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Kilroy Realty Corporation Reports Second Quarter Financial Results

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LOS ANGELES--(BUSINESS WIRE)--July 25, 2005--Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its second quarter ended June 30, 2005, with a net loss of $1.5 million, or $0.05 per share, compared to net income available for common shareholders of $7.9 million, or $0.28 per share, in the second quarter of 2004. Revenues from continuing operations totaled $60.0 million, compared to $53.1 million in the year-earlier period. Funds from operations (FFO) in the second quarter totaled $14.4 million, or $0.44 per share, compared to $23.4 million, or $0.72 per share, in the second quarter of 2004.

For the first six months of 2005, KRC reported net income available to common shareholders of $11.3 million, or $0.39 per share, compared to $13.8 million, or $0.49 per share, in the first half of 2004. Revenues from continuing operations in the six-month period totaled $119.3 million, up from $105.9 million in the same period of 2004.

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

"Our properties continued to perform well during the second quarter with occupancy in our stabilized portfolio increasing to 95%," said John B. Kilroy, Jr., the company's president and CEO. "We also executed a 178,000 square foot lease for three new buildings in Rancho Bernardo during the quarter which demonstrates the continued strength of our San Diego development pipeline," he added.

Active projects in the company's committed development and redevelopment programs include one building in lease-up totaling approximately 241,600 square feet, two buildings under construction totaling approximately 103,000 square feet, and five committed buildings totaling approximately 540,600 square feet. These development and redevelopment projects represent a total estimated investment of approximately $257 million, of which $98 million has been spent to date.

Earnings guidance for 2005 will be discussed by KRC management during the company's July 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) 706-7745, reservation #96369098. A replay of the conference call will be available via phone through August 5, 2005 at (888) 286-8010, reservation #41255891 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 other risks detailed from time to time in the company's SEC reports, including quarterly reports on Form 10-Q, current 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. 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, 2005, the company owned 7.6 million square feet of commercial office space and 4.4 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,
                                   2005     2004      2005      2004
                                 -------- -------- --------- ---------

Revenues from continuing
 operations                      $60,033  $53,115  $119,272  $105,885

Revenues including discontinued
 operations                      $60,054  $54,921  $120,372  $110,347

Net (loss) income available to
 common stockholders (1)         $(1,466)  $7,854   $11,278   $13,838

Weighted average common shares
 outstanding - basic              28,739   28,220    28,648    28,168
Weighted average common shares
 outstanding - diluted            28,739   28,362    28,798    28,333

Net (loss) income per share of
 common stock - basic             $(0.05)   $0.28     $0.39     $0.49
Net (loss) income per share of
 common stock - diluted           $(0.05)   $0.28     $0.39     $0.49

Funds From Operations (2) (3)    $14,427  $23,385   $39,432   $44,341

Weighted average common
 shares/units outstanding -
 basic (4)                        32,458   32,316    32,439    32,292
Weighted average common
 shares/units outstanding -
 diluted (4)                      32,594   32,457    32,589    32,456

Funds From Operations per common
 share/unit - basic (4)            $0.44    $0.72     $1.22     $1.37
Funds From Operations per common
 share/unit - diluted (4)          $0.44    $0.72     $1.21     $1.37

Common shares outstanding at end
 of period                                           28,900    28,398
Common partnership units
 outstanding at end of period                         3,717     4,082
                                                   --------- ---------
  Total common shares and units
   outstanding at end of period                      32,617    32,480


                                                    June 30,  June 30,
                                                      2005      2004
                                                   --------- ---------
Stabilized portfolio occupancy rates:
  Los Angeles                                          92.4%     82.9%
  Orange County                                        98.5%     96.5%
  San Diego                                            94.3%     94.4%
  Other                                                93.0%     93.1%
                                                   --------- ---------
    Weighted average total                             95.2%     92.0%

Total square feet of stabilized properties
 owned at end of period:
  Office                                              7,607     7,185
  Industrial                                          4,358     4,878
                                                   --------- ---------
    Total                                            11,965    12,063

(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)

                                                June 30,  December 31,
                                                  2005        2004
                                               ----------- -----------
 ASSETS
 ------
 REAL ESTATE ASSETS:
   Land and improvements                         $296,412    $304,033
   Buildings and improvements, net              1,431,039   1,445,918
   Undeveloped land and construction in
    progress                                      133,466      96,545
                                               ----------- -----------
     Total real estate held for investment      1,860,917   1,846,496
   Accumulated depreciation and
    amortization                                 (382,687)   (365,831)
                                               ----------- -----------
     Real estate held for investment, net       1,478,230   1,480,665
   Property held for sale, net                      3,693           -
                                               ----------- -----------
     Total real estate assets, net              1,481,923   1,480,665

 Cash and cash equivalents                          7,706       4,853
 Restricted cash                                      728         332
 Current receivables, net                           3,624       4,843
 Deferred rent receivables, net                    51,568      46,816
 Deferred leasing costs and other related
  intangibles, net                                 49,073      51,251
 Deferred financing costs, net                      5,724       5,849
 Prepaid expenses and other assets                  6,246       5,046
                                               ----------- -----------

     TOTAL ASSETS                              $1,606,592  $1,599,655
                                               =========== ===========

