Kilroy

Where Innovation Works

Press Room Release

Kilroy Realty Corporation Reports Second Quarter Financial Results

Printer Friendly Version View printer-friendly version
<< Back

LOS ANGELES, Aug 02, 2010 (BUSINESS WIRE) --

Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its second quarter ended June 30, 2010 with a net loss available to common stockholders of $1.8 million, or $0.04 per share, compared to net income available to common stockholders of $9.1 million, or $0.25 per share, in the second quarter of 2009. Revenues from continuing operations in the second quarter totaled $72.4 million, up from $71.1 million in the prior year's second quarter. Funds from operations (FFO) for the period totaled $21.7 million, or $0.41 per share, compared to $30.3 million, or $0.79 per share, in the year-earlier period.

For the first six months of 2010, KRC reported net income available to common stockholders of $3.1 million, or $0.05 per share, compared to $16.7 million, or $0.47 per share, in the first half of 2009. Revenues from continuing operations in the six-month period totaled $139.2 million, compared to $143.6 million in the same period of 2009. FFO in the first half of 2010 totaled $47.5 million, or $0.96 per share, compared to $59.3 million, or $1.61 per share, in the first half of 2009.

Results for the second quarter and six months ended June 30, 2010 included a one-time charge of $4.6 million, or $0.09 per share, on the early extinguishment of debt related to the company's tender offer at par for $150.0 million of its 3.250% exchangeable senior notes, due 2012. The tender offer closed on June 30, 2010. Net income amounts in the second quarter and six months ended June 30, 2009 included a $2.5 million gain from a property disposition. All per share amounts in this report are presented on a diluted basis.

KRC also reported that during the second quarter the company closed on four separate office property acquisitions totaling approximately 1.3 million square feet and $411.4 million.

On May 26, 2010, the company closed on the acquisition of 303 Second Street, a 732,000 square foot office project in the South Financial District of San Francisco for approximately $233.3 million. The project was 89.7% occupied at June 30, 2010.

On June 18, 2010, the company purchased a 99,000 square-foot office building, with entitlement rights for additional potential development, for approximately $22.3 million. The building and land site are located in the immediate vicinity of Children's Hospital of Orange County in the city of Orange. The building is currently 100.0% occupied by a single tenant.

On June 24, 2010, the company purchased 2211 Michelson Drive, a premier, LEED certified silver, office property located near the John Wayne Airport in Irvine, California, for a total price of approximately $103.2 million. Completed in 2007, the building encompasses approximately 272,000 square feet and was 95.9% occupied as of June 30, 2010.

On June 30, 2010, the company closed on the acquisition of three office buildings totaling 191,000 square feet in the Mission Valley submarket of San Diego for approximately $52.6 million. The company assumed the existing secured debt on the property totaling $52 million. The buildings were 80.9% occupied at June 30, 2010.

The company funded the acquisitions with the proceeds of recently completed public equity and private debt offerings, as well as with borrowings under its existing unsecured revolving credit facility. The company incurred acquisition related expenses of approximately $1.0 million, or $0.02 per share, in the second quarter of 2010.

On May 24, 2010, the company completed a $250 million senior unsecured note offering. The notes pay interest semi-annually at a rate of 6.625% per annum and mature on June 1, 2020. The company incurred approximately $0.9 million, or $0.02 per share, of higher interest expense related to the timing difference between receiving the proceeds from the note offering and purchasing the company's exchangeable notes pursuant to the tender offer.

"While our earnings were negatively impacted by our recent tender offer and related debt financing, the performance of our core portfolio continues to improve with our stabilized occupancy up to 85.1% from 82.8% last quarter," said John B. Kilroy, Jr., KRC's president and chief executive officer. "We continue to see good leasing momentum in a mixed real estate market and believe our recent acquisitions will generate long-term value to the company."

