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Kilroy Realty Corporation Reports Third Quarter Financial Results; Conference Call Scheduled for October 31 at 11:00 a.m. PT

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LOS ANGELES, Oct 31, 2005 (BUSINESS WIRE) -- Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its third quarter ended September 30, 2005, with net income available for common stockholders of $14.1 million, or $0.49 per share, compared to net income available for common stockholders of $10.4 million, or $0.37 per share, in the third quarter of 2004. Revenues from continuing operations totaled $60.4 million, compared to $54.5 million in the year-earlier period. Funds from operations (FFO) in the third quarter totaled $14.2 million, or $0.43 per share, compared to $20.7 million, or $0.64 per share, in the third quarter of 2004.

For the first nine months of 2005, Kilroy Realty reported net income available for common stockholders of $25.9 million, or $0.90 per share, compared to $26.7 million, or $0.94 per share, in the first nine months of 2004. Revenues from continuing operations in the nine-month period totaled $180.7 million, up from $161.3 million in the same period of 2004. FFO in the first nine months of 2005 totaled $55.1 million, or $1.69 per share, compared to $68.6 million, or $2.11 per share, in the same period of 2004.

These results include the impact from the company's previously reported pending restatement related to derivatives and lease accounting. On October 25, 2005, Kilroy Realty reported that it would restate previously issued financial statements for the fiscal years ended December 31, 2002, 2003 and 2004 and the three and six month periods ended March 31, 2005 and June 30, 2005. As previously reported, the restatement is necessary because the company has determined that designation documentation related to six interest rate swap and two interest rate cap agreements entered into during 2000 and 2002 does not meet the technical requirements under SFAS No. 133 to qualify for hedge accounting. As a result, the company is required to restate prior period financial statements to mark these instruments to market and to recognize the impact of this mark-to-market adjustment in the statement of operations for each period, rather than through other comprehensive income.

In addition, the company previously reported that it would restate the financial statements to record a capital asset and related depreciation for leasehold improvements constructed by the company that are reimbursed by tenants with a corresponding liability for deferred revenue, which will be amortized into rental revenue over the lives of the related leases. In connection with the restatement, certain other immaterial adjustments will also be recorded.

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

"Encouraged by steady job growth, strong demand for office space in our markets and continued strong operating results, we continue to build KRC's development pipeline in the region," said John B. Kilroy, Jr., Kilroy Realty's president and CEO.

During the third quarter, KRC acquired a fully entitled 20-acre development site that included a fully leased 303,000 square foot office, engineering and manufacturing building in San Diego for a purchase price of $24 million. The acquisition expands the company's already significant development pipeline in the coastal submarkets of San Diego. KRC now owns entitled land representing potential development of over 1.7 million square feet of office space in the region.

Within the company's committed development program, active projects include two buildings under construction totaling approximately 103,000 square feet, and five committed buildings totaling approximately 541,000 square feet. These projects represent a total estimated investment of approximately $189 million, of which $43 million has been spent to date.

Earnings guidance for 2005 and 2006 will be discussed by KRC management during the company's October 31, 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) 573-4754, reservation #37253602. A replay of the conference call will be available via phone through November 4, 2005 at (888) 286-8010, reservation #55931622 or via the Internet at the company's website.

The net impact of the previously announced pending restatement on earnings per share will be to increase earnings per share by $0.13 from $0.93 to $1.06 for 2004. The net impact on the three months ended March 31, 2005 will be to increase earnings per share by $0.03 from $0.44 to $0.47 and on the three months ended June 30, 2005 will be to decrease earnings per share by $0.01 from a net loss of $0.05 to a net loss of $0.06. The pending restatement will increase net income available for common stockholders from $26.4 million to $30.0 million for 2004, and from $12.7 million to $13.4 million for the quarter ended March 31, 2005. The pending restatement will increase the net loss from $1.5 million to $1.6 million for the quarter ended June 30, 2005.

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, 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. 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. Kilroy Realty currently has an in-process development pipeline of approximately 644,000 square feet of office space in San Diego County. At September 30, 2005, the company owned 7.8 million rentable square feet of commercial office space and 4.7 million rentable 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      Nine       Nine
                              Months     Months     Months     Months
                              Ended      Ended      Ended      Ended
                            September  September  September  September
                             30, 2005   30, 2004   30, 2005   30, 2004
                                           (1)                  (1)
                            ---------- ---------- ---------- ---------

Revenues from
 continuing operations       $ 60,369   $ 54,499   $180,719  $161,301

Revenues including
 discontinued
 operations                  $ 60,369   $ 55,915   $181,819  $167,177

Net income available
 to common
 stockholders (2)            $ 14,071   $ 10,446   $ 25,858  $ 26,662

Weighted average
 common shares
 outstanding - basic           28,760     28,271     28,686    28,203
Weighted average
 common shares
 outstanding - diluted         28,760     28,440     28,841    28,369

Net income per share
 of common stock
 - basic                     $   0.49   $   0.37   $   0.90  $   0.95
Net income per share
 of common stock
 - diluted                   $   0.49   $   0.37   $   0.90  $   0.94

