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Kilroy Realty Corporation Reports Fourth Quarter Financial Results

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LOS ANGELES--(BUSINESS WIRE)--Jan. 31, 2005--Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its fourth quarter ended December 31, 2004, with net income available for common shareholders of $2.2 million, or $0.08 per share, compared to $4.9 million, or $0.18 per share in the fourth quarter of 2003. Revenues from continuing operations in the fourth quarter totaled $58.0 million, compared to $53.0 million in the prior year's fourth quarter. Funds from operations (FFO) for the period totaled $17.4 million, or $0.53 per share, compared to $20.2 million, or $0.62 per share, in the year-earlier period.

For its fiscal year ended December 31, 2004, KRC reported net income available for common shareholders of $26.4 million, or $0.93 per share, compared to $49.3 million, or $1.78 per share, in fiscal year 2003. Revenues from continuing operations in 2004 totaled $221.4 million, compared to $222.8 million in 2003. FFO for the year totaled $81.9 million, or $2.52 per share, compared to $108.9 million, or $3.41 per share, a year ago.

The annual results include $0.8 million and $17.9 million of income in the fiscal years 2004 and 2003, respectively, that are part of a $21.3 million settlement reached with Peregrine Systems, Inc. over claims arising from its bankruptcy filing in September 2002. Excluding this income, KRC's FFO would have been $81.1 and $91.0 million in 2004 and 2003, respectively.

The quarterly and annual results for 2004 and 2003 were also impacted by charges related to KRC's three-year long-term compensation plan that will be paid out when the plan terminates at the end of 2005. Included in the 2004 fourth quarter and annual results were charges of $7.8 million and $18.5 million, respectively, related to the plan. Included in the 2003 fourth quarter and annual results were charges of $3.4 million and $5.9 million, respectively, related to the plan.

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

"Recovering Southern California real estate markets and a successfully executed leasing program boosted occupancy in our stabilized portfolio by four percentage points in 2004 to 94.6% at year-end," said John B. Kilroy, Jr., president and chief executive officer of KRC. "Our markets continue to improve and we're actively seeking new development opportunities in the strongest of these, particularly San Diego," he said.

KRC added $160 million of new properties to its portfolio in 2004, including $62 million of new development and $98 million of acquisitions. These include a newly developed 208,000 square-foot office property in Del Mar that is 100% leased and a newly acquired two-building, 282,000 square-foot office property along the I-15 Corridor that is 90% leased. The acquired property also includes development rights for a third, 143,000 square-foot office building.

KRC maintains an active committed development and redevelopment program in the Southern California commercial real estate market that currently includes two buildings under construction totaling approximately 103,000 square feet and two buildings in lease-up totaling approximately 310,000 square feet. This committed pipeline represents a total estimated investment of approximately $111 million, of which $77 million has been spent to date.

Earnings guidance for 2005 will be discussed by KRC management during the company's February 1, 2005, 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 800-299-7098, passcode 49888425. A replay of the conference call will be available via telephone through February 11th, at 888-286-8010, passcode 26925192, 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; fluctuations in the company's share price and the resulting impact on general and administrative 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 December 31, 2004, the company owned 7.7 million square feet of commercial office space and 4.6 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
                                  Months   Months    Year      Year
                                  Ended    Ended     Ended     Ended
                                 December December December  December
                                   31,      31,       31,       31,
                                   2004     2003     2004      2003
                                 -------- -------- --------- ---------

 Revenues from continuing
  operations                     $58,027  $52,988  $221,399  $222,837

 Revenues including discontinued
  operations                     $58,027  $54,218  $223,785  $229,719

 Net income available to common
  stockholders (1)                $2,191   $4,938   $26,386   $49,263

 Weighted average common shares
  outstanding - basic             28,368   27,941    28,244    27,527
 Weighted average common shares
  outstanding - diluted           28,581   28,167    28,422    27,738

 Net income per share of common
  stock - basic                    $0.08    $0.18     $0.93     $1.79
 Net income per share of common
  stock - diluted                  $0.08    $0.18     $0.93     $1.78

 Funds From Operations (2) (3)   $17,360  $20,197   $81,886  $108,881

 Weighted average common
  shares/units outstanding -
  basic (4)                       32,358   32,149    32,317    31,745
 Weighted average common
  shares/units outstanding -
  diluted (4)                     32,572   32,374    32,495    31,957