KRC management will discuss updated earnings guidance for fiscal 2010 during the company's August 3, 2010 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)713-4214, reservation #65313202. A replay of the conference call will be available via phone through August 17, 2010 at (888) 286-8010, reservation # 62635217, 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 real estate investment trust active in the office and industrial property sectors of California. For over 60 years, the company has owned, developed, acquired and managed real estate assets primarily in the coastal regions of Los Angeles, Orange County, San Diego and the San Francisco Bay Area. At June 30, 2010, the company owned 10.1 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 Six Months Six Months
Ended Ended Ended Ended
June 30, 2010 June 30, 2009 June 30, 2010 June 30, 2009
Revenues $ 72,416 $ 71,050 $ 139,235 $ 143,561
Net (loss) income available to common stockholders $ (1,783 ) $ 9,117 $ 3,103 $ 16,692
Weighted average common shares outstanding - basic 50,297 35,965 46,674 34,405
Weighted average common shares outstanding - diluted 50,297 35,965 46,678 34,431
Net (loss) income available to common stockholders per share - basic $ (0.04 ) $ 0.25 $ 0.05 $ 0.48
Net (loss) income available to common stockholders per share - diluted $ (0.04 ) $ 0.25 $ 0.05 $ 0.47
Funds From Operations (1), (2) $ 21,658 $ 30,331 $ 47,464 $ 59,290
Weighted average common shares/units outstanding - basic (3) 52,884 38,495 49,240 36,875
Weighted average common shares/units outstanding - diluted (3) 52,889 38,495 49,243 36,902
Funds From Operations per common share/unit - basic (3) $ 0.41 $ 0.79 $ 0.96 $ 1.61
Funds From Operations per common share/unit - diluted (3) $ 0.41 $ 0.79 $ 0.96 $ 1.61
Common shares outstanding at end of period 52,296 43,149
Common partnership units outstanding at end of period 1,723 1,723
Total common shares and units outstanding at end of period 54,019 44,872
June 30, 2010 June 30, 2009
Stabilized portfolio occupancy rates:
Office 85.7 % 83.5 %
Industrial 83.3 % 90.2 %
Weighted average total 85.1 % 85.5 %
Los Angeles and Ventura Counties 93.3 % 89.9 %
San Diego 81.5 % 80.9 %
Orange County 81.7 % 87.6 %
San Francisco 89.7 % -
Weighted average total 85.1 % 85.5 %
Total square feet of stabilized properties owned at end of period:
Office 10,089 8,651
Industrial 3,654 3,655
Total 13,743 12,306
(1)

Reconciliation of Net Income Available to Common Stockholders to Funds From Operations and management statement on Funds From Operations are included after the Consolidated Statements of Operations.

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

Calculated based on weighted average shares outstanding including participating share-based awards and assuming the exchange of all common limited partnership units outstanding.

KILROY REALTY CORPORATION CONSOLIDATED BALANCE SHEETS

(in thousands)
June 30, December 31,
2010 2009

ASSETS

REAL ESTATE ASSETS:
Land and improvements $ 434,792 $ 335,932
Buildings and improvements 2,247,549 1,920,543
Undeveloped land and construction in progress 271,268 263,608
Total real estate held for investment 2,953,609 2,520,083
Accumulated depreciation and amortization (644,246 ) (605,976 )
Total real estate assets, net 2,309,363 1,914,107
Cash and cash equivalents 29,428 9,883
Restricted cash 3,485 2,059
Marketable securities 4,087 3,452
Current receivables, net 3,739 3,236
Deferred rent receivables, net 79,813 74,392
Note receivable 10,603 10,679
Deferred leasing costs and acquisition-related intangible assets, net 98,466 51,832
Deferred financing costs, net 10,078 8,334
Prepaid expenses and other assets, net 7,447 6,307
TOTAL ASSETS $ 2,556,509 $ 2,084,281

LIABILITIES, NONCONTROLLING INTEREST AND EQUITY

LIABILITIES:
Secured debt $ 316,570 $ 294,574
Exchangeable senior notes, net 296,660 436,442
Unsecured senior notes, net 391,888 144,000
Unsecured line of credit 150,000 97,000
Accounts payable, accrued expenses and other liabilities 57,792 52,533
Accrued distributions 20,395 17,136
Deferred revenue and acquisition-related intangible liabilities, net 71,651 66,890
Rents received in advance and tenant security deposits 25,849 18,230
Total liabilities 1,330,805 1,126,805
NONCONTROLLING INTEREST:

7.45% Series A cumulative redeemable preferred units of the Operating Partnership

