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Kilroy Realty Corporation Reports Second Quarter Financial Results

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LOS ANGELES--(BUSINESS WIRE)--July 24, 2007--Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its second quarter ended June 30, 2007 with net income available for common stockholders of $13.1 million, or $0.40 per share, compared to $18.0 million, or $0.58 per share, in the second quarter of 2006. Revenues from continuing operations in the second quarter totaled $64.6 million, up from $62.6 million in the prior year's second quarter. Funds from operations (FFO) for the period totaled $26.7 million, or $0.77 per share, compared to $37.6 million, or $1.11 per share, in the year-earlier period. Last year's second-quarter results included proceeds from an early lease termination totaling $9.8 million, or $0.29 per share.

For the first six months of 2007, KRC reported net income available to common stockholders of $29.6 million, or $0.91 per share, compared to $31.5 million, or $1.04 per share, in the first half of 2006. Revenues from continuing operations in the six-month period totaled $128.6 million, up from $124.6 million in the same period of 2006. FFO in the first half of 2007 totaled $52.7 million, or $1.52 per share, compared to $64.4 million, or $1.94 per share, in first half of 2006.

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

KRC currently has five projects under construction, all located in coastal submarkets of central San Diego County. These five projects encompass eight buildings totaling approximately 1.1 million rentable square feet and are 82% pre-leased. In the aggregate, they represent a total estimated investment of approximately $359 million, of which $256 million has been spent to date.

The company also has two redevelopment projects underway, a 107,000 square-foot property in Los Angeles County and a two-building, 104,500 square-foot property located along the I-15 corridor in central San Diego County. The two projects represent a total estimated incremental investment of approximately $25 million, of which $13 million has been spent to date. They are 39% pre-leased.

"Market conditions for commercial real estate in Southern California remain sound, with solid demand and limited supply supporting rent increases across much of our portfolio," said John B. Kilroy, Jr., president and chief executive officer of KRC. "Our development program remains on track, with approximately 1.3 million square feet of development and redevelopment projects underway, 76% of which is pre-leased," he said.

Updated earnings guidance for 2007 will be discussed by KRC management during the company's July 25, 2007 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 www.kilroyrealty.com. Please go to the website 15 minutes before the call and register. It may be necessary to download audio software to hear the conference call. Those interested in listening via the telephone can access the conference call at (800) 259-0251, reservation #79084582. A replay of the conference call will be available via phone through August 5, 2007 at (888) 286-8010, reservation #34147086, or via the Internet at the company's website.

Some of the information presented in this release is forward looking in nature within the meaning of the Private Securities Litigation Reform Act of 1995. Although Kilroy Realty Corporation believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, there can be no assurance that its expectations will be achieved. Certain factors that could cause actual results to differ materially from Kilroy Realty's expectations are set forth as risk factors in the company's Securities and Exchange Commission reports and filings. Included among these factors are changes in general economic conditions, including changes in the economic conditions affecting industries in which its principal tenants compete; Kilroy Realty's ability to timely lease or re-lease space at current or anticipated rents; changes in interest rates; changes in operating costs, including utility costs; future demand for its debt and equity securities; its ability to refinance its debt on reasonable terms at maturity; its ability to complete current and future development projects on schedule and on budget; the demand for office space in markets in which Kilroy Realty has a presence; and risks detailed from time to time in the company's SEC reports, including quarterly reports on Form 10-Q, current reports on Form 8-K and annual reports on Form 10-K. Many of these factors are beyond Kilroy Realty's ability to control or predict. Forward-looking statements are not guarantees of performance. For forward-looking statements herein, Kilroy Realty claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

Kilroy Realty Corporation, a member of the S&P Small Cap 600 Index, is a Southern California-based real estate investment trust active in the office and industrial property sectors. For 60 years, the company has owned, developed, acquired and managed real estate assets primarily in the coastal regions of California and Washington. Kilroy Realty currently has an in-process development and redevelopment pipeline of approximately 1.3 million square feet in Los Angeles and San Diego counties. At June 30, 2007, the company owned 7.8 million rentable square feet of commercial office space and 3.9 million rentable square feet of industrial space. More information is available at www.kilroyrealty.com.

