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Kilroy Realty Corporation Reports First Quarter Financial Results

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LOS ANGELES--(BUSINESS WIRE)--May 4, 2004--Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its first quarter ended March 31, 2004, with net income of $6.0 million, or $0.21 per share, compared to $10.9 million, or $0.40 per share, in the first quarter of 2003. Revenues from continuing operations in the current quarter totaled $54.6 million, compared to $53.0 million in the prior year's first quarter. Funds from operations (FFO) in the first quarter totaled $21.0 million, or $0.65 per share, compared to $26.3 million, or $0.83 per share, in the first quarter of 2003. Included in first quarter 2004 Net Income and FFO was a $0.02 per share unrealized loss related to a property held for sale. Financial results in the first quarter of 2003 included a lease termination fee that added $0.13 per share to Net Income and FFO.

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

"Leasing efforts remain a key priority at KRC as the California economy works to regain stronger forward momentum," said John B. Kilroy, Jr., the company's president and CEO. "We made steady progress during the first quarter, increasing our stabilized occupancy to 91%, with particular success in coastal San Diego, which remains one of the strongest real estate markets in the nation today."

Within the company's committed development and redevelopment programs, KRC has two properties in lease-up totaling approximately 277,000 square feet of space, and one property undergoing redevelopment totaling approximately 248,000 square feet. This committed development pipeline represents a total estimated investment of approximately $147 million, of which $116 million has been spent to date.

Earnings guidance for 2004 will be discussed by KRC management during the company's May 5, 2004 earnings conference call. The call will begin at 11:00 a.m. 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 800-915-4836. A replay of the conference call will be available via phone through May 12, 2004 at 800-428-6051, reservation #342532 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. KRC is currently active in office development and redevelopment in Los Angeles and San Diego counties. At March 31, 2004, the company owned 7.2 million square feet of commercial office space and 4.9 million 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 Ended
                                                  -------------------
                                                  March 31,  March 31,
                                                    2004       2003
                                                  --------- ---------
Revenues from continuing operations                $54,574   $53,020

Revenues including discontinued operations         $55,422   $55,016

Net income available to common stockholders (1)     $5,984   $10,929

Weighted average common shares outstanding
 - basic                                            28,117    27,221
Weighted average common shares outstanding
 - diluted                                          28,303    27,430

Net income per share of common stock - basic         $0.21     $0.40
Net income per share of common stock - diluted       $0.21     $0.40

Funds From Operations (2) (3)                      $20,956   $26,320

Weighted average common shares/units outstanding
 - basic (4)                                        32,268    31,453
Weighted average common shares/units outstanding
 - diluted (4)                                      32,454    31,662

Funds From Operations per common share/unit
 - basic (4)                                         $0.65     $0.84
Funds From Operations per common share/unit
 - diluted (4)                                       $0.65     $0.83

Common shares outstanding at end of period          28,328    27,475
Common partnership units outstanding
 at end of period                                    4,148     4,222
                                                  --------- ---------
    Total common shares and units outstanding
     at end of period                               32,476    31,697

                                                   March 31, March 31,
                                                     2004      2003
                                                  --------- ---------
Stabilized portfolio occupancy rates:
 Los Angeles                                          81.5%     83.9%
 Orange County                                        95.3%     98.7%
 San Diego                                            93.4%     89.6%
 Other                                                92.9%     93.9%
                                                  --------- ---------
    Weighted average total                            90.9%     92.2%

Total square feet of stabilized properties owned
 at end of period:
 Office                                              7,183     7,055
 Industrial                                          4,879     4,881
                                                  --------- ---------
    Total                                           12,062    11,936

(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)


                                                March 31,  Dec. 31,
                                                  2004       2003
                                               ---------- ----------
ASSETS
REAL ESTATE ASSETS:
  Land and improvements                          $289,317   $289,730
  Buildings and improvements, net               1,297,624  1,305,145
  Undeveloped land and construction
   in progress, net                               124,911    131,411
                                               ---------- ----------
    Total real estate held for investment       1,711,852  1,726,286
  Accumulated depreciation and amortization      (329,409)  (321,372)
                                               ---------- ----------
    Real estate held for investment, net        1,382,443  1,404,914
  Property held for sale, net                      18,303
                                               ---------- ----------
    Total real estate assets, net               1,400,746  1,404,914

Cash and cash equivalents                           6,730      9,892
Restricted cash                                     9,785      8,558
Current receivables, net                            5,988      4,919
Deferred rent receivables, net                     39,288     36,804
Deferred leasing costs, net                        36,094     36,651
Deferred financing costs, net                       3,318      3,657
Prepaid expenses and other assets                   7,416      7,240
                                               ---------- ----------

    TOTAL ASSETS                               $1,509,365 $1,512,635
                                               ---------- ----------

LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES:
  Secured debt                                   $617,294   $526,048
  Unsecured line of credit                        150,000    235,000
  Accounts payable, accrued expenses
   and other liabilities                           40,908     41,147
  Accrued distributions                            16,477     16,369
  Rents received in advance, tenant security
   deposits and deferred revenue                   19,332     20,904
                                               ---------- ----------
    Total liabilities                             844,011    839,468
                                               ---------- ----------

