Kilroy

Where Innovation Works

Press Room Release

Kilroy Realty Corporation Reports Fourth Quarter Financial Results

Printer Friendly Version View printer-friendly version
<< Back

LOS ANGELES--(BUSINESS WIRE)--Feb. 2, 2004--Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its fourth quarter ended December 31, 2003, with net income of $4.9 million, or $0.18 per share, compared to $14.0 million, or $0.50 per share in the fourth quarter of 2002. Revenues from continuing operations in the fourth quarter totaled $54.2 million, compared to $52.5 million in the fourth quarter of 2002.

For its fiscal year ended December 31, 2003, KRC reported net income of $49.3 million, or $1.78 per share, compared to $40.3 million, or $1.45 per share, in 2002. Revenues from continuing operations in 2003 totaled $227.8 million, compared to $204.2 million in 2002.

KRC's funds from operations (FFO) totaled $20.2 million, or $0.62 per share, in the fourth quarter of 2003, compared to $24.3 million, or $0.76 per share in the prior year's fourth quarter. For the year, FFO totaled $108.9 million, or $3.41 per share, compared to $97.9 million, or $3.09 per share, in 2002.

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

"We were very pleased with our leasing progress in 2003, particularly in San Diego," commented John B. Kilroy, Jr., president and CEO. "We continue to see signs that the Southern California real estate markets will improve further in 2004," he added.

KRC added $135 million of new development to its operating portfolio in 2003, totaling an aggregate of 399,000 square feet of space in three new office properties. The company also added 156,000 square feet of space to its portfolio in two redeveloped projects, investing approximately $14 million in incremental redevelopment costs. At year-end, KRC's stabilized portfolio was 90.3% occupied.

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 $145 million, of which $114 million has been spent to date.

Earnings guidance for 2004 will be discussed by KRC management during the company's February 3, 2004 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 February 11, 2004 at (800) 428-6051, reservation #318927 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, 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, 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 December 31, 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    Three
                                  Months   Months    Year      Year
                                  Ended    Ended     Ended     Ended
                                 December December December  December
                                   31,      31,       31,       31,
                                   2003     2002     2003      2002
                                 -------------------------------------

 Revenues from continuing
  operations                     $54,205  $52,541  $227,786  $204,171

 Revenues including discontinued
  operations                     $54,205  $54,425  $229,723  $213,884

 Net income available to common
  stockholders (1)                $4,938  $13,965   $49,263   $40,312

 Weighted average common shares
  outstanding - basic             27,941   27,453    27,527    27,450
 Weighted average common shares
  outstanding - diluted           28,167   27,691    27,738    27,722

 Net income per share of common
  stock - basic                    $0.18    $0.51     $1.79     $1.47
 Net income per share of common
  stock - diluted                  $0.18    $0.50     $1.78     $1.45

 Funds From Operations (2) (3)   $20,197  $24,262  $108,881   $97,940

 Weighted average common
  shares/units outstanding -
  basic (4)                       32,149   31,689    31,745    31,443
 Weighted average common
  shares/units outstanding -
  diluted (4)                     32,374   31,928    31,957    31,715

 Funds From Operations per common
  share/unit - basic (4)           $0.63    $0.77     $3.43     $3.11
 Funds From Operations per common
  share/unit - diluted (4)         $0.62    $0.76     $3.41     $3.09

 Common shares outstanding at end
  of period                                          28,209    27,420
 Common partnership units
  outstanding at end of period                        4,154     4,237
                                                   --------- ---------
        Total common shares and
         units outstanding at end
         of period                                   32,363    31,657




                                                     December December
                                                       31,      31,
                                                       2003     2002
                                                     -------- --------
   Stabilized portfolio occupancy rates:
         Los Angeles                                    81.3%    86.4%
         Orange County                                  94.9%    98.8%
         San Diego                                      92.3%    93.1%
         Other                                          96.5%    97.4%
                                                     -------- --------
          Weighted average total                        90.3%    93.7%

   Total square feet of stabilized properties
    owned at end of period:
         Office                                        7,316    7,448
         Industrial                                    4,879    4,881
                                                     -------- --------
          Total                                       12,195   12,329





 (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) Reported amounts are attributable to common shareholders 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    December
                                                   31,         31,
                                                  2003        2002
                                               ----------- -----------

