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Kilroy Realty Corporation Reports Fourth Quarter Financial Results

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Company Also Announces Closing of $146.1 Million Disposition

LOS ANGELES--(BUSINESS WIRE)--Jan. 30, 2012-- Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its fourth quarter ended December 31, 2011, with net income available to common stockholders of $39.9 million, or $0.68 per share, compared to $1.5 million, or $0.02 per share, in the fourth quarter of 2010. Revenues from continuing operations in the fourth quarter totaled $101.5 million, up from $79.3 million in the prior year's fourth quarter. Funds from operations (FFO) for the period totaled $40.5 million, or $0.66 per share, compared to $29.5 million, or $0.54 per share, in the year-earlier period.

For its fiscal year ended December 31, 2011, KRC reported net income available to common stockholders of $50.8 million, or $0.87 per share, compared to $4.5 million, or $0.07 per share, in fiscal year 2010. Revenues from continuing operations in 2011 totaled $367.1 million, up from $287.4 million in 2010. FFO for the year totaled $136.2 million, or $2.29 per share, compared to $106.6 million, or $2.05 per share, in 2010.

Results for the fourth quarter and fiscal year ended December 31, 2011 include the receipt of a $3.7 million, or $0.06 per share, cash payment under a bankruptcy claim related to a 2009 tenant default. Net income for the fourth quarter and fiscal year ended December 31, 2011 includes approximately $39.0 million and $51.6 million, respectively, of net gains from property dispositions. In addition, results for the fiscal year ended December 31, 2010 include a $4.6 million, or $0.09 per share, charge for the early extinguishment of debt. All per share amounts in this report are presented on a diluted basis.

During the fourth quarter of 2011, the company sold a 192,000 square-foot industrial building located in the El Segundo submarket of Los Angeles for a sales price of approximately $42.2 million bringing total 2011 disposition proceeds to $66.1 million. In addition, on January 30, 2012, the company closed on the disposition of two office properties in San Diego at a sales price of approximately $146.1 million or $576 per square foot.



Also during the fourth quarter, the company completed the acquisition of two office properties totaling just over 484,000 square feet, for an aggregate purchase price of approximately $121.5 million. Both properties are located in the South of Market (SOMA) district of San Francisco, one of the top performing real estate markets in the country. 301 Brannan Street is 66.1% occupied and 100% leased. 370 Third Street is 8.9% occupied and 36.8% leased, and is currently undergoing redevelopment.

For 2011, KRC completed the acquisition of eight office projects encompassing 11 buildings and approximately two million square feet for an aggregate investment of $637.8 million. These properties are located in the high-growth, gateway markets of San Francisco, San Diego, and greater Seattle.

KRC reported its strongest annual leasing performance in the company's history as a publicly traded company during 2011. For the year, KRC signed new and renewing leases on 2.6 million square feet of office and industrial space. At December 31, 2011, the company's stabilized portfolio totaled approximately 14.8 million square feet and was 92.4% occupied.

"Our ongoing focus on leasing, portfolio enhancement and financial strength really paid off in 2011,” said John Kilroy, Jr., KRC's president and chief executive officer. "We successfully extended the KRC franchise into the high potential, high value West Coast markets of San Francisco and Seattle. We implemented an effective capital recycling program to finance a portion of our acquisitions. We achieved the strongest annual leasing performance in our history as a public company. And the impact is apparent in our 2011 financial results, with year-over-year increases in both FFO and same-store net operating income, and a strong total return to shareholders.”

KRC management will discuss updated earnings guidance for fiscal 2012 during the company's January 31, 2012 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 http://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 888-679-8034, reservation #51740166. A replay of the conference call will be available via phone through February 7, 2012 at 888-286-8010, reservation #17959731, or via the Internet at the company's website.

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 County, San Diego, greater Seattle and the San Francisco Bay Area. At December 31, 2011, the company owned 11.4 million rentable square feet of commercial office space and 3.4 million rentable square feet of industrial space. More information is available at http://www.kilroyrealty.com.

