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Press Release

Kilroy Realty Corporation Reports Second Quarter Financial Results

Company Release - 7/29/2020 5:02 PM ET

LOS ANGELES--(BUSINESS WIRE)-- Kilroy Realty Corporation(NYSE: KRC) today reported financial results for its second quarter ended June 30, 2020.

COVID-19 Pandemic Key Business Update

Operations

  • Collected 95% of contractual second quarter rent billings across all property types, including 98% from office. Excluding rent relief provided to certain tenants, collected 97% across all property types, including 98% from office
    • The collection rate for July across all property types was 95%, including 97% from office, as of the date of this release. Excluding rent relief provided to certain tenants, collected 96% across all property types, including 97% from office
  • All stabilized properties remain open and operational with essential staff and key procedures in place to manage through the COVID-19 pandemic
  • Limited lease expiration exposure through 2022 with an average of approximately 4% of total rentable square feet expiring per year

Balance Sheet / Liquidity Highlights

  • As of the date of this release, the company had approximately $1.3 billion of total liquidity comprised of $560.0 million of cash and cash equivalents on hand and full availability under the company’s $750.0 million revolving credit facility
  • No material debt maturities until 2023, excluding the company’s revolving credit facility and term loan facility, which mature in the third quarter of 2022
  • Weighted average debt maturity of approximately seven years

Development

  • $2.0 billion of projects under development
    • As of the date of this release, all in-process projects were under active construction
    • Remaining spending to complete the projects of approximately $625.0 million, fully funded with cash on hand and availability under the company’s revolving credit facility
    • 90% leased across office and life science space

Second Quarter Highlights

Financial Results

  • Net income available to common stockholders per share of $0.17
  • Funds from operations available to common stockholders and unitholders (“FFO”) per share of $0.78
    • Both net income available to common stockholders per share and FFO per share included the following on a per share basis:
      • $0.17 negative impact related to severance costs, including costs associated with the previously announced departure of an executive officer
      • $0.05 reversal of revenue related to the creditworthiness of certain tenants primarily as a result of the COVID-19 pandemic
  • Revenues of $219.4 million, net of the $5.9 million reversal noted above

Stabilized Portfolio

  • Stabilized portfolio was 92.3% occupied and 96.0% leased at June 30, 2020
  • Signed approximately 286,000 square feet of new or renewing leases
    • GAAP and cash rents increased approximately 30.0% and 10.7%, respectively, from prior levels

Development

  • At 333 Dexter in Seattle, commenced GAAP revenue recognition on 312,000 square feet or 49% of the total 635,000 square foot project in June
  • At the One Paseo office project in San Diego, commenced GAAP revenue recognition on 22,000 square feet or 8% of the total 285,000 square foot project in June

Recent Developments

  • In July, commenced GAAP revenue recognition on an additional 36,000 square feet at the One Paseo office project bringing the total GAAP revenue recognition commenced on this project to approximately 20%, as of the date of this release
  • In July, also at One Paseo, completed construction of 146 residential units, the third and final phase of the residential component of the mixed-use project. In the aggregate, the 608 units were 38% leased with the remainder in lease-up, as of the date of this release

Results for the Quarter Ended June 30, 2020

For the second quarter ended June 30, 2020, KRC reported net income available to common stockholders of $19.6 million, or $0.17 per share, compared to $42.2 million, or $0.41 per share, in the second quarter of 2019. FFO in the second quarter of 2020 was $93.1 million, or $0.78 per share, compared to $99.9 million, or $0.95 per share, in the second quarter of 2019. Current period net income available to common stockholders and FFO per share included a reversal of revenue of $0.05 per share related to the creditworthiness of certain tenants primarily as a result of the COVID-19 pandemic. Current period results also included a $0.17 per share negative impact of severance costs, including the previously announced departure of an executive officer.