 ASSETS
 ---------------------------------------
 INVESTMENT IN REAL ESTATE:
    Land and improvements                        $289,730    $288,228
    Buildings and improvements, net             1,305,145   1,289,525
    Undeveloped land and construction in
     progress, net                                131,411     108,465
                                               ----------- -----------
       Total investment in real estate          1,726,286   1,686,218
    Accumulated depreciation and
     amortization                                (321,372)   (278,503)
                                               ----------- -----------
       Investment in real estate, net           1,404,914   1,407,715

 Cash and cash equivalents                          9,892      15,777
 Restricted cash                                    8,558       6,814
 Current receivables, net                           4,919       3,074
 Deferred rent receivables, net                    36,804      29,466
 Deferred leasing costs, net                       36,651      31,427
 Deferred financing costs, net                      3,657       6,221
 Prepaid expenses and other assets                  7,240       6,108
                                               ----------- -----------

       TOTAL ASSETS                            $1,512,635  $1,506,602
                                               =========== ===========



 LIABILITIES & STOCKHOLDERS' EQUITY
 ------------------------------------------
 LIABILITIES:
    Secured debt                                 $526,048    $507,037
    Unsecured line of credit                      235,000     255,000
    Accounts payable, accrued expenses and
     other liabilities                             39,905      43,917
    Accrued distributions                          16,369      15,670
    Rents received in advance, tenant
     security deposits and deferred revenue        20,904      24,310
                                               ----------- -----------
       Total liabilities                          838,226     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
    9.250% Series D Cumulative Redeemable
       Preferred unitholders                       44,321      44,321
    Common unitholders of the Operating
       Partnership                                 66,502      68,196
                                               ----------- -----------
       Total minority interests                   184,539     220,697
                                               ----------- -----------


 STOCKHOLDERS' EQUITY:
    7.800% Series E Cumulative Redeemable
     Preferred stock                               38,437
    Common stock                                      282         273
    Additional paid-in capital                    508,958     493,116
    Distributions in excess of earnings           (53,449)    (47,629)
    Accumulated net other comprehensive
     loss                                          (4,358)     (5,789)
                                               ----------- -----------
       Total stockholders' equity                 489,870     439,971
                                               ----------- -----------

       TOTAL LIABILITIES & STOCKHOLDERS'
        EQUITY                                 $1,512,635  $1,506,602
                                               =========== ===========




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



                                  Three    Three
                                  Months   Months    Year      Year
                                  Ended    Ended     Ended     Ended
                                 December December December  December
                                   31,      31,        31,      31,
                                   2003     2002      2003     2002
                                 -------- -------- --------- ---------

 REVENUES:
   Rental income                 $48,190  $46,982  $183,339  $180,024
   Tenant reimbursements           5,313    4,554    20,433    21,475
   Other property income             702    1,005    24,014     2,672
                                 -------- -------- --------- ---------
            Total revenues        54,205   52,541   227,786   204,171
                                 -------- -------- --------- ---------

 EXPENSES:
   Property expenses               9,245    8,274    33,855    30,133
   Real estate taxes               4,344    3,862    15,797    15,164
   Provision for bad debts           (96)   2,017     1,583     6,815
   Ground leases                     326      319     1,296     1,354
   General and administrative
    expenses                       6,446    2,975    19,140    12,557
   Interest expense                9,242    8,553    33,385    35,380
   Depreciation and amortization  14,783   14,222    56,237    58,797
                                 -------- -------- --------- ---------
            Total expenses        44,290   40,222   161,293   160,200
                                 -------- -------- --------- ---------

 OTHER INCOME:
   Interest income                    66       62       196       513
                                 -------- -------- --------- ---------
            Total other income        66       62       196       513
                                 -------- -------- --------- ---------

 Income from continuing
  operations before net gain on
  dispositions                     9,981   12,381    66,689    44,484
 Net gain on disposition of
  operating properties                                            896
                                 -------- -------- --------- ---------

 Income from continuing
  operations before minority
  interests                        9,981   12,381    66,689    45,380
                                 -------- -------- --------- ---------

