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Kilroy Realty Corporation Reports Third Quarter Financial Results

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LOS ANGELES--(BUSINESS WIRE)--Oct. 22, 2007--Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its third quarter ended September 30, 2007 with net income available for common stockholders of $9.0 million, or $0.28 per share, compared to $31.6 million, or $0.98 per share, in the third quarter of 2006. Revenues from continuing operations in the third quarter totaled $67.6 million, up from $62.7 million in the prior year's third quarter. Funds from operations (FFO) for the period totaled $28.2 million, or $0.81 per share, compared to $26.5 million, or $0.76 per share, in the year-earlier period.

For the first nine months of 2007, KRC reported net income available for common stockholders of $38.6 million, or $1.19 per share, compared to $63.1 million, or $2.03 per share, in the first nine months of 2006. Revenues from continuing operations in the nine-month period totaled $196.2 million, up from $187.3 million in the same period of 2006. FFO in the first nine months of 2007 totaled $80.9 million, or $2.33 per share, compared to $90.9 million, or $2.69 per share, in first nine months of 2006.

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

"Solid demand and restrained supply characterized market conditions for our commercial real estate portfolio last quarter," said John B. Kilroy, Jr., president and chief executive officer of KRC. "In our development program, we delivered more than 780,000 square feet of new office space in two projects during the quarter, with both projects 100% leased and occupied at quarter-end," he said.

KRC currently has three buildings under construction, all located in coastal submarkets of central San Diego County. These three buildings total approximately 344,000 rentable square feet and are 42% pre-leased. In the aggregate, they represent a total estimated investment of approximately $137 million, of which $81 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 $26 million, of which $16 million has been spent to date. They are 49% leased.

Updated earnings guidance for 2007 will be discussed by KRC management during the company's October 23, 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 telephone can access the conference call at 888-679-8033, reservation #84724380. A replay of the conference call will be available via phone through November 9, 2007 at 888-286-8010, reservation #12016258, 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 556,000 square feet in Los Angeles and San Diego counties. At September 30, 2007, the company owned 8.6 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      Nine        Nine
                             Months    Months    Months      Months
                             Ended     Ended      Ended       Ended
                           September September  September   September
                              30,       30,        30,         30,
                             2007      2006       2007        2006
                           --------- --------- ----------- -----------

Revenues from continuing
 operations                  $67,639  $ 62,661 $ 196,249   $ 187,292

Revenues including
 discontinued operations     $67,921  $ 63,058 $ 196,629   $ 199,988

Net income available for
 common stockholders (1)     $ 9,028  $ 31,574 $  38,601   $  63,073

Weighted average common
 shares outstanding - basic   32,373    32,200    32,364      30,906
Weighted average common
 shares outstanding -
 diluted                      32,502    32,324    32,491      31,044

Net income per share of
 common stock - basic        $  0.28  $   0.98 $    1.19   $    2.04
Net income per share of
 common stock - diluted      $  0.28  $   0.98 $    1.19   $    2.03

Funds From Operations (2),
 (3)                         $28,212  $ 26,462 $  80,911   $  90,874

Weighted average common
 shares/units outstanding -
 basic (4)                    34,621    34,570    34,614      33,597
Weighted average common
 shares/units outstanding -
 diluted (4)                  34,749    34,694    34,740      33,735

Funds From Operations per
 common share/unit - basic
 (4)                         $  0.81  $   0.77 $    2.34   $    2.70
Funds From Operations per
 common share/unit -
 diluted (4)                 $  0.81  $   0.76 $    2.33   $    2.69

Common shares outstanding at end of period        32,707      32,389
Common partnership units outstanding at end of
 period                                            2,248       2,329
                                               ----------- -----------
Total common shares and units outstanding at
 end of period                                    34,955      34,718



(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.
                                 September 30, 2007 September 30, 2006
                                 ------------------ ------------------
Stabilized portfolio occupancy
 rates:
  Office                                      93.4%              96.2%
  Industrial                                  91.0%              96.1%
                                 ------------------ ------------------
    Weighted average total                    92.6%              96.2%

