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Kilroy Realty Corporation Reports Fourth Quarter Financial Results

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LOS ANGELES--(BUSINESS WIRE)--Jan. 28, 2008--Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its fourth quarter ended December 31, 2007 with net income available for common stockholders of $65.6 million, or $2.01 per share, compared to $9.2 million, or $0.28 per share, in the fourth quarter of 2006. Revenues from continuing operations in the fourth quarter totaled $69.7 million, up from $61.5 million in the prior year's fourth quarter. Funds from operations (FFO) for the period totaled $29.7 million, or $0.85 per share, compared to $27.3 million, or $0.79 per share, in the year-earlier period.

For its fiscal year ended December 31, 2007, KRC reported net income available for common stockholders of $104.2 million, or $3.20 per share, compared to $72.3 million, or $2.30 per share, in fiscal year 2006. Revenues from continuing operations in 2007 totaled $258.5 million, up from $241.5 million in 2006. FFO for the year totaled $110.6 million, or $3.18 per share, compared to $118.2 million, or $3.48 per share, in 2006.

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

"KRC is well positioned in a changing environment," said John B. Kilroy, Jr., the company's president and chief executive officer. "We achieved solid 2007 results, ended the year 94% occupied, and continue to maintain a very strong balance sheet."

During the fourth quarter, KRC completed the sale of its 532,000 square-foot office campus located immediately adjacent to the Seattle-Tacoma International Airport for approximately $79.3 million, generating a book gain of approximately $61.0 million. The company also acquired a 23-acre development site currently entitled for approximately 500,000 square feet of office space for a purchase price of $88 million. The property, one of the last available development sites in the highly attractive Del Mar submarket of San Diego County, increased the company's future development pipeline to just over 116 acres representing future development potential of over two million square feet of space.

In its current development program, KRC delivered more than 780,000 square feet of new office space in two projects during 2007. Both projects are 100% leased and occupied. The company also commenced construction during the year on two additional development and redevelopment projects totaling approximately 155,000 square feet of space.

With these new projects, KRC's current development now encompasses four new office buildings totaling approximately 395,000 square feet. In the aggregate, the buildings represent a total estimated investment of approximately $161 million, of which $108 million has been spent to date. They are 37% preleased.

The company also has two redevelopment projects underway totaling just under 211,000 square feet of space and representing a total estimated incremental investment of approximately $26 million. They are 49% preleased.

Earnings guidance for 2008 will be discussed by KRC management during the company's January 29, 2008 conference call. The call will begin at 11:00 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) 680-0869, reservation #10068170. A replay of the conference call will be available via phone through February 12, 2008 at (888) 286-8010, reservation #33589186, 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 Los Angeles, Orange and San Diego counties. Kilroy Realty currently has an in-process development and redevelopment pipeline of approximately 600,000 square feet. At December 31, 2007, the company owned 8.1 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
                                  Months   Months    Year      Year
                                  Ended    Ended     Ended     Ended
                                 December December December  December
                                   31,      31,     31, 2007  31, 2006
                                   2007     2006
                                 -------- -------- --------- ---------

Revenues from continuing
 operations                      $ 69,741 $ 61,519 $258,472  $241,541

Revenues including discontinued
 operations                      $ 72,155 $ 64,339 $268,784  $264,329

Net income available for common
 stockholders (1)                $ 65,612 $  9,184 $104,214  $ 72,256

Weighted average common shares
 outstanding - basic               32,426   32,246   32,380    31,244
Weighted average common shares
 outstanding - diluted             32,633   32,416   32,527    31,390

Net income per share of common
 stock - basic                   $   2.02 $   0.28 $   3.22  $   2.31
Net income per share of common
 stock - diluted                 $   2.01 $   0.28 $   3.20  $   2.30

Funds From Operations (2), (3)   $ 29,672 $ 27,311 $110,584  $118,184

Weighted average common
 shares/units outstanding -
 basic (4)                         34,622   34,570   34,616    33,842
Weighted average common
 shares/units outstanding -
 diluted (4)                       34,829   34,740   34,762    33,988

Funds From Operations per common
 share/unit - basic (4)          $   0.86 $   0.79 $   3.19  $   3.49
Funds From Operations per common
 share/unit - diluted (4)        $   0.85 $   0.79 $   3.18  $   3.48

