Risk Factors Dashboard
Once a year, publicly traded companies issue a comprehensive report of their business, called a 10-K. A component mandated in the 10-K is the ‘Risk Factors’ section, where companies disclose any major potential risks that they may face. This dashboard highlights all major changes and additions in new 10K reports, allowing investors to quickly identify new potential risks and opportunities.
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Item 1A. Risk Factors.”
Segment and Geographic Financial Information
During 2025 and 2024, we had one reportable segment. See Note 23 “Segments” to our consolidated financial statements included in this report for information regarding our reportable segment.
As of December 31, 2025, all of our properties and development and redevelopment projects were owned and all of our business was conducted in the state of California with the exception of ten stabilized office properties and one future development project located in the state of Washington, and one stabilized office property and one future development project located in Austin, Texas.
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Human Capital Resources
As of December 31, 2025, we had 241 employees, of which 52% were female and 43% were ethnically diverse. We believe our people are our greatest resource and managing and developing talent is our most important responsibility. Our human capital development goals and initiatives demonstrate our commitment to enhancing employee growth, satisfaction, and wellness while promoting a collaborative and inclusive culture. Our approach is designed to attract, retain, develop, and incentivize talented and experienced individuals in the highly competitive employment and commercial real estate markets in which we operate. Our human capital development initiatives include the following:
Training and Education. We support the continuous growth and development of our employees through various training and education programs throughout their tenure at the Company, offering a portfolio of learning experiences to elevate their knowledge, skills, and abilities. During 2025, across all teams and regions, employees participated in various training and developmental experiences, including virtual workshops, self-paced training, in-person sessions, online webinars, and conferences. We also conducted annual goal setting, talent development, and performance assessment processes for all employees.
Employee Health, Wellness, and Compensation. The physical and mental health and well-being of our employees is of central importance to our culture. We evaluate our health and ancillary benefits annually to ensure our benefits package is robust and competitive. We are proud to offer a comprehensive health benefits program that provides employees and their families with care and coverage built around their total health.
Strong Communities and Healthy Planet. We are deeply aware that our properties impact the larger community, and we are proud to help them thrive through our volunteerism and philanthropy initiatives. For the third year in a row, our transformed “Month of Service” program delivered a robust and intentional effort dedicated to give back to the communities in which we operate. The company-wide initiatives provided our employees with opportunities to connect with local organizations and meaningful causes in the spirit of community enrichment and volunteerism. Over 145 employees assisted 13 organizations, dedicating more than 1,200 hours.
Environmental Regulations and Potential Liabilities
Existing Conditions at Our Properties. We conduct Phase I environmental site assessments, following American Society for Testing and Materials (“ASTM”) standards, on all properties before acquisition and update them as needed. These assessments typically include historical and public records reviews, visual inspections, and written reports, but generally exclude subsurface testing unless recommended. Where asbestos-containing materials are identified or suspected, we implement operations and maintenance plans. Some properties have historical contamination from prior uses, such as underground storage tanks or hazardous waste disposal. Remediation may be required by us or may have been performed by prior owners. As of December 31, 2025, we have accrued approximately $70.0 million in environmental remediation liabilities for certain development projects, covering costs such as soil and groundwater remediation and closure activities. Actual costs may vary due to site conditions and project changes. Other than these accrued liabilities, we are not aware of material environmental liabilities. However, unknown or future conditions, regulatory changes, or third-party actions could result in additional liabilities.
Use of Hazardous Materials by Tenants. Some tenants, primarily in life sciences, handle hazardous substances (e.g., diesel fuel, lab chemicals) on about 1-2% of the aggregate square footage of our stabilized properties as part of their business operations. Leases require compliance with environmental laws and indemnification for related liabilities. We are not aware of any material noncompliance or claims related to tenant activities.
Costs and Insurance. We may be liable for remediation costs under environmental laws, regardless of fault. We maintain environmental insurance and may obtain indemnities or holdbacks in transactions, but coverage may not be sufficient to address all liabilities. Environmental costs could adversely affect our financial condition, results of operations, cash flows, and ability to meet obligations to security holders.