                      KILROY REALTY CORPORATION
                      SUMMARY QUARTERLY RESULTS
----------------------------------------------------------------------
           (unaudited, in thousands, except per share data)

                                   Three   Three     Six       Six
                                    Months  Months   Months    Months
                                    Ended   Ended    Ended     Ended
                                    June    June   June 30,  June 30,
                                     30,     30,      2007      2006
                                     2007    2006
                                   ------- ------- --------- ---------

Revenues from continuing
 operations                        $64,630 $62,607 $128,611  $124,627

Revenues including discontinued
 operations                        $64,630 $73,450 $128,709  $136,930

Net income available for common
 stockholders (1)                  $13,090 $17,975 $ 29,572  $ 31,502

Weighted average common shares
 outstanding - basic                32,371  31,049   32,360    30,249
Weighted average common shares
 outstanding - diluted              32,486  31,172   32,486    30,394

Net income per share of common
 stock - basic                     $  0.40 $  0.58 $   0.91  $   1.04
Net income per share of common
 stock - diluted                   $  0.40 $  0.58 $   0.91  $   1.04

Funds From Operations (2), (3)     $26,674 $37,630 $ 52,698  $ 64,416

Weighted average common
 shares/units outstanding - basic
 (4)                                34,619  33,689   34,609    33,102
Weighted average common
 shares/units outstanding -
 diluted (4)                        34,734  33,812   34,735    33,247

Funds From Operations per common
 share/unit - basic (4)            $  0.77 $  1.12 $   1.52  $   1.95
Funds From Operations per common
 share/unit - diluted (4)          $  0.77 $  1.11 $   1.52  $   1.94

Common shares outstanding at end
 of period                                           32,707    32,092
Common partnership units
 outstanding at end of period                         2,248     2,626
                                                   --------- ---------
 Total common shares and units
  outstanding at end of period                       34,955    34,718


                                                   June 30,  June 30,
                                                      2007      2006
                                                   --------- ---------
Stabilized portfolio occupancy
 rates:
  Office                                               93.6%     95.9%
  Industrial                                           91.0%     99.9%
                                                   --------- ---------
  Weighted average total                               92.7%     97.4%

 Los Angeles                                           94.2%     93.7%
 Orange County                                         91.0%     99.0%
 San Diego                                             93.9%     99.5%
 Other                                                 90.5%     92.7%
                                                   --------- ---------
  Weighted average total                               92.7%     97.4%

Total square feet of stabilized
 properties owned at end of
 period:
 Office                                               7,835     7,847
 Industrial                                           3,870     4,423
                                                   --------- ---------
  Total                                              11,705    12,270

(1) Net income after minority interests.

(2) Reconciliation of Net Income to Funds From Operations and
 management statement on Funds From Operations are included after the
 Consolidated Statements of Operations.

(3) Reported amounts are attributable to common stockholders and
 common unitholders.

(4) Calculated based on weighted average shares outstanding assuming
 conversion of all common limited partnership units outstanding.
        KILROY REALTY CORPORATION CONSOLIDATED BALANCE SHEETS
----------------------------------------------------------------------
                      (unaudited, in thousands)

                                                June 30,    December
                                                               31,
                                                  2007        2006
                                               ----------- -----------

ASSETS
----------------------------------------------
REAL ESTATE ASSETS:
  Land and improvements                          $293,059    $293,059
  Buildings and improvements                    1,500,777   1,484,051
  Undeveloped land and construction in
   progress                                       453,211     263,651
                                               ----------- -----------
    Total real estate held for investment       2,247,047   2,040,761
  Accumulated depreciation and amortization      (472,302)   (443,807)
                                               ----------- -----------
    Total real estate held for investment, net  1,774,745   1,596,954
  Properties held for sale, net                                 4,512
                                               ----------- -----------
    Total real estate assets, net               1,774,745   1,601,466

Cash and cash equivalents                          11,134      11,948
Restricted cash                                       619         494
Funds held at qualified intermediary for
 Section 1031 exchange                                         43,794
Current receivables, net                            4,715       5,890
Deferred rent receivables, net                     62,515      61,929
Notes receivable                                   11,034      11,096
Deferred leasing costs and acquisition related
 intangibles, net                                  46,381      49,019
Deferred financing costs, net                       9,702       5,100
Prepaid expenses and other assets, net              6,840       8,616
                                               ----------- -----------

