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Kilroy Realty Corporation Reports Fourth Quarter Financial Results

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LOS ANGELES, Jan 26, 2009 (BUSINESS WIRE) -- Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its fourth quarter ended December 31, 2008 with net income available for common stockholders of $5.9 million, or $0.18 per share, compared to $65.6 million, or $2.01 per share, in the fourth quarter of 2007. The company's 2007 fourth quarter net income includes net gains of approximately $61 million on the sale of properties. Revenues from continuing operations in the fourth quarter totaled $72.4 million, up from $69.7 million in the prior year's fourth quarter. Funds from operations (FFO) for the period totaled $27.2 million, or $0.78 per share, compared to $29.7 million, or $0.85 per share, in the year-earlier period.

For its fiscal year ended December 31, 2008, KRC reported net income available to common stockholders of $34.5 million, or $1.06 per share, compared to $104.2 million, or $3.20 per share, in fiscal year 2007. The company's 2007 full year net income includes net gains of approximately $75 million on the sale of properties. Revenues from continuing operations in 2008 totaled $290.0 million, up from $258.5 million in 2007. FFO for the year totaled $119.0 million, or $3.42 per share, compared to $110.6 million, or $3.18 per share, in 2007. The company's 2008 full year net income and FFO include approximately $7.2 million of one-time fees and non-cash rental revenues related to two lease terminations, and the company's 2007 full year results include approximately $3.5 million of one-time fees and non-cash rental revenues related to two lease terminations. All per-share amounts in this report are presented on a diluted basis.

"KRC delivered a solid performance in 2008, in particular achieving excellent leasing results despite an increasingly difficult economic environment," said John B. Kilroy, Jr., the company's president and chief executive officer. "This year, which promises to be even more challenging, our top priorities remain a strong balance sheet and an effective leasing program within our stabilized portfolio and our recently delivered development properties."

During 2008, KRC delivered just over 560,000 square feet of new and newly redeveloped office space to its stabilized portfolio. These six buildings, contained in five individual projects, represent an aggregate estimated investment of $193 million and are currently 75% leased.

The company also completed construction of its one remaining development project during the fourth quarter, a 51,000 square-foot medical office property located in the Sorrento Mesa submarket of coastal San Diego County. The property represents a total estimated investment of $24 million, of which $16 million has been spent to date, and is currently in lease-up.

