Kilroy Realty Corporation Reports Third Quarter Financial Results

Kilroy Realty Corporation Reports Third Quarter Financial Results

LOS ANGELES--(BUSINESS WIRE)-- Kilroy Realty Corporation today reported financial results for its third quarter ended September 30, 2012, with a net loss available to common stockholders of $2.8 million, or $0.04 per share, compared to net income available to common stockholders of $10.2 million, or $0.17 per share, in the third quarter of 2011. Revenues from continuing operations in the third quarter totaled $104.3 million, up from $86.4 million in the prior year's third quarter. Funds from operations (FFO) for the period totaled $43.1 million, or $0.57 per share, compared to $33.9 million, or $0.56 per share, in the year-earlier period. Net loss available to common stockholders and FFO for the third quarter of 2012 included a one-time, non-cash charge of approximately $2.1 million, or $0.03 per share, in conjunction with the redemption of all of the company's Series A Cumulative Redeemable Preferred Units.


Results for the third quarter of 2012 include $0.01 per share of acquisition-related expenses and also reflect the company's public offering of 5.75 million shares of common stock sold at a price of $46.10 per share, which closed on August 13, 2012. Net loss available to common stockholders in the third quarter of 2012 also included an increase in depreciation and amortization expense of approximately $10.8 million attributable to depreciation and amortization for the company's recent acquisition properties.

For the first nine months of 2012, KRC reported net income available to common stockholders of $64.0 million, or $0.92 per share, compared to $10.9 million, or $0.18 per share, in the first nine months of 2011. Revenues from continuing operations in the nine-month period totaled $293.8 million, up from $243.4 million in the same period of 2011. FFO for the first nine months of 2012 totaled $115.6 million, or $1.61 per share, compared to $95.6 million, or $1.62 per share, in the same period of 2011. Net income in the first nine months of 2012 included approximately $72.8 million of net gains from property dispositions. All per share amounts in this report are presented on a diluted basis.

KRC also announced that it has entered into agreements to sell its entire Orange County industrial portfolio and five additional Southern California office buildings. The transactions are expected to close by year-end 2012, subject to customary closing conditions. Accordingly, these assets have been reclassified as properties held for sale and their financial results are accounted for as discontinued operations in the 2012 third-quarter and nine-month financial statements.

At September 30, 2012, the company's stabilized portfolio, encompassing approximately 12.7 million square feet of office space located in greater Seattle, the San Francisco Bay Area, Los Angeles, Orange County and San Diego, was 91.1% occupied.

As previously announced, KRC completed three operating property acquisitions since the end of the second quarter: Skyline Tower, a 24-story Class A office building in Bellevue, Washington; Sunset Media Center, a 22-story Class A office building in Hollywood; and Tribeca West, a three-story entertainment-oriented office building in West Los Angeles.

In addition, the company completed the acquisition of three development opportunities: 333 Brannan Street, a development site in San Francisco's SOMA district; Columbia Square, an historic 4.7 acre media campus in Hollywood; and 350 Mission Street, a development site in San Francisco's South of Market financial district.

Details of all these transactions are available in the News section on the company's website.

Since the beginning of 2012, KRC has completed the purchase of 13 office buildings in six transactions aggregating approximately 1.7 million square feet of space for an aggregate purchase price of approximately $645 million. The company also has added four individual projects to its development and redevelopment pipeline, acquiring the four projects for an aggregate purchase price of approximately $210 million. The company estimates that its total investment, including land, in these four development and redevelopment projects will aggregate approximately $846 million.

"KRC continues to build the breadth, diversity, value and financial strength of its West Coast real estate operations," said John Kilroy, Jr., the company's president and chief executive officer. "We're leveraging the expertise and local knowledge of our talented management team to acquire top quality properties and development opportunities in the West Coast's most economically vibrant markets. We're also pursuing an active disposition program to generate capital from the sale of non-strategic assets and maintain a conservatively leveraged balance sheet in what remains a highly volatile business environment."

KRC management will discuss updated earnings guidance for fiscal 2012 during the company's October 31, 2012 earnings conference call. The call will begin at 10:00 a.m. Pacific Time and last approximately one hour. Those interested in listening via the Internet can access the conference call at http://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 (888) 680-0879 reservation # 76348175. A replay of the conference call will be available via phone through November 7, 2012 at (888) 286-8010, reservation # 10454808, or via the Internet at the company's website.

