible assets and assumed liabilities based on each asset's and liability's relative fair value compared to the total purchase price plus any capitalized closing costs, including costs incurred during negotiation.
Fair values are determined using estimated cash flow projections, market information and discount and/or capitalization rates, considering historical operating results, known and anticipated trends, and market and economic conditions. Acquired assets and liabilities typically include land, buildings and improvements, construction in progress, and lease-related intangibles such as tenant improvements, leasing costs, above and below-market leases, and in-place lease values. Any debt assumed and equity (including common units of the Operating Partnership) issued in connection with a property acquisition is recorded at relative fair value on the date of acquisition.
The fair value of land and improvements is derived from comparable sales of land and improvements within the same submarket and/or region. The fair value of buildings and improvements, tenant improvements, and leasing costs considers the value of the property as if it was vacant as well as current replacement costs and other relevant market rate information.
The fair value of the above-market and below-market operating lease components are calculated using the present value of differences between contractual and market rents over the lease term. Above market lease amounts are amortized as a reduction to rental income and below-market amounts are amortized as an increase to rental income. Ground lease intangibles are amortized as adjustments to ground lease expense. If a lease is terminated early, related intangible amortization is accelerated.
The fair value of acquired in-place leases reflect lost revenue and costs avoided during the lease-up period, including carrying costs and leasing commissions. The amount recorded for acquired in-place leases is included in deferred leasing costs and acquisition-related intangible assets, net on the balance sheet. These are amortized as part of depreciation and amortization expense over the lease term.
Assumed debt is valued by discounting the future cash flows using market interest rates available for the issuance of debt with similar terms and remaining maturities. Determining fair value for acquired assets and liabilities requires significant judgment and assumptions, which can materially affect reported amounts and related expenses. Amortization of above-market and below-market leases directly impacts rental income and operating results.
Transaction costs associated with our acquisitions, including costs incurred during negotiation, are capitalized as part of the purchase price of the acquisition. During the years ended December 31, 2025 and 2024, we capitalized $0.8 million and $0.2 million of acquisition costs, respectively. We did not capitalize any acquisition costs during the year ended December 31, 2023.
Evaluation of Asset Impairment
We evaluate our real estate assets, including land held for future development, for potential impairment whenever events or changes in circumstances indicate that the carrying amount of a given asset may not be recoverable. This evaluation is performed property-by-property and is triggered by impairment indicators such as low or declining occupancy, operating or cash flow losses, declining rental rates, deteriorating submarket conditions, rising property sales yields, changes in property use or strategy, physical damage, or significant tenant defaults.
If we determine that impairment indicators are present for a specific real estate asset, we compare the asset's net carrying amount to its estimated undiscounted future cash flows over the anticipated holding period. If the carrying amount exceeds these cash flows, we calculate an impairment loss by comparing the carrying amount to estimated fair value, using discounted cash flow models or third-party appraisals. An impairment loss recognized sets a new cost basis for the asset, which is then depreciated over its remaining useful life. Assets held for sale are carried at the lower of carrying value or fair value less costs to sell, and depreciation ceases.
These analyses require significant management judgment and assumptions about future cash flows, market conditions, capitalization rates, economic trends, and hold periods. If actual results differ from estimates, impairment evaluations could be materially affected.
Our undiscounted cash flow and fair value calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flows and property fair values, including determining our estimated holding period and selecting the discount or capitalization rate that reflects the risk inherent in future cash flows. Estimating projected cash flows is highly subjective as it requires assumptions related to future rental rates, credit loss, average lease term, lease-up timeframes, renewal probability, lease reimbursement type, tenant allowances, leasing commissions, operating expenditures, property taxes, capital improvements, development costs, construction completion date, stabilization date, and occupancy levels. We are also required to make a number of assumptions relating to future economic and market events and prospective operating trends. Determining the appropriate capitalization rate also requires significant judgment and is typically based on many factors, including the prevailing rate for the market or submarket, as well as the quality and location of the properties. Further, capitalization rates can fluctuate resulting from a variety of factors in the overall economy or within regional markets. If the actual net cash flows or actual market capitalization rates significantly differ from our estimates, the impairment evaluation for an individual asset could be materially affected.
For each property where such an indicator occurred and/or for properties within a given submarket where such an indicator occurred, we completed an impairment evaluation. After completing this process, we determined that for each of the operating properties evaluated, undiscounted cash flows over the holding period were in excess of carrying value for all but one property, which was disposed of during the year ended December 31, 2025, and, therefore, we recognized an impairment charge of approximately $16.3 million during the year ended December 31, 2025. We did not record any impairment losses for these properties for the years ended 2024 and 2023.
Cost Capitalization
We capitalize all costs associated with development and redevelopment activities, capital improvements, and tenant improvements as project costs, including internal compensation costs related to those activities. Additional capitalized costs for development and redevelopment projects include pre-construction expenses, interest (based on the weighted average rate of outstanding debt), real estate taxes, and insurance, during periods when the project is being readied for use.
Determining whether expenditures meet the criteria for capitalization and the assignment of depreciable lives requires management to exercise significant judgment. Expenditures are capitalized if they provide future benefits, extend asset life, and/or improve asset quality beyond original estimates.
For office, life science, and retail projects, capitalization ends when revenue recognition begins on leased space, which is upon substantial completion of tenant improvements. For non-pre-leased properties, capitalization ends and depreciation begins on completed portions, but no later than one year after major base building completion. Capitalization also stops if project activities are suspended.
Once major base building construction activities have ceased and the development or redevelopment property (or phases thereof) have been placed in service, the costs capitalized to construction in progress are transferred to land and improvements, buildings and improvements, and deferred leasing costs on our consolidated balance sheets as the historical cost of the property.
New Accounting Pronouncements
For a discussion of new accounting pronouncements see Note 2 "Basis of Presentation and Significant Accounting Policies" to our consolidated financial statements included in this report.
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