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Kilroy Realty Corporation Reports First Quarter Financial Results

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LOS ANGELES--(BUSINESS WIRE)--April 23, 2007--Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its first quarter ended March 31, 2007 with net income available for common stockholders of $16.5 million, or $0.51 per share, compared to $13.5 million, or $0.46 per share, in the first quarter of 2006. Revenues from continuing operations in the first quarter totaled $64.0 million, up from $62.0 million in the prior year's first quarter. Funds from operations (FFO) for the period totaled $26.0 million, or $0.75 per share, compared to $26.8 million, or $0.82 per share, in the year-earlier period.

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

"Strong demand and limited supply continue to support excellent market conditions for commercial real estate across much of Southern California," said John B. Kilroy, Jr., president and chief executive officer of KRC. "With seven development and re-development projects currently underway at KRC, we remain focused on quality execution and a strong leasing effort," he said.

KRC currently has five projects 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 $359 million, of which $212 million has been spent to date.

The company also has two redevelopment projects underway, including a 107,000 square-foot property in Los Angeles County and a two-building, 104,500 square-foot property located along the I-15 corridor in San Diego County. The two projects, which are 39% preleased, represent a total estimated incremental investment of approximately $24 million, of which $4 million has been spent to date.

As previously reported, in January 2007, KRC acquired two value-added sites in San Diego, including Sabre Springs 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 gross acres of land adjacent to Phases I and II of the company's existing Santa Fe Summit project for $28.0 million.

In February, KRC completed the acquisition of 32.0 gross acres of entitled land near the Palomar Airport in the coastal San Diego town of Carlsbad for a purchase price of $15.8 million. Known as Carlsbad Oaks, the property is located in an emerging submarket for both office and light industrial space.

Earnings guidance for 2007 will be discussed by KRC management during the company's April 24, 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) 270-6057, reservation #39666704. A replay of the conference call will be available via phone through May 4, 2007 at (888) 286-8010, reservation #68428665, 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 60 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 March 31, 2007, 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 Months   Three Months
                                             Ended          Ended
                                         March 31, 2007 March 31, 2006
                                         -------------- --------------

Revenues from continuing operations            $63,979        $62,023

Revenues including discontinued
 operations                                    $64,077        $63,479

Net income available for common
 stockholders (1)                              $16,478        $13,529

Weighted average common shares
 outstanding - basic                            32,349         29,440
Weighted average common shares
 outstanding - diluted                          32,485         29,608

Net income per share of common stock -
 basic                                           $0.51          $0.46
Net income per share of common stock -
 diluted                                         $0.51          $0.46

Funds From Operations (2), (3)                 $26,021        $26,787

Weighted average common shares/units
 outstanding - basic (4)                        34,600         32,509
Weighted average common shares/units
 outstanding - diluted (4)                      34,737         32,677

Funds From Operations per common
 share/unit - basic (4)                          $0.75          $0.82
Funds From Operations per common
 share/unit - diluted (4)                        $0.75          $0.82

Common shares outstanding at end of
 period                                         32,698         29,792
Common partnership units outstanding at
 end of period                                   2,248          2,892
                                         -------------- --------------
   Total common shares and units
    outstanding at end of period                34,946         32,684


                                         March 31, 2007 March 31, 2006
                                         -------------- --------------
Stabilized portfolio occupancy rates:
  Office                                          95.5%          92.4%
  Industrial                                      91.0%          99.7%
                                         -------------- --------------
  Weighted average total                          94.0%          95.0%

  Los Angeles                                     93.8%          91.3%
  Orange County                                   91.2%          98.6%
  San Diego                                       98.2%          94.7%
  Other                                           89.7%          92.9%
                                         -------------- --------------
   Weighted average total                         94.0%          95.0%

Total square feet of stabilized
 properties owned at end of period:
  Office                                         7,835          7,948
  Industrial                                     3,870          4,423
                                         -------------- --------------
   Total                                        11,705         12,371


(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,
                                                 2007        2006
                                              ----------- ------------

 ASSETS
 --------------------------------------
 REAL ESTATE ASSETS:
  Land and improvements                         $293,059     $293,059
  Buildings and improvements                   1,494,184    1,484,051
  Undeveloped land and construction in
   progress                                      378,112      263,651
                                              ----------- ------------
   Total real estate held for investment       2,165,355    2,040,761
  Accumulated depreciation and
   amortization                                 (457,982)    (443,807)
                                              ----------- ------------
   Real estate held for investment, net        1,707,373    1,596,954
  Property held for sale, net                                   4,512
                                              ----------- ------------
   Total real estate assets, net               1,707,373    1,601,466

 Cash and cash equivalents                         5,167       11,948
 Restricted cash                                                  494
 Funds held at qualified intermediary for
  Section 1031 exchange                                        43,794
 Current receivables, net                          7,096        5,890
 Deferred rent receivables, net                   62,201       61,929
 Note receivable                                  11,065       11,096
 Deferred leasing costs and acquisition
  related intangibles, net                        48,598       49,019
 Deferred financing costs, net                     5,545        5,100
 Prepaid expenses and other assets                 7,670        8,616
                                              ----------- ------------