Funds From Operations
 (3), (4)                    $ 14,150   $ 20,722   $ 55,096  $ 68,573

Weighted average
common shares/units
 outstanding
 - basic (5)                   32,477     32,327     32,452    32,304
Weighted average
 common shares/units
 outstanding
 - diluted (5)                 32,635     32,495     32,607    32,469

Funds From Operations
 per common share/unit
 - basic (5)                 $   0.44   $   0.64   $   1.70  $   2.12
Funds From Operations
 per common share/unit
 - diluted (5)               $   0.43   $   0.64   $   1.69  $   2.11

Common shares
 outstanding at end
 of period                                           28,923    28,528
Common partnership
 units outstanding
 at end of period                                     3,717     3,990
                                                    --------  --------
 Total common
  shares and units
  outstanding
  at end of period                                   32,640    32,518


                                                  September  September
                                                   30, 2005   30, 2004
                                                  ---------- ---------
Stabilized portfolio
 occupancy rates:
 Los Angeles                                           86.4%     84.8%
 Orange County                                         97.5%     96.6%
 San Diego                                             92.7%     96.4%
 Other                                                 94.1%     93.7%
                                                    --------  --------
  Weighted average total                               92.8%     93.1%

Total square feet of
 stabilized properties
 owned at
 end of period:
 Office                                               7,845     7,393
 Industrial                                           4,661     4,601
                                                    --------  --------
  Total                                              12,506    11,994


(1) Dollar amounts have been restated from amounts previously reported
    to reflect the pending restatement, previously disclosed in the
    Form 8-Ks filed with the SEC on October 25, 2005 and October 31,
    2005.

(2) Net income after minority interests.

(3) Reconciliation of Net Income to Funds From Operations and
    management statement on Funds From Operations are included after
    the Consolidated Statements of Operations.

(4) Reported amounts are attributable to common shareholders and
    common unitholders.

(5) 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)

                                           September 30,  December 31,
                                              2005          2004 (1)
                                           ------------   ------------
ASSETS
------
REAL ESTATE ASSETS:
Land and improvements                     $    319,784 $    304,033
Buildings and improvements, net              1,456,253    1,465,285
Undeveloped land and construction in
 progress                                      134,797       93,912
                                           ------------ ------------
   Total real estate held for investment     1,910,834    1,863,230
Accumulated depreciation and amortization     (403,871)    (372,656)
                                           ------------ ------------
   Total real estate assets, net             1,506,963    1,490,574

Cash and cash equivalents                        8,705        4,853
Restricted cash                                  1,565          332
Current receivables, net                         3,694        4,843
Deferred rent receivables, net                  53,168       46,816
Note receivable                                 11,241
Deferred leasing costs and other related
 intangibles, net                               48,103       50,711
Deferred financing costs, net                    5,552        5,849
Prepaid expenses and other assets                5,673        5,046
                                           ------------ ------------

   TOTAL ASSETS                           $  1,644,664 $  1,609,024
                                           ============ ============

LIABILITIES & STOCKHOLDERS' EQUITY
-----------------------------------------
LIABILITIES:
Secured debt                              $    487,727 $    490,441
Unsecured senior notes                         144,000      144,000
Unsecured line of credit                       199,000      167,000
Accounts payable, accrued expenses and
 other liabilities                              96,547       73,005
Accrued distributions                           17,856       16,923
Rents received in advance, tenant security
 deposits and deferred revenue                  38,070       37,979
                                            ------------ ------------
   Total liabilities                           983,200      929,348
                                            ------------ ------------

MINORITY INTERESTS:
7.45% Series A Cumulative Redeemable
   Preferred unitholders                        73,638       73,638
Common unitholders of the Operating
 Partnership                                    53,152       59,491
                                           ------------ ------------
   Total minority interests                    126,790      133,129
                                           ------------ ------------


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                     523,027      515,518
Deferred compensation                           (2,430)      (1,412)
Distributions in excess of earnings           (107,794)     (89,427)
                                           ------------ ------------
   Total stockholders' equity                  534,674      546,547
                                           ------------ ------------

   TOTAL LIABILITIES & STOCKHOLDERS'
    EQUITY                                $  1,644,664 $  1,609,024
                                           ============ ============


(1) Restated from amounts previously reported to reflect the pending
    restatement, previously disclosed in the Form 8-Ks filed with the
    SEC on October 25, 2005 and October 31, 2005.