About Kilroy Realty Corporation. Kilroy Realty Corporation, a member of the S&P Small Cap 600 Index, is a real estate investment trust active in the office and industrial property sectors along the West Coast. For over 60 years, the company has owned, developed, acquired and managed real estate assets primarily in the coastal regions of Los Angeles, Orange County, San Diego, greater Seattle and the San Francisco Bay Area. At September 30, 2012, the company's stabilized office portfolio encompassed 12.7 million rentable square feet and its held for sale portfolio encompassed 3.7 million rentable square feet of office and industrial space. More information is available at http://www.kilroyrealty.com.

Forward-Looking Statements. This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on our current expectations, beliefs and assumptions, and are not guarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult to predict, many of which are outside of our control. Accordingly, actual performance, results and events may vary materially from those indicated in forward-looking statements, and you should not rely on forward-looking statements as predictions of future performance, results or events. Numerous factors could cause actual future performance, results and events to differ materially from those indicated in forward-looking statements, including, among others, risks associated with: investment in real estate assets, which are illiquid; trends in the real estate industry; significant competition, which may decrease the occupancy and rental rates of properties; the ability to successfully complete acquisitions and dispositions on announced terms; the ability to successfully operate acquired properties; the availability of cash for distribution and debt service and exposure of risk of default under debt obligations; adverse changes to, or implementations of, applicable laws, regulations or legislation; and the ability to successfully complete development and redevelopment projects on schedule and within budgeted amounts. These factors are not exhaustive. For a discussion of additional factors that could materially adversely affect our business and financial performance, see the factors included under the caption "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2011 and our other filings with the Securities and Exchange Commission. All forward-looking statements are based on information that was available, and speak only, as of the date on which they are made. We assume no obligation to update any forward-looking statement made in this press release that becomes untrue because of subsequent events, new information or otherwise, except to the extent required in connection with ongoing requirements under Federal securities laws.

KILROY REALTY CORPORATION

SUMMARY QUARTERLY RESULTS

(unaudited, in thousands, except per share data)

Three Months

Ended

September 30, 2012

Three Months

Ended

September 30, 2011

Nine Months

Ended

September 30, 2012

Nine Months

Ended

September 30, 2011

Revenues from continuing operations

$

104,293

$

86,399

$

293,800

$

243,371

Revenues including discontinued operations

$

111,375

$

97,806

$

315,712

$

277,995

Net (loss) income available to common stockholders(1)

$

(2,753

)

$

10,195

$

63,988

$

10,912

Weighted average common shares outstanding - basic

71,889

58,355

67,975

56,136

Weighted average common shares outstanding - diluted

71,889

58,355

67,975

56,136

Net (loss) income available to common stockholders per share - basic (1)

$

(0.04

)

$

0.17

$

0.92

$

0.18

Net (loss) income available to common stockholders per share - diluted (1)

$

(0.04

)

$

0.17

$

0.92

$

0.18

Funds From Operations (1), (2), (3)

$

43,142

$

33,878

$

115,641

$

95,648

Weighted average common shares/units outstanding - basic (4)

74,850

61,015

70,830

58,774

Weighted average common shares/units outstanding - diluted (4)

76,185

61,017

71,953

58,961

Funds From Operations per common share/unit - basic (1), (4)

$

0.58

$

0.56

$

1.63

$

1.63

Funds From Operations per common share/unit - diluted (1), (4)

$

0.57

$

0.56

$

1.61

$

1.62

Common shares outstanding at end of period:

74,693

58,464

Common partnership units outstanding at end of period

1,827

1,718

Total common shares and units outstanding at end of period

76,520

60,182

September 30, 2012

September 30, 2011

Stabilized office portfolio occupancy rates:(5)

Los Angeles and Ventura Counties

94.3

%

84.1

%

San Diego County

87.8

%

92.6

%

Orange County

95.6

%

91.4

%

San Francisco Bay Area

92.0

%

95.4

%

Greater Seattle

93.2

%

90.2

%

Weighted average total

91.1

%

90.6

%

Total square feet of stabilized office properties owned at end of period:(5)