 LIABILITIES & STOCKHOLDERS' EQUITY
 ----------------------------------
 LIABILITIES:
   Secured debt                                  $490,417    $490,441
   Unsecured senior notes                         144,000     144,000
   Unsecured line of credit                       184,000     167,000
   Accounts payable, accrued expenses and
    other liabilities                              81,689      73,005
   Accrued distributions                           17,844      16,923
   Rents received in advance, tenant security
    deposits and deferred revenue                  20,734      21,605
                                               ----------- -----------
     Total liabilities                            938,684     912,974
                                               ----------- -----------

 MINORITY INTERESTS:
   7.45% Series A Cumulative Redeemable
    Preferred unitholders                          73,638      73,638
   Common unitholders of the Operating
    Partnership                                    53,934      60,351
                                               ----------- -----------
     Total minority interests                     127,572     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                                       289         286
   Additional paid-in capital                     522,321     515,285
   Deferred compensation                           (3,069)     (1,412)
   Distributions in excess of earnings           (101,591)    (83,394)
   Accumulated net other comprehensive
    income                                            804         345
                                               ----------- -----------
     Total stockholders' equity                   540,336     552,692
                                               ----------- -----------

     TOTAL LIABILITIES & STOCKHOLDERS'
      EQUITY                                   $1,606,592  $1,599,655
                                               =========== ===========


    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,
                                    2005     2004      2005     2004
                                  -------- -------- --------- --------

REVENUES:
  Rental income                   $53,461  $47,925  $106,729  $94,835
  Tenant reimbursements             6,169    5,062    11,920   10,386
  Other property income               403      128       623      664
                                  -------- -------- --------- --------
       Total revenues              60,033   53,115   119,272  105,885
                                  -------- -------- --------- --------

EXPENSES:
  Property expenses                10,061    8,369    19,463   16,797
  Real estate taxes                 4,462    4,092     8,859    7,954
  Provision for bad debts             272      385     1,405      610
  Ground leases                       443      332       848      662
  General and administrative
   expenses                        16,790    5,250    22,814   12,943
  Interest expense                  9,568    9,148    19,190   18,358
  Depreciation and amortization    16,294   14,140    32,490   27,791
                                  -------- -------- --------- --------
       Total expenses              57,890   41,716   105,069   85,115
                                  -------- -------- --------- --------

OTHER INCOME:
  Interest and other income            54       78       111      385
                                  -------- -------- --------- --------
       Total other income              54       78       111      385
                                  -------- -------- --------- --------

Income from continuing operations
 before minority interests          2,197   11,477    14,314   21,155

Minority interests:
  Distributions on Cumulative
   Redeemable Preferred units      (1,397)  (2,437)   (2,794)  (4,958)
  Minority interest in loss
   (earnings) of Operating
   Partnership attributable to
   continuing operations              206   (1,045)     (782)  (1,954)
                                  -------- -------- --------- --------
       Total minority interests    (1,191)  (3,482)   (3,576)  (6,912)
                                  -------- -------- --------- --------

Income from continuing operations   1,006    7,995    10,738   14,243

Discontinued operations:
  Revenues from discontinued
   operations                          21    1,806     1,100    4,462
  Expenses from discontinued
   operations                        (116)  (1,005)     (830)  (2,337)
  Net (loss) gain on disposition
   of discontinued operations                  (64)    5,779      (64)
  Impairment loss on property
   held for sale                                                 (726)
  Minority interest in loss
   (earnings) of Operating
   Partnership attributable to
   discontinued operations             25      (93)     (705)    (170)
                                  -------- -------- --------- --------
       Total (loss) income from
        discontinued operations       (70)     644     5,344    1,165
                                  -------- -------- --------- --------

Net income                            936    8,639    16,082   15,408

Preferred dividends                (2,402)    (785)   (4,804)  (1,570)
                                  -------- -------- --------- --------

Net (loss) income available for
 common shareholders              $(1,466)  $7,854   $11,278  $13,838
                                  ======== ======== ========= ========

Weighted average shares
 outstanding - basic               28,739   28,220    28,648   28,168
Weighted average shares
 outstanding - diluted             28,739   28,362    28,798   28,333

Net (loss) income per common
 share - basic                     $(0.05)   $0.28     $0.39    $0.49
                                  ======== ======== ========= ========
Net (loss) income per common
 share - diluted                   $(0.05)   $0.28     $0.39    $0.49
                                  ======== ======== ========= ========


           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,
                                     2005     2004     2005     2004
                                   -------- -------- -------- --------

Net (loss) income available for
 common shareholders               $(1,466)  $7,854  $11,278  $13,838

Adjustments:
  Minority interest in (loss)
   earnings of Operating
   Partnership                        (231)   1,138    1,487    2,124
  Depreciation and amortization     16,124   14,329   32,446   28,315
  Net loss (gain) on dispositions
   of operating properties                       64   (5,779)      64
                                   -------- -------- -------- --------
Funds From Operations (1) (2)      $14,427  $23,385  $39,432  $44,341
                                   ======== ======== ======== ========

Weighted average common
 shares/units outstanding - basic   32,458   32,316   32,439   32,292
Weighted average common
 shares/units outstanding - diluted 32,594   32,457   32,589   32,456

Funds From Operations per common
 share/unit - basic                  $0.44    $0.72    $1.22    $1.37
                                   ======== ======== ======== ========
Funds From Operations per common
 share/unit - diluted                $0.44    $0.72    $1.21    $1.37
                                   ======== ======== ======== ========

(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