 Minority interests:
   Distributions on Cumulative
    Redeemable Preferred units    (3,038)  (3,375)  (13,163)  (13,500)
   Original issuance costs of
    redeemed preferred units        (945)              (945)
   Minority interest in earnings
    of Operating Partnership
    attributable to continuing
    operations                      (711)  (1,889)   (6,908)   (4,392)
   Recognition of previously
    reserved Development LLC
    preferred return                                            3,908
   Minority interest in earnings
    of Development LLCs                                        (1,024)
                                 -------- -------- --------- ---------
            Total minority
             interests            (4,694)  (5,264)  (21,016)  (15,008)
                                 -------- -------- --------- ---------

 Income from continuing
  operations                       5,287    7,117    45,673    30,372

 Discontinued operations:
   Revenues from discontinued
    operations                              1,884     1,937     9,713
   Expenses from discontinued
    operations                               (931)   (1,036)   (4,906)
   Net gain on disposition of
    discontinued operations                 6,100     3,642     6,570
   Minority interest in earnings
    of Operating Partnership
    attributable to discontinued
    operations                               (205)     (604)   (1,437)
                                 -------- -------- --------- ---------
            Total discontinued
             operations                -    6,848     3,939     9,940
                                 -------- -------- --------- ---------

 Net income                        5,287   13,965    49,612    40,312

 Preferred dividends                (349)              (349)
                                 -------- -------- --------- ---------

 Net income available for common
  shareholders                    $4,938  $13,965   $49,263   $40,312
                                 ======== ======== ========= =========

 Weighted average shares
  outstanding - basic             27,941   27,453    27,527    27,450
 Weighted average shares
  outstanding - diluted           28,167   27,691    27,738    27,722

 Net Income per common share -
  basic                            $0.18    $0.51     $1.79     $1.47
                                 ======== ======== ========= =========
 Net Income per common share -
  diluted                          $0.18    $0.50     $1.78     $1.45
                                 ======== ======== ========= =========





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



                                   Three    Three
                                   Months   Months    Year     Year
                                   Ended    Ended     Ended    Ended
                                  December December December  December
                                    31,      31,        31,     31,
                                    2003     2002      2003     2002
                                  -------- -------- --------- --------

 Net income available for common
  shareholders                     $4,938  $13,965   $49,263  $40,312

      Adjustments:
          Minority interest in
           earnings of Operating
           Partnership                711    2,094     7,512    5,829
          Depreciation and
           amortization            14,548   14,303    55,748   59,265
          Net gain on dispositions
           of operating properties          (6,100)   (3,642)  (7,466)
                                  -------- -------- --------- --------
 Funds From Operations (1) (2)    $20,197  $24,262  $108,881  $97,940
                                  ======== ======== ========= ========

 Weighted average common
  shares/units outstanding - basic 32,149   31,689    31,745   31,443
 Weighted average common
  shares/units outstanding -
  diluted                          32,374   31,928    31,957   31,715

 Funds From Operations per common
  share/unit - basic                $0.63    $0.77     $3.43    $3.11
                                  ======== ======== ========= ========
 Funds From Operations per common
  share/unit - diluted              $0.62    $0.76     $3.41    $3.09
                                  ======== ======== ========= ========



       KILROY REALTY CORPORATION FUNDS AVAILABLE FOR DISTRIBUTION
----------------------------------------------------------------------
            (unaudited, in thousands, except per share data)



                                   Three    Three
                                   Months   Months    Year     Year
                                   Ended    Ended     Ended    Ended
                                  December December December  December
                                    31,      31,       31,       31,
                                    2003     2002     2003      2002
                                  -------- -------- --------- --------

 Funds From Operations            $20,197  $24,262  $108,881  $97,940

     Adjustments:
         Amortization of deferred
          financing costs             810      970     2,531    2,647
         Original issuance costs
          for redeemed preferred
          units                       945                945
         Non-cash amortization of
          restricted stock grants     771      953     3,129    3,424
         Tenant improvements,
          leasing commissions and
          recurring capital
          expenditures             (4,536)  (7,082)  (22,189) (11,113)
         Net effect of straight-
          line rents               (2,790)  (1,260)   (8,011)  (4,339)
                                  -------- -------- --------- --------
 Funds Available for Distribution
  (2)                             $15,397  $17,843   $85,286  $88,559
                                  ======== ======== ========= ========




(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.

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


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

SOURCE: Kilroy Realty Corporation