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Kilroy Realty Corporation Reports First Quarter Financial Results

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LOS ANGELES, Apr 25, 2005 (BUSINESS WIRE) -- Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its first quarter ended March 31, 2005, with net income available for common shareholders of $12.7 million, or $0.44 per share, compared to $6.0 million, or $0.21 per share in the first quarter of 2004. Revenues from continuing operations in the first quarter totaled $59.2 million, compared to $53.3 million in the prior year's first quarter. Funds from operations (FFO) for the period totaled $25.0 million, or $0.77 per share, compared to $21.0 million, or $0.65 per share, in the year-earlier period.

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

"Southern California real estate markets continued to remain solid during the first quarter, with our quarter-end occupancy above 94%," said John B. Kilroy, Jr., president and chief executive officer of KRC. "Our recently announced lease agreement with Intuit for a new coastal San Diego office campus is a good example of the type of product and location attracting interest in the region today," he said.

KRC maintains an active committed development and redevelopment program in the Southern California commercial real estate market. In addition to the company's recently announced 466,000 square-foot Santa Fe Summit office development, 78% of which is pre-leased to Intuit, KRC's pipeline currently includes two buildings under construction totaling approximately 103,000 square feet and one building in lease-up totaling approximately 242,000 square feet. This committed pipeline represents a total estimated investment of approximately $236 million, of which $88 million has been spent to date.

The company also completed the sale of three non-strategic assets for $38.7 million in the first quarter at a gain of $5.8 million. The properties total approximately 305,000 square feet and are located in Santa Ana and Glendale, California and Phoenix, Arizona.

Updated earnings guidance for 2005 will be discussed by KRC management during the company's April 26, 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 800-591-6942, passcode 45259324. A replay of the conference call will be available via telephone through May 6th, at 888-286-8010, passcode 19000401, 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 March 31, 2005, the company owned 7.6 million square feet of commercial office space and 4.5 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
                                                      Ended    Ended
                                                      March    March
                                                        31,      31,
                                                       2005     2004
                                                     -------- --------

 Revenues from continuing operations                 $59,248  $53,250

 Revenues including discontinued operations          $60,316  $55,423

 Net income available to common stockholders (1)     $12,743   $5,984

 Weighted average common shares outstanding - basic   28,555   28,117
 Weighted average common shares outstanding -
  diluted                                             28,720   28,303

 Net income per share of common stock - basic          $0.45    $0.21
 Net income per share of common stock - diluted        $0.44    $0.21

 Funds From Operations (2) (3)                       $25,004  $20,956

 Weighted average common shares/units outstanding -
  basic (4)                                           32,401   32,268
 Weighted average common shares/units outstanding -
  diluted (4)                                         32,587   32,454

 Funds From Operations per common share/unit - basic
  (4)                                                  $0.77    $0.65
 Funds From Operations per common share/unit -
  diluted (4)                                          $0.77    $0.65

 Common shares outstanding at end of period           28,895   28,328
 Common partnership units outstanding at end of
  period                                               3,720    4,148
                                                     -------- --------
    Total common shares and units outstanding at end
     of period                                        32,615   32,476


                                                      March    March
                                                        31,      31,
                                                       2005     2004
                                                     -------- --------
 Stabilized portfolio occupancy rates:
    Los Angeles                                         88.8%    81.5%
    Orange County                                       98.3%    95.3%
    San Diego                                           94.3%    93.4%
    Other                                               93.5%    92.9%
                                                     -------- --------
     Weighted average total                             94.1%    90.9%

 Total square feet of stabilized properties owned at
  end of period:
    Office                                             7,567    7,183
    Industrial                                         4,472    4,879
                                                     -------- --------
     Total                                            12,039   12,062



(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)


                                                  March      December
                                                   31,          31,
                                                  2005         2004
                                               ----------- -----------

 ASSETS
 ---------------------------------------------
 REAL ESTATE ASSETS:
  Land and improvements                          $295,409    $304,033
  Buildings and improvements, net               1,428,069   1,445,918
  Undeveloped land and construction in
   progress                                       103,388      96,545
                                               ----------- -----------
   Total real estate held for investment        1,826,866   1,846,496
  Accumulated depreciation and amortization      (373,514)   (365,831)
                                               ----------- -----------
   Total real estate assets, net                1,453,352   1,480,665

 Cash and cash equivalents                         11,040       4,853
 Restricted cash                                        2         332
 Current receivables, net                           3,177       4,843
 Deferred rent receivables, net                    49,015      46,816
 Deferred leasing costs and other related
  intangibles, net                                 49,586      51,251
 Deferred financing costs, net                      6,102       5,849
 Prepaid expenses and other assets                  8,332       5,046
                                               ----------- -----------

   TOTAL ASSETS                                $1,580,606  $1,599,655
                                               =========== ===========