   TOTAL ASSETS                               $1,854,715   $1,799,352
                                              =========== ============



 LIABILITIES & STOCKHOLDERS' EQUITY
 -----------------------------------------
 LIABILITIES:
  Secured debt                                  $455,230     $459,198
  Unsecured senior notes                         144,000      144,000
  Unsecured line of credit                       331,000      276,000
  Accounts payable, accrued expenses and
   other liabilities                              90,525       67,729
  Accrued distributions                           20,605       19,610
  Deferred revenue and other acquisition
   related liabilities                            29,923       25,353
  Rents received in advance and tenant
   security deposits                              19,256       19,900
                                              ----------- ------------
   Total liabilities                           1,090,539    1,011,790
                                              ----------- ------------

 MINORITY INTERESTS:
  7.45% Series A Cumulative Redeemable
   Preferred unitholders                          73,638       73,638
  Common unitholders of the Operating
   Partnership                                    36,812       39,628
                                              ----------- ------------
   Total minority interests                      110,450      113,266
                                              ----------- ------------


 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                                       327          324
  Additional paid-in capital                     652,580      671,484
  Distributions in excess of earnings           (120,763)    (119,094)
                                              ----------- ------------
   Total stockholders' equity                    653,726      674,296
                                              ----------- ------------

   TOTAL LIABILITIES & STOCKHOLDERS'
    EQUITY                                    $1,854,715   $1,799,352
                                              =========== ============

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

                                             Three Months Three Months
                                                Ended        Ended
                                              March 31,    March 31,
                                                 2007         2006
                                             ------------ ------------

 REVENUES:
  Rental income                                  $56,315      $55,600
  Tenant reimbursements                            6,558        5,486
  Other property income                            1,106          937
                                             ------------ ------------
      Total revenues                              63,979       62,023
                                             ------------ ------------

 EXPENSES:
  Property expenses                               10,858       10,003
  Real estate taxes                                4,739        4,732
  Provision for bad debts                           (172)         512
  Ground leases                                      516          519
  General and administrative expenses              9,048        4,934
  Interest expense                                 9,656       11,971
  Depreciation and amortization                   17,237       17,379
                                             ------------ ------------
      Total expenses                              51,882       50,050
                                             ------------ ------------

 OTHER INCOME AND EXPENSE:
  Interest income                                    619          252
  Net settlement receipts on interest
   rate swaps                                                     194
  Loss on derivative instruments                                  (76)
                                             ------------ ------------
      Total other income and expense                 619          370
                                             ------------ ------------

 Income from continuing operations before
  minority interests                              12,716       12,343

 Minority interests:
  Distributions on Cumulative Redeemable
   Preferred units                                (1,397)      (1,397)
  Minority interest in earnings of
   Operating Partnership
   attributable to continuing operations            (578)        (804)
                                             ------------ ------------
      Total minority interests                    (1,975)      (2,201)
                                             ------------ ------------

 Income from continuing operations                10,741       10,142

 Discontinued operations:
  Revenues from discontinued operations               98        1,456
  Expenses from discontinued operations              (20)        (721)
  Net gain on disposition of discontinued
   operations                                      8,626        5,655
  Minority interest in earnings of
   Operating Partnership
   attributable to discontinued
    operations                                      (565)        (601)
                                             ------------ ------------
      Total income from discontinued
       operations                                  8,139        5,789
                                             ------------ ------------

 Net income                                       18,880       15,931

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

 Net income available for common
  stockholders                                   $16,478      $13,529
                                             ============ ============

 Weighted average shares outstanding -
  basic                                           32,349       29,440
 Weighted average shares outstanding -
  diluted                                         32,485       29,608

 Net income per common share - basic               $0.51        $0.46
                                             ============ ============
 Net income per common share - diluted             $0.51        $0.46
                                             ============ ============

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

                                             Three Months Three Months
                                                Ended        Ended
                                              March 31,    March 31,
                                                 2007         2006
                                             ------------ ------------

Net income available for common
 stockholders                                    $16,478      $13,529

 Adjustments:
   Minority interest in earnings of
    Operating Partnership                          1,143        1,405
   Depreciation and amortization of real
    estate assets                                 17,026       17,508
   Net gain on dispositions of
    discontinued operations                       (8,626)      (5,655)
                                             ------------ ------------
Funds From Operations (1), (2)                   $26,021      $26,787
                                             ============ ============

Weighted average common shares/units
 outstanding - basic                              34,600       32,509
Weighted average common shares/units
 outstanding - diluted                            34,737       32,677

Funds From Operations per common
 share/unit - basic                                $0.75        $0.82
                                             ============ ============
Funds From Operations per common
 share/unit - diluted                              $0.75        $0.82
                                             ============ ============


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

SOURCE: Kilroy Realty Corporation