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Kilroy Realty Corporation Reports First Quarter Financial Results

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LOS ANGELES--(BUSINESS WIRE)--April 21, 2008--Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its first quarter ended March 31, 2008 with net income available for common stockholders of $9.9 million, or $0.30 per share, compared to $16.5 million, or $0.51 per share, in the first quarter of 2007. First quarter 2007 net income included an $8.6 million gain related to property dispositions. Revenues from continuing operations in the first quarter totaled $70.8 million, up from $61.4 million in the prior year's first quarter. Funds from operations (FFO) for the period totaled $30.2 million, or $0.87 per share, compared to $26.0 million, or $0.75 per share, in the year-earlier period.

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

"KRC had a solid first quarter, ending the period with stabilized occupancy just below 95%," said John B. Kilroy, Jr., the company's president and chief executive officer. "Given the economic uncertainty as we head deeper into 2008, we remain focused on leasing, delivering our under-construction properties, and maintaining a strong balance sheet."

KRC's current development program encompasses four new office buildings in high-growth submarkets of San Diego County totaling approximately 400,000 square feet of rentable space. The four projects represent a total estimated investment of approximately $159 million, of which $117 million has been spent to date. They are 73% leased.

The company also has two redevelopment projects underway totaling just under 211,000 square feet of space. These two projects represent a total estimated incremental investment of approximately $27 million and are 49% leased.

Updated earnings guidance for 2008 will be discussed by KRC management during the company's April 22, 2008 earnings 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) 679-8037, reservation #37816935. A replay of the conference call will be available via phone through May 6, 2008 at (888) 286-8010, reservation #17724705, 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 over 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 March 31, 2008, 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 Months   Three Months
                                             Ended          Ended
                                         March 31, 2008 March 31, 2007
                                         -------------- --------------

Revenues from continuing operations            $70,802        $61,433

Revenues including discontinued
 operations                                    $70,802        $64,077

Net income available for common
 stockholders (1)                              $ 9,864        $16,478

Weighted average common shares
 outstanding - basic                            32,457         32,349
Weighted average common shares
 outstanding - diluted                          32,555         32,485

Net income per share of common stock -
 basic                                         $  0.30        $  0.51
Net income per share of common stock -
 diluted                                       $  0.30        $  0.51

Funds From Operations (2), (3)                 $30,199        $26,021

Weighted average common shares/units
 outstanding - basic (4)                        34,646         34,600
Weighted average common shares/units
 outstanding - diluted (4)                      34,744         34,737

Funds From Operations per common
 share/unit - basic (4)                        $  0.87        $  0.75
Funds From Operations per common
 share/unit - diluted (4)                      $  0.87        $  0.75

Common shares outstanding at end of
 period                                         32,732         32,698
Common partnership units outstanding at
 end of period                                   2,189          2,248
                                         -------------- --------------
   Total common shares and units
    outstanding at end of period                34,921         34,946


                                         March 31, 2008 March 31, 2007
                                         -------------- --------------
Stabilized portfolio occupancy rates:
   Office                                         94.8%          95.5%
   Industrial                                     94.8%          91.0%
                                         -------------- --------------
   Weighted average total                         94.8%          94.0%

   Los Angeles                                    96.5%          93.8%
   Orange County                                  94.4%          91.2%
   San Diego                                      93.7%          98.2%
   Other                                          99.6%          89.7%
                                         -------------- --------------
    Weighted average total                        94.8%          94.0%

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
----------------------------------------------------------------------
                            (in thousands)



                                              March 31,   December 31,
                                                 2008         2007
                                             ------------ ------------
                                             (unaudited)   (audited)

ASSETS
--------------------------------------------
REAL ESTATE ASSETS:
  Land and improvements                       $  324,779   $  324,779
  Buildings and improvements                   1,733,794    1,719,700
  Undeveloped land and construction in
   progress                                      347,699      324,077
                                             ------------ ------------
   Total real estate held for investment       2,406,272    2,368,556
  Accumulated depreciation and amortization     (480,642)    (463,932)
                                             ------------ ------------
   Total real estate assets, net               1,925,630    1,904,624

Cash and cash equivalents                     $    4,881   $   11,732
Restricted cash                                       11          546
Marketable securities                              2,238          707
Current receivables, net                           4,724        4,891
Deferred rent receivables, net                    68,423       67,283
Notes receivable                                  10,938       10,970
Deferred leasing costs and acquisition
 related intangibles, net                         53,335       54,418
Deferred financing costs, net                      7,946        8,492
Prepaid expenses and other assets, net             7,783        5,057
                                             ------------ ------------

   TOTAL ASSETS                               $2,085,909   $2,068,720
                                             ============ ============