    TOTAL ASSETS                               $1,927,685  $1,799,352
                                               =========== ===========

LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------------------
LIABILITIES:
  Secured debt                                   $400,617    $459,198
  Exchangeable senior notes, net                  455,630
  Unsecured senior notes                          144,000     144,000
  Unsecured line of credit                         18,000     276,000
  Accounts payable, accrued expenses and other
   liabilities                                     61,497      67,729
  Accrued distributions                            20,610      19,610
  Deferred revenue and acquisition related
   liabilities                                     52,026      25,353
  Rents received in advance and tenant
   security deposits                               17,521      19,900
                                               ----------- -----------
    Total liabilities                           1,169,901   1,011,790
                                               ----------- -----------

MINORITY INTERESTS:
  7.45% Series A Cumulative Redeemable
  Preferred units of the Operating Partnership     73,638      73,638
  Common units of the Operating Partnership        36,398      39,628
                                               ----------- -----------
    Total minority interests                      110,036     113,266
                                               ----------- -----------

STOCKHOLDERS' EQUITY:
  7.80% Series E Cumulative Redeemable
   Preferred stock                                 38,425      38,425
  7.50% Series F Cumulative Redeemable
   Preferred stock                                 83,157      83,157
  Common stock                                        327         324
  Additional paid-in capital                      651,659     671,484
  Distributions in excess of earnings            (125,820)   (119,094)
                                               ----------- -----------
    Total stockholders' equity                    647,748     674,296
                                               ----------- -----------

    TOTAL LIABILITIES & STOCKHOLDERS' EQUITY   $1,927,685  $1,799,352
                                               =========== ===========
   KILROY REALTY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
----------------------------------------------------------------------
           (unaudited, in thousands, except per share data)

                                  Three    Three     Six       Six
                                  Months   Months    Months    Months
                                  Ended    Ended     Ended     Ended
                                 June 30, June 30, June 30,  June 30,
                                   2007     2006      2007      2006
                                 -------- -------- --------- ---------

REVENUES:
 Rental income                   $56,454  $56,171  $112,769  $111,769
 Tenant reimbursements             6,225    6,241    12,784    11,726
 Other property income             1,951      195     3,058     1,132
                                 -------- -------- --------- ---------
     Total revenues               64,630   62,607   128,611   124,627
                                 -------- -------- --------- ---------

EXPENSES:
 Property expenses                11,440   10,764    22,298    20,768
 Real estate taxes                 4,861    4,696     9,599     9,430
 Provision for bad debts             (26)      56      (199)      567
 Ground leases                       502      474     1,018       993
 General and administrative
  expenses                         9,460    4,714    18,508     9,649
 Interest expense                  8,072   11,208    17,728    23,179
 Depreciation and amortization    17,745   17,666    34,982    35,046
                                 -------- -------- --------- ---------
     Total expenses               52,054   49,578   103,934    99,632
                                 -------- -------- --------- ---------

OTHER INCOME AND EXPENSE:
 Interest income                     371      231       990       483
 Net settlement receipts on
  interest rate swaps                         254                 448
 Loss on derivative instruments              (179)               (255)
                                 -------- -------- --------- ---------
     Total other income              371      306       990       676
                                 -------- -------- --------- ---------

Income from continuing operations
 before minority interests        12,947   13,335    25,667    25,671

Minority interests:
 Distributions on Cumulative
  Redeemable Preferred units      (1,397)  (1,397)   (2,794)   (2,794)
 Minority interest in earnings of
  Operating Partnership
  attributable to continuing
  operations                        (609)    (750)   (1,187)   (1,554)
                                 -------- -------- --------- ---------
     Total minority interests     (2,006)  (2,147)   (3,981)   (4,348)
                                 -------- -------- --------- ---------