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Available Information; Website Disclosure
Kilroy Realty Corporation was incorporated in the state of Maryland on September 13, 1996 and Kilroy Realty, L.P. was organized in the state of Delaware on October 2, 1996. Our principal executive offices are located at 12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064. Our telephone number at that location is (310) 481-8400. Our website is www.kilroyrealty.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this annual report on Form 10-K or any other report or document we file with or furnish to the SEC. All reports we will file with the SEC are available free of charge via EDGAR through the SEC website at www.sec.gov. All reports that we will file with the SEC will also be available free of charge on our website at www.kilroyrealty.com as soon as reasonably practicable after we file those materials with, or furnish them to, the SEC.
We use our website as a routine channel of distribution of company information, including press releases, presentations, and supplemental information, as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor our website in addition to following press releases, SEC filings, and public conference calls and webcasts. Investors and others can receive notifications of new information posted on our investor relations website in real time by signing up for email alerts.
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SUMMARY RISK FACTORS
The following section sets forth a summary of material factors that may adversely affect our business and operations. For a more extensive discussion of these factors, see “1A. Risk Factors” contained in this report.
•Global market, economic, and geopolitical conditions may adversely affect us and our tenants.
•Many of our costs, such as operating and general and administrative expenses, interest expense, and real estate construction costs, as well as the value of our assets, could be adversely impacted by periods of heightened inflation.
•All of our properties are located in California, the Seattle, Washington Metropolitan Area, and the Austin, Texas Metropolitan Area and we may therefore be susceptible to adverse economic conditions and regulations, as well as natural disasters, in those areas.
•Potential casualty losses, such as earthquake losses, may adversely affect us.
•Continuing uncertainty in the office leasing market could adversely affect us.
•Our performance and the market value of our securities are subject to risks associated with our investments in real estate assets and with trends in the real estate industry.
•We depend upon significant tenants, and the loss of a significant tenant could adversely affect us.
•Downturns in tenants’ businesses may reduce our revenues and cash flows.
•A large percentage of our tenants operate in a concentrated group of industries and downturns in these industries could adversely affect us.
•We may be unable to renew leases or re-lease available space.
•We are subject to governmental regulations that may affect the development, redevelopment, and use of our properties.
•Epidemics, pandemics or other outbreaks, and restrictions intended to prevent their spread, could adversely impact us.
•We face significant competition, which may decrease the occupancy and rental rates of our properties.
•In order to maintain the quality of our properties and successfully compete against other properties, we must periodically spend money to maintain, repair, and renovate our properties, which reduces our cash flows.
•We may not be able to rebuild our existing properties to their existing specifications if we experience a substantial or comprehensive loss of such properties.
•Our business is subject to risks associated with climate change.
•We are subject to environmental and health and safety laws and regulations, and any costs to comply with, or liabilities arising under, such laws and regulations could be material.
•Real estate assets are illiquid, and we may not be able to sell our properties when we desire.
•We may be unable to complete acquisitions and successfully operate acquired properties.
•There are significant risks associated with property acquisitions as well as development and redevelopment.
•We face risks associated with the development and operation of mixed-use commercial properties.
•The actual density of our undeveloped land holdings and/or any particular land parcel may not be consistent with our potential density estimates.
•Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers’ financial condition, and disputes between us and our co-venturers, and could expose us to potential liabilities and losses.
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•We own certain properties subject to ground leases and other restrictive agreements that limit our uses of the properties, restrict our ability to sell or otherwise transfer the properties, and expose us to the loss of the properties if such agreements are breached by us, terminated, or not renewed.
•We may invest in securities related to real estate, which could adversely affect us.
•We face risks associated with short-term liquid investments.
•Our property taxes could increase due to reassessment or property tax rate changes.
•Our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or internal control over financial reporting.
•We face risks associated with perceived or actual security breaches, cyberattacks, cyber intrusions, or other significant disruptions of our information technology ("IT") systems, operational technology ("OT") systems, networks and related systems, including those of our third‑party service providers.
