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Kilroy Realty Corporation Reports Second Quarter Financial Results

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LOS ANGELES--(BUSINESS WIRE)--July 26, 2004--Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its second quarter ended June 30, 2004, with net income available for common shareholders of $7.9 million, or $0.28 per share, compared to $13.4 million, or $0.49 per share, in the second quarter of 2003. Revenues from continuing operations totaled $54.5 million, compared to $48.8 million in the year-earlier period. Funds from operations (FFO) in the second quarter totaled $23.4 million, or $0.72 per share, compared to $24.9 million, or $0.78 per share, in the second quarter of 2003.

For the first six months of 2004, KRC reported net income available to common shareholders of $13.8 million, or $0.49 per share, compared to $24.3 million, or $0.88 per share, in the first half of 2003. Revenues from continuing operations in the six-month period totaled $109.0 million, up from $101.8 million in the same period of 2003.

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

"Leasing efforts at KRC have produced solid results and occupancy in our stabilized portfolio rose to 92% in the second quarter," said John B. Kilroy, Jr., the company's president and CEO. "With continued strong demand for high quality office properties in coastal San Diego, we've initiated development on the third phase of our Innovation Corporate Center."

Innovation Corporate Center is located in the Rancho Bernardo area of San Diego County and is scheduled to be a four-phase, 500,000-square-foot complex upon completion. The third phase includes two buildings that commenced construction in early July of this year, which total approximately 103,000 square feet of space and represent an estimated total investment of approximately $23 million.

Other active projects in the company's committed development and redevelopment programs include two buildings in lease-up totaling approximately 277,000 square feet and one building undergoing redevelopment totaling approximately 242,000 square feet. KRC's committed pipeline, including its two new development projects, represents a total estimated investment of approximately $170 million, of which $125 million has been spent to date.

Earnings guidance for 2004 will be discussed by KRC management during the company's July 27, 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 August 3, 2004, at 800-428-6051, reservation #356067, 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; 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 June 30, 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    Three     Six       Six
                                  Months   Months    Months    Months
                                  Ended    Ended     Ended     Ended
                                 June 30, June 30, June 30,  June 30,
                                   2004     2003      2004      2003
                                 -------- -------- --------- ---------

 Revenues from continuing
  operations                     $54,475  $48,754  $109,049  $101,776

 Revenues including discontinued
  operations                     $54,925  $50,440  $110,347  $105,454

 Net income available to common
  stockholders (1)                $7,854  $13,360   $13,838   $24,286

 Weighted average common shares
  outstanding - basic             28,220   27,351    28,168    27,287
 Weighted average common shares
  outstanding - diluted           28,362   27,545    28,333    27,488

 Net income per share of common
  stock - basic                    $0.28    $0.49     $0.49     $0.89
 Net income per share of common
  stock - diluted                  $0.28    $0.49     $0.49     $0.88

 Funds From Operations (2) (3)   $23,385  $24,893   $44,341   $51,210

 Weighted average common
  shares/units outstanding -
  basic (4)                       32,316   31,572    32,292    31,513
 Weighted average common
  shares/units outstanding -
  diluted (4)                     32,457   31,766    32,456    31,714

 Funds From Operations per common
  share/unit - basic (4)           $0.72    $0.79     $1.37     $1.63
 Funds From Operations per common
  share/unit - diluted (4)         $0.72    $0.78     $1.37     $1.61

 Common shares outstanding at end
  of period                                          28,398    27,565
 Common partnership units
  outstanding at end of period                        4,082     4,219
                                                   --------- ---------
    Total common shares and units
     outstanding at end of period                    32,480    31,784


                                                   June 30,  June 30,
                                                      2004      2003
                                                   --------- ---------
 Stabilized portfolio occupancy
  rates:
    Los Angeles                                        82.9%     81.4%
    Orange County                                      96.5%     97.9%
    San Diego                                          94.4%     89.4%
    Other                                              93.1%     96.4%
                                                   --------- ---------
     Weighted average total                            92.0%     90.9%

 Total square feet of stabilized
  properties owned at end of period:
    Office                                            7,184     6,943
    Industrial                                        4,879     4,877
                                                   --------- ---------
     Total                                           12,063    11,820


(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)


                                                  June      December
                                                   30,         31,
                                                  2004        2003
                                               ----------- -----------

 ASSETS
 ------
 REAL ESTATE ASSETS:
   Land and improvements                         $289,258    $289,730
   Buildings and improvements, net              1,306,576   1,305,145
   Undeveloped land and construction in
    progress, net                                 128,160     131,411
                                               ----------- -----------
    Total real estate held for investment       1,723,994   1,726,286
   Accumulated depreciation and amortization     (341,874)   (321,372)
                                               ----------- -----------
    Total real estate assets, net               1,382,120   1,404,914

 Cash and cash equivalents                          7,444       9,892
 Restricted cash                                    7,352       8,558
 Current receivables, net                           4,043       4,919
 Deferred rent receivables, net                    41,134      36,804
 Deferred leasing costs, net                       37,824      36,651
 Deferred financing costs, net                      2,889       3,657
 Prepaid expenses and other assets                  6,672       7,240
                                               ----------- -----------

    TOTAL ASSETS                               $1,489,478  $1,512,635
                                               =========== ===========

 LIABILITIES & STOCKHOLDERS' EQUITY
 ----------------------------------
 LIABILITIES:
   Secured debt                                  $614,806    $526,048
   Unsecured line of credit                       140,000     235,000
   Accounts payable, accrued expenses and
    other liabilities                              35,976      41,147
   Accrued distributions                           16,478      16,369
   Rents received in advance, tenant
    security deposits and deferred revenue         20,361      20,904
                                               ----------- -----------
    Total liabilities                             827,621     839,468
                                               ----------- -----------