 Funds From Operations per common
  share/unit - basic (4)           $0.54    $0.63     $2.53     $3.43
 Funds From Operations per common
  share/unit - diluted (4)         $0.53    $0.62     $2.52     $3.41

 Common shares outstanding at end
  of period                                          28,549    28,209
 Common partnership units
  outstanding at end of period                        3,989     4,154
                                                   --------- ---------
    Total common shares and units
     outstanding at end of period                    32,538    32,363


                                                    December  December
                                                    31, 2004  31, 2003
                                                   --------- ---------
 Stabilized portfolio occupancy
  rates:
    Los Angeles                                        86.5%     81.0%
    Orange County                                      99.2%     94.9%
    San Diego                                          97.1%     92.3%
    Other                                              92.3%     93.1%
                                                   --------- ---------
     Weighted average total                            94.6%     90.3%

 Total square feet of stabilized
  properties owned at end of period:
    Office                                            7,674     7,316
    Industrial                                        4,603     4,879
                                                   --------- ---------
     Total                                           12,277    12,195


(1) Net income after minority interests.

(2) Reconciliation of Net Income to Funds From Operations and
    management statement on Funds From Operations are 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,
                                                  2004        2003
                                               ----------- -----------

 ASSETS
 ------
 REAL ESTATE ASSETS:
  Land and improvements                          $304,033    $289,730
  Buildings and improvements, net               1,445,918   1,305,145
  Undeveloped land and construction in
   progress, net                                   96,545     131,411
                                               ----------- -----------
   Total real estate held for investment        1,846,496   1,726,286
  Accumulated depreciation and amortization      (365,831)   (321,372)
                                               ----------- -----------
   Total real estate assets, net                1,480,665   1,404,914

 Cash and cash equivalents                          4,853       9,892
 Restricted cash                                      332       8,558
 Current receivables, net                           4,843       4,919
 Deferred rent receivables, net                    46,816      36,804
 Deferred leasing costs and other related
  intangibles, net                                 51,251      36,651
 Deferred financing costs, net                      5,409       3,657
 Prepaid expenses and other assets                  5,046       7,240
                                               ----------- -----------

   TOTAL ASSETS                                $1,599,215  $1,512,635
                                               =========== ===========



 LIABILITIES & STOCKHOLDERS' EQUITY
 ------------------------------------------
 LIABILITIES:
  Secured debt                                   $490,441    $526,048
  Unsecured senior notes                          144,000
  Unsecured line of credit                        167,000     235,000
  Accounts payable, accrued expenses and
   other liabilities                               72,565      41,147
  Accrued distributions                            16,923      16,369
  Rents received in advance, tenant security
   deposits and deferred revenue                   21,605      20,904
                                               ----------- -----------
   Total liabilities                              912,534     839,468
                                               ----------- -----------

 MINORITY INTERESTS:
  7.450% Series A Cumulative Redeemable
   Preferred unitholders                           73,638      73,716
  9.250% Series D Cumulative Redeemable
   Preferred unitholders                                       44,321
  Common unitholders of the Operating
   Partnership                                     60,351      66,502
                                               ----------- -----------
   Total minority interests                       133,989     184,539
                                               ----------- -----------


 STOCKHOLDERS' EQUITY:
  7.800% Series E Cumulative Redeemable
   Preferred stock                                 38,425      38,437
  7.500% Series F Cumulative Redeemable
   Preferred stock                                 83,157
  Common stock                                        286         282
  Additional paid-in capital                      515,285     508,568
  Deferred compensation                            (1,412)       (852)
  Distributions in excess of earnings             (83,394)    (53,449)
  Accumulated net other comprehensive
   income (loss)                                      345      (4,358)
                                               ----------- -----------
   Total stockholders' equity                     552,692     488,628
                                               ----------- -----------

   TOTAL LIABILITIES & STOCKHOLDERS' EQUITY    $1,599,215  $1,512,635
                                               =========== ===========




    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, 2004 31, 2003 31, 2004  31, 2003
                                 -------- -------- --------- ---------

