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Kilroy Realty Corporation Reports First Quarter Financial Results

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LOS ANGELES--(BUSINESS WIRE)--April 28, 2003--Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its first quarter ended March 31, 2003, with net income of $10.9 million, or $0.40 per share, compared to $13.5 million, or $0.49 per share in the first quarter of 2002. Revenues from continuing operations in the first quarter totaled $54.6 million, up from $51.1 million in the year-earlier period.

The company's funds from operations (FFO) in the first quarter of 2003 totaled $26.3 million, or $0.83 per share, compared to $27.2 million, or $0.89 per share, in the first quarter of 2002.

KRC said financial results in both periods were increased by nonrecurring gains. In the current quarter, the company recognized a lease termination fee that added $0.13 per share to FFO. In the year-earlier quarter, KRC recognized $0.13 per share of preferred return income related to its buyout of a former partner's remaining real estate interests in twelve properties.

At the end of the first quarter, the company's stabilized portfolio was 92.2% occupied.

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

KRC continues to develop an additional 608,000 square feet of space in Southern California, with completion dates scheduled through 2003. This committed development pipeline, which represents a total estimated investment of approximately $196 million, is currently 60% leased. In addition, the company has four redevelopment projects underway in Southern California totaling 473,000 square feet of space. The estimated incremental redevelopment costs for these projects is approximately $48.7 million.

Earnings guidance for 2003 will be discussed by management on its Tuesday, April 29, 2003 earnings conference call. The conference call will begin at 11:00 am PDT 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 (800) 576-7247. A replay of the conference call will be available via phone through May 6, 2003 at (800) 633-8284, passcode #21136118 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; any failure of the general economy to recover timely from the current economic downturn; Kilroy Realty's ability to timely lease or re-lease space at current or anticipated rents; changes in interest rates; changes in operating 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, 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 more than 50 years, the company has owned, developed, acquired and managed real estate assets primarily in the coastal regions of California and Washington. Principal submarkets for KRC's current development program include West Los Angeles, El Segundo and coastal San Diego. At March 31, 2003, the company owned 7.1 million square feet of commercial office space and 4.9 million square feet of industrial space. More information can be found 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,   March 31,
                                                  2003        2002
                                                -------------------

Revenues from continuing operations               $54,627 $51,080

Revenues including discontinued operations        $54,627 $52,635

Net income available to common stockholders (1)   $10,929 $13,507

Weighted average common shares outstanding
 - basic                                           27,221     27,256
Weighted average common shares outstanding
 - diluted                                         27,430     27,550

Net income per share of common stock - basic        $0.40 $0.50
Net income per share of common stock - diluted      $0.40 $0.49

Funds From Operations (2)                         $26,320 $27,153

Weighted average common shares/units outstanding
 - basic (3)                                       31,453     30,317
Weighted average common shares/units outstanding
 - diluted (3)                                     31,662     30,611

Funds From Operations per common share/unit
 - basic  (3)                                       $0.84 $0.90
Funds From Operations per common share/unit
 - diluted (3)                                      $0.83 $0.89

Common shares outstanding at end of period         27,475     27,572
Common partnership units outstanding at end
 of period                                          4,222      4,458
                                                    -----------------
Total common shares and units outstanding at end of
 period                                            31,697     32,030


                                                  March 31, March 31,
                                                    2003      2002
                                                    ----------------
Stabilized portfolio occupancy rates:
  Los Angeles                                        83.9%     86.3%
  Orange County                                      98.7%     97.3%
  San Diego                                          89.6%     97.6%
  Other                                              97.2%     98.6%
                                                     ----------------
Weighted average total                               92.2%     94.2%

Total square feet of stabilized properties owned at
 end of period:
Office                                              7,055     7,357
Industrial                                          4,881     5,086
                                                   ------------------
Total                                              11,936    12,443

(1) Net income after minority interests.

(2) Reconciliation of Net Income to Funds From Operations and
management statement on Funds From Operations is included after the
Consolidated Statement of Operations.

(3) 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)

                                               March 31,  December 31,
                                                  2003       2002
                                             ----------- -----------
ASSETS
---------------------------------------
INVESTMENT IN REAL ESTATE:
 Land and improvements                          $282,030 $288,228
 Buildings and improvements, net               1,258,593   1,289,525
 Undeveloped land and construction in
  progress, net                                  166,346     108,465
                                              ----------- -----------
   Total investment in real estate             1,706,969   1,686,218
 Accumulated depreciation and amortization      (290,365)   (278,503)
                                              ----------- -----------
   Investment in real estate, net              1,416,604   1,407,715

Cash and cash equivalents                          7,787      15,777
Restricted cash                                    7,479       6,814
Current receivables, net                           2,821       3,074
Deferred rent receivables, net                    30,567      29,466
Deferred leasing costs, net                       32,145      31,427
Deferred financing costs, net                      5,394       6,221
Prepaid expenses and other assets                  8,400       6,108
                                              ----------- -----------

