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Kilroy Realty Corporation Reports Fourth Quarter Financial Results

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LOS ANGELES--(BUSINESS WIRE)--Jan. 30, 2006--Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its fourth quarter ended December 31, 2005, with a net loss for common stockholders of $1.6 million, or $0.06 per share, compared to net income available for common stockholders of $3.3 million, or $0.12 per share, in the fourth quarter of 2004. Revenues from continuing operations in the fourth quarter totaled $61.0 million, up from $57.2 million in the prior year's fourth quarter. Funds from operations (FFO) for the period totaled $8.5 million, or $0.26 per share, compared to $19.1 million, or $0.59 per share, in the year-earlier quarter.

For its fiscal year ended December 31, 2005, Kilroy Realty reported net income available for common stockholders of $24.2 million, or $0.84 per share, compared to $30.0 million, or $1.06 per share, in fiscal 2004. Revenues from continuing operations in 2005 totaled $241.7 million, up from $218.1 million in 2004. FFO for the year totaled $63.6 million, or $1.95 per share, compared to $87.6 million, or $2.70 per share, in 2004.

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

"Commercial real estate markets in Southern California showed meaningful improvement during 2005," said John B. Kilroy, Jr., president and chief executive officer of KRC. "We capitalized on the stronger environment with an aggressive leasing program that boosted our stabilized year-end occupancy to 95% and a strategic development program that has positioned the company for long-term growth."

In total, KRC added new and redeveloped properties to its stabilized portfolio in 2005 that have a total estimated investment of $137 million, including $23 million of new development, $83 million of redevelopment, and $31 million of acquisitions. These properties, totaling approximately 762,000 rentable square feet, were 86% leased or committed at year-end.

Entering 2006, KRC has two development projects currently under construction. The two projects encompass five buildings that total approximately 538,000 square feet and that are each 100% preleased. These two development projects represent a total estimated investment of approximately $166 million, of which $40 million has been spent to date.

The company also significantly expanded its pipeline of developable land in strategic areas of coastal San Diego County during 2005, acquiring 11 acres of entitled land along the 56 Freeway, acquiring 20 acres of entitled land and an existing building along the I-15 Freeway and contracting to acquire an additional 25 acres of entitled land in Carlsbad. KRC now owns entitled land representing potential development of approximately 1.8 million square feet of office space in the San Diego region.

Earnings guidance for 2006 will be discussed by KRC management during the company's January 31, 2006 earnings conference call. The call will begin at 11:00 a.m. PST 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 800-901-5213, reservation #16425520. A replay of the conference call will be available via phone through February 9, 2006 at 888-286-8010, reservation #80200094 or via the Internet at the company's website.

Some of the information presented in this release is forward looking in nature within the meaning of the Private Securities Litigation Reform Act of 1995. Although Kilroy Realty Corporation believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, there can be no assurance that its expectations will be achieved. Certain factors that could cause actual results to differ materially from Kilroy Realty's expectations are set forth as risk factors in the company's Securities and Exchange Commission reports and filings. Included among these factors are changes in general economic conditions, including changes in the economic conditions affecting industries in which its principal tenants compete; Kilroy Realty's ability to timely lease or re-lease space at current or anticipated rents; changes in interest rates; changes in operating costs, including utility costs; future demand for its debt and equity securities; its ability to refinance its debt on reasonable terms at maturity; its ability to complete current and future development projects on schedule and on budget; the demand for office space in markets in which Kilroy Realty has a presence; and risks detailed from time to time in the company's SEC reports, including quarterly reports on Form 10-Q, 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 538,000 square feet of office space in San Diego County. At December 31, 2005, the company owned 7.9 million rentable square feet of commercial office space and 4.6 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 Months Ended    Year Ended
                                    December 31,       December 31,
                                   2005     2004      2005      2004
                                 -------- --------  --------  --------

 Revenues from continuing
  operations                     $60,997  $57,227  $241,715  $218,111

 Revenues including discontinued
  operations                     $61,147  $58,504  $242,970  $225,675

 Net (loss) income available for
  common stockholders (1)        $(1,648)  $3,326   $24,211   $29,988

 Weighted average common shares
  outstanding - basic             28,785   28,368    28,711    28,244
 Weighted average common shares
  outstanding - diluted           28,972   28,581    28,873    28,422

