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Kilroy Realty Corporation Reports Higher Third Quarter Net Income; Peregrine Systems Payment Adds 48 Cents per Share to FFO in Quarter

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LOS ANGELES--(BUSINESS WIRE)--Oct. 27, 2003--Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its third quarter ended September 30, 2003, with net income of $20.0 million, or $0.72 per share, compared to $7.9 million, or $0.28 per share in the third quarter of 2002. Revenues from continuing operations in the third quarter totaled $70.1 million, up from $50.0 million in the year-earlier period.

For the first nine months of 2003, KRC reported net income of $44.3 million, or $1.61 per share, compared to $26.3 million, or $0.95 per share, in the first nine months of 2002. Revenues from continuing operations in the nine-month period totaled $173.9 million, up from $151.4 million in the same period of 2002.

KRC's funds from operations (FFO) in the third quarter totaled $37.5 million, or $1.17 per share, compared to $23.2 million, or $0.72 per share, in the prior year's third quarter. For the first nine months of 2003, FFO totaled $88.7 million, or $2.79 per share, compared to $73.7 million, or $2.33 per share, in the same period of 2002.

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

As initially reported in July 2003, KRC received approximately $18.3 million during the third quarter from Peregrine Systems, Inc., as part of a total of $21.3 million the company will ultimately receive in a settlement over claims arising from Peregrine Systems' bankruptcy filing in September 2002. As a result of the payment, KRC's third-quarter FFO was increased by $15.4 million or $0.48 per share, while its nine-month FFO was increased by $17.9 million or $0.56 per share.

During the third quarter, KRC added three office properties and one life science property totaling approximately 404,000 square feet of space to the company's stabilized portfolio. The properties, located in Los Angeles, Orange County and San Diego, are 69% committed. Overall, KRC's stabilized portfolio was approximately 90% occupied at the end of the third quarter.

Within its committed development program, KRC has one property in lease-up totaling approximately 209,000 square feet of space, and two properties undergoing redevelopment totaling approximately 316,000 square feet. This committed development pipeline represents a total estimated investment of approximately $144 million, of which $111 million has been spent to date. The three properties are currently 33% leased.

Earnings guidance will be discussed by KRC management during the company's October 28 earnings conference call. The call will begin at 11:00 am PST 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) 915-4836. A replay of the conference call will be available via phone through November 5, 2003 at (800) 428-6051, reservation #304653 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 El Segundo and coastal San Diego. At September 30, 2003, the company owned 7.3 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  Nine Months  Nine Months
                    Ended         Ended        Ended        Ended
               September 30, September 30, September 30, September 30,
                    2003          2002          2003         2002
               ------------- ------------- ------------- -------------

Revenues from
 continuing
 operations         $70,052       $50,008      $173,945    $151,371

Revenues
 including
 discontinued
 operations         $70,105       $52,458      $175,882    $159,177

Net income
 available to
 common
 stockholders (1)   $20,039        $7,885       $44,325     $26,349

Weighted average
 common shares
 outstanding --
 basic               27,584        27,623        27,387      27,449
Weighted average
 common shares
 outstanding --
 diluted             27,801        27,839        27,593      27,733

Net income per
 share of common
 stock -- basic       $0.73         $0.29         $1.62       $0.96
Net income per
 share of common
 stock -- diluted     $0.72         $0.28         $1.61       $0.95

Funds From
 Operations (2)     $37,473       $23,170       $88,684     $73,680

Weighted average
 common
 shares/units
 outstanding --
 basic (3)           31,799        31,918        31,609      31,360
Weighted average
 common
 shares/units
 outstanding --
 diluted (3)         32,015        32,134        31,816      31,644

Funds From
 Operations per
 common
 share/unit --
 basic (3)            $1.18         $0.73         $2.81       $2.35
Funds From
 Operations per
 common
 share/unit --
 diluted (3)          $1.17         $0.72         $2.79       $2.33