Income from continuing operations 10,941   11,188    21,686    21,323

Discontinued operations:
 Revenues from discontinued
  operations                               10,843        98    12,303
 Expenses from discontinued
  operations                                 (847)      (20)   (1,567)
 Net gain on dispositions of
  discontinued operations          4,848             13,474     5,655
 Minority interest in earnings of
  Operating Partnership
  attributable to discontinued
  operations                        (297)    (807)     (862)   (1,408)
                                 -------- -------- --------- ---------
     Total income from
      discontinued operations      4,551    9,189    12,690    14,983
                                 -------- -------- --------- ---------

Net income                        15,492   20,377    34,376    36,306

Preferred dividends               (2,402)  (2,402)   (4,804)   (4,804)
                                 -------- -------- --------- ---------

Net income available for common
 stockholders                    $13,090  $17,975   $29,572   $31,502
                                 ======== ======== ========= =========

Weighted average shares
 outstanding - basic              32,371   31,049    32,360    30,249
Weighted average shares
 outstanding - diluted            32,486   31,172    32,486    30,394

Net income per common share -
 basic                             $0.40    $0.58     $0.91     $1.04
                                 ======== ======== ========= =========
Net income per common share -
 diluted                           $0.40    $0.58     $0.91     $1.04
                                 ======== ======== ========= =========
           KILROY REALTY CORPORATION FUNDS FROM OPERATIONS
----------------------------------------------------------------------
           (unaudited, in thousands, except per share data)

                                    Three   Three     Six       Six
                                    Months   Months   Months   Months
                                    Ended    Ended    Ended    Ended
                                   June 30,  June   June 30,  June 30,
                                     2007     30,      2007     2006
                                              2006
                                   -------- ------- --------- --------

Net income available for common
 stockholders                      $13,090  $17,975 $ 29,572  $31,502

 Adjustments:
   Minority interest in earnings
    of Operating Partnership           906    1,557    2,049    2,962
   Depreciation and amortization
    of real estate assets           17,526   18,098   34,551   35,607
   Net gain on dispositions of
    discontinued operations         (4,848)          (13,474)  (5,655)
                                   -------- ------- --------- --------
Funds From Operations (1), (2)     $26,674  $37,630 $ 52,698  $64,416
                                   ======== ======= ========= ========

Weighted average common
 shares/units outstanding - basic   34,619   33,689   34,609   33,102
Weighted average common
 shares/units outstanding -
 diluted                            34,734   33,812   34,735   33,247

Funds From Operations per common
 share/unit - basic                $  0.77  $  1.12 $   1.52  $  1.95
                                   ======== ======= ========= ========
Funds From Operations per common
 share/unit - diluted              $  0.77  $  1.11 $   1.52  $  1.94
                                   ======== ======= ========= ========

(1) Management believes that Funds From Operations ("FFO") is a useful
 supplemental measure of the Company's operating performance. The
 Company computes FFO in accordance with the White Paper on FFO
 approved by the Board of Governors of the National Association of
 Real Estate Investment Trusts ("NAREIT"). The White Paper defines FFO
 as net income or loss computed in accordance with generally accepted
 accounting principles ("GAAP"), excluding extraordinary items, as
 defined by GAAP, and gains and losses from sales of depreciable
 operating property, 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. Other real estate
 investment trusts ("REITs") may use different methodologies for
 calculating FFO and, accordingly, the Company's FFO may not be
 comparable to other REITs.

Because FFO excludes depreciation and amortization, gains and losses
 from property dispositions, and extraordinary items, it provides a
 performance measure that, when compared year over year, reflects the
 impact to operations from trends in occupancy rates, rental rates,
 operating costs, development activities, general and administrative
 expenses, and interest costs, providing perspective on operating
 performance not immediately apparent from net income. In addition,
 management believes that FFO provides useful information to the
 investment community about the Company's operating performance when
 compared to other REITs since FFO is generally recognized as the
 industry standard for reporting the operations of REITs.

However, FFO should not be viewed as an alternative measure of the
 Company's 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 the Company's properties, which are significant
 economic costs that could materially impact the Company's results of
 operations.

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

CONTACT: Kilroy Realty Corporation
Richard E. Moran Jr.
Executive Vice President and Chief Financial Officer
310-481-8483
or
Tyler H. Rose
Senior Vice President and Treasurer
310-481-8484

SOURCE: Kilroy Realty Corporation