   TOTAL ASSETS                               $1,511,197 $1,506,602
                                              =========== ===========

LIABILITIES & STOCKHOLDERS' EQUITY
------------------------------------------
LIABILITIES:
 Secured debt                                   $514,115 $507,037
 Unsecured line of credit                        262,500     255,000
 Accounts payable, accrued expenses and
  other liabilities                               43,110      43,917
 Accrued distributions                            15,776      15,670
 Rents received in advance, tenant security
  deposits and deferred revenue                   19,434      24,310
                                              ----------- -----------
   Total liabilities                             854,935     845,934
                                              ----------- -----------
MINORITY INTERESTS:
 8.075% Series A Cumulative Redeemable
   Preferred unitholders                          73,716      73,716
 9.375% Series C Cumulative Redeemable
   Preferred unitholders                          34,464      34,464
 9.250% Series D Cumulative Redeemable
   Preferred unitholders                          44,321      44,321
 Common unitholders of the Operating
   Partnership                                    67,000      68,196
                                              ----------- -----------
   Total minority interests                      219,501     220,697
                                              ----------- -----------
STOCKHOLDERS' EQUITY:
 Common stock                                        273         273
 Additional paid-in capital                      493,244     493,116
 Distributions in excess of earnings             (50,384)    (47,629)
 Accumulated net other comprehensive loss         (6,372)     (5,789)
                                              ----------- -----------
   Total stockholders' equity                    436,761     439,971
                                              ----------- -----------

   TOTAL LIABILITIES & STOCKHOLDERS'
    EQUITY                                    $1,511,197 $1,506,602
                                              =========== ===========



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

                                     Three Months      Three Months
                                         Ended            Ended
                                    March 31, 2003 March 31, 2002
                                   ---------------    --------------

 REVENUES:
  Rental income, net                    $44,264 $43,928
  Tenant reimbursements                   5,779            5,431
  Interest income                            46              285
  Other income                            4,538            1,436
                                   ------------      -----------
      Total revenues                     54,627           51,080
                                   ------------      -----------
 EXPENSES:
  Property expenses                       8,834            7,410
  Real estate taxes                       3,934            3,712
  General and
   administrative expenses                3,858            2,968
  Ground leases                             319              383
  Interest expense                        7,744            9,325
  Depreciation and
   amortization                          13,948           12,583
                                   ------------      -----------
      Total expenses                     38,637           36,381
                                   ------------      -----------

 Income from continuing
  operations before
  minority interests                     15,990          14,699
                                   ------------     -----------

 Minority interests:
  Distributions on
   Cumulative Redeemable
   Preferred units                       (3,375)         (3,375)
  Minority interest in
   earnings of Operating
   Partnership attributable to
   continuing operations                 (1,686)         (1,429)
  Recognition of previously
   reserved Development LLC
   preferred return                                       3,908
  Minority interest in
   earnings of Development LLCs                          (1,024)
                                    ------------     -----------
      Total minority interests           (5,061)         (1,920)
                                    ------------     -----------

 Income from continuing operations       10,929          12,779

 Discontinued operations:
  Revenues from discontinued operations                   1,555
  Expenses from discontinued operations                    (746)
  Net gain on disposition of discontinued
   operations
  Minority interest in earnings of Operating
   Partnership attributable to
   discontinued operations                                  (81)
                                    ------------     -----------
      Total discontinued operations                         728
                                    ------------     -----------

 Net Income                             $10,929 $13,507
                                    ============     ===========

 Weighted average shares
  outstanding - basic                    27,221          27,256
 Weighted average shares
  outstanding - diluted                  27,430          27,550

 Net Income per common
  share - basic                           $0.40 $0.50
                                    ============     ===========
 Net Income per common
  share - diluted                         $0.40 $0.49
                                    ============     ===========



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

                                             Three Months Three Months
                                                Ended         Ended
                                              March 31,     March 31,
                                                 2003         2002
                                               --------     --------

Net income                                      $10,929 $13,507

 Adjustments:
  Minority interest in earnings of
   Operating Partnership                          1,686        1,510
  Depreciation and amortization                  13,705       12,136
  Net gains on dispositions of operating
   properties
                                                --------     --------
Funds From Operations (1)                       $26,320 $27,153
                                                ========     ========

Weighted average common shares/units
 outstanding - basic                             31,453       30,317
Weighted average common shares/units
 outstanding - diluted                           31,662       30,611

Funds From Operations per common share/unit
 - basic                                          $0.84 $0.90
                                                ========     ========
Funds From Operations per common share/unit
 - diluted                                        $0.83 $0.89
                                                ========     ========

(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 not
immediately apparent from net income. In addition, management believes
that FFO provides useful information to the investment community about
the Company's financial 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.

CONTACT:
Kilroy Realty Corporation, Los Angeles
Richard E. Moran Jr., 310/481-8483
Tyler H. Rose, 310/481-8484

SOURCE: Kilroy Realty Corporation