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

Conference Call and Audio Webcast

KRC management will discuss second quarter results and the current business environment during the company’s July 30, 2020 earnings conference call. The call will begin at 10:00 a.m. Pacific Time and last approximately one hour. Those interested in listening via the Internet can access the conference call at https://services.choruscall.com/links/krc200723.html. It may be necessary to download audio software to hear the conference call. Those interested in listening via telephone can access the conference call at (866) 312-7299. International callers should dial (412) 317-1070. In order to bypass speaking to the operator on the day of the call, please pre-register anytime at http://dpregister.com/10136125. A replay of the conference call will be available via telephone on July 30, 2020 through August 6, 2020 by dialing (877) 344-7529 and entering passcode 10136125. International callers should dial (412) 317-0088 and enter the same passcode. The replay will also be available on our website at http://investors.kilroyrealty.com/CustomPage/Index?KeyGenPage=1073743647.

About Kilroy Realty Corporation

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

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

As of June 30, 2020, KRC’s stabilized portfolio totaled approximately 14.3 million square feet of primarily office and life science space that was 92.3% occupied and 96.0% leased. The company also had 200 residential units in Hollywood that had a quarterly average occupancy of 85.0% and another 462 residential units in San Diego that were in lease-up. In addition, KRC had eight in-process development projects with an estimated total investment of $2.0 billion, totaling approximately 2.3 million square feet of office and life science space, and 339 residential units. The office and life science space was 90% leased.

A Leader in Sustainability and Commitment to Corporate Social Responsibility

KRC is listed on the Dow Jones Sustainability World Index and has been recognized by industry organizations around the world. KRC’s stabilized portfolio was 66% LEED certified and 43% Fitwel certified as of June 30, 2020.

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

A big part of the company’s foundation is its commitment to enhancing employee growth, satisfaction and wellness while maintaining a diverse and thriving culture. The company was named to Bloomberg’s 2020 Gender Equality Index—recognizing companies committed to supporting gender equality through policy development, representation, and transparency.

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

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on our current expectations, beliefs and assumptions, and are not guarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult to predict, many of which are outside of our control. Accordingly, actual performance, results and events may vary materially from those indicated or implied in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results or events. Numerous factors could cause actual future performance, results and events to differ materially from those indicated in the forward-looking statements, including, among others: global market and general economic conditions and their effect on our liquidity and financial conditions and those of our tenants; adverse economic or real estate conditions generally, and specifically, in the States of California and Washington; risks associated with our investment in real estate assets, which are illiquid, and with trends in the real estate industry; defaults on or non-renewal of leases by tenants; any significant downturn in tenants’ businesses; our ability to re-lease property at or above current market rates; costs to comply with government regulations, including environmental remediation; the availability of cash for distribution and debt service and exposure to risk of default under debt obligations; increases in interest rates and our ability to manage interest rate exposure; the availability of financing on attractive terms or at all, which may adversely impact our future interest expense and our ability to pursue development, redevelopment and acquisition opportunities and refinance existing debt; a decline in real estate asset valuations, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing, and which may result in write-offs or impairment charges; significant competition, which may decrease the occupancy and rental rates of properties; potential losses that may not be covered by insurance; the ability to successfully complete acquisitions and dispositions on announced terms; the ability to successfully operate acquired, developed and redeveloped properties; the ability to successfully complete development and redevelopment projects on schedule and within budgeted amounts; delays or refusals in obtaining all necessary zoning, land use and other required entitlements, governmental permits and authorizations for our development and redevelopment properties; increases in anticipated capital expenditures, tenant improvement and/or leasing costs; defaults on leases for land on which some of our properties are located; adverse changes to, or enactment or implementations of, tax laws or other applicable laws, regulations or legislation, as well as business and consumer reactions to such changes; risks associated with joint venture investments, including our lack of sole decision-making authority, our reliance on co-venturers’ financial condition and disputes between us and our co-venturers; environmental uncertainties and risks related to natural disasters; our ability to maintain our status as a REIT; and uncertainties regarding the impact of the COVID-19 pandemic, and restrictions intended to prevent its spread, on our business and the economy generally. These factors are not exhaustive and additional factors could adversely affect our business and financial performance. For a discussion of additional factors that could materially adversely affect our business and financial performance, see the factors included under the caption “Risk Factors” in our quarterly report on Form 10-Q for the period ending June 30, 2020 to be filed on July 30, 2020 and in our annual report on Form 10-K for the year ended December 31, 2019 and our other filings with the Securities and Exchange Commission. All forward-looking statements are based on currently available information and speak only as of the dates on which they are made. We assume no obligation to update any forward-looking statement made in this press release that becomes untrue because of subsequent events, new information or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws.