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

                                Three      Three     Nine      Nine
                                Months     Months    Months    Months
                                Ended      Ended     Ended     Ended
                              September  September September September
                                30, 2005  30, 2004  30, 2005  30, 2004
                                             (1)                (1)
                              ----------------------------------------

REVENUES:
Rental income                   $ 54,297  $ 50,055 $ 162,104 $145,808
Tenant reimbursements              5,885     4,717    17,805   15,102
Other property income                187      (273)      810      391
                                 --------  -------- --------- --------
    Total revenues                60,369    54,499   180,719  161,301
                                 --------  -------- --------- --------

EXPENSES:
Property expenses                 10,825     8,339    30,288   25,137
Real estate taxes                  4,126     4,295    12,985   12,250
Provision for bad debts             (610)     (522)      795       88
Ground leases                        410       334     1,258      996
General and administrative
 expenses                         18,400     9,399    41,214   22,342
Interest expense                   9,622     8,656    28,700   25,019
Depreciation and amortization     16,223    14,892    49,650   43,472
                                 --------  -------- --------- --------
    Total expenses                58,996    45,393   164,890  129,304
                                 --------  -------- --------- --------

OTHER INCOME AND EXPENSE:
Interest and other income            223        77       334      462
Net settlement receipts
(payments) on interest
 rate swaps                          183      (705)      143   (2,390)
Gain (loss) on derivative
 instruments                         115      (143)      479    2,143
                                 --------  -------- --------- --------
    Total other income and
     expense                         521      (771)      956      215
                                 --------  -------- --------- --------

Income from continuing
 operations before
 minority interests                1,894     8,335    16,785   32,212

Minority interests:

Distributions on Cumulative
 Redeemable Preferred units       (1,397)   (2,437)   (4,191)  (7,396)

Minority interest in loss
 (earnings) of Operating
 Partnership attributable to
 continuing operations               226      (543)     (624)  (2,841)
                                 --------  -------- --------- --------
    Total minority interests      (1,171)   (2,980)   (4,815) (10,237)
                                 --------  -------- --------- --------

Income from continuing
 operations                          723     5,355    11,970   21,975

Discontinued operations:
Revenues from discontinued
 operations                                  1,416     1,100    5,876
Expenses from discontinued
 operations                          (26)     (902)     (856)  (3,236)
Net gain on disposition of
 discontinued operations          17,831     6,212    23,610    6,148
Impairment loss on property
 held for sale                                                   (726)

Minority interest in earnings
 of Operating Partnership
 attributable to
 discontinued operations          (2,055)     (850)   (2,760)  (1,020)
                                 --------  -------- --------- --------
    Total income from
    discontinued operations       15,750     5,876    21,094    7,042
                                 --------  -------- --------- --------

Net income                        16,473    11,231    33,064   29,017

Preferred dividends               (2,402)     (785)   (7,206)  (2,355)
                                 --------  -------- --------- --------

Net income available for
 common shareholders            $ 14,071  $ 10,446 $  25,858 $ 26,662
                                 ========  ======== ========= ========

Weighted average shares
 outstanding - basic              28,760    28,271    28,686   28,203
Weighted average shares
 outstanding - diluted            28,760    28,440    28,841   28,369

Net income per common share -
 basic                          $   0.49  $   0.37 $    0.90 $   0.95
                                 ========  ======== ========= ========
Net income per common share -
 diluted                        $   0.49  $   0.37 $    0.90 $   0.94
                                 ========  ======== ========= ========


(1) Dollar amounts restated from amounts previously reported to
    reflect the pending restatement, previously disclosed in the Form
    8-Ks filed with the SEC on October 25, 2005 and October 31, 2005.

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

                                Three      Three     Nine      Nine
                                Months     Months    Months    Months
                                Ended      Ended     Ended     Ended
                              September  September September September
                                30, 2005  30, 2004  30, 2005  30, 2004
                                             (1)                (1)
                              ----------------------------------------

Net income available for
 common shareholders            $ 14,071  $ 10,446 $  25,858 $ 26,662

Adjustments:
 Minority interest in earnings
  of Operating Partnership         1,829     1,393     3,384    3,861
 Depreciation and amortization    16,081    15,095    49,464   44,198
 Net gain on dispositions of
  operating properties           (17,831)   (6,212)  (23,610)  (6,148)
                                 --------  -------- --------- --------
Funds From Operations (2), (3)  $ 14,150  $ 20,722 $  55,096 $ 68,573
                                 ========  ======== ========= ========

Weighted average common
 shares/units outstanding -
 basic                            32,477    32,327    32,452   32,304
Weighted average common
 shares/units outstanding -
 diluted                          32,635    32,495    32,607   32,469

Funds From Operations per
 common share/unit - basic      $   0.44  $   0.64 $    1.70 $   2.12
                                 ========  ======== ========= ========
Funds From Operations per
 common share/unit - diluted    $   0.43  $   0.64 $    1.69 $   2.11
                                 ========  ======== ========= ========


(1) Dollar amounts have been restated from amounts previously reported
    to reflect the pending restatement, previously disclosed in the
    Form 8-Ks filed with the SEC on October 25, 2005 and October 31,
    2005.

(2) 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.

(3) Reported amounts are attributable to common shareholders and
    common unitholders.

SOURCE: Kilroy Realty Corporation

Kilroy Realty Corporation
Richard E. Moran, Jr., 310-481-8483
(Executive Vice President and Chief Financial Officer)
or
Tyler H. Rose, 310-481-8484
(Senior Vice President and Treasurer)