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Kilroy Realty Corporation Reports Fourth Quarter Financial Results

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LOS ANGELES--(BUSINESS WIRE)--Feb. 5, 2007--Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its fourth quarter ended December 31, 2006 with net income available for common stockholders of $9.2 million, or $0.28 per share, compared to a net loss for common stockholders of $1.6 million, or $0.06 per share, in the fourth quarter of 2005. Revenues from continuing operations in the fourth quarter totaled $64.0 million, up from $59.6 million in the prior year's fourth quarter. Funds from operations (FFO) for the period totaled $27.3 million, or $0.79 per share, compared to $8.5 million, or $0.26 per share, in the year-earlier period.

For its fiscal year ended December 31, 2006, KRC reported net income available for common stockholders of $72.3 million, or $2.30 per share, compared to $24.2 million, or $0.84 per share, in fiscal 2005. Revenues from continuing operations in 2006 totaled $251.2 million, up from $236.4 million in 2005. FFO for the year totaled $118.2 million, or $3.48 per share, compared to $63.6 million, or $1.95 per share, in 2005.

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

"Operating conditions in KRC's primary Southern California real estate markets strengthened appreciably throughout 2006, boosting results in our existing portfolio and providing an excellent backdrop for our development-driven growth strategies," said John B. Kilroy, Jr., the company's president and chief executive officer. "In 2007, our stabilized properties are projected to benefit from higher rental rates and our nearly fully preleased development pipeline is scheduled to add over one million square feet of rentable space to our portfolio."

KRC added one new office building with 77,000 rentable square feet to its stabilized portfolio in 2006 with a total estimated investment of $21 million. The new property, located in the Rancho Bernardo submarket of coastal San Diego, is 100% leased.

The company has five additional projects currently under development, all located in high quality submarkets of San Diego. These five projects encompass eight buildings totaling approximately 1.1 million rentable square feet and are 82% preleased. In the aggregate, they represent a total estimated investment of approximately $362 million, of which $171 million has been spent to date.

KRC also has one redevelopment project underway, a 107,000-square-foot property in Los Angeles County with a total estimated incremental investment of approximately $15 million. It is 77% preleased.

In January 2007, KRC acquired two value-added sites in San Diego, including Evening Creek Corporate Center, an existing two-building redevelopment opportunity along the I-15 corridor for $24.7 million, and the third phase of Santa Fe Summit, 10.5 acres of land adjacent to Phases I and II of the company's existing Santa Fe Summit project on the 56 corridor for $28.0 million.

Earnings guidance for 2007 will be discussed by KRC management during the company's February 5, 2007 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) 271-5140, reservation #31562769. A replay of the conference call will be available via phone through February 16, 2007 at (888) 286-8010, reservation #32602994, 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 1.2 million square feet in Los Angeles and San Diego counties. At December 31, 2006, the company owned 7.8 million rentable square feet of commercial office space and 3.9 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     Year      Year
                                 Ended     Ended     Ended     Ended
                                December  December  December  December
                                31, 2006  31, 2005  31, 2006  31, 2005
                               --------- --------- --------- ---------

Revenues from continuing
 operations                     $63,951   $59,594  $251,244  $236,355

Revenues including
 discontinued operations        $64,340   $61,109  $264,329  $242,845

Net income (loss) available
 for common stockholders(1)     $ 9,184   $(1,648) $ 72,256  $ 24,211

Weighted average common shares
 outstanding - basic             32,246    28,785    31,244    28,711
Weighted average common shares
 outstanding - diluted           32,416    28,785    31,390    28,711

Net income (loss) per share of
 common stock - basic           $  0.28   $ (0.06) $   2.31  $   0.84
Net income (loss) per share of
 common stock - diluted         $  0.28   $ (0.06) $   2.30  $   0.84

Funds From Operations(2), (3)   $27,311   $ 8,506  $118,184  $ 63,603

Weighted average common
 shares/units outstanding -
 basic(4)                        34,570    32,485    33,842    32,460
Weighted average common
 shares/units outstanding -
 diluted(4)                      34,740    32,672    33,988    32,622

Funds From Operations per
 common share/unit - basic(4)   $  0.79   $  0.26  $   3.49  $   1.96
Funds From Operations per
 common share/unit -
 diluted(4)                     $  0.79   $  0.26  $   3.48  $   1.95