KILROY REALTY CORPORATION

SUMMARY OF QUARTERLY RESULTS

(unaudited; in thousands, except per share data)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2020

 

2019

 

2020

 

 

2019

Revenues

$

219,423

 

 

$

200,492

 

 

$

440,751

 

 

$

401,694

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

$

19,618

 

 

$

42,194

 

 

$

59,435

 

 

$

79,097

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – basic

115,085

 

 

100,972

 

 

110,980

 

 

100,937

 

Weighted average common shares outstanding – diluted

115,540

 

 

101,810

 

 

111,465

 

 

101,619

 

 

 

 

 

 

 

 

 

Net income available to common stockholders per share – basic

$

0.17

 

 

$

0.41

 

 

$

0.53

 

 

$

0.77

 

Net income available to common stockholders per share – diluted

$

0.17

 

 

$

0.41

 

 

$

0.52

 

 

$

0.77

 

 

 

 

 

 

 

 

 

Funds From Operations (1)(2)

$

93,089

 

 

$

99,905

 

 

$

203,262

 

 

$

199,717

 

 

 

 

 

 

 

 

 

Weighted average common shares/units outstanding – basic (3)

118,218

 

 

104,115

 

 

114,125

 

 

104,088

 

Weighted average common shares/units outstanding – diluted (4)

118,673

 

 

104,952

 

 

114,609

 

 

104,770

 

 

 

 

 

 

 

 

 

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

$

0.79

 

 

$

0.96

 

 

$

1.78

 

 

$

1.92

 

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

$

0.78

 

 

$

0.95

 

 

$

1.77

 

 

$

1.91

 

 

 

 

 

 

 

 

 

Common shares outstanding at end of period

 

 

 

 

115,177

 

 

100,972

 

Common partnership units outstanding at end of period

 

 

 

 

1,935

 

 

2,023

 

Total common shares and units outstanding at end of period

 

 

 

 

117,112

 

 

102,995

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2020

 

June 30, 2019

Stabilized office portfolio occupancy rates: (5)

 

 

 

 

 

 

 

Greater Los Angeles

 

 

 

 

91.2

%

 

94.8

%

Orange County

 

 

 

 

N/A

 

66.4

%

San Diego County

 

 

 

 

87.4

%

 

90.2

%

San Francisco Bay Area

 

 

 

 

93.7

%

 

94.5

%

Greater Seattle

 

 

 

 

95.9

%

 

97.6

%

Weighted average total

 

 

 

 

92.3

%

 

93.8

%

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Greater Los Angeles

 

 

 

 

4,030

 

 

3,872

 

Orange County

 

 

 

 

N/A

 

272

 

San Diego County

 

 

 

 

2,146

 

 

2,046

 

San Francisco Bay Area

 

 

 

 

6,350

 

 

5,555

 

Greater Seattle

 

 

 

 

1,802

 

 

1,802

 

Total

 

 

 

 

14,328

 

 

13,547

 

_______________________

(1)

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

(2)

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

(3)

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

(4)

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

(5)

Occupancy percentages and total square feet reported are based on the company’s stabilized office portfolio for the periods presented. Occupancy percentages and total square feet shown for June 30, 2019 include the office properties that were sold subsequent to June 30, 2019.