KRC management will discuss earnings guidance for fiscal 2009 during the company's January 27, 2009 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) 679-8035, reservation #70011749. A replay of the conference call will be available via phone through February 10, 2009 at (888) 286-8010, reservation #64084481, 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. At December 31, 2008, the company owned 8.7 million rentable square feet of commercial office space and 3.7 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       Year               Year
                                                                Ended                     Ended              Ended              Ended
                                                                December 31, 2008         December 31, 2007  December 31, 2008  December 31, 2007
Revenues from continuing operations                             $           72,437        $      69,741      $     289,968      $     258,472
Revenues including discontinued operations                      $           72,437        $      72,155      $     290,167      $     268,784
Net income available for common stockholders (1)                $           5,892         $      65,612      $     34,513       $     104,214
Weighted average common shares outstanding - basic                          32,719               32,426            32,467             32,380
Weighted average common shares outstanding - diluted                        33,077               32,633            32,670             32,527
Net income per share of common stock - basic                    $           0.18          $      2.02        $     1.06         $     3.22
Net income per share of common stock - diluted                  $           0.18          $      2.01        $     1.06         $     3.20
Funds From Operations (2), (3)                                  $           27,182        $      29,672      $     118,952      $     110,584
Weighted average common shares/units outstanding - basic (4)                34,472               34,622            34,532             34,616
Weighted average common shares/units outstanding - diluted (4)              34,831               34,829            34,735             34,762
Funds From Operations per common share/unit - basic (4)         $           0.79          $      0.86        $     3.44         $     3.19
Funds From Operations per common share/unit - diluted (4)       $           0.78          $      0.85        $     3.42         $     3.18
Common shares outstanding at end of period                                                                         33,086             32,766
Common partnership units outstanding at end of period                                                              1,754              2,189
Total common shares and units outstanding at end of period                                                         34,840             34,955
                                                                                                             December 31, 2008  December 31, 2007
Stabilized portfolio occupancy rates:
Office                                                                                                             86.2    %          93.7    %
Industrial                                                                                                         96.3    %          94.7    %
Weighted average total                                                                                             89.2    %          94.0    %
Los Angeles                                                                                                        92.6    %          96.4    %
Orange County                                                                                                      94.1    %          94.8    %
San Diego                                                                                                          83.1    %          91.4    %
Other                                                                                                              94.2    %          99.6    %
Weighted average total                                                                                             89.2    %          94.0    %
Total square feet of stabilized properties owned at end of period:
Office                                                                                                             8,650              8,089
Industrial                                                                                                         3,719              3,870
Total                                                                                                              12,369             11,959
 (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 31,         December 31,
                                                                 2008                 2007
ASSETS
REAL ESTATE ASSETS:
Land and improvements                                            $    336,874         $    324,779
Buildings and improvements                                            1,888,274            1,719,700
Undeveloped land and construction in progress                         246,865              324,077
Total real estate held for investment                                 2,472,013            2,368,556
Accumulated depreciation and amortization                             (532,769  )          (463,932  )
Total real estate assets, net                                         1,939,244            1,904,624
Cash and cash equivalents                                        $    9,553           $    11,732
Restricted cash                                                       672                  546
Marketable securities                                                 1,888                707
Current receivables, net                                              5,753                4,891
Deferred rent receivables, net                                        67,144               67,283
Notes receivable                                                      10,824               10,970
Deferred leasing costs and acquisition related intangibles, net       53,539               54,418
Deferred financing costs, net                                         6,131                8,492
Prepaid expenses and other assets, net                                4,835                5,057
TOTAL ASSETS                                                     $    2,099,583       $    2,068,720
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES:
Secured debt                                                     $    316,456         $    395,912
Exchangeable senior notes, net                                        457,010              456,090
Unsecured senior notes                                                144,000              144,000
Unsecured line of credit                                              252,000              111,000
Accounts payable, accrued expenses and other liabilities              55,066               58,249
Accrued distributions                                                 21,421               20,610
Deferred revenue and acquisition related liabilities                  76,219               59,187
Rents received in advance and tenant security deposits                19,340               18,433
Total liabilities                                                     1,341,512            1,263,481
MINORITY INTERESTS:
7.45% Series A Cumulative Redeemable Preferred units of the           73,638               73,638
Operating Partnership
Common units of the Operating Partnership                             28,368               38,309
Total minority interests                                              102,006              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                                                          331                  328
Additional paid-in capital                                            663,471              658,894
Distributions in excess of earnings                                   (129,319  )          (87,512   )
Total stockholders' equity                                            656,065              693,292
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY                         $    2,099,583       $    2,068,720
KILROY REALTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
                                                             Three Months       Three Months       Year               Year
                                                             Ended              Ended              Ended              Ended
                                                             December 31, 2008  December 31, 2007  December 31, 2008  December 31, 2007
REVENUES:
Rental income                                                $     63,747       $     62,125       $     252,084      $     229,672
Tenant reimbursements                                              7,887              7,320              31,035             25,322
Other property income                                              803                296                6,849              3,478
Total revenues                                                     72,437             69,741             289,968            258,472
EXPENSES:
Property expenses                                                  12,690             11,255             48,875             43,306
Real estate taxes                                                  5,959              5,137              22,108             19,539
Provision for bad debts                                            383                783                4,051              473
Ground leases                                                      391                392                1,617              1,582
General and administrative expenses                                10,210             9,353              38,260             36,580
Interest expense                                                   11,478             10,765             40,366             37,502
Depreciation and amortization                                      21,212             20,259             83,275             72,815
Total expenses                                                     62,323             57,944             238,552            211,797
OTHER INCOME AND EXPENSE:
Interest and other investment income                               (285   )           311                (93     )          1,606
Total other income                                                 (285   )           311                (93     )          1,606
Income from continuing operations before minority interests        9,829              12,108             51,323             48,281
Minority interests:
Distributions on Cumulative Redeemable Preferred units             (1,397 )           (1,397 )           (5,588  )          (5,588  )
Minority interest in earnings of Operating Partnership             (266   )           (524   )           (2,148  )          (2,129  )
attributable to continuing operations
Total minority interests                                           (1,663 )           (1,921 )           (7,736  )          (7,717  )
Income from continuing operations                                  8,166              10,187             43,587             40,564
Discontinued operations:
Revenues from discontinued operations                              -                  2,414              199                10,312
Expenses from discontinued operations                              135                (1,648 )           135                (6,521  )
Net gain on dispositions of discontinued operations                -                  61,031             234                74,505
Minority interest in earnings of Operating Partnership             (7     )           (3,970 )           (34     )          (5,038  )
attributable to discontinued operations
Total income from discontinued operations                          128                57,827             534                73,258
Net income                                                         8,294              68,014             44,121             113,822
Preferred dividends                                                (2,402 )           (2,402 )           (9,608  )          (9,608  )
Net income available for common stockholders                 $     5,892        $     65,612       $     34,513       $     104,214
Weighted average shares outstanding - basic                        32,719             32,426             32,467             32,380
Weighted average shares outstanding - diluted                      33,077             32,633             32,670             32,527
Net income per common share - basic                          $     0.18         $     2.02         $     1.06         $     3.22
Net income per common share - diluted                        $     0.18         $     2.01         $     1.06         $     3.20
KILROY REALTY CORPORATION FUNDS
FROM OPERATIONS
(unaudited, in thousands, except per share data)
                                                            Three Months       Three Months       Year               Year
                                                            Ended              Ended              Ended              Ended
                                                            December 31, 2008  December 31, 2007  December 31, 2008  December 31, 2007
Net income available for common stockholders                $ 5,892            $ 65,612           $ 34,513           $ 104,214
Adjustments:
Minority interest in earnings of Operating Partnership      273                4,494              2,182              7,167
Depreciation and amortization of real estate assets         21,017             20,597             82,491             73,708
Net gain on dispositions of discontinued operations         -                  (61,031)           (234)              (74,505)
Funds From Operations (1), (2)                              $ 27,182           $ 29,672           $ 118,952          $ 110,584
Weighted average common shares/units outstanding - basic    34,472             34,622             34,532             34,616
Weighted average common shares/units outstanding - diluted  34,831             34,829             34,735             34,762
Funds From Operations per common share/unit - basic         $ 0.79             $ 0.86             $ 3.44             $ 3.19
Funds From Operations per common share/unit - diluted       $ 0.78             $ 0.85             $ 3.42             $ 3.18
(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 the company's 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 the company's 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.

SOURCE: Kilroy Realty Corporation

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