Common shares outstanding at
 end of period                                       32,399    28,971
Common partnership units
 outstanding at end of period                         2,319     3,670
                                                   --------- ---------
  Total common shares and
   units outstanding at end of
   period                                            34,718    32,641
                                        December 31,    December 31,
                                             2006            2005
                                       ---------------- --------------
Stabilized portfolio occupancy rates:
 Office                                           95.8%          92.5%
 Industrial                                       95.8%          99.3%
                                       ---------------- --------------
 Weighted average total                           95.8%          95.0%

 Los Angeles                                      93.2%          91.2%
 Orange County                                    95.7%          98.2%
 San Diego                                        98.6%          94.9%
 Other                                            92.8%          94.0%
                                       ---------------- --------------
  Weighted average total                          95.8%          95.0%

Total square feet of stabilized
 properties owned at end of period:
 Office                                          7,835          7,948
 Industrial                                      3,870          4,587
                                       ---------------- --------------
  Total                                         11,705         12,535

(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)

                                        December 31,    December 31,
                                           2006             2005
                                      ---------------- ---------------

ASSETS
-------------------------------------
REAL ESTATE ASSETS:
 Land and improvements                $       293,059  $      321,988
 Buildings and improvements                 1,484,051       1,494,958
 Undeveloped land and construction in
  progress                                    263,651         137,025
                                      ---------------- ---------------
  Total real estate held for
   investment                               2,040,761       1,953,971
 Accumulated depreciation and
  amortization                               (443,807)       (416,597)
                                      ---------------- ---------------
  Real estate held for investment,
   net                                      1,596,954       1,537,374
 Property held for sale, net                    4,512               -
                                      ---------------- ---------------
  Total real estate assets, net             1,601,466       1,537,374

Cash and cash equivalents                      11,948           3,881
Restricted cash                                   494             703
Funds held at qualified intermediary
 for 1031 exchange                             43,794               -
Current receivables, net                        5,890           5,759
Deferred rent receivables, net                 61,929          55,048
Note receivable                                11,096          11,213
Deferred leasing costs and
 acquisition related intangibles, net          49,019          50,074
Deferred financing costs, net                   5,100           5,256
Prepaid expenses and other assets               8,616           5,166
                                      ---------------- ---------------

  TOTAL ASSETS                        $     1,799,352  $    1,674,474
                                      ================ ===============



LIABILITIES & STOCKHOLDERS' EQUITY
-------------------------------------
LIABILITIES:
 Secured debt                         $       459,198  $      473,282
 Unsecured senior notes                       144,000         144,000
 Unsecured line of credit                     276,000         225,000
 Accounts payable, accrued expenses
  and other liabilities                        67,729         129,089
 Accrued distributions                         19,610          17,856
 Deferred revenue and acquisition
  related liabilities                          25,353          22,051
 Rents received in advance and tenant
  security deposits                            19,900          19,828
                                      ---------------- ---------------
  Total liabilities                         1,011,790       1,031,106
                                      ---------------- ---------------

MINORITY INTERESTS:
 7.45% Series A Cumulative Redeemable
  Preferred unitholders                        73,638          73,638
 Common unitholders of the Operating
  Partnership                                  39,628          50,462
                                      ---------------- ---------------
  Total minority interests                    113,266         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                   671,484         523,609
 Deferred compensation                              -          (1,998)
 Distributions in excess of earnings         (119,094)       (124,214)
                                      ---------------- ---------------
  Total stockholders' equity                  674,296         519,268
                                      ---------------- ---------------

  TOTAL LIABILITIES & STOCKHOLDERS'
   EQUITY                             $     1,799,352  $    1,674,474
                                      ================ ===============
   KILROY REALTY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
----------------------------------------------------------------------
           (unaudited, in thousands, except per share data)

                                Three     Three
                                 Months    Months    Year      Year
                                 Ended     Ended     Ended     Ended
                               December  December  December  December
                                31, 2006  31, 2005  31, 2006  31, 2005
                               --------- --------- --------- ---------

 REVENUES:
  Rental income                $ 56,461   $54,431  $224,498  $213,084
  Tenant reimbursements           6,762     5,080    24,365    22,379
  Other property income             728        83     2,381       892
                               --------- --------- --------- ---------
      Total revenues             63,951    59,594   251,244   236,355
                               --------- --------- --------- ---------