KILROY REALTY CORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited; in thousands)

 

 

June 30, 2020

 

December 31, 2019

ASSETS

 

 

 

REAL ESTATE ASSETS:

 

 

 

Land and improvements

$

1,546,209

 

 

$

1,466,166

 

Buildings and improvements

6,289,816

 

 

5,866,477

 

Undeveloped land and construction in progress

2,109,196

 

 

2,296,130

 

Total real estate assets held for investment

9,945,221

 

 

9,628,773

 

Accumulated depreciation and amortization

(1,684,837

)

 

(1,561,361

)

Total real estate assets held for investment, net

8,260,384

 

 

8,067,412

 

 

 

 

 

Cash and cash equivalents

605,012

 

 

60,044

 

Restricted cash

16,300

 

 

16,300

 

Marketable securities

23,175

 

 

27,098

 

Current receivables, net

20,925

 

 

26,489

 

Deferred rent receivables, net

358,914

 

 

337,937

 

Deferred leasing costs and acquisition-related intangible assets, net

209,637

 

 

212,805

 

Right of use ground lease assets

95,940

 

 

96,348

 

Prepaid expenses and other assets, net

68,378

 

 

55,661

 

TOTAL ASSETS

$

9,658,665

 

 

$

8,900,094

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

LIABILITIES:

 

 

 

Secured debt, net

$

256,113

 

 

$

258,593

 

Unsecured debt, net

3,399,105

 

 

3,049,185

 

Unsecured line of credit

 

 

245,000

 

Accounts payable, accrued expenses and other liabilities

401,378

 

 

418,848

 

Ground lease liabilities

98,093

 

 

98,400

 

Accrued dividends and distributions

57,600

 

 

53,219

 

Deferred revenue and acquisition-related intangible liabilities, net

129,264

 

 

139,488

 

Rents received in advance and tenant security deposits

63,523

 

 

66,503

 

Total liabilities

4,405,076

 

 

4,329,236

 

 

 

 

 

EQUITY:

 

 

 

Stockholders’ Equity

 

 

 

Common stock

1,152

 

 

1,060

 

Additional paid-in capital

5,084,362

 

 

4,350,917

 

Distributions in excess of earnings

(113,223

)

 

(58,467

)

Total stockholders’ equity

4,972,291

 

 

4,293,510

 

Noncontrolling Interests

 

 

 

Common units of the Operating Partnership

83,502

 

 

81,917

 

Noncontrolling interests in consolidated property partnerships

197,796

 

 

195,431

 

Total noncontrolling interests

281,298

 

 

277,348

 

Total equity

5,253,589

 

 

4,570,858

 

TOTAL LIABILITIES AND EQUITY

$

9,658,665

 

 

$

8,900,094

 

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited; in thousands, except per share data)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2020

 

2019

 

2020

 

2019

REVENUES

 

 

 

 

 

 

 

Rental income

$

218,356

 

 

$

197,629

 

 

$

436,989

 

 

$

397,011

 

Other property income

1,067

 

 

2,863

 

 

3,762

 

 

4,683

 

Total revenues

219,423

 

 

200,492

 

 

440,751

 

 

401,694

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

Property expenses

37,829

 

 

38,536

 

 

76,812

 

 

76,685

 

Real estate taxes

21,854

 

 

17,926

 

 

44,056

 

 

36,565

 

Ground leases

2,330

 

 

2,114

 

 

4,647

 

 

4,086

 

General and administrative expenses

38,597

 

 

19,857

 

 

57,607

 

 

43,198

 

Leasing costs

1,330

 

 

2,650

 

 

2,786

 

 

4,407

 

Depreciation and amortization

80,085

 

 

68,252

 

 

154,455

 

 

134,387

 

Total expenses

182,025

 

 

149,335

 

 

340,363

 

 

299,328

 

 

 

 

 

 

 

 

 

OTHER (EXPENSES) INCOME

 

 

 

 

 

 

 

Interest income and other net investment gain (loss)

