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Kilroy Realty Corporation Reports Second Quarter Financial Results

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LOS ANGELES--(BUSINESS WIRE)--July 24, 2006--Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its second quarter ended June 30, 2006 with net income available for common stockholders of $18.0 million, or $0.58 per share, compared to a net loss of $1.6 million, or $0.05 per share, in the second quarter of 2005. Revenues from continuing operations in the second quarter totaled $73.5 million, up from $60.2 million in the prior year's second quarter. Funds from operations (FFO) for the period totaled $37.6 million, or $1.11 per share, compared to $14.7 million, or $0.45 per share, in the year-earlier period.

For the first six months of 2006, KRC reported net income available to common stockholders of $31.5 million, or $1.04 per share, compared to $11.8 million, or $0.41 per share, in the first half of 2005. Revenues from continuing operations in the six-month period totaled $136.5 million, up from $119.6 million in the same period of 2005. FFO in the first half of 2006 totaled $64.4 million, or $1.94 per share, compared to $40.9 million, or $1.26 per share, in first half of 2005. Second quarter and year-to-date results include $9.8 million, or $0.29 per share, related to an early lease termination at an industrial property in Orange County.

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

"Southern California commercial real estate markets remain robust, particularly in the coastal submarkets where KRC operates," said John B. Kilroy, Jr., the company's president and chief executive officer. "Occupancy in our stabilized portfolio is now above 97% and we continue to expand our successful development and redevelopment programs in San Diego and Los Angeles."

KRC currently has four projects under development, all located in high growth submarkets of San Diego. The four projects encompass seven buildings totaling approximately one million rentable square feet and are 86% preleased. In the aggregate, these projects represent a total estimated investment of approximately $311 million, of which $112 million has been spent to date. KRC has one project in redevelopment in Los Angeles County with a total estimated incremental investment of approximately $13 million.

Earnings guidance for 2006 will be discussed by KRC management during the company's July 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 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 800-435-1398, reservation #98837909. A replay of the conference call will be available via phone through August 5, 2006 at 888-286-8010, reservation #39030188 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 and redevelopment pipeline of approximately 1.1 million square feet in Los Angeles and San Diego counties. At June 30, 2006, the company owned 7.8 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      Six       Six
                                 Months   Months    Months    Months
                                 Ended    Ended     Ended     Ended
                                June 30, June 30,  June 30,  June 30,
                                  2006     2005      2006      2005
                                -------- -------- --------- ---------
Revenues from continuing
 operations                     $73,450  $60,198  $136,543  $119,616

Revenues including discontinued
 operations                     $73,450  $60,556  $136,929  $121,391

Net income (loss) available for
 common stockholders(1)         $17,975  $(1,636)  $31,502   $11,788

Weighted average common shares
 outstanding - basic             31,049   28,739    30,249    28,648
Weighted average common shares
 outstanding - diluted           31,172   28,739    30,394    28,798

Net income (loss) per share of
 common stock - basic             $0.58   $(0.05)    $1.04     $0.41
Net income (loss) per share of
 common stock - diluted           $0.58   $(0.05)    $1.04     $0.41

Funds From Operations(2)(3)     $37,630  $14,695   $64,416   $40,946

Weighted average common
 shares/units outstanding -
 basic(4)                        33,689   32,458    33,102    32,439
Weighted average common
 shares/units outstanding -
 diluted(4)                      33,812   32,594    33,247    32,589

Funds From Operations per
 common share/unit - basic(4)    $1.12    $0.45     $1.95     $1.26
Funds From Operations per
 common share/unit - diluted(4)  $1.11    $0.45     $1.94     $1.26

Common shares outstanding at
 end of period                                     32,092    28,900
Common partnership units
 outstanding at end of period                       2,626     3,717
                                                  --------- ---------
 Total common shares and units
  outstanding at end of period                     34,718    32,617



                                                  June 30,   June 30,
                                                    2006       2005
                                                  --------- ---------
Stabilized portfolio occupancy rates:
 Los Angeles                                          93.7%     92.4%
 Orange County                                        99.0%     98.5%
 San Diego                                            99.5%     94.3%
 Other                                                92.7%     93.0%
                                                  --------- ---------
  Weighted average total                              97.4%     95.2%

Total square feet of stabilized properties
 owned at end of period:
 Office                                              7,847     7,607
 Industrial                                          4,423     4,358
                                                  --------- ---------
  Total                                             12,270    11,965


(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)

                                               June 30,   December 31,
                                                 2006        2005
                                              ----------- -----------
 ASSETS
 ------
 REAL ESTATE ASSETS:
  Land and improvements                         $320,778    $321,988
  Buildings and improvements                   1,481,215   1,494,958
  Undeveloped land and construction in
   progress                                      189,558     137,025
                                              ----------- -----------
    Total real estate held for investment      1,991,551   1,953,971
  Accumulated depreciation and amortization     (425,708)   (416,597)
                                              ----------- -----------
    Total real estate assets, net              1,565,843   1,537,374

 Cash and cash equivalents                         8,583       3,881
 Restricted cash                                     614         703
 Current receivables, net                          3,951       5,759
 Deferred rent receivables, net                   58,579      55,048
 Note receivable                                  11,155      11,213
 Deferred leasing costs and other related
  intangibles, net                                49,108      50,074
 Deferred financing costs, net                     6,396       5,256
 Prepaid expenses and other assets                 9,533       5,166
                                              ----------- -----------
    TOTAL ASSETS                              $1,713,762  $1,674,474
                                              =========== ===========