LIABILITIES & STOCKHOLDERS' EQUITY
--------------------------------------------
LIABILITIES:
  Secured debt                                $  394,983   $  395,912
  Exchangeable senior notes, net                 456,320      456,090
  Unsecured senior notes                         144,000      144,000
  Unsecured line of credit                       137,000      111,000
  Accounts payable, accrued expenses and
   other liabilities                              49,295       58,249
  Accrued distributions                           21,464       20,610
  Deferred revenue and acquisition related
   liabilities                                    72,573       59,187
  Rents received in advance and tenant
   security deposits                              20,699       18,433
                                             ------------ ------------
   Total liabilities                           1,296,334    1,263,481
                                             ------------ ------------

MINORITY INTERESTS:
  7.45% Series A Cumulative Redeemable
  Preferred units of the Operating
   Partnership                                    73,638       73,638
  Common units of the Operating Partnership       37,563       38,309
                                             ------------ ------------
   Total minority interests                      111,201      111,947
                                             ------------ ------------


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          328
  Additional paid-in capital                     653,101      658,894
  Distributions in excess of earnings            (96,636)     (87,512)
                                             ------------ ------------
   Total stockholders' equity                    678,374      693,292
                                             ------------ ------------

   TOTAL LIABILITIES & STOCKHOLDERS' EQUITY   $2,085,909   $2,068,720
                                             ============ ============

   KILROY REALTY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
----------------------------------------------------------------------
           (unaudited, in thousands, except per share data)

                                          Three Months   Three Months
                                             Ended          Ended
                                         March 31, 2008 March 31, 2007
                                         -------------- --------------

REVENUES:
  Rental income                                $62,305        $54,433
  Tenant reimbursements                          8,193          5,896
  Other property income                            304          1,104
                                         -------------- --------------
    Total revenues                              70,802         61,433
                                         -------------- --------------

EXPENSES:
  Property expenses                             11,488          9,966
  Real estate taxes                              5,479          4,553
  Provision for bad debts                          455           (172)
  Ground leases                                    395            403
  General and administrative expenses            9,236          9,048
  Interest expense                               9,713          9,656
  Depreciation and amortization                 19,866         16,845
                                         -------------- --------------
    Total expenses                              56,632         50,299
                                         -------------- --------------

OTHER INCOME:
  Interest and other investment income             157            619
                                         -------------- --------------

Income from continuing operations before
 minority interests                             14,327         11,753

Minority interests:
  Distributions on Cumulative Redeemable
   Preferred units                              (1,397)        (1,397)
  Minority interest in earnings of
   Operating Partnership attributable to
   continuing operations                          (664)          (513)
                                         -------------- --------------
    Total minority interests                    (2,061)        (1,910)
                                         -------------- --------------

Income from continuing operations               12,266          9,843

Discontinued operations:
  Revenues from discontinued operations                         2,644
  Expenses from discontinued operations                        (1,603)
  Net gain on dispositions of
   discontinued operations                                      8,626
  Minority interest in earnings of
   Operating Partnership attributable to
   discontinued operations                                       (630)
                                         -------------- --------------
    Total income from discontinued
     operations                                      -          9,037
                                         -------------- --------------

Net income                                      12,266         18,880

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

Net income available for common
 stockholders                                  $ 9,864        $16,478
                                         ============== ==============

Weighted average shares outstanding -
 basic                                          32,457         32,349
Weighted average shares outstanding -
 diluted                                        32,555         32,485

Net income per common share - basic            $  0.30        $  0.51
                                         ============== ==============
Net income per common share - diluted          $  0.30        $  0.51
                                         ============== ==============

           KILROY REALTY CORPORATION FUNDS FROM OPERATIONS
----------------------------------------------------------------------
           (unaudited, in thousands, except per share data)

                                          Three Months   Three Months
                                             Ended          Ended
                                         March 31, 2008 March 31, 2007
                                         -------------- --------------

Net income available for common
 stockholders                                   $ 9,864       $16,478

  Adjustments:
    Minority interest in earnings of
     Operating Partnership                          664         1,143
    Depreciation and amortization of
     real estate assets                          19,671        17,026
    Net gain on dispositions of
     discontinued operations                                   (8,626)
                                         -------------- --------------
Funds From Operations (1), (2)                  $30,199       $26,021
                                         ============== ==============

Weighted average common shares/units
 outstanding - basic                             34,646        34,600
Weighted average common shares/units
 outstanding - diluted                           34,744        34,737

Funds From Operations per common
 share/unit - basic                             $  0.87       $  0.75
                                         ============== ==============
Funds From Operations per common
 share/unit - diluted                           $  0.87       $  0.75
                                         ============== ==============


(1) The Company calculates FFO in accordance with the 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, 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.

Management believes that FFO is a useful supplemental measure of the
 Company's 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, the Company's 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 to be insufficient by themselves. Because FFO excludes
 depreciation and amortization of real estate assets, management
 believes that FFO along with the required GAAP presentations provides
 a more complete measurement of the Company's performance relative to
 its 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 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 and could materially impact the Company's results from
 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