2,838

 

 

616

 

 

(290

)

 

2,444

 

Interest expense

(15,884

)

 

(11,727

)

 

(30,328

)

 

(22,970

)

Gains on sales of depreciable operating properties

 

 

7,169

 

 

 

 

7,169

 

Total other (expenses) income

(13,046

)

 

(3,942

)

 

(30,618

)

 

(13,357

)

 

 

 

 

 

 

 

 

NET INCOME

24,352

 

 

47,215

 

 

69,770

 

 

89,009

 

 

 

 

 

 

 

 

 

Net income attributable to noncontrolling common units of the Operating Partnership

(367

)

 

(871

)

 

(1,072

)

 

(1,571

)

Net income attributable to noncontrolling interests in consolidated property partnerships

(4,367

)

 

(4,150

)

 

(9,263

)

 

(8,341

)

Total income attributable to noncontrolling interests

(4,734

)

 

(5,021

)

 

(10,335

)

 

(9,912

)

 

 

 

 

 

 

 

 

NET INCOME AVAILABLE TO COMMON STOCKHOLDERS

$

19,618

 

 

$

42,194

 

 

$

59,435

 

 

$

79,097

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – basic

115,085

 

 

100,972

 

 

110,980

 

 

100,937

 

Weighted average common shares outstanding – diluted

115,540

 

 

101,810

 

 

111,465

 

 

101,619

 

 

 

 

 

 

 

 

 

Net income available to common stockholders per share – basic

$

0.17

 

 

$

0.41

 

 

$

0.53

 

 

$

0.77

 

Net income available to common stockholders per share – diluted

$

0.17

 

 

$

0.41

 

 

$

0.52

 

 

$

0.77

 

KILROY REALTY CORPORATION

FUNDS FROM OPERATIONS

(unaudited; in thousands, except per share data)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2020

 

2019

 

2020

 

2019

Net income available to common stockholders

$

19,618

 

 

$

42,194

 

 

$

59,435

 

 

$

79,097

 

Adjustments:

 

 

 

 

 

 

 

Net income attributable to noncontrolling common units of the Operating Partnership

367

 

 

871

 

 

1,072

 

 

1,571

 

Net income attributable to noncontrolling interests in consolidated property partnerships

4,367

 

 

4,150

 

 

9,263

 

 

8,341

 

Depreciation and amortization of real estate assets

75,981

 

 

67,011

 

 

148,419

 

 

131,982

 

Gains on sales of depreciable real estate

 

 

(7,169

)

 

 

 

(7,169

)

Funds From Operations attributable to noncontrolling interests in consolidated property partnerships

(7,244

)

 

(7,152

)

 

(14,927

)

 

(14,105

)

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

$

93,089

 

 

$

99,905

 

 

$

203,262

 

 

$

199,717

 

 

 

 

 

 

 

 

 

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

118,218

 

 

104,115

 

 

114,125

 

 

104,088

 

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

118,673

 

 

104,952

 

 

114,609

 

 

104,770

 

 

 

 

 

 

 

 

 

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

$

0.79

 

 

$

0.96

 

 

$

1.78

 

 

$

1.92

 

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

$

0.78

 

 

$

0.95

 

 

$

1.77

 

 

$

1.91

 

________________________

(1)

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

 

 

 

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

 

 

 

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

 

 

 

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

 

 

(2)

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

 

 

(3)

FFO available to common stockholders and unitholders includes amortization of deferred revenue related to tenant-funded tenant improvements of $8.0 million and $4.4 million for the three months ended June 30, 2020 and 2019, respectively, and $13.0 million and $8.2 million for the six months ended June 30, 2020 and 2019, respectively.

 

 

(4)

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

 

 

(5)

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

 

Tyler H. Rose
Executive Vice President
and Chief Financial Officer
(310) 481-8484
Or
Michelle Ngo
Senior Vice President
and Treasurer
(310) 481-8581

Source: Kilroy Realty Corporation