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Kilroy Realty Corporation Reports First Quarter Financial Results

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LOS ANGELES--(BUSINESS WIRE)--April 24, 2006--Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its first quarter ended March 31, 2006 with net income available for common stockholders of $13.5 million, or $0.46 per share, compared to $13.4 million, or $0.47 per share, in the first quarter of 2005. Revenues from continuing operations in the first quarter totaled $63.1 million, up from $59.4 million in the prior year's first quarter. Funds from operations (FFO) for the period totaled $26.8 million, or $0.82 per share, compared to $26.3 million, or $0.81 per share, in the year-earlier period.

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

"Coastal Southern California, from San Diego north to Calabasas, is home to some of the strongest commercial real estate markets in the nation today," said John B. Kilroy, Jr., president and chief executive officer of KRC. "With our stabilized portfolio 95% occupied and our construction program 100% preleased, we continue to work actively to expand our leading development position," he said.

KRC currently has three committed development projects, all located in high growth submarkets of San Diego. The three projects encompass six buildings totaling approximately 861,000 square feet. All six buildings are 100% preleased. These three projects represent a total estimated investment of approximately $245 million, of which $74 million has been spent to date.

During the first quarter, KRC completed the sale of a non-strategic industrial property located in Stockton, California. The property, totaling approximately 165,000 square feet, was sold for $17.0 million, representing a gain of $5.7 million.

Earnings guidance for 2006 will be discussed by KRC management during the company's April 25, 2006 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 to 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 800-320-2978, reservation #67308927. A replay of the conference call will be available via telephone through May 5, 2006 at 888-286-8010, reservation #84469268 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 KRC'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; KRC'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 KRC 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 KRC's ability to control or predict. For forward-looking statements herein, KRC 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 Corporation currently has an in-process development pipeline of approximately 861,000 square feet of office space in San Diego County. At March 31, 2006, the company owned 7.9 million rentable square feet of commercial office space and 4.4 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
                                                      Months   Months
                                                      Ended    Ended
                                                      March    March
                                                        31,      31,
                                                       2006     2005
                                                     -------- --------

Revenues from continuing operations                  $63,093  $59,414

Revenues including discontinued operations           $63,479  $60,833

Net income available for common stockholders (1)     $13,529  $13,425

Weighted average common shares outstanding - basic    29,440   28,555
Weighted average common shares outstanding - diluted  29,608   28,720

Net income per share of common stock - basic           $0.46    $0.47
Net income per share of common stock - diluted         $0.46    $0.47

Funds From Operations (2), (3)                       $26,787  $26,250

Weighted average common shares/units outstanding -
 basic (4)                                            32,509   32,401
Weighted average common shares/units outstanding -
 diluted (4)                                          32,677   32,587

Funds From Operations per common share/unit - basic
 (4)                                                   $0.82    $0.81
Funds From Operations per common share/unit -
 diluted (4)                                           $0.82    $0.81

Common shares outstanding at end of period            29,792   28,895
Common partnership units outstanding at end of
 period                                                2,892    3,720
                                                     -------- --------
  Total common shares and units outstanding at end
   of period                                          32,684   32,615


                                                      March    March
                                                       31,      31,
                                                       2006     2005
                                                     -------- --------
Stabilized portfolio occupancy rates:
  Los Angeles                                           91.3%    88.8%
  Orange County                                         98.6%    98.3%
  San Diego                                             94.7%    94.3%
  Other                                                 92.9%    93.5%
                                                     -------- --------
    Weighted average total                              95.0%    94.1%

Total square feet of stabilized properties owned at
 end of period:
  Office                                               7,948    7,567
  Industrial                                           4,423    4,472
                                                     -------- --------
    Total                                             12,371   12,039


(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 stockholders 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 31, December 31,
                                                  2006        2005
                                              ----------- ------------

ASSETS
------
REAL ESTATE ASSETS:
  Land and improvements                          $321,235    $321,988
  Buildings and improvements                    1,490,006   1,494,958
  Undeveloped land and construction in
   progress                                       153,177     137,025
                                               ----------- -----------
    Total real estate held for investment       1,964,418   1,953,971
  Accumulated depreciation and amortization      (428,624)   (416,597)
                                               ----------- -----------
    Total real estate assets, net               1,535,794   1,537,374

Cash and cash equivalents                          11,395       3,881
Restricted cash                                       649         703
Current receivables, net                            6,396       5,759
Deferred rent receivables, net                     57,692      55,048
Note receivable                                    11,184      11,213
Deferred leasing costs and other related
 intangibles, net                                  48,853      50,074
Deferred financing costs, net                       4,828       5,256
Prepaid expenses and other assets                   7,518       5,166
                                               ----------- -----------