MINORITY INTERESTS:
  7.450% Series A Cumulative Redeemable
   Preferred unitholders (1)                       73,653     73,716
  9.250% Series D Cumulative Redeemable
   Preferred unitholders                           44,321     44,321
  Common unitholders of the Operating
   Partnership                                     65,094     66,502
                                               ---------- ----------
    Total minority interests                      183,068    184,539
                                               ---------- ----------

STOCKHOLDERS' EQUITY:
   7.800% Series E Cumulative Redeemable
    Preferred stock                                38,437     38,437
   Common stock                                       283        282
   Additional paid-in capital                     512,359    508,568
   Deferred compensation                           (2,839)      (852)
   Distributions in excess of earnings            (61,487)   (53,449)
   Accumulated net other comprehensive loss        (4,467)    (4,358)
                                               ---------- ----------
    Total stockholders' equity                    482,286    488,628
                                               ---------- ----------
    TOTAL LIABILITIES &
     STOCKHOLDERS' EQUITY                      $1,509,365 $1,512,635
                                               ========== ==========

(1) On March 5, 2004, the Company amended the terms of its Series
    A Cumulative Redeemable Preferred Units ("Series A Preferred
    Units") to reduce the distribution rate and extend the redemption
    date to September 30, 2009. Commencing March 5, 2004,
    distributions on the Series A Preferred Units accrued at an annual
    rate of 7.45%. Prior to March 5, 2004, distributions on the Series
    A Preferred Units accrued at an annual rate of 8.075%.


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


                                                 Three Months Ended
                                               ---------------------
                                                 March 31,  March 31,
                                                   2004       2003
                                               ---------- ----------
REVENUES:
  Rental income                                   $48,075    $42,917
  Tenant reimbursements                             5,479      5,579
  Other property income                             1,020      4,524
                                               ---------- ----------
    Total revenues                                 54,574     53,020
                                               ---------- ----------

EXPENSES:
  Property expenses                                 9,156      8,405
  Real estate taxes                                 4,015      3,784
  Provision for bad debts                             258        421
  Ground leases                                       330        319
  General and administrative expenses               7,249      3,858
  Interest expense                                  9,210      7,688
  Depreciation and amortization                    14,043     13,508
                                               ---------- ----------
    Total expenses                                 44,261     37,983
                                               ---------- ----------

OTHER INCOME:
  Interest and other income                           307         46
                                               ---------- ----------
    Total other income                                307         46
                                               ---------- ----------

Income from continuing operations before
 minority interests                                10,620     15,083

Minority interests:
  Distributions on Cumulative Redeemable
   Preferred units                                 (2,521)    (3,375)
  Minority interest in earnings
   of Operating Partnership attributable
    to continuing operations                         (877)    (1,565)
                                               ---------- ----------
    Total minority interests                       (3,398)    (4,940)
                                               ---------- ----------

Income from continuing operations                   7,222     10,143

Discontinued operations:
  Revenues from discontinued operations               848      1,996
  Expenses from discontinued operations              (466)    (1,089)
  Impairment loss on property held for sale          (726)
  Minority interest in earnings
   of Operating Partnership attributable
    to discontinued operations                       (109)      (121)
                                               ---------- ----------
    Total (loss) income from
     discontinued operations                         (453)       786
                                               ---------- ----------

Net income                                          6,769     10,929

Preferred dividends                                  (785)
                                               ---------- ----------

Net income available for common shareholders       $5,984    $10,929
                                               ========== ==========

Weighted average shares outstanding - basic        28,117     27,221
Weighted average shares outstanding - diluted      28,303     27,430

Net Income per common share - basic                 $0.21      $0.40
                                               ========== ==========
Net Income per common share - diluted               $0.21      $0.40
                                               ========== ==========


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

                                                 Three Months Ended
                                               ---------------------
                                                 March 31,  March 31,
                                                   2004       2003
                                               ---------- ----------

Net income available for common shareholders       $5,984    $10,929

  Adjustments:
   Minority interest in earnings
    of Operating Partnership                          986      1,686
   Depreciation and amortization                   13,986     13,705
                                               ---------- ----------
Funds From Operations (1) (2)                     $20,956    $26,320
                                               ========== ==========

Weighted average common shares/units
 outstanding - basic                               32,268     31,453
Weighted average common shares/units
 outstanding - diluted                             32,454     31,662

Funds From Operations per common share/unit
 - basic                                            $0.65      $0.84
                                               ========== ==========
Funds From Operations per common share/unit
 - diluted                                          $0.65      $0.83
                                               ========== ==========


(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
    on operating performance not immediately apparent from net income.
    In addition, management believes that FFO provides useful
    information to the investment community about the Company's
    operating 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
Executive Vice President and CFO
or
Tyler H. Rose, 310-481-8484
Senior Vice President and Treasurer

SOURCE: Kilroy Realty Corporation