Common shares outstanding at end
 of period                                           32,766    32,399
Common partnership units
 outstanding at end of period                         2,189     2,319
                                                   --------- ---------
  Total common shares and units
   outstanding at end of period                      34,955    34,718


                                                   December  December
                                                    31, 2007  31, 2006
                                                   --------- ---------
Stabilized portfolio occupancy
 rates:
  Office                                               93.7%     95.8%
  Industrial                                           94.7%     95.8%
                                                   --------- ---------
  Weighted average total                               94.0%     95.8%

  Los Angeles                                          96.4%     93.2%
  Orange County                                        94.8%     95.7%
  San Diego                                            91.4%     98.6%
  Other                                                99.6%     92.8%
                                                   --------- ---------
    Weighted average total                             94.0%     95.8%

Total square feet of stabilized
 properties owned at end of
 period:
  Office                                              8,089     7,835
  Industrial                                          3,870     3,870
                                                   --------- ---------
    Total                                            11,959    11,705


(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)



                                                December    December
                                                   31,         31,
                                                  2007        2006
                                               ----------- -----------

ASSETS
----------------------------------------------
REAL ESTATE ASSETS:
  Land and improvements                        $  324,779  $  293,059
  Buildings and improvements                    1,719,700   1,484,051
  Undeveloped land and construction in
   progress                                       324,077     263,651
                                               ----------- -----------
    Total real estate held for investment       2,368,556   2,040,761
  Accumulated depreciation and amortization      (463,932)   (443,807)
                                               ----------- -----------
    Total real estate held for investment, net  1,904,624   1,596,954
  Properties held for sale, net                         -       4,512
                                               ----------- -----------
    Total real estate assets, net               1,904,624   1,601,466

Cash and cash equivalents                      $   11,732  $   11,948
Restricted cash                                       546         494
Funds held at qualified intermediary for
 Section 1031 exchange                                  -      43,794
Marketable securities                                 707           -
Current receivables, net                            4,891       5,890
Deferred rent receivables, net                     67,283      61,929
Notes receivable                                   10,970      11,096
Deferred leasing costs and acquisition related
 intangibles, net                                  54,418      49,019
Deferred financing costs, net                       8,492       5,100
Prepaid expenses and other assets, net              5,057       8,616
                                               ----------- -----------

    TOTAL ASSETS                               $2,068,720  $1,799,352
                                               =========== ===========



LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------------------
LIABILITIES:
  Secured debt                                 $  395,912  $  459,198
  Exchangeable senior notes, net                  456,090           -
  Unsecured senior notes                          144,000     144,000
  Unsecured line of credit                        111,000     276,000
  Accounts payable, accrued expenses and other
   liabilities                                     58,249      67,729
  Accrued distributions                            20,610      19,610
  Deferred revenue and acquisition related
   liabilities                                     59,187      25,353
  Rents received in advance and tenant
   security deposits                               18,433      19,900
                                               ----------- -----------
    Total liabilities                           1,263,481   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        38,309      39,628
                                               ----------- -----------
    Total minority interests                      111,947     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                                        328         324
  Additional paid-in capital                      658,894     671,484
  Distributions in excess of earnings             (87,512)   (119,094)
                                               ----------- -----------
    Total stockholders' equity                    693,292     674,296
                                               ----------- -----------

    TOTAL LIABILITIES & STOCKHOLDERS' EQUITY   $2,068,720  $1,799,352
                                               =========== ===========
   KILROY REALTY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
----------------------------------------------------------------------
           (unaudited, in thousands, except per share data)

                                  Three    Three
                                  Months   Months    Year      Year
                                  Ended    Ended     Ended     Ended
                                 December December December  December
                                   31,      31,     31, 2007  31, 2006
                                   2007     2006
                                 -------- -------- --------- ---------

REVENUES:
  Rental income                  $62,125  $54,523  $229,672  $216,745
  Tenant reimbursements            7,320    6,269    25,322    22,440
  Other property income              296      727     3,478     2,356
                                 -------- -------- --------- ---------
    Total revenues                69,741   61,519   258,472   241,541
                                 -------- -------- --------- ---------