•We face risks associated with compliance with ever evolving federal and state laws relating to the handling of information about individuals, which involves significant expenditure and resources, and any failure by us or our vendors to comply may result in significant liability, negative publicity, and/or an erosion of trust, which could materially adversely affect us.
•Loss of key executive officers or our inability to successfully transition key executive officers could harm our operations and financial performance, and adversely affect the quoted trading price of our securities.
•We could be adversely affected by labor disputes, strikes, or other union job actions.
•We may not be able to meet our debt service obligations.
•The covenants in the agreements governing the Operating Partnership’s unsecured revolving credit facility, unsecured term loan facility, and note purchase agreements may limit our ability to make distributions to the holders of our common stock.
•A downgrade in our credit ratings could materially adversely affect us.
•We are not limited in our ability to incur debt.
•An increase in interest rates would increase our interest costs on variable rate debt and new debt, and could adversely affect our ability to refinance existing debt, conduct development, redevelopment, and acquisition activity, and recycle capital.
•Our growth depends on external sources of capital that are outside of our control and the inability to obtain capital on terms that are acceptable to us, or at all, could adversely affect us.
•Our common limited partners have limited approval rights, which may prevent us from completing a change of control transaction that may be in the best interests of all our security holders.
•There are restrictions on the ownership of the Company’s capital stock that limit the opportunities for a change of a control at a premium to existing security holders.
•The Company’s charter contains provisions that may delay, deter, or prevent a change of control transaction.
•The Board of Directors may change investment and financing policies without stockholder or unitholder approval.
•We may issue additional common units and shares of capital stock without unitholder or stockholder approval, as applicable, which may dilute unitholder or stockholder investment.
•Sales of a substantial number of shares of the Company’s securities, or the perception that this could occur, could result in decreasing the quoted trading price per share of the Company’s common stock and of the Operating Partnership’s publicly-traded notes.
•Loss of the Company’s REIT status would have significant adverse consequences to us and the value of the Company’s common stock.
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ITEM 1A. RISK FACTORS
The following section sets forth material factors that may adversely affect our business and operations. If any of the risks discussed herein were to occur, our business, financial condition, liquidity, results of operations, and our ability to service our debt and pay dividends, and make distributions to our security holders could be materially and adversely affected (which we refer to collectively as “adversely affecting us” or having “an adverse effect on us” and comparable phrases), and the market price of our common stock could decline significantly. The following factors, as well as the factors discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Factors That May Influence Future Results of Operations” and other information contained in this report, should be considered in evaluating us and our business.
Risks Related to our Business and Operations
Global market, economic, and geopolitical conditions may adversely affect us and our tenants. Our business may be adversely affected by global market, economic, and geopolitical conditions, including general global economic and political uncertainty and dislocations in the credit markets. If these conditions become more volatile or worsen, we and our tenants may be adversely affected as a result of the following consequences, among others:
•our ability to obtain financing on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from our acquisition and development activities, and increase our future interest expense;
•the financial condition of our tenants, many of which are in the technology; life science and healthcare; finance, insurance and real estate; media, professional business and other service firm industries, may be adversely affected, which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures, or for other reasons;
•significant job losses in the technology; life science and healthcare; finance, insurance and real estate; media and professional business and other service firm industries may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted;
•reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans; and
•one or more lenders under the Operating Partnership’s unsecured revolving credit facility could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all.
Many of our costs, such as operating and general and administrative expenses, interest expense, and real estate construction costs, as well as the value of our assets, could be adversely impacted by periods of heightened inflation. In recent years, the consumer price index has increased substantially and remains elevated. A sustained or further increase in inflation could have an adverse impact on our operating expenses, including increases in our operating expenses, general and administrative expenses, borrowing costs and construction costs.