  Los Angeles                                 96.2%              93.4%
  Orange County                               91.1%              95.6%
  San Diego                                   91.4%              99.7%
  Other                                       93.2%              92.6%
                                 ------------------ ------------------
    Weighted average total                    92.6%              96.2%

Total square feet of stabilized
 properties owned at end of
 period:
  Office                                      8,620              7,823
  Industrial                                  3,870              4,179
                                 ------------------ ------------------
    Total                                    12,490             12,002
        KILROY REALTY CORPORATION CONSOLIDATED BALANCE SHEETS
----------------------------------------------------------------------
                      (unaudited, in thousands)

                                            September 30, December 31,
                                                2007          2006
                                            ------------- ------------

ASSETS
--------------------------------------------
REAL ESTATE ASSETS:
  Land and improvements                         $312,057     $293,059
  Buildings and improvements                   1,730,833    1,484,051
  Undeveloped land and construction in
   progress                                      250,028      263,651
                                            ------------- ------------
    Total real estate held for investment      2,292,918    2,040,761
  Accumulated depreciation and amortization     (488,050)    (443,807)
                                            ------------- ------------
    Total real estate held for investment,
     net                                       1,804,868    1,596,954
  Properties held for sale, net                                 4,512
                                            ------------- ------------
    Total real estate assets, net              1,804,868    1,601,466

Cash and cash equivalents                          3,655       11,948
Restricted cash                                    1,362          494
Funds held at qualified intermediary for
 Section 1031 exchange                                         43,794
Marketable securities                                455
Current receivables, net                           4,231        5,890
Deferred rent receivables, net                    66,073       61,929
Notes receivable                                  11,002       11,096
Deferred leasing costs and acquisition
 related intangibles, net                         56,629       49,019
Deferred financing costs, net                      9,144        5,100
Prepaid expenses and other assets, net             6,331        8,616
                                            ------------- ------------

    TOTAL ASSETS                              $1,963,750   $1,799,352
                                            ============= ============

LIABILITIES & STOCKHOLDERS' EQUITY
--------------------------------------------
LIABILITIES:
  Secured debt                                  $398,283     $459,198
  Exchangeable senior notes, net                 455,860
  Unsecured senior notes                         144,000      144,000
  Unsecured line of credit                        52,000      276,000
  Accounts payable, accrued expenses and
   other liabilities                              67,356       67,729
  Accrued distributions                           20,610       19,610
  Deferred revenue and acquisition related
   liabilities                                    56,638       25,353
  Rents received in advance and tenant
   security deposits                              17,862       19,900
                                            ------------- ------------
    Total liabilities                          1,212,609    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       35,968       39,628
                                            ------------- ------------
    Total minority interests                     109,606      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                     654,569      671,484
  Distributions in excess of earnings           (134,943)    (119,094)
                                            ------------- ------------
    Total stockholders' equity                   641,535      674,296
                                            ------------- ------------

    TOTAL LIABILITIES & STOCKHOLDERS' EQUITY  $1,963,750   $1,799,352
                                            ============= ============
   KILROY REALTY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
----------------------------------------------------------------------
           (unaudited, in thousands, except per share data)

                                 Three     Three     Nine      Nine
                                Months    Months    Months    Months
                                 Ended     Ended     Ended     Ended
                               September September September September
                                  30,       30,       30,       30,
                                 2007      2006      2007      2006
                               ---------------------------------------

REVENUES:
 Rental income                  $60,560   $56,264  $173,329  $168,036
 Tenant reimbursements            6,945     5,876    19,729    17,603
 Other property income              134       521     3,191     1,653
                               --------- --------- --------- ---------
  Total revenues                 67,639    62,661   196,249   187,292
                               --------- --------- --------- ---------