 REVENUES:
  Rental income                  $50,854  $47,146  $197,981  $178,842
  Tenant reimbursements            6,152    5,153    21,522    19,997
  Other property income            1,021      689     1,896    23,998
                                 -------- -------- --------- ---------
      Total revenues              58,027   52,988   221,399   222,837
                                 -------- -------- --------- ---------

 EXPENSES:
  Property expenses                9,115    8,575    35,018    31,835
  Real estate taxes                4,180    4,260    16,811    15,457
  Provision for bad debts            796      (83)      912     1,579
  Ground leases                      406      326     1,401     1,296
  General and administrative
   expenses                       11,679    6,864    34,021    20,095
  Interest expense                 9,749    9,242    37,647    33,385
  Depreciation and amortization   15,105   14,521    58,422    55,206
                                 -------- -------- --------- ---------
      Total expenses              51,030   43,705   184,232   158,853
                                 -------- -------- --------- ---------

 OTHER INCOME:
  Interest and other income           59       66       521       196
                                 -------- -------- --------- ---------
      Total other income              59       66       521       196
                                 -------- -------- --------- ---------

 Income from continuing
  operations before minority
  interests                        7,056    9,349    37,688    64,180

 Minority interests:
  Distributions on Cumulative
   Redeemable
   Preferred units                (2,183)  (3,038)   (9,579)  (13,163)
  Original issuance costs of
   redeemed preferred units       (1,200)    (945)   (1,200)     (945)
  Minority interest in earnings
   of Operating Partnership
   attributable to continuing
    operations                      (284)    (632)   (2,927)   (6,579)
                                 -------- -------- --------- ---------
      Total minority interests    (3,667)  (4,615)  (13,706)  (20,687)
                                 -------- -------- --------- ---------

 Income from continuing
  operations                       3,389    4,734    23,982    43,493

 Discontinued operations:
  Revenues from discontinued
   operations                               1,230     2,386     6,882
  Expenses from discontinued
   operations                                (598)     (989)   (3,472)
  Net gain on disposition of
   discontinued operations                            6,148     3,642
  Impairment loss on property
   held for sale                                       (726)
  Minority interest in earnings
   of Operating Partnership
   attributable to discontinued
    operations                                (79)     (862)     (933)
                                 -------- -------- --------- ---------
      Total income from
       discontinued operations                553     5,957     6,119
                                 -------- -------- --------- ---------

 Net income                        3,389    5,287    29,939    49,612

 Preferred dividends              (1,198)    (349)   (3,553)     (349)
                                 -------- -------- --------- ---------

 Net income available for common
  shareholders                    $2,191   $4,938   $26,386   $49,263
                                 ======== ======== ========= =========

 Weighted average shares
  outstanding - basic             28,368   27,941    28,244    27,527
 Weighted average shares
  outstanding - diluted           28,581   28,167    28,422    27,738

 Net Income per common share -
  basic                            $0.08    $0.18     $0.93     $1.79
                                 ======== ======== ========= =========
 Net Income per common share -
  diluted                          $0.08    $0.18     $0.93     $1.78
                                 ======== ======== ========= =========



            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,
                                    2004     2003     2004      2003
                                  -------- -------- -------- ---------

 Net income available for common
  shareholders                     $2,191   $4,938  $26,386   $49,263

  Adjustments:
     Minority interest in earnings
      of Operating Partnership        284      711    3,789     7,512
      Depreciation and
       amortization                14,885   14,548   57,859    55,748
      Net gain on dispositions of
       operating properties                          (6,148)   (3,642)
                                  -------- -------- -------- ---------
 Funds From Operations (1) (2)    $17,360  $20,197  $81,886  $108,881
                                  ======== ======== ======== =========

 Weighted average common
  shares/units outstanding - basic 32,358   32,149   32,317    31,745
 Weighted average common
  shares/units outstanding -
  diluted                          32,572   32,374   32,495    31,957

 Funds From Operations per common
  share/unit - basic                $0.54    $0.63    $2.53     $3.43
                                  ======== ======== ======== =========
 Funds From Operations per common
  share/unit - diluted              $0.53    $0.62    $2.52     $3.41
                                  ======== ======== ======== =========


(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
Tyler H. Rose, 310-481-8484

SOURCE: Kilroy Realty Corporation