During inflationary periods, we expect to recover some increases in operating expenses from our tenants through our existing lease structures. In general, the office and life science properties are leased to tenants on a triple net, modified net, full service gross, or modified gross basis. Under a triple net lease, the tenants pay their proportionate share of real estate taxes, operating costs, and utility costs. A modified net lease is similar to a triple net lease, except the tenants are obligated to pay their proportionate share of certain operating expenses directly to the service provider. Under a full service gross lease, we are obligated to pay the tenant’s proportionate share of real estate taxes, insurance, and operating expenses up to the amount incurred during the “base year,” which is typically the tenant’s first year of occupancy. The tenant pays its proportionate share of increases in expenses above the base year. A modified gross lease is similar to a full service gross lease, except tenants are obligated to pay their proportionate share of certain operating expenses, usually electricity, directly to the service provider. At December 31, 2025, 46% of our properties were leased to tenants on a triple net basis, 26% were leased to tenants on a modified gross basis, 22% of our properties were leased to tenants on a full service gross basis, and 6% of our properties were leased to tenants on a modified net basis, in each case as a percentage of our annualized base rental revenue. As a result, we do not believe that inflation would result in a material adverse effect on our net operating
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income and operating cash flows at the property level. However, there can be no assurance that our tenants would be able to absorb these expense increases and be able to continue to pay us their portion of operating expenses, capital expenditures, and rent.
Also, due to rising costs, our tenants may be unable to continue operating their businesses altogether or may decide to relocate to areas with lower rent and operating expenses, and our tenants may cease to lease properties from us. If we are unable to retain our tenants or withstand increases in operating expenses, capital expenditures, and leasing costs, we may be unable to meet our financial expectations, which may adversely affect us.
We have long-term lease agreements with our tenants, and we believe that annual rent escalations within our long-term leases are generally sufficient to offset the effect of inflation on non-recoverable costs, such as general and administrative expenses and interest expense. However, the impact of the current elevated rate of inflation may not be adequately offset by some of our annual rent escalations, and it is possible that the resetting of rents from our renewal and re-leasing activities would not fully offset the impact of the current inflation rate. As a result, during inflationary periods in which the inflation rate exceeds the annual rent escalation percentages within our lease contracts, we may not adequately mitigate the impact of inflation, which may adversely affect us.
In addition, inflation is often accompanied by higher interest rates. Increases in interest rates increase our interest costs, which reduce our cash flows and impact our ability to make distributions to stockholders. For more information, see “Item 1A. Risk Factors—Risks Related to our Indebtedness—An increase in interest rates would increase our interest costs on variable rate debt and new debt and could adversely affect our ability to refinance existing debt, conduct development, redevelopment and acquisition activity and recycle capital.”
In addition, historically, during periods of increasing interest rates, real estate valuations have generally decreased as a result of rising capitalization rates, which tend to be positively correlated with interest rates. Consequently, prolonged periods of higher interest rates may negatively impact the valuation of our portfolio and result in the decline of the quoted trading price of our securities and market capitalization, as well as lower sales proceeds from future dispositions. Although the extent of any prolonged periods of higher interest rates remains unknown at this time, negative impacts to our cost of capital may adversely affect our future business plans and growth, including our development and redevelopment activities, at least in the near term.
Additionally, inflation may have a negative effect on the construction costs necessary to complete our development and redevelopment projects, including, but not limited to, costs of construction materials, labor, and services from third-party contractors and suppliers. These increased construction costs could in turn adversely impact our investments in real estate assets and expected yields on our development and redevelopment projects, which may make otherwise lucrative investment opportunities less profitable to us.
All of our properties are located in California, the Seattle, Washington Metropolitan Area, and the Austin, Texas Metropolitan Area and we may therefore be susceptible to adverse economic conditions and regulations, as well as natural disasters, in those areas. Because all of our properties are concentrated in California, the Seattle, Washington Metropolitan Area, and the Austin, Texas Metropolitan Area, we may be exposed to greater economic risks than if we owned a more geographically dispersed portfolio. Further, within California, our properties are concentrated in Los Angeles, San Diego County, and the San Francisco Bay Area, exposing us to risks associated with those specific areas. We are susceptible to adverse developments in the economic and regulatory environments of California, the Seattle, Washington Metropolitan Area, and the Austin, Texas Metropolitan Area (such as periods of economic slowdown or recession, business layoffs or downsizing, industry slowdowns, relocations of businesses, increases in real estate and other taxes, costs of complying with governmental regulations or increased regulation, and other factors), as well as adverse weather conditions and natural disasters that occur in those areas (such as earthquakes, wind, landslides, droughts, fires, floods, and other events). For example, many of our assets are in zones that have been impacted by drought and, as such, face the risk of increased water costs and potential fines and/or penalties for high consumption. In addition, California is also regarded as more litigious and more highly regulated and taxed than many other states, which may reduce demand for office space in California.