 
KILROY REALTY CORPORATION

SUMMARY QUARTERLY RESULTS

(unaudited, in thousands, except per share data)

 

  Three Months   Three Months    
Ended Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2011 2010 2011 2010
Revenues from continuing operations (1) $ 101,458 $ 79,309 $ 367,131 $ 287,396
 
Revenues including discontinued operations(1) $ 105,138 $ 82,941 $ 383,131 $ 301,980
 
Net income available to common stockholders(1) $ 39,910 $ 1,535 $ 50,819 $ 4,512
 
Weighted average common shares outstanding - basic 58,440 52,274 56,717 49,497
Weighted average common shares outstanding - diluted 58,440 52,274 56,717 49,497
 
Net income available to common stockholders per share - basic(1) $ 0.68 $ 0.02 $ 0.87 $ 0.07
Net income available to common stockholders per share - diluted (1) $ 0.68 $ 0.02 $ 0.87 $ 0.07
 
Funds From Operations (1), (2), (3) $ 40,528 $ 29,485 $ 136,173 $ 106,639
 
Weighted average common shares/units outstanding - basic (4) 61,108 54,786 59,362 52,033
Weighted average common shares/units outstanding - diluted (4) 61,110 54,802 59,549 52,049
 
Funds From Operations per common share/unit - basic (1), (4) $ 0.66 $ 0.54 $ 2.29 $ 2.05
Funds From Operations per common share/unit - diluted (1), (4) $ 0.66 $ 0.54 $ 2.29 $ 2.05
 
Common shares outstanding at end of period 58,820 52,350
Common partnership units outstanding at end of period 1,718   1,723  
Total common shares and units outstanding at end of period 60,538 54,073
 
December 31, December 31,
2011 2010
Stabilized portfolio occupancy rates: (5)
Office 90.1 % 87.5 %
Industrial 100.0 % 93.9 %
Weighted average total 92.4 % 89.1 %
 
Los Angeles and Ventura Counties 83.5 % 89.9 %
San Diego County 92.5 % 86.4 %
Orange County 99.1 % 93.5 %
San Francisco Bay Area 93.3 % 84.3 %
Greater Seattle 89.9 % 100.0 %
Weighted average total 92.4 % 89.1 %
 
Total square feet of stabilized properties owned at end of period: (5)
Office 11,421 10,395
Industrial 3,413   3,603  
Total 14,834 13,998
 

(1) Results for the three months and year ended December 31, 2011 include the receipt of a $3.7 million cash payment under a bankruptcy claim related to a 2009 tenant default.

(2) 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.

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

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

(5) The Company's stabilized portfolio excludes two office buildings classified as held for sale as of December 31, 2011.

 

KILROY REALTY CORPORATION CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)
 
  December 31,   December 31,
2011 2010
ASSETS
REAL ESTATE ASSETS:
Land and improvements $ 537,574 $ 491,333
Buildings and improvements 2,830,310 2,435,173
Undeveloped land and construction in progress 430,806   290,365  
Total real estate held for investment 3,798,690 3,216,871
Accumulated depreciation and amortization (742,503 ) (672,429 )
Total real estate held for investment, net 3,056,187 2,544,442
 
Real estate assets and other assets held for sale, net 84,156
Cash and cash equivalents 4,777 14,840
Restricted cash 358 1,461
Marketable securities 5,691 4,902
Current receivables, net 8,395 6,258
Deferred rent receivables, net 101,142 89,052
Deferred leasing costs and acquisition-related intangible assets, net 155,522 131,066
Deferred financing costs, net 18,368 16,447
Prepaid expenses and other assets, net 12,199   8,097  
TOTAL ASSETS $ 3,446,795   $ 2,816,565  
 

LIABILITIES, NONCONTROLLING INTEREST AND EQUITY

LIABILITIES:
Secured debt, net $ 351,825 $ 313,009
Exchangeable senior notes, net 306,892 299,964
Unsecured senior notes, net 980,569 655,803
Unsecured line of credit 182,000 159,000
Accounts payable, accrued expenses and other liabilities 81,713 68,525
Accrued distributions 22,692 20,385
Deferred revenue and acquisition-related intangible liabilities, net 79,781 79,322
Rents received in advance and tenant security deposits 26,917 29,189
Liabilities and deferred revenue of real estate assets held for sale 13,286    
Total liabilities 2,045,675   1,625,197  
 
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 588 523
Additional paid-in capital 1,448,997 1,211,498
Distributions in excess of earnings (277,450 ) (247,252 )
Total stockholders' equity 1,293,717   1,086,351  
Noncontrolling Interest
Common units of the Operating Partnership 33,765   31,379  
Total equity 1,327,482   1,117,730  
TOTAL LIABILITIES, NONCONTROLLING INTEREST AND EQUITY $ 3,446,795   $ 2,816,565  
 