 Net (loss) income per share of
  common stock - basic            $(0.06)   $0.12     $0.84     $1.06
 Net (loss) income per share of
  common stock - diluted          $(0.06)   $0.12     $0.84     $1.06

 Funds From Operations (2), (3)   $8,506  $19,069   $63,603   $87,643

 Weighted average common
  shares/units outstanding -
  basic (4)                       32,485   32,358    32,460    32,317
 Weighted average common
  shares/units outstanding -
  diluted (4)                     32,672   32,572    32,622    32,495

 Funds From Operations per common
  share/unit - basic (4)           $0.26    $0.59     $1.96     $2.71
 Funds From Operations per common
  share/unit - diluted (4)         $0.26    $0.59     $1.95     $2.70

 Common shares outstanding at end of period          28,971    28,549
 Common partnership units
  outstanding at end of period                        3,670     3,989
                                                   --------- ---------
    Total common shares and units
     outstanding at end of period                    32,641    32,538


                                                    Dec. 31,  Dec. 31,
                                                      2005      2004
                                                   --------- ---------
 Stabilized portfolio occupancy rates:
    Los Angeles                                        91.2%     86.5%
    Orange County                                      98.2%     99.2%
    San Diego                                          94.9%     97.1%
    Other                                              94.0%     92.3%
                                                   --------- ---------
     Weighted average total                            95.0%     94.6%

 Total square feet of stabilized
  properties owned at end of period:
    Office                                            7,948     7,674
    Industrial                                        4,587     4,603
                                                   --------- ---------
     Total                                           12,535    12,277

(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)



                                                 Dec. 31,    Dec. 31,
                                                   2005       2004
                                                ----------  ----------

ASSETS
------
REAL ESTATE ASSETS:
   Land and improvements                          $321,988   $304,033
   Buildings and improvements                    1,494,958  1,465,285
   Undeveloped land and
    construction in progress                       137,025     93,912
                                                ----------  ----------
     Total real estate held
      for investment                             1,953,971  1,863,230
   Accumulated depreciation and
    amortization                                  (416,597)  (372,656)
                                                ----------  ----------
     Total real estate assets, net               1,537,374  1,490,574

Cash and cash equivalents                            3,881      4,853
Restricted cash                                        703        332
Current receivables, net                             5,759      4,843
Deferred rent receivables, net                      55,048     46,816
Note receivable                                     11,213
Deferred leasing costs and other
 related intangibles, net                           50,074     50,711
Deferred financing costs, net                        5,256      5,849
Prepaid expenses and other assets                    5,166      5,046
                                                ----------  ----------

     TOTAL ASSETS                               $1,674,474 $1,609,024
                                                ==========  ==========


LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
LIABILITIES:
   Secured debt                                   $473,282   $490,441
   Unsecured senior notes                          144,000    144,000
   Unsecured line of credit                        225,000    167,000
   Accounts payable, accrued
    expenses and other liabilities                 134,558     73,005
   Accrued distributions                            17,856     16,923
   Rents received in advance, tenant
    security deposits and deferred revenue          36,410     37,979
                                                ----------  ----------
     Total liabilities                           1,031,106    929,348
                                                ----------  ----------

MINORITY INTERESTS:
   7.45% Series A Cumulative
    Redeemable Preferred unitholders                73,638     73,638
   Common unitholders of the
    Operating Partnership                           50,462     59,491
                                                ----------  ----------
     Total minority interests                      124,100    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                      523,609    515,518
   Deferred compensation                            (1,998)    (1,412)
   Distributions in excess of earnings            (124,214)   (89,427)
                                                ----------  ----------
     Total stockholders' equity                    519,268    546,547
                                                ----------  ----------

     TOTAL LIABILITIES & STOCKHOLDERS' EQUITY   $1,674,474 $1,609,024
                                                ==========  ==========



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


                                Three Months Ended     Year Ended
                                   December 31,       December 31,
                                  2005     2004      2005       2004
                                -------- --------  --------   --------

REVENUES:
   Rental income                $55,646 $50,363   $217,749   $195,760
   Tenant reimbursements          5,268   6,053     23,073     21,149
   Other property income             83     811        893      1,202
                                -------- --------  --------   --------
     Total revenues              60,997  57,227    241,715    218,111
                                -------- --------  --------   --------