Los Angeles and Ventura Counties

3,038

2,976

San Diego County

5,183

5,435

Orange County

497

541

San Francisco Bay Area

2,211

1,732

Greater Seattle

1,727

890

Total

12,656

11,574

(1)

Net (Loss) Income Available to Common Stockholders includes a net gain on dispositions of discontinued operations of $72.8 million for the nine months ended September 30, 2012. In addition, Net (Loss) Income Available to Common Stockholders and Funds from Operations for the nine months ended September 30, 2012 include a non-cash charge of $7.0 million related to the original issuance cost of the Series E and F Preferred Stock that were redeemed on April 16, 2012 and the Series A Preferred Units that were redeemed on August 17, 2012.

(2)

Reconciliation of Net (Loss) Income Available to Common Stockholders 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 including participating share-based awards and assuming the exchange of all common limited partnership units outstanding.

(5)

Occupancy percentages and total square feet reported are based on the Company's stabilized office portfolio for the period presented. Occupancy percentages and total square feet shown for September 30, 2011 include the office properties held for sale at September 30, 2012.

KILROY REALTY CORPORATION CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)

September 30, 2012

December 31, 2011

ASSETS

REAL ESTATE ASSETS:

Land and improvements

$

562,071

$

537,574

Buildings and improvements

3,169,224

2,830,310

Undeveloped land and construction in progress

668,058

430,806

Total real estate held for investment

4,399,353

3,798,690

Accumulated depreciation and amortization

(725,728

)

(742,503

)

Total real estate held for investment, net

3,673,625

3,056,187

Real estate assets and other assets held for sale, net

166,019

84,156

Cash and cash equivalents

16,113

4,777

Restricted cash

5,884

358

Marketable securities

6,812

5,691

Current receivables, net

7,113

8,395

Deferred rent receivables, net

110,128

101,142

Deferred leasing costs and acquisition-related intangible assets, net

187,307

155,522

Deferred financing costs, net

18,442

18,368

Prepaid expenses and other assets, net

24,398

12,199

TOTAL ASSETS

$

4,215,841

$

3,446,795

LIABILITIES, NONCONTROLLING INTEREST AND EQUITY

LIABILITIES:

Secured debt

$

520,867

$

351,825

Exchangeable senior notes, net

162,885

306,892

Unsecured debt, net

1,130,814

980,569

Unsecured line of credit

27,000

182,000

Accounts payable, accrued expenses and other liabilities

127,472

81,713

Accrued distributions

28,845

22,692

Deferred revenue and acquisition-related intangible liabilities, net

120,407

79,781

Rents received in advance and tenant security deposits

31,728

26,917

Liabilities and deferred revenue of real estate assets held for sale

4,455

13,286

Total liabilities

2,154,473

2,045,675

NONCONTROLLING INTEREST:

7.45% Series A Cumulative Redeemable Preferred units of the Operating Partnership

73,638

EQUITY:

Stockholders' Equity

7.80% Series E Cumulative Redeemable Preferred stock

38,425

7.50% Series F Cumulative Redeemable Preferred stock

83,157

6.875% Series G Cumulative Redeemable Preferred stock

96,155

6.375% Series H Cumulative Redeemable Preferred stock

96,256

Common stock

747

588

Additional paid-in capital

2,114,774

1,448,997

Distributions in excess of earnings

(288,765

)

(277,450

)

Total stockholders' equity

2,019,167

1,293,717

Noncontrolling Interest

Common units of the Operating Partnership

42,201

33,765

Total equity

2,061,368

1,327,482

TOTAL LIABILITIES, NONCONTROLLING INTEREST AND EQUITY

$

4,215,841

$

3,446,795

KILROY REALTY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share data)

Three Months

Ended

September 30, 2012

Three Months

Ended

September 30, 2011

Nine Months

Ended

September 30, 2012

Nine Months
Ended
September 30, 2011

REVENUES:

Rental income

$

95,405

$

79,673

$

268,228

$

223,853

Tenant reimbursements

8,665

6,387

23,947

17,382

Other property income

223

339

1,625

2,136

Total revenues

104,293

86,399

293,800

243,371

EXPENSES: