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Kilroy Realty Corporation Reports Third Quarter Financial Results

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LOS ANGELES--(BUSINESS WIRE)--Oct. 30, 2006--Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its third quarter ended September 30, 2006 with net income available for common stockholders of $31.6 million, or $0.98 per share, compared to $14.1 million, or $0.49 per share, in the third quarter of 2005. Revenues from continuing operations in the third quarter totaled $63.1 million, up from $59.3 million in the prior year's third quarter. Funds from operations (FFO) for the period totaled $26.5 million, or $0.76 per share, compared to $14.2 million, or $0.43 per share, in the year-earlier period.

For the first nine months of 2006, KRC reported net income available to common stockholders of $63.1 million, or $2.03 per share, compared to $25.9 million, or $0.90 per share, in the first nine months of 2005. Revenues from continuing operations in the nine-month period totaled $188.5 million, up from $177.3 million in the same period of 2005. FFO in the first three quarters of 2006 totaled $90.9 million, or $2.69 per share, compared to $55.1 million, or $1.69 per share, in the first three quarters of 2005.

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

"Robust conditions for commercial real estate prevail in most Southern California markets today, particularly the coastal regions where KRC concentrates its operations," said John B. Kilroy, Jr., the company's president and chief executive officer. "With strong occupancy and rising rental rates in our stabilized portfolio, we remain focused on executing our development program and capitalizing on value-enhancing opportunities among our existing properties."

KRC currently has five projects under development, all located in high-growth coastal submarkets of San Diego. The five projects encompass eight buildings totaling approximately 1.1 million rentable square feet and are 88% preleased. In the aggregate, they represent a total estimated investment of approximately $364 million, of which $145 million has been spent to date. The company also is redeveloping a 107,000 square-foot property 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 October 31, 2006 earnings conference call. The call will begin at 11:00 a.m. pacific time 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 (866) 713-8307, reservation #16169922. A replay of the conference call will be available via phone through November 10, 2006 at (888) 286-8010, reservation #19792113 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 1.3 million square feet in Los Angeles and San Diego counties. At September 30, 2006, the company owned 7.8 million rentable square feet of commercial office space and 4.2 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,       30,       30,       30,
                                 2006      2005      2006      2005
                               --------- --------- --------- ---------

Revenues from continuing
 operations                     $63,052   $59,295  $188,455  $177,343

Revenues including
 discontinued operations        $63,058   $60,338  $199,989  $181,733

Net income available for
 common stockholders (1)        $31,574   $14,071   $63,073   $25,858

Weighted average common shares
 outstanding - basic             32,200    28,760    30,906    28,686
Weighted average common shares
 outstanding - diluted           32,324    28,760    31,044    28,841

Net income per share of common
 stock - basic                    $0.98     $0.49     $2.04     $0.90
Net income per share of common
 stock - diluted                  $0.98     $0.49     $2.03     $0.90

Funds From Operations (2), (3)  $26,462   $14,150   $90,874   $55,096

Weighted average common
 shares/units outstanding -
 basic (4)                       34,570    32,477    33,597    32,452
Weighted average common
 shares/units outstanding -
 diluted (4)                     34,694    32,635    33,735    32,607

Funds From Operations per
 common share/unit - basic (4)    $0.77     $0.44     $2.70     $1.70
Funds From Operations per
 common share/unit - diluted
 (4)                              $0.76     $0.43     $2.69     $1.69

Common shares outstanding at
 end of period                                       32,389    28,923
Common partnership units
 outstanding at end of period                         2,329     3,717
                                                   --------- ---------
   Total common shares and
    units outstanding at end
    of period                                        34,718    32,640


                                                   September September
                                                      30,       30,
                                                     2006      2005
                                                   --------- ---------
Stabilized portfolio occupancy
 rates:
   Los Angeles                                         93.4%     86.4%
   Orange County                                       95.6%     97.5%
   San Diego                                           99.7%     92.7%
   Other                                               92.6%     94.1%
                                                   --------- ---------
    Weighted average total                             96.2%     92.8%

Total square feet of
 stabilized properties owned
 at end of period:
   Office                                             7,823     7,845
   Industrial                                         4,179     4,661
                                                   --------- ---------
    Total                                            12,002    12,506


(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)



                                            September 30, December 31,
                                                2006         2005
                                            ------------- ------------

ASSETS
---------------------------------------
REAL ESTATE ASSETS:
 Land and improvements                          $315,113     $321,988
 Buildings and improvements                    1,472,438    1,494,958
 Undeveloped land and construction in
  progress                                       218,162      137,025
                                            ------------- ------------
  Total real estate held for investment        2,005,713    1,953,971
 Accumulated depreciation and
  amortization                                  (436,940)    (416,597)
                                            ------------- ------------
  Total real estate assets, net                1,568,773    1,537,374

Cash and cash equivalents                          7,750        3,881
Restricted cash                                    1,302          703
Funds held at qualified intermediary for
 Section 1031 exchange                            43,794            -
Current receivables, net                           3,168        5,759
Deferred rent receivables, net                    60,535       55,048
Note receivable                                   11,126       11,213
Deferred leasing costs and other related
 intangibles, net                                 48,790       50,074
Deferred financing costs, net                      5,754        5,256
Prepaid expenses and other assets                  8,807        5,166
                                            ------------- ------------

  TOTAL ASSETS                                $1,759,799   $1,674,474
                                            ============= ============



LIABILITIES & STOCKHOLDERS' EQUITY
-----------------------------------------
LIABILITIES:
 Secured debt                                   $463,005     $473,282
 Unsecured senior notes                          144,000      144,000
 Unsecured line of credit                        230,000      225,000
 Accounts payable, accrued expenses and
  other liabilities                               66,230      134,558
 Accrued distributions                            19,610       17,856
 Rents received in advance, tenant security
  deposits and deferred revenue                   41,462       36,410
                                            ------------- ------------
  Total liabilities                              964,307    1,031,106
                                            ------------- ------------

MINORITY INTERESTS:
 7.45% Series A Cumulative Redeemable
  Preferred unitholders                           73,638       73,638
 Common unitholders of the Operating
  Partnership                                     40,338       50,462
                                            ------------- ------------
  Total minority interests                       113,976      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                                        324          289
 Additional paid-in capital                      670,715      523,609
 Deferred compensation                                 -       (1,998)
 Distributions in excess of earnings            (111,105)    (124,214)
                                            ------------- ------------
  Total stockholders' equity                     681,516      519,268
                                            ------------- ------------

  TOTAL LIABILITIES & STOCKHOLDERS' EQUITY    $1,759,799   $1,674,474
                                            ============= ============
   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,       30,       30,       30,
                                 2006      2005      2006      2005
                               ---------------------------------------

REVENUES:
 Rental income                  $56,641   $53,387  $169,142  $159,215
 Tenant reimbursements            5,890     5,721    17,657    17,318
 Other property income              521       187     1,656       810
                               --------- --------- --------- ---------
     Total revenues              63,052    59,295   188,455   177,343
                               --------- --------- --------- ---------

EXPENSES:
 Property expenses               11,457    10,720    32,460    29,977
 Real estate taxes                4,746     4,020    14,210    12,673
 Provision for bad debts             56      (617)      637       783
 Ground leases                      514       410     1,507     1,258
 General and administrative
  expenses                        5,673    18,400    15,322    41,214
 Interest expense                10,312     9,570    33,491    28,535
 Depreciation and amortization   17,908    16,040    53,263    49,035
                               --------- --------- --------- ---------
     Total expenses              50,666    58,543   150,890   163,475
                               --------- --------- --------- ---------

OTHER INCOME AND EXPENSE:
 Interest and other income          359       223       841       334
 Net settlement receipts on
  interest rate swaps               299       183       747       143
 (Loss) gain on derivative
  instruments                      (324)      115      (580)      479
                               --------- --------- --------- ---------
     Total other income and
      expense                       334       521     1,008       956
                               --------- --------- --------- ---------

Income from continuing
 operations before minority
 interests                       12,720     1,273    38,573    14,824

Minority interests:
 Distributions on Cumulative
  Redeemable Preferred units     (1,397)   (1,397)   (4,191)   (4,191)
 Minority interest in
  (earnings) loss of Operating
  Partnership attributable to
  continuing operations            (601)      296    (2,171)     (397)
                               --------- --------- --------- ---------
     Total minority interests    (1,998)   (1,101)   (6,362)   (4,588)
                               --------- --------- --------- ---------

Income from continuing
 operations                      10,722       172    32,211    10,236

Discontinued operations:
 Revenues from discontinued
  operations                          6     1,043    11,534     4,390
 Expenses from discontinued
  operations                       (444)     (448)   (1,421)   (2,185)
 Net gain on disposition of
  discontinued operations        25,603    17,831    31,259    23,610
 Minority interest in earnings
  of Operating Partnership
  attributable to discontinued
  operations                     (1,911)   (2,125)   (3,304)   (2,987)
                               --------- --------- --------- ---------
     Total income from
      discontinued operations    23,254    16,301    38,068    22,828
                               --------- --------- --------- ---------

Net income                       33,976    16,473    70,279    33,064

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

Net income available for
 common stockholders            $31,574   $14,071   $63,073   $25,858
                               ========= ========= ========= =========

Weighted average shares
 outstanding - basic             32,200    28,760    30,906    28,686
Weighted average shares
 outstanding - diluted           32,324    28,760    31,044    28,841

Net income per common share -
 basic                            $0.98     $0.49     $2.04     $0.90
                               ========= ========= ========= =========
Net income per common share -
 diluted                          $0.98     $0.49     $2.03     $0.90
                               ========= ========= ========= =========

           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,       30,       30,       30,
                                 2006      2005      2006      2005
                               ---------------------------------------

Net income available for
 common stockholders            $31,574   $14,071   $63,073   $25,858

 Adjustments:
   Minority interest in
    earnings of Operating
    Partnership                   2,512     1,829     5,475     3,384
   Depreciation and
    amortization                 17,979    16,081    53,585    49,464
   Net gain on disposition of
    discontinued operations     (25,603)  (17,831)  (31,259)  (23,610)
                               --------- --------- --------- ---------
Funds From Operations (1), (2)  $26,462   $14,150   $90,874   $55,096
                               ========= ========= ========= =========

Weighted average common
 shares/units outstanding -
 basic                           34,570    32,477    33,597    32,452
Weighted average common
 shares/units outstanding -
 diluted                         34,694    32,635    33,735    32,607

Funds From Operations per
 common share/unit - basic        $0.77     $0.44     $2.70     $1.70
                               ========= ========= ========= =========
Funds From Operations per
 common share/unit - diluted      $0.76     $0.43     $2.69     $1.69
                               ========= ========= ========= =========


(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 stockholders and
 common unitholders.

CONTACT:
Kilroy Realty Corporation
Richard E. Moran Jr.
Executive Vice President
and Chief Financial Officer
310-481-8483

Tyler H. Rose
Senior Vice President and Treasurer
310-481-8484