EXPENSES:
  Property expenses               11,255   10,166    43,306    39,700
  Real estate taxes                5,137    4,526    19,539    18,149
  Provision for bad debts            783      118       473       744
  Ground leases                      392      396     1,582     1,583
  General and administrative
   expenses                        9,353    7,478    36,580    22,800
  Interest expense                10,765   10,050    37,502    43,541
  Depreciation and amortization   20,259   17,292    72,815    68,830
                                 -------- -------- --------- ---------
    Total expenses                57,944   50,026   211,797   195,347
                                 -------- -------- --------- ---------

OTHER INCOME AND EXPENSE:
  Interest and other investment
   income                            311      812     1,606     1,653
  Net settlement receipts on
   interest rate swaps                 -      244         -       991
  Loss on derivative instruments       -     (238)        -      (818)
                                 -------- -------- --------- ---------
    Total other income               311      818     1,606     1,826
                                 -------- -------- --------- ---------

Income from continuing
 operations before minority
 interests                        12,108   12,311    48,281    48,020

Minority interests:
  Distributions on Cumulative
   Redeemable Preferred units     (1,397)  (1,397)   (5,588)   (5,588)
  Minority interest in earnings
   of Operating Partnership
   attributable to continuing
   operations                       (524)    (571)   (2,129)   (2,514)
                                 -------- -------- --------- ---------
    Total minority interests      (1,921)  (1,968)   (7,717)   (8,102)
                                 -------- -------- --------- ---------

Income from continuing
 operations                       10,187   10,343    40,564    39,918

Discontinued operations:
  Revenues from discontinued
   operations                      2,414    2,820    10,312    22,788
  Expenses from discontinued
   operations                     (1,648)  (1,633)   (6,521)   (8,625)
  Net gain on dispositions of
   discontinued operations        61,031        -    74,505    31,259
  Minority interest in earnings
   of Operating Partnership
   attributable to discontinued
   operations                     (3,970)      56    (5,038)   (3,476)
                                 -------- -------- --------- ---------
    Total income from
     discontinued operations      57,827    1,243    73,258    41,946
                                 -------- -------- --------- ---------

Net income                        68,014   11,586   113,822    81,864

Preferred dividends               (2,402)  (2,402)   (9,608)   (9,608)
                                 -------- -------- --------- ---------

Net income available for common
 stockholders                    $65,612  $ 9,184  $104,214  $ 72,256
                                 ======== ======== ========= =========

Weighted average shares
 outstanding - basic              32,426   32,246    32,380    31,244
Weighted average shares
 outstanding - diluted            32,633   32,416    32,527    31,390

Net income per common share -
 basic                           $  2.02  $  0.28  $   3.22  $   2.31
                                 ======== ======== ========= =========
Net income per common share -
 diluted                         $  2.01  $  0.28  $   3.20  $   2.30
                                 ======== ======== ========= =========
           KILROY REALTY CORPORATION FUNDS FROM OPERATIONS
----------------------------------------------------------------------
           (unaudited, in thousands, except per share data)

                                 Three     Three
                                  Months   Months    Year      Year
                                  Ended    Ended     Ended     Ended
                                December  December December  December
                                 31, 2007   31,     31, 2007  31, 2006
                                            2006
                                --------- -------- --------- ---------

Net income available for common
 stockholders                   $ 65,612  $  9,184 $104,214  $ 72,256

  Adjustments:
    Minority interest in
     earnings of Operating
     Partnership                   4,494       515    7,167     5,990
    Depreciation and
     amortization of real
     estate assets                20,597    17,612   73,708    71,197
    Net gain on dispositions of
     discontinued operations     (61,031)        -  (74,505)  (31,259)
                                --------- -------- --------- ---------
Funds From Operations (1), (2)  $ 29,672  $ 27,311 $110,584  $118,184
                                ========= ======== ========= =========

Weighted average common
 shares/units outstanding -
 basic                            34,622    34,570   34,616    33,842
Weighted average common
 shares/units outstanding -
 diluted                          34,829    34,740   34,762    33,988

Funds From Operations per
 common share/unit - basic      $   0.86  $   0.79 $   3.19  $   3.49
                                ========= ======== ========= =========
Funds From Operations per
 common share/unit - diluted    $   0.85  $   0.79 $   3.18  $   3.48
                                ========= ======== ========= =========


(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