 LIABILITIES & STOCKHOLDERS' EQUITY
 ---------------------------------------------
 LIABILITIES:
  Secured debt                                   $486,563    $490,441
  Unsecured senior notes                          144,000     144,000
  Unsecured line of credit                        153,000     167,000
  Accounts payable, accrued expenses and other
   liabilities                                     71,874      73,005
  Accrued distributions                            17,844      16,923
  Rents received in advance, tenant security
   deposits and deferred revenue                   21,404      21,605
                                               ----------- -----------
   Total liabilities                              894,685     912,974
                                               ----------- -----------

 MINORITY INTERESTS:
  7.45% Series A Cumulative Redeemable
   Preferred unitholders                           73,638      73,638
  Common unitholders of the Operating
   Partnership                                     56,039      60,351
                                               ----------- -----------
   Total minority interests                       129,677     133,989
                                               ----------- -----------


 STOCKHOLDERS' EQUITY:
  7.80% Series E Cumulative Redeemable
   Preferred stock                                 38,425      38,425
  7.50% Series F Cumulative Redeemable
   Preferred stock                                 83,157      83,157
  Common stock                                        290         286
  Additional paid-in capital                      522,233     515,285
  Deferred compensation                            (3,558)     (1,412)
  Distributions in excess of earnings             (85,387)    (83,394)
  Accumulated net other comprehensive income        1,084         345
                                               ----------- -----------
   Total stockholders' equity                     556,244     552,692
                                               ----------- -----------

   TOTAL LIABILITIES & STOCKHOLDERS' EQUITY    $1,580,606  $1,599,655
                                               =========== ===========



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


                                                      Three    Three
                                                      Months   Months
                                                      Ended    Ended
                                                      March    March
                                                        31,      31,
                                                       2005     2004
                                                     -------- --------

 REVENUES:
  Rental income                                      $53,268  $46,909
  Tenant reimbursements                                5,751    5,323
  Other property income                                  229    1,018
                                                     -------- --------
      Total revenues                                  59,248   53,250
                                                     -------- --------

 EXPENSES:
  Property expenses                                    9,461    8,503
  Real estate taxes                                    4,420    3,889
  Provision for bad debts                              1,133      224
  Ground leases                                          405      330
  General and administrative expenses                  6,024    7,693
  Interest expense                                     9,622    9,210
  Depreciation and amortization                       16,237   13,691
                                                     -------- --------
      Total expenses                                  47,302   43,540
                                                     -------- --------

 OTHER INCOME:
  Interest and other income                               57      307
                                                     -------- --------
      Total other income                                  57      307
                                                     -------- --------

 Income from continuing operations before minority
  interests                                           12,003   10,017

 Minority interests:
  Distributions on Cumulative Redeemable
   Preferred units                                    (1,397)  (2,521)
  Minority interest in earnings of Operating
   Partnership
   attributable to continuing operations                (977)    (953)
                                                     -------- --------
      Total minority interests                        (2,374)  (3,474)
                                                     -------- --------

 Income from continuing operations                     9,629    6,543

 Discontinued operations:
  Revenues from discontinued operations                1,068    2,173
  Expenses from discontinued operations                 (590)  (1,188)
  Net gain on disposition of discontinued operations   5,779
  Impairment loss on property held for sale                      (726)
  Minority interest in earnings of Operating
   Partnership
   attributable to discontinued operations              (741)     (33)
                                                     -------- --------
      Total income from discontinued operations        5,516      226
                                                     -------- --------

 Net income                                           15,145    6,769

 Preferred dividends                                  (2,402)    (785)
                                                     -------- --------

 Net income available for common shareholders        $12,743   $5,984
                                                     ======== ========

 Weighted average shares outstanding - basic          28,555   28,117
 Weighted average shares outstanding - diluted        28,720   28,303

 Net Income per common share - basic                   $0.45    $0.21
                                                     ======== ========
 Net Income per common share - diluted                 $0.44    $0.21
                                                     ======== ========


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



                                                      Three    Three
                                                      Months   Months
                                                      Ended    Ended
                                                      March    March
                                                        31,      31,
                                                       2005     2004
                                                     -------- --------

 Net income available for common shareholders        $12,743   $5,984

  Adjustments:
      Minority interest in earnings of
       Operating Partnership                           1,718      986
      Depreciation and amortization                   16,322   13,986
      Net gain on dispositions of operating
       properties                                     (5,779)
                                                     -------- --------
 Funds From Operations (1) (2)                       $25,004  $20,956
                                                     ======== ========

 Weighted average common shares/units outstanding -
  basic                                               32,401   32,268
 Weighted average common shares/units outstanding -
  diluted                                             32,587   32,454

 Funds From Operations per common share/unit - basic   $0.77    $0.65
                                                     ======== ========
 Funds From Operations per common share/unit -
  diluted                                              $0.77    $0.65
                                                     ======== ========


(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.

SOURCE: Kilroy Realty Corporation

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