Common shares
 outstanding at
 end of period                                   28,029      27,928
Common partnership
 units outstanding
 at end of period                                 4,214       4,237
                                             ------------- -----------
   Total common shares and
    units outstanding
    at end of period                             32,243      32,165


                                           September 30, September 30,
                                                2003         2002
                                           ------------- -------------
Stabilized portfolio
 occupancy rates:
   Los Angeles                                   81.0%       86.3%
   Orange County                                 94.5%       97.1%
   San Diego                                     91.5%       93.3%
   Other                                         95.9%       98.3%
                                           ------------- -------------
   Weighted average total                        89.8%       93.1%

Total square feet
 of stabilized
 properties owned
 at end of period:
   Office                                        7,317       7,606
   Industrial                                    4,877       5,193
                                           ------------- -------------
   Total                                        12,194      12,799


(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 Statements 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)

                                          September 30,  December 31,
                                               2003          2002
                                         -------------- -------------

ASSETS
------
INVESTMENT IN REAL ESTATE:
Land and improvements                          $289,730      $288,228
Buildings and improvements, net               1,291,698     1,289,525
Undeveloped land and construction in
 progress, net                                  125,792       108,465
                                          -------------- -------------
Total investment in real estate               1,707,220     1,686,218
Accumulated depreciation and amortization      (308,640)     (278,503)
                                          -------------- -------------
Investment in real estate, net                1,398,580     1,407,715

Cash and cash equivalents                        16,078        15,777
Restricted cash                                   8,797         6,814
Current receivables, net                          2,424         3,074
Deferred rent receivables, net                   34,014        29,466
Deferred leasing costs, net                      35,703        31,427
Deferred financing costs, net                     4,297         6,221
Prepaid expenses and other assets                 6,080         6,108
                                          -------------- -------------

TOTAL ASSETS                                 $1,505,973    $1,506,602
                                          ============== =============

LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
LIABILITIES:
Secured debt                                   $528,839      $507,037
Unsecured line of credit                        222,000       255,000
Accounts payable, accrued expenses and
 other liabilities                               41,742        43,917
Accrued distributions                            15,960        15,670
Rents received in advance, tenant security
 deposits and deferred revenue                   21,570        24,310
                                          -------------- -------------
Total liabilities                               830,111       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                                     68,142        68,196
                                          -------------- -------------
Total minority interests                        220,643       220,697
                                          -------------- -------------


STOCKHOLDERS' EQUITY:
Common stock                                        280           273
Additional paid-in capital                      505,284       493,116
Distributions in excess of earnings             (44,423)      (47,629)
Accumulated net other comprehensive loss         (5,922)       (5,789)
                                          -------------- -------------
Total stockholders' equity                      455,219       439,971
                                          -------------- -------------

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY     $1,505,973    $1,506,602
                                          ============== =============


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


               Three Months  Three Months   Nine Months  Nine Months
                   Ended         Ended         Ended        Ended
               September 30, September 30, September 30, September 30,
                   2003          2002          2003          2002
               ------------- ------------- ------------- -------------

REVENUES:
Rental income     $47,025       $44,790      $135,149      $133,043
Tenant
 reimbursements     4,586         5,010        15,484        16,661
Other property
 income            18,441           208        23,312         1,667
               ------------- ------------- ------------- ------------
   Total
    revenues       70,052        50,008       173,945       151,371
               ------------- ------------- ------------- ------------

EXPENSES:
Property
 expenses           8,289         7,442        24,610        21,857
Real estate
 taxes              3,956         3,842        11,453        11,302
Provision for
 bad debts          2,790         1,402         2,043         4,538
Ground leases         326           319           970         1,035
General and
 administrative
 expenses           4,825         2,966        12,694         9,582
Interest expense    8,869         8,900        24,143        26,827
Depreciation and
 amortization      14,553        14,254        41,454        44,575
                ------------- ------------- ------------- ------------
   Total
    expenses       43,608        39,125       117,367       119,716
                ------------- ------------- ------------- ------------