 MINORITY INTERESTS:
   7.450% Series A Cumulative Redeemable
    Preferred unitholders (1)                      73,638      73,716
   9.250% Series D Cumulative Redeemable
    Preferred unitholders                          44,321      44,321
   Common unitholders of the Operating
    Partnership                                    63,640      66,502
                                               ----------- -----------
    Total minority interests                      181,599     184,539
                                               ----------- -----------

 STOCKHOLDERS' EQUITY:
   7.800% Series E Cumulative Redeemable
    Preferred stock                                38,425      38,437
   Common stock                                       284         282
   Additional paid-in capital                     512,994     508,568
   Deferred compensation                           (2,445)       (852)
   Distributions in excess of earnings            (67,689)    (53,449)
   Accumulated net other comprehensive loss        (1,311)     (4,358)
                                               ----------- -----------
    Total stockholders' equity                    480,258     488,628
                                               ----------- -----------

    TOTAL LIABILITIES & STOCKHOLDERS' EQUITY   $1,489,478  $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        Three     Six      Six
                               Months       Months    Months   Months
                               Ended        Ended     Ended    Ended
                             June 30,     June 30,   June 30, June 30,
                                2004         2003      2004     2003
                             ----------  ----------- -------- --------

 REVENUES:
  Rental income                $49,151      $43,486  $97,226  $86,403
  Tenant reimbursements          5,196        4,923   10,675   10,502
  Other property income            128          345    1,148    4,871
                             ----------  ----------- -------- --------
      Total revenues            54,475       48,754  109,049  101,776
                             ----------  ----------- -------- --------

 EXPENSES:
  Property expenses              8,866        7,431   18,022   15,836
  Real estate taxes              4,247        3,598    8,262    7,382
  Provision for bad debts          395       (1,505)     653   (1,084)
  Ground leases                    332          324      662      644
  General and administrative
   expenses                      5,026        4,011   12,275    7,869
  Interest expense               9,148        7,585   18,358   15,274
  Depreciation and
   amortization                 14,558       12,993   28,601   26,501
                             ----------  ----------- -------- --------
      Total expenses            42,572       34,437   86,833   72,422
                             ----------  ----------- -------- --------

 OTHER INCOME:
  Interest and other income         78           48      385       94
                             ----------  ----------- -------- --------
      Total other income            78           48      385       94
                             ----------  ----------- -------- --------

 Income from continuing
  operations before minority
  interests                     11,981       14,365   22,601   29,448

 Minority interests:
  Distributions on Cumulative
   Redeemable Preferred units   (2,437)      (3,375)  (4,958)  (6,750)
  Minority interest in
   earnings of Operating
   Partnership attributable to
   continuing operations        (1,108)      (1,465)  (2,138)  (3,030)
                             ----------  ----------- -------- --------
      Total minority
       interests                (3,545)      (4,840)  (7,096)  (9,780)
                             ----------  ----------- -------- --------

 Income from continuing
  operations                     8,436        9,525   15,505   19,668

 Discontinued operations:
  Revenues from discontinued
   operations                      450        1,686    1,298    3,678
  Expenses from discontinued
   operations                     (153)        (950)    (619)  (2,038)
  Impairment loss on property
   held for sale                                        (726)
  Net (loss) gain on
   disposition of
   discontinued operations         (64)       3,690      (64)   3,690
  Minority interest in
   earnings of Operating
   Partnership
   attributable to
   discontinued operations         (30)        (591)      14     (712)
                             ----------  ----------- -------- --------
      Total income (loss)
       from discontinued
       operations                  203        3,835      (97)   4,618
                             ----------  ----------- -------- --------

 Net income                      8,639       13,360   15,408   24,286

 Preferred dividends              (785)               (1,570)
                             ----------  ----------- -------- --------

 Net income available for
  common shareholders           $7,854      $13,360  $13,838  $24,286
                             ==========  =========== ======== ========

 Weighted average shares
  outstanding - basic           28,220       27,351   28,168   27,287
 Weighted average shares
  outstanding - diluted         28,362       27,545   28,333   27,488

 Net Income per common share
  - basic                        $0.28        $0.49    $0.49    $0.89
                             ==========  =========== ======== ========
 Net Income per common share
  - diluted                      $0.28        $0.49    $0.49    $0.88
                             ==========  =========== ======== ========



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


                                    Three    Three     Six      Six
                                    Months   Months   Months   Months
                                    Ended    Ended    Ended    Ended
                                   June 30, June 30, June 30, June 30,
                                     2004     2003     2004     2003
                                   -------- -------- -------- --------

 Net income available for common
  shareholders                      $7,854  $13,360  $13,838  $24,286

  Adjustments:
  Minority interest in earnings of
   Operating Partnership             1,138    2,056    2,124    3,742
  Depreciation and amortization     14,329   13,167   28,315   26,872
  Net loss (gain) on dispositions
   of operating properties              64   (3,690)      64   (3,690)
                                   -------- -------- -------- --------
 Funds From Operations (1) (2)     $23,385  $24,893  $44,341  $51,210
                                   ======== ======== ======== ========

 Weighted average common
  shares/units outstanding - basic  32,316   31,572   32,292   31,513
 Weighted average common
  shares/units outstanding -
  diluted                           32,457   31,766   32,456   31,714

 Funds From Operations per common
  share/unit - basic                 $0.72    $0.79    $1.37    $1.63
                                   ======== ======== ======== ========
 Funds From Operations per common
  share/unit - diluted               $0.72    $0.78    $1.37    $1.61
                                   ======== ======== ======== ========


(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
or
Tyler H. Rose, 310-481-8484

SOURCE: 
Kilroy Realty Corporation