EXPENSES:
   Property expenses              9,785   8,759     39,997     33,865
   Real estate taxes              4,496   4,082     17,444     16,295
   Provision for bad debts       (1,444)    798       (648)       886
   Ground leases                    421     405      1,679      1,401
   General and administrative
    expenses                     25,242  11,679     66,456     34,021
   Interest expense              10,452   8,975     39,153     33,994
   Depreciation and amortization 17,739  15,137     67,352     58,551
                                -------- --------  --------   --------
     Total expenses              66,691  49,835    231,433    179,013
                                -------- --------  --------   --------

OTHER INCOME AND EXPENSE:
   Interest and other income        270      59        604        521
   Net settlement receipts
    (payments) on interest rate
    swaps                           221    (503)       364     (2,893)
   (Loss) gain on derivative
    instruments                    (101)    956        378      3,099
                                -------- --------  --------   --------
     Total other income and
      expense                       390     512      1,346        727
                                -------- --------  --------   --------

(Loss) income from continuing
 operations before minority
 interests                       (5,304)  7,904     11,628     39,825

Minority interests:
   Distributions on Cumulative
    Redeemable Preferred units   (1,397) (2,183)    (5,588)    (9,579)
   Original issuance costs of
    redeemed preferred units             (1,200)               (1,200)
   Minority interest in loss
    (earnings) of Operating
    Partnership attributable to
    continuing operations         1,051    (398)       411     (3,202)
                                -------- --------  --------   --------
     Total minority interests      (346) (3,781)    (5,177)   (13,981)
                                -------- --------  --------   --------

(Loss) income from continuing
 operations                      (5,650)  4,123      6,451     25,844

Discontinued operations:
   Revenues from discontinued
    operations                      150   1,277      1,255      7,564
   Expenses from discontinued
    operations                      (84)   (828)    (1,091)    (4,184)
   Net gain on disposition of
    discontinued operations       7,155             30,764      6,148
   Impairment loss on property
    held for sale                                                (726)
   Minority interest in earnings
    of Operating Partnership
    attributable to
    discontinued operations        (817)    (48)    (3,560)    (1,105)
                                -------- --------  --------   --------
     Total income from
      discontinued operations     6,404     401     27,368      7,697
                                -------- --------  --------   --------

Net income                          754   4,524     33,819     33,541

Preferred dividends              (2,402) (1,198)    (9,608)    (3,553)
                                -------- --------  --------   --------

Net (loss) income available for
 common stockholders            $(1,648) $3,326    $24,211    $29,988
                                ======== ========  ========   ========

Weighted average shares
 outstanding - basic             28,785  28,368     28,711     28,244
Weighted average shares
 outstanding - diluted           28,972  28,581     28,873     28,422

Net (loss) income per common
 share - basic                   $(0.06)  $0.12      $0.84      $1.06
                                ======== ========  ========   ========
Net (loss) income per common
 share - diluted                 $(0.06)  $0.12      $0.84      $1.06
                                ======== ========  ========   ========


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



                                Three Months Ended     Year Ended
                                    December 31,      December 31,
                                   2005     2004     2005       2004
                                -------- --------  --------   --------

Net (loss) income available for
 common stockholders            $(1,648) $3,326    $24,211    $29,988

   Adjustments:
    Minority interest in
     (loss) earnings of
     Operating Partnership         (234)    446      3,149      4,307
    Depreciation and
     amortization                17,543  15,297     67,007     59,496
    Net gain on disposition
     of discontinued
     operations                  (7,155)           (30,764)    (6,148)
                                -------- --------  --------   --------
Funds From Operations (1), (2)   $8,506 $19,069    $63,603    $87,643
                                ======== ========  ========   ========

Weighted average common
 shares/units outstanding -
 basic                           32,485  32,358     32,460     32,317
Weighted average common
 shares/units outstanding -
 diluted                         32,672  32,572     32,622     32,495

Funds From Operations per common
 share/unit - basic               $0.26   $0.59      $1.96      $2.71
                                ======== ========  ========   ========
Funds From Operations per common
 share/unit - diluted             $0.26   $0.59      $1.95      $2.70
                                ======== ========  ========   ========


(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
Executive Vice President and Chief Financial Officer
or
Tyler H. Rose, 310-481-8484
Senior Vice President and Treasurer

SOURCE:
Kilroy Realty Corporation