 LIABILITIES & STOCKHOLDERS' EQUITY
 ----------------------------------
 LIABILITIES:
  Secured debt                                  $465,562    $473,282
  Unsecured senior notes                         144,000     144,000
  Unsecured line of credit                       202,000     225,000
  Accounts payable, accrued expenses and
   other liabilities                              60,203     134,558
  Accrued distributions                           19,610      17,856
  Rents received in advance, tenant
   security deposits and deferred revenue         43,297      36,410
                                              ----------- -----------
    Total liabilities                            934,672   1,031,106
                                              ----------- -----------
 MINORITY INTERESTS:
  7.45% Series A Cumulative Redeemable
   Preferred unitholders                          73,638      73,638
  Common unitholders of the Operating
   Partnership                                    44,199      50,462
                                              ----------- -----------
    Total minority interests                     117,837     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                                       321         289
  Additional paid-in capital                     664,860     523,609
  Deferred compensation                                -      (1,998)
  Distributions in excess of earnings           (125,510)   (124,214)
                                              ----------- -----------
    Total stockholders' equity                   661,253     519,268
                                              ----------- -----------
    TOTAL LIABILITIES & STOCKHOLDERS'
     EQUITY                                   $1,713,762  $1,674,474
                                              =========== ===========


    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,
                              2006      2005      2006        2005
                            -------- -------- ----------- -----------

 REVENUES:
  Rental income             $57,133  $53,700    $113,706    $107,212
  Tenant reimbursements       6,356    6,095      11,939      11,781
  Other property income       9,961      403      10,898         623
                            -------- -------- ----------- -----------
       Total revenues        73,450   60,198     136,543     119,616
                            -------- -------- ----------- -----------
 EXPENSES:
  Property expenses          10,913    9,996      21,089      19,329
  Real estate taxes           4,766    4,410       9,569       8,755
  Provision for bad debts        56      272         581       1,408
  Ground leases                 474      443         993         848
  General and administrative
   expenses                   4,714   16,790       9,649      22,814
  Interest expense           11,208    9,563      23,179      18,964
  Depreciation and
   amortization              18,294   16,669      35,924      33,249
                            -------- -------- ----------- -----------
       Total expenses        50,425   58,143     100,984     105,367
                            -------- -------- ----------- -----------

 OTHER INCOME AND EXPENSE:
  Interest and other income     231       54         483         111
  Net settlement receipts
   (payments) on interest
   rate swaps                   254       62         448         (40)
  (Loss) gain on derivative
   instruments                 (179)    (280)       (255)        364
                            -------- -------- ----------- -----------
       Total other income
        and expense             306     (164)        676         435
                            -------- -------- ----------- -----------
 Income from continuing
  operations before minority
  interests                  23,331    1,891      36,235      14,684

 Minority interests:
  Distributions on
   Cumulative Redeemable
   Preferred units           (1,397)  (1,397)     (2,794)     (2,794)
  Minority interest in
   (earnings) loss of
   Operating Partnership
   attributable to
   continuing operations     (1,557)     245      (2,414)       (825)
                            -------- -------- ----------- -----------
       Total minority
        interests            (2,954)  (1,152)     (5,208)     (3,619)
                            -------- -------- ----------- -----------

 Income from continuing
  operations                 20,377      739      31,027      11,065

 Discontinued operations:
  Revenues from discontinued
   operations                     -      358         386       1,775
  Expenses from discontinued
   operations                     -     (344)       (214)     (1,298)
  Net gain on disposition of
   discontinued operations        -        -       5,655       5,779
  Minority interest in loss
   (earnings) of Operating
   Partnership attributable to
   discontinued operations        -       13        (548)       (729)
                            -------- -------- ----------- -----------
       Total income from
        discontinued
        operations                -       27       5,279       5,527
                            -------- -------- ----------- -----------

 Net income                  20,377      766      36,306      16,592

 Preferred dividends         (2,402)  (2,402)     (4,804)     (4,804)
                            -------- -------- ----------- -----------

 Net income (loss) available
  for common stockholders   $17,975  $(1,636)    $31,502     $11,788
                            ======== ======== =========== ===========

 Weighted average shares
  outstanding - basic        31,049   28,739      30,249      28,648
 Weighted average shares
  outstanding - diluted      31,172   28,739      30,394      28,798

 Net income (loss) per
  common share - basic        $0.58   $(0.05)      $1.04       $0.41
                            ======== ======== =========== ===========
 Net income (loss) per
  common share - diluted      $0.58   $(0.05)      $1.04       $0.41
                            ======== ======== =========== ===========


            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,
                                    2006     2005     2006     2005
                                  -------- -------- -------- --------

 Net income (loss) available for
  common stockholders             $17,975  $(1,636) $31,502  $11,788

   Adjustments:
       Minority interest in
        earnings (loss) of
        Operating Partnership       1,557     (258)   2,962    1,554
       Depreciation and
        amortization               18,098   16,589   35,607   33,383
       Net gain on disposition of
        discontinued operations         -        -   (5,655)  (5,779)
                                  -------- -------- -------- --------
 Funds From Operations(1)(2)      $37,630  $14,695  $64,416  $40,946
                                  ======== ======== ======== ========

 Weighted average common
  shares/units outstanding -
  basic                            33,689   32,458   33,102   32,439
 Weighted average common
  shares/units outstanding -
  diluted                          33,812   32,594   33,247   32,589

 Funds From Operations per common
  share/unit - basic                $1.12    $0.45    $1.95    $1.26
                                  ======== ======== ======== ========
 Funds From Operations per common
  share/unit - diluted              $1.11    $0.45    $1.94    $1.26
                                  ======== ======== ======== ========


(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