EXPENSES:
 Property expenses               12,285    11,344    34,582    32,112
 Real estate taxes                5,374     4,728    14,973    14,158
 Provision for bad debts           (111)       56      (310)      626
 Ground leases                      511       514     1,529     1,507
 General and administrative
  expenses                        8,719     5,673    27,227    15,322
 Interest expense                 9,009    10,312    26,737    33,491
 Depreciation and amortization   18,771    17,764    53,753    52,808
                               --------- --------- --------- ---------
     Total expenses              54,558    50,391   158,491   150,024
                               --------- --------- --------- ---------

OTHER INCOME AND EXPENSE:
 Interest and other investment
  income                            305       359     1,295       841
 Net settlement receipts on
  interest rate swaps                         299                 747
 Loss on derivative instruments              (324)               (580)
                               --------- --------- --------- ---------
  Total other income                305       334     1,295     1,008
                               --------- --------- --------- ---------

Income from continuing
 operations before minority
 interests                       13,386    12,604    39,053    38,276

Minority interests:
 Distributions on Cumulative
  Redeemable Preferred units     (1,397)   (1,397)   (4,191)   (4,191)
 Minority interest in earnings
  of Operating Partnership
  attributable to continuing
  operations                       (620)     (593)   (1,807)   (2,148)
                               --------- --------- --------- ---------
  Total minority interests       (2,017)   (1,990)   (5,998)   (6,339)
                               --------- --------- --------- ---------

Income from continuing
 operations                      11,369    10,614    33,055    31,937

Discontinued operations:
 Revenues from discontinued
  operations                        282       397       380    12,696
 Expenses from discontinued
  operations                       (217)     (719)     (236)   (2,286)
 Net gain on dispositions of
  discontinued operations                  25,603    13,474    31,259
 Minority interest in earnings
  of Operating Partnership
  attributable to discontinued
  operations                         (4)   (1,919)     (866)   (3,327)
                               --------- --------- --------- ---------
  Total income from
   discontinued operations           61    23,362    12,752    38,342
                               --------- --------- --------- ---------

Net income                       11,430    33,976    45,807    70,279

Preferred dividends              (2,402)   (2,402)   (7,206)   (7,206)
                               --------- --------- --------- ---------

Net income available for common
 stockholders                    $9,028   $31,574   $38,601   $63,073
                               ========= ========= ========= =========

Weighted average shares
 outstanding - basic             32,373    32,200    32,364    30,906
Weighted average shares
 outstanding - diluted           32,502    32,324    32,491    31,044

Net income per common share -
 basic                            $0.28     $0.98     $1.19     $2.04
                               ========= ========= ========= =========
Net income per common share -
 diluted                          $0.28     $0.98     $1.19     $2.03
                               ========= ========= ========= =========
           KILROY REALTY CORPORATION FUNDS FROM OPERATIONS
----------------------------------------------------------------------
           (unaudited, in thousands, except per share data)

                                Three     Three      Nine      Nine
                                 Months    Months    Months    Months
                                 Ended     Ended     Ended     Ended
                               September September September September
                                  30,       30,       30,       30,
                                 2007      2006      2007      2006
                               --------- --------- --------- ---------

Net income available for
 common stockholders             $ 9,028 $ 31,574  $ 38,601  $ 63,073

  Adjustments:
    Minority interest in
     earnings of Operating
     Partnership                     624    2,512     2,673     5,475
    Depreciation and
     amortization of real
     estate assets                18,560   17,979    53,111    53,585
    Net gain on dispositions
     of discontinued
     operations                           (25,603)  (13,474)  (31,259)
                               --------- --------- --------- ---------
Funds From Operations (1), (2)   $28,212 $ 26,462  $ 80,911  $ 90,874
                               ========= ========= ========= =========

Weighted average common
 shares/units outstanding -
 basic                            34,621   34,570    34,614    33,597
Weighted average common
 shares/units outstanding -
 diluted                          34,749   34,694    34,740    33,735

Funds From Operations per
 common share/unit - basic       $  0.81 $   0.77  $   2.34  $   2.70
                               ========= ========= ========= =========
Funds From Operations per
 common share/unit - diluted     $  0.81 $   0.76  $   2.33  $   2.69
                               ========= ========= ========= =========


(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