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Commitments and Contingencies | 12 Months Ended
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Dec. 31, 2021
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | Commitments and Contingencies General As of December 31, 2021, we had commitments of approximately $868.0 million, excluding our ground lease commitments, for contracts and executed leases directly related to our operating, development and redevelopment properties. Ground Leases During the year ended December 31, 2021, we acquired the land underlying a historical ground lease (refer to Note 3 “Acquisitions” for further information). The following table summarizes our properties that are held subject to long-term noncancellable ground lease obligations and the respective contractual expiration dates at December 31, 2021:
Property | Contractual Expiration Date (1)
701, 801 and 837 N. 34th Street, Seattle, WA (2) | December 2041
1701 Page Mill Road and 3150 Porter Drive, Palo Alto, CA | December 2067
Kilroy Airport Center Phases I, II, and III, Long Beach, CA | July 2084
3243 S. La Cienega Boulevard, Los Angeles, CA | October 2106
200 W. 6th Street, Austin, TX (3) | December 2112
____________________ (1) Reflects the contractual expiration date prior to the impact of any extension or purchase options held by the Company. (2) The Company has three 10-year and one 45-year extension options for this ground lease, which if exercised would extend the expiration date to December 2116. These extension options are not assumed to be exercised in our calculation of the present value of the future minimum lease payments for this lease. (3) We entered into this ground lease in connection with an operating property acquisition in 2021. Refer to Note 3 “Acquisitions” for additional information. To determine the discount rates used to calculate the present value of the minimum future lease payments for our ground leases, we used a hypothetical curve derived from unsecured corporate borrowing rates over the lease term. The weighted average discount rate used to determine the present value of our minimum lease payments was 4.65%. As of December 31, 2021, the weighted average remaining lease term of our ground leases is 65 years. For the years ended December 31, 2021, 2020 and 2019, variable lease costs totaling $2.6 million, $3.0 million and $2.9 million, respectively, were recorded to ground leases expense on our consolidated statements of operations. The minimum commitment under our ground leases as of December 31, 2021 for future periods is as follows:
Year Ending | (in thousands)
2022 | $ | 6,441 |
2023 | 6,496 |
2024 | 6,531 |
2025 | 6,567 |
2026 | 6,604 |
Thereafter | 373,943 |
Total undiscounted cash flows (1)(2)(3)(4)(5)(6) | $ | 406,582 |
Present value discount | (281,032) |
Ground lease liabilities | $ | 125,550 |
________________________ (1)Excludes contingent future rent payments based on gross income or adjusted gross income and reflects the minimum ground lease obligations before the impact of ground lease extension options. (2) One of our ground lease obligations is subject to a fair market value adjustment every five years; however, the lease includes ground rent subprotection and infrastructure rent credits which currently limit our annual rental obligations to $1.0 million. The contractual obligations for that ground lease included above assumes the lesser of $1.0 million or annual lease rental obligation in effect as of December 31, 2021. (3) One of our ground lease obligations is subject to a fair market value adjustment every five years based on a combination of CPI adjustments and third-party appraisals limited to maximum increases annually. The contractual obligations for that lease included above assume the current annual ground lease obligation in effect at December 31, 2021 for the remainder of the lease term since we cannot predict future adjustments. (4) One of our ground lease obligations includes a component which is based on the percentage of adjusted gross income that exceeds the minimum ground rent. The minimum rent is subject to increases every 10 years by an amount equal to 60% of the average annual percentage rent for the previous three years. The contractual obligations for this lease included above assume the current annual ground lease obligation in effect at December 31, 2021 for the remainder of the lease term since we cannot predict future adjustments. (5) One of our ground lease obligations is subject to fixed 5% ground rent increases every five years, with the next increase occurring on December 1, 2022. (6) One of our ground lease obligations is subject to fixed 2% ground rent increases every year, with ground rent resets occurring every ten years based on CPI. The contractual obligations for that lease included above assume increases for the remaining current ten-year period based on the current annual ground lease obligation in effect at December 31, 2021 and no subsequent changes for the remainder of the lease term since we cannot predict future CPI adjustments. Environmental Matters We follow the policy of evaluating all of our properties, including acquisition, development, and existing stabilized portfolio properties, for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist, we are not currently aware of any undisclosed environmental liability with respect to our stabilized portfolio properties that would have a material adverse effect on our financial condition, results of operations and cash flow, or that we believe would require additional disclosure or the recording of a loss contingency. As of December 31, 2021 and 2020, we had accrued environmental remediation liabilities of approximately $75.2 million and $71.3 million, respectively, recorded on our consolidated balance sheets in connection with certain of our in-process and future development projects. The accrued environmental remediation liabilities represent the remaining costs we estimate we will incur prior to and during the development process at various development acquisition sites. These estimates, which we developed with the assistance of third party experts, consist primarily of the removal of contaminated soil, treatment of contaminated groundwater in connection with dewatering efforts, performing environmental closure activities, constructing remedial systems, and other related costs that are necessary when we develop new buildings at these sites. We record estimated environmental remediation obligations for acquired properties at the acquisition date when we are aware of such costs and when such costs are probable of being incurred and can be reasonably estimated. Estimated costs related to development environmental remediation liabilities are recorded as an increase to the cost of the development project. Actual costs are recorded as a decrease to the liability when incurred. These accruals are adjusted as an increase or decrease to the development project costs and as an increase or decrease to the accrued environmental remediation liability if we obtain further information or circumstances change. The environmental remediation obligations recorded at December 31, 2021 and 2020 were not discounted to their present values since the amount and timing of cash payments are not fixed. It is possible that we could incur additional environmental remediation costs in connection with these development projects. However, potential additional environmental costs for these development projects cannot be reasonably estimated at this time and certain changes in estimates could occur as the site conditions, final project timing, design elements, actual soil conditions and other aspects of the projects, which may depend upon municipal and other approvals beyond the control of the Company, are determined. Other than the accrued environmental liabilities discussed above, we are not aware of any unasserted claims and assessments with respect to an environmental liability that we believe would require additional disclosure or the recording of an additional loss contingency. Litigation We and our properties are subject to litigation arising in the ordinary course of business. To our knowledge, neither we nor any of our properties are presently subject to any litigation or threat of litigation which, if determined unfavorably to us, would have a material adverse effect on our cash flow, financial condition, or results of operations. Insurance We maintain commercial general liability, auto liability, employers’ liability, umbrella/excess liability, special form property, difference in conditions including earthquake and flood, environmental, rental loss, and terrorism insurance covering all of our properties. Management believes the policy specifications and insured limits are reasonable 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 governmental action, nuclear hazard, and war and military action. Policies are subject to various terms, conditions, and exclusions and some policies may involve large deductibles or co-payments.

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