 

KILROY REALTY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share data)
 
  Three Months   Three Months    
Ended Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2011 2010 2011 2010
REVENUES:
Rental income $ 89,504 $ 73,112 $ 332,489 $ 261,534
Tenant reimbursements 7,492 5,576 27,976 22,918
Other property income 4,462   621   6,666   2,944  

Total revenues

101,458   79,309   367,131   287,396  
 
EXPENSES:
Property expenses 18,761 15,358 72,869 56,389
Real estate taxes 8,422 7,102 32,521 26,342
Provision for bad debts 503 129 644 16
Ground leases 513 336 1,779 984
General and administrative expenses 7,793 6,867 28,148 27,963
Acquisition-related expenses 1,224 624 4,053 2,248
Depreciation and amortization 38,022   28,225   133,220   99,611  
Total expenses 75,238   58,641   273,234   213,553  
 
OTHER (EXPENSES) INCOME:
Interest income and other net investment gains 299 261 571 964
Interest expense (23,254 ) (19,044 ) (89,409 ) (59,941 )
Loss on early extinguishment of debt       (4,564 )
Total other (expenses) income (22,955 ) (18,783 ) (88,838 ) (63,541 )
 
INCOME FROM CONTINUING OPERATIONS 3,265 1,885 5,059 10,302
 
DISCONTINUED OPERATIONS:
Income from discontinued operations 2,566 2,550 10,843 8,635
Net gain on dispositions of discontinued operations 39,032   949   51,587   949  
Total income from discontinued operations 41,598   3,499   62,430   9,584  
 
NET INCOME 44,863 5,384 67,489 19,886
 
Net income attributable to noncontrolling common units of the Operating Partnership (1,154 ) (50 ) (1,474 ) (178 )
 
NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION 43,709 5,334 66,015 19,708
 
PREFERRED DISTRIBUTIONS AND DIVIDENDS:
Distributions on noncontrolling cumulative redeemable preferred units of the Operating Partnership (1,397 ) (1,397 ) (5,588 ) (5,588 )
Preferred dividends (2,402 ) (2,402 ) (9,608 ) (9,608 )
Total preferred distributions and dividends (3,799 ) (3,799 ) (15,196 ) (15,196 )
 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 39,910   $ 1,535   $ 50,819   $ 4,512  
 
Weighted average common shares outstanding - basic 58,440 52,274 56,717 49,497
Weighted average common shares outstanding - diluted 58,440 52,274 56,717 49,497
 
Net income available to common stockholders per share - basic $ 0.68   $ 0.02   $ 0.87   $ 0.07  
Net income available to common stockholders per share - diluted $ 0.68   $ 0.02   $ 0.87   $ 0.07  
 
 

KILROY REALTY CORPORATION FUNDS FROM OPERATIONS

(unaudited, in thousands, except per share data)

 
  Three Months   Three Months    
Ended Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2011 2010 2011 2010
 

Net income available to common stockholders

$

39,910

$

1,535

$

50,819

$

4,512

Adjustments:

Net income attributable to noncontrolling common units of the Operating Partnership

1,154

50

1,474

178

Depreciation and amortization of real estate assets

38,496

28,849

135,467

102,898

Net gain on dispositions of discontinued operations

 

(39,032

)

 

(949

)

 

(51,587

)

 

(949

)

Funds From Operations (1)

$

40,528

 

$

29,485

 

$

136,173

 

$

106,639

 
 

Weighted average common shares/units outstanding - basic

61,108

54,786

59,362

52,033

Weighted average common shares/units outstanding - diluted

61,110

54,802

59,549

52,049

 

Funds From Operations per common share/unit - basic (2)

$

0.66

 

$

0.54

 

$

2.29

 

$

2.05

 

Funds From Operations per common share/unit - diluted (2)

$

0.66

 

$

0.54

 

$

2.29

 

$

2.05

 
 

(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, gains and losses from sales of depreciable real estate and impairment write-downs associated with depreciable real estate, 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, 310-481-8484
Executive Vice President
and Chief Financial Officer
or
Michelle Ngo, 310-481-8581
Vice President and Treasurer