 EXPENSES:
  Property expenses              10,824     9,537    42,937    39,282
  Real estate taxes               4,707     4,386    18,865    17,008
  Provision for bad debts           118    (1,449)      744      (665)
  Ground leases                     509       421     2,016     1,679
  General and administrative
   expenses                       7,478    25,242    22,800    66,456
  Interest expense               10,050    10,421    43,541    38,956
  Depreciation and
   amortization                  17,696    17,467    70,505    66,198
                               --------- --------- --------- ---------
      Total expenses             51,382    66,025   201,408   228,914
                               --------- --------- --------- ---------

 OTHER INCOME AND EXPENSE:
  Interest income                   812       270     1,653       604
  Net settlement receipts on
   interest rate swaps              244       221       991       364
  (Loss) gain on derivative
   instruments                     (238)     (101)     (818)      378
                               --------- --------- --------- ---------
      Total other income and
       expense                      818       390     1,826     1,346
                               --------- --------- --------- ---------

 Income (loss) from continuing
  operations before minority
  interests                      13,387    (6,041)   51,662     8,787

 Minority interests:
  Distributions on Cumulative
   Redeemable
   Preferred units               (1,397)   (1,397)   (5,588)   (5,588)
  Minority interest in
   (earnings) loss of
   Operating Partnership
   attributable to continuing
   operations                      (644)    1,135    (2,792)      738
                               --------- --------- --------- ---------
      Total minority interests   (2,041)     (262)   (8,380)   (4,850)
                               --------- --------- --------- ---------

 Income (loss) from continuing
  operations                     11,346    (6,303)   43,282     3,937

 Discontinued operations:
  Revenues from discontinued
   operations                       389     1,515    13,085     6,490
  Expenses from discontinued
   operations                      (278)     (712)   (2,564)   (3,485)
  Net gain on disposition of
   discontinued operations            -     7,155    31,259    30,764
  Minority interest
   attributable to
   discontinued operations          129      (901)   (3,198)   (3,887)
                               --------- --------- --------- ---------
      Total income from
       discontinued operations      240     7,057    38,582    29,882
                               --------- --------- --------- ---------

 Net income                      11,586       754    81,864    33,819

 Preferred dividends             (2,402)   (2,402)   (9,608)   (9,608)
                               --------- --------- --------- ---------

 Net income (loss) available
  for common stockholders      $  9,184   $(1,648) $ 72,256  $ 24,211
                               ========= ========= ========= =========

 Weighted average shares
  outstanding - basic            32,246    28,785    31,244    28,711
 Weighted average shares
  outstanding - diluted          32,416    28,785    31,390    28,711

 Net income (loss) per common
  share - basic                $   0.28   $ (0.06) $   2.31  $   0.84
                               ========= ========= ========= =========
 Net income (loss) per common
  share - diluted              $   0.28   $ (0.06) $   2.30  $   0.84
                               ========= ========= ========= =========
           KILROY REALTY CORPORATION FUNDS FROM OPERATIONS
----------------------------------------------------------------------
           (unaudited, in thousands, except per share data)

                                Three     Three
                                 Months    Months    Year      Year
                                 Ended     Ended     Ended     Ended
                               December  December  December  December
                                31, 2006  31, 2005  31, 2006  31, 2005
                               --------- --------- --------- ---------

Net (loss) income available
 for common stockholders       $  9,184   $(1,648) $ 72,256  $ 24,211

 Adjustments:
     Minority interest in
      earnings (loss) of
      Operating Partnership         515      (234)    5,990     3,149
     Depreciation and
      amortization               17,612    17,543    71,197    67,007
     Net gain on disposition
      of discontinued
      operations                      -    (7,155)  (31,259)  (30,764)
                               --------- --------- --------- ---------
Funds From Operations(1), (2)  $ 27,311   $ 8,506  $118,184  $ 63,603
                               ========= ========= ========= =========

Weighted average common
 shares/units outstanding -
 basic                           34,570    32,485    33,842    32,460
Weighted average common
 shares/units outstanding -
 diluted                         34,740    32,672    33,988    32,622

Funds From Operations per
 common share/unit - basic     $   0.79   $  0.26  $   3.49  $   1.96
                               ========= ========= ========= =========
Funds From Operations per
 common share/unit - diluted   $   0.79   $  0.26  $   3.48  $   1.95
                               ========= ========= ========= =========

(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.
Executive Vice President and Chief Financial Officer
(310) 481-8483
or
Tyler H. Rose
Senior Vice President and Treasurer
(310) 481-8484

SOURCE: Kilroy Realty Corporation