73,638 73,638
EQUITY:
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 523 431
Additional paid-in capital 1,208,716 913,657
Distributions in excess of earnings (211,555 ) (180,722 )
Total stockholders' equity 1,119,266 854,948
Noncontrolling Interest
Common units of the Operating Partnership 32,800 28,890
Total equity 1,152,066 883,838
TOTAL LIABILITIES, NONCONTROLLING INTEREST AND EQUITY $ 2,556,509 $ 2,084,281

KILROY REALTY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share data)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2010 June 30, 2009 June 30, 2010 June 30, 2009
REVENUES:
Rental income $ 65,038 $ 62,598 $ 125,694 $ 125,662
Tenant reimbursements 6,483 7,403 12,201 15,055
Other property income 895 1,049 1,340 2,844
Total revenues 72,416 71,050 139,235 143,561
EXPENSES:
Property expenses 14,543 12,582 26,563 24,912
Real estate taxes 6,482 6,143 12,518 12,272
Provision for bad debts (12 ) (1,272 ) 14 152
Ground leases 370 432 312 829
General and administrative expenses 6,728 7,308 13,823 14,361
Acquisition-related expenses 957 - 1,270 -
Depreciation and amortization 23,722 23,470 44,660 44,640
Total expenses 52,790 48,663 99,160 97,166
OTHER (EXPENSES) INCOME:
Interest income and other net investment (losses) gains (18 ) 503 366 573
Interest expense (13,088 ) (11,897 ) (25,044 ) (24,115 )
Loss on early extinguishment of debt (4,564 ) - (4,564 ) -
Total other (expenses) income (17,670 ) (11,394 ) (29,242 ) (23,542 )
INCOME FROM CONTINUING OPERATIONS 1,956 10,993 10,833 22,853
DISCONTINUED OPERATIONS
Loss from discontinued operations - (135 ) - (224 )
Net gain on dispositions of discontinued operations - 2,485 - 2,485
Total income from discontinued operations - 2,350 - 2,261
NET INCOME 1,956 13,343 10,833 25,114

Net loss (income) attributable to noncontrolling common units of the Operating Partnership

60 (427 ) (132 ) (824 )
NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION 2,016 12,916 10,701 24,290
PREFERRED DISTRIBUTIONS AND DIVIDENDS:

Distributions on noncontrolling cumulative redeemable preferred units of the Operating Partnership

(1,397 ) (1,397 ) (2,794 ) (2,794 )
Preferred dividends (2,402 ) (2,402 ) (4,804 ) (4,804 )
Total preferred distributions and dividends (3,799 ) (3,799 ) (7,598 ) (7,598 )
NET (LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS $ (1,783 ) $ 9,117 $ 3,103 $ 16,692
Weighted average common shares outstanding - basic 50,297 35,965 46,674 34,405
Weighted average common shares outstanding - diluted 50,297 35,965 46,678 34,431
Net (loss) income available to common stockholders per share - basic $ (0.04 ) $ 0.25 $ 0.05 $ 0.48
Net (loss) income available to common stockholders per share - diluted $ (0.04 ) $ 0.25 $ 0.05 $ 0.47

KILROY REALTY CORPORATION FUNDS FROM OPERATIONS

(unaudited, in thousands, except per share data)
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, 2010 June 30, 2009 June 30, 2010 June 30, 2009
Net (loss) income available to common stockholders $ (1,783 ) $ 9,117 $ 3,103 $ 16,692
Adjustments:

Net (loss) income attributable to noncontrolling common units of the Operating Partnership

(60 ) 427 132 824
Depreciation and amortization of real estate assets 23,501 23,272 44,229 44,259
Net gain on dispositions of discontinued operations - (2,485 ) - (2,485 )
Funds From Operations (1) $ 21,658 $ 30,331 $ 47,464 $ 59,290
Weighted average common shares/units outstanding - basic 52,884 38,495 49,240 36,875
Weighted average common shares/units outstanding - diluted 52,889 38,495 49,243 36,902
Funds From Operations per common share/unit - basic (2) $ 0.41 $ 0.79 $ 0.96 $ 1.61
Funds From Operations per common share/unit - diluted (2) $ 0.41 $ 0.79 $ 0.96 $ 1.61
(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 alone to be insufficient. 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
Tyler H. Rose
Executive Vice President
and Chief Financial Officer
310-481-8484
or
Michelle Ngo
Vice President
and Treasurer
310-481-8581