OTHER INCOME:
Interest income        36            80           130          451
                ------------- ------------- ------------- ------------
   Total other
    income             36            80           130          451
                ------------- ------------- ------------- ------------

Income from
 continuing
 operations
 before net gain
 on dispositions   26,480        10,963        56,708        32,106
Net gain on
 disposition of
 operating
 properties                                                     896
                ------------- ------------- ------------- ------------

Income from
 continuing
 operations
 before minority
 interests         26,480        10,963        56,708        33,002
                ------------- ------------- ------------- ------------

Minority
 interests:
 Distributions on
  Cumulative
  Redeemable
  Preferred units  (3,375)       (3,375)      (10,125)      (10,125)
 Minority
  interest in
  earnings of
  Operating
  Partnership
  attributable to
  continuing
  operations       (3,062)       (1,034)       (6,197)       (3,199)
 Recognition of
  previously
  reserved
  Development LLC
  preferred return                                            3,908
 Minority
  interest in
  earnings of
  Development
  LLCs                                                       (1,024)
                ------------- ------------- ------------- ------------
   Total
    minority
    interests      (6,437)       (4,409)      (16,322)      (10,440)
                ------------- ------------- ------------- ------------

Income from
 continuing
 operations        20,043         6,554        40,386        22,562

Discontinued
 operations:
 Revenues from
  discontinued
  operations           53         2,450         1,937         7,806
 Expenses from
  discontinued
  operations          (12)       (1,384)       (1,036)       (3,953)
 Net (loss) gain
  on disposition
  of discontinued
  operations          (48)          470         3,642           470
 Minority
  interest in
  earnings of
  Operating
  Partnership
  attributable to
  discontinued
  operations            3          (205)         (604)         (536)
                ------------- ------------- ------------- ------------
   Total
    discontinued
    operations         (4)        1,331         3,939         3,787
                ------------- ------------- ------------- ------------

Net Income        $20,039        $7,885       $44,325       $26,349
                ============= ============= ============= ============

Weighted average
 shares
 outstanding --
 basic             27,584        27,623        27,387        27,449
Weighted average
 shares
 outstanding --
 diluted           27,801        27,839        27,593        27,733

Net Income per
 common share --
 basic              $0.73         $0.29         $1.62         $0.96
                ============= ============= ============= ============
Net Income per
 common share --
 diluted            $0.72         $0.28         $1.61         $0.95
                ============= ============= ============= ============


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


               Three Months  Three Months   Nine Months   Nine Months
                   Ended         Ended         Ended         Ended
               September 30, September 30, September 30, September 30,
                    2003          2002          2003         2002
               ------------- ------------- ------------- -------------

Net income       $20,039        $7,885        $44,325       $26,349

Adjustments:
 Minority
  interest in
  earnings of
  Operating
  Partnership      3,059         1,239          6,801         3,735
 Depreciation
  and
  amortization    14,327        14,516         41,200        44,962
 Net loss
  (gain) on
  dispositions
  of operating
  properties          48          (470)        (3,642)       (1,366)
               ------------- ------------- ------------- -------------
Funds From
 Operations (1)  $37,473       $23,170        $88,684       $73,680
               ============= ============= ============= =============

Weighted average
 common
 shares/units
 outstanding --
 basic            31,799        31,918         31,609        31,360
Weighted average
 common
 shares/units
 outstanding --
 diluted          32,015        32,134         31,816        31,644

Funds From
 Operations per
 common
 share/unit --
 basic             $1.18         $0.73          $2.81         $2.35
                 ============= ============= ============= ===========
Funds From
 Operations per
 common
 share/unit --
 diluted           $1.17         $0.72          $2.79         $2.33
                 ============= ============= ============= ===========


(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
Richard E. Moran Jr., 310-481-8483
Tyler H. Rose, 310-481-8484

SOURCE: Kilroy Realty Corporation