Any adverse developments in the economy or real estate market in California and the surrounding region, or in the Seattle, Washington Metropolitan Area, or the Austin, Texas Metropolitan Area or any decrease in demand for office space resulting from the California or Seattle, Washington, or Austin, Texas regulatory or business
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environment could impact our ability to generate revenues sufficient to meet our operating expenses or other obligations, which would adversely impact us.
Potential casualty losses, such as earthquake losses, may adversely affect us. We carry comprehensive liability, fire, extended coverage, rental loss, and terrorism insurance covering all of our properties. Management believes the policy specifications and insured limits are appropriate given the relative risk of loss, the cost of the coverage, and industry practice. We do not carry insurance for generally uninsurable losses such as loss from riots or acts of God. In addition, all of our West Coast properties are located in earthquake-prone areas. We carry earthquake insurance on our properties in an amount and with deductibles that management believes are commercially reasonable. However, the amount of our earthquake insurance coverage may not be sufficient to cover losses from earthquakes. We may also discontinue earthquake insurance on some or all of our properties in the future if the cost of premiums for earthquake insurance exceeds the value of the coverage discounted for the risk of loss. If we experience a loss that is uninsured or which exceeds policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. Further, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if the properties were irreparable. Any such losses could have a material adverse effect on us.
Continuing uncertainty in the office leasing market could adversely affect us. Office tenants are still active in the leasing markets but are more selective in making rental decisions, and both relocating and renewing tenants are pursuing space efficiencies, which may be accompanied by reductions in the amount of space they are leasing due to the impact of hybrid work and/or a desire to manage real estate expenses. As a result, we are experiencing longer lease negotiation periods prior to signing deals. Our office tenants may elect to not renew their leases, or to renew them for less space than they currently occupy or for shorter terms, which could increase vacancy, place downward pressure on occupancy, rental rates and income, and property valuations. The need to reconfigure leased office space, either in response to evolving tenant needs or for other reasons, may impact space requirements and also may require us to spend increased amounts for tenant improvements. If substantial reconfiguration of the tenant’s space is required, the tenant may find it more advantageous to relocate than to renew its lease and renovate the existing space. For more information, see “—We may be unable to renew leases or re-lease available space,” below. All of these factors could have a material adverse effect us.
Our performance and the market value of our securities are subject to risks associated with our investments in real estate assets and with trends in the real estate industry. Our economic performance and the value of our real estate assets and, consequently the market value of the Company’s securities, are subject to the risk that our properties may not generate revenues sufficient to meet our operating expenses or other obligations. A deficiency of this nature would adversely impact us.
Events and conditions applicable to owners and operators of real estate that are beyond our control and could impact our economic performance and the value of our real estate assets may include:
•local oversupply or reduction in demand for office, mixed-use, or other commercial space, which may result in decreasing rental rates and greater concessions to tenants;
•inability to collect rent from tenants;
•vacancies or inability to rent space on favorable terms or at all;
•inability to finance property development and acquisitions on favorable terms or at all;
•increased operating costs, including insurance premiums, utilities, and real estate taxes;
•costs of complying with changes in governmental regulations;
•the relative illiquidity of real estate investments;
•declines in real estate asset valuations, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing;
•changing submarket demographics;
•changes in space utilization by our tenants due to technology, economic conditions, and business culture, including a shift away from in-person work environments to flexible work arrangements and remote work;
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•the development of harmful mold or other airborne toxins or contaminants that could damage our properties or expose us to third-party liabilities; and
•property damage resulting from seismic activity or other natural disasters.
We depend upon significant tenants, and the loss of a significant tenant could adversely affect us. As of December 31, 2025, our 20 largest tenants represented approximately 53.7% of total annualized base rental revenues. See further discussion on the composition of our tenants by industry and our largest tenants under “
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