    TOTAL ASSETS                               $1,684,309  $1,674,474
                                               =========== ===========


LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
LIABILITIES:
  Secured debt                                   $468,078    $473,282
  Unsecured senior notes                          144,000     144,000
  Unsecured line of credit                        317,500     225,000
  Accounts payable, accrued expenses and other
   liabilities                                     55,596     134,558
  Accrued distributions                            18,533      17,856
  Rents received in advance, tenant security
   deposits and deferred revenue                   40,270      36,410
                                               ----------- -----------
    Total liabilities                           1,043,977   1,031,106
                                               ----------- -----------

MINORITY INTERESTS:
  7.45% Series A Cumulative Redeemable
   Preferred unitholders                           73,638      73,638
  Common unitholders of the Operating
   Partnership                                     39,437      50,462
                                               ----------- -----------
    Total minority interests                      113,075     124,100
                                               ----------- -----------

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                                        298         289
  Additional paid-in capital                      531,852     523,609
  Deferred compensation                                        (1,998)
  Distributions in excess of earnings            (126,475)   (124,214)
                                               ----------- -----------
    Total stockholders' equity                    527,257     519,268
                                               ----------- -----------

    TOTAL LIABILITIES & STOCKHOLDERS' EQUITY   $1,684,309  $1,674,474
                                               =========== ===========


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

                                                      Three    Three
                                                      Months   Months
                                                      Ended    Ended
                                                      March    March
                                                        31,      31,
                                                       2006     2005
                                                     -------- --------

REVENUES:
  Rental income                                      $56,573  $53,509
  Tenant reimbursements                                5,583    5,685
  Other property income                                  937      220
                                                     -------- --------
    Total revenues                                    63,093   59,414
                                                     -------- --------

EXPENSES:
  Property expenses                                   10,176    9,333
  Real estate taxes                                    4,802    4,345
  Provision for bad debts                                525    1,133
  Ground leases                                          519      405
  General and administrative expenses                  4,934    6,024
  Interest expense                                    11,971    9,401
  Depreciation and amortization                       17,630   16,581
                                                     -------- --------
    Total expenses                                    50,557   47,222
                                                     -------- --------

OTHER INCOME AND EXPENSE:
  Interest and other income                              252       57
  Net settlement receipts (payments) on interest
   rate swaps                                            194     (102)
  (Loss) gain on derivative instruments                  (76)     644
                                                     -------- --------
    Total other income and expense                       370      599
                                                     -------- --------

Income from continuing operations before minority
 interests                                            12,906   12,791

Minority interests:
  Distributions on Cumulative Redeemable Preferred
   units                                              (1,397)  (1,397)
  Minority interest in earnings of Operating
   Partnership attributable to continuing operations    (857)  (1,068)
                                                     -------- --------
    Total minority interests                          (2,254)  (2,465)
                                                     -------- --------

Income from continuing operations                     10,652   10,326

Discontinued operations:
  Revenues from discontinued operations                  386    1,419
  Expenses from discontinued operations                 (214)    (955)
  Net gain on disposition of discontinued operations   5,655    5,779
  Minority interest in earnings of Operating
   Partnership attributable to discontinued
   operations                                           (548)    (742)
                                                     -------- --------
    Total income from discontinued operations          5,279    5,501
                                                     -------- --------

Net income                                            15,931   15,827

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

Net income available for common stockholders         $13,529  $13,425
                                                     ======== ========

Weighted average shares outstanding - basic           29,440   28,555
Weighted average shares outstanding - diluted         29,608   28,720

Net income per common share - basic                    $0.46    $0.47
                                                     ======== ========
Net income per common share - diluted                  $0.46    $0.47
                                                     ======== ========


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

                                                      Three    Three
                                                      Months   Months
                                                      Ended    Ended
                                                      March    March
                                                        31,      31,
                                                       2006     2005
                                                     -------- --------

Net income available for common stockholders         $13,529  $13,425

Adjustments:
  Minority interest in earnings of Operating
   Partnership                                         1,405    1,810
  Depreciation and amortization                       17,508   16,794
  Net gain on disposition of discontinued operations  (5,655)  (5,779)
                                                     -------- --------
Funds From Operations (1), (2)                       $26,787  $26,250
                                                     ======== ========

Weighted average common shares/units outstanding -
 basic                                                32,509   32,401
Weighted average common shares/units outstanding -
 diluted                                              32,677   32,587

Funds From Operations per common share/unit - basic    $0.82    $0.81
                                                     ======== ========
Funds From Operations per common share/unit -
 diluted                                               $0.82    $0.81
                                                     ======== ========

(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