Kilroy Realty Corporation Reports Fourth Quarter Financial Results

Kilroy Realty Corporation Reports Fourth Quarter Financial Results

LOS ANGELES--(BUSINESS WIRE)-- Kilroy Realty Corporation today reported financial results for its fourth quarter ended December 31, 2012, with net income available to common stockholders of $185.8 million, or $2.45 per share, compared to net income available to common stockholders of $39.9 million, or $0.68 per share, in the fourth quarter of 2011. Revenues from continuing operations in the fourth quarter totaled $111.1 million, up from $94.2 million in the prior year's fourth quarter. Funds from operations (FFO) for the period totaled $49.8 million, or $0.63 per share, compared to $40.5 million, or $0.66 per share, in the year-earlier period.


For its fiscal year ended December 31, 2012, KRC reported net income available to common stockholders of $249.8 million, or $3.56 per share, compared to $50.8 million, or $0.87 per share, in fiscal 2011. Revenues from continuing operations in 2012 totaled $404.9 million, up from $337.6 million in 2011. FFO for the year totaled $165.5 million, or $2.25 per share, compared to $136.2 million, or $2.29 per share, in 2011.

Results for the fourth quarter ended December 31, 2012 include $0.01 per share of acquisition-related expenses and a $0.01 per share cash payment related to a 2009 tenant default. Results for the fourth quarter ended December 31, 2011 include approximately $0.02 per share of acquisition-related expenses and a $0.06 per share cash payment related to the above mentioned 2009 tenant default. In addition, results for the year ended December 31, 2012 include a non-cash charge of approximately $0.10 per share related to the redemption of all of the Company's Series E and Series F preferred stock and the Operating Partnership's Series A preferred units. Additionally, 2012 fourth quarter and full year net income includes approximately $186.4 million and $259.2 million, respectively, of net gains from property dispositions. Net income for the fourth-quarter and year-ended 2011 includes approximately $39.0 million and $51.6 million, respectively, of net gains from property dispositions. All per share amounts in this report are presented on a diluted basis.

Topping its record-setting 2011 performance, KRC achieved its best annual leasing performance in the company's history as a publicly traded company in 2012. For the year, KRC signed new and renewing leases on approximately 2.3 million square feet of office space. At December 31, 2012, the company's stabilized portfolio, encompassing approximately 13.2 million square feet of office space located in Los Angeles, Orange County, San Diego, the San Francisco Bay Area and greater Seattle, was 92.8% occupied.

Throughout 2012, KRC was an active buyer of both stabilized office properties and development opportunities-most of the latter fully entitled projects that are predominantly 100% pre-leased. The company also remained an active seller of fully valued or non-strategic properties, recycling the proceeds from these dispositions into its acquisition and development programs.

The company acquired two office properties in the fourth quarter for an aggregate purchase price of approximately $102.0 million.

In October, the company acquired Tribeca West, a 96.8% occupied, 151,000 square foot, three-story entertainment-oriented office campus located at 12233 W. Olympic Boulevard immediately adjacent to the company's Westside Media Center in West Los Angeles. The purchase price was approximately $72.9 million.

In December, as part of a larger development transaction at 555 N. Mathilda Avenue, the company acquired a 76,000 square foot office building located in the Sunnyvale submarket of Silicon Valley. It is 100% occupied by LinkedIn Corporation. The purchase price was approximately $29.1 million.

Also, in the fourth quarter, the company acquired three development sites for an aggregate land purchase price of approximately $177.0 million. All three development projects are located in high-demand submarkets of the greater San Francisco Bay Area, are under construction, and are fully leased.

In October, the company purchased the land site at 350 Mission Street in San Francisco, where the company plans to build up to a 445,000 square foot, 30-story LEED-platinum certified office tower for salesforce.com under an average lease term of approximately 14 years. The purchase price for the land was approximately $52.0 million.

In December, the company purchased the land site at 331 Fairchild Drive in Mountain View, California. The company plans to build an 88,000 square foot office building for Audience, Inc. under a 10-year lease agreement. The purchase price for the land was approximately $18.9 million.

In December, the company purchased the land site at 555 N. Mathilda Avenue in Sunnyvale, California, where the company plans to build an approximate 587,000 square foot office campus for LinkedIn under a 12-year lease agreement. The purchase price for the land was approximately $106.1 million.

Further, during the fourth quarter, KRC completed the sale of its entire 39-property industrial portfolio along with two small office projects, all located in Southern California, in two transactions that together generated gross proceeds of approximately $354.2 million.

Across the entire year, KRC completed the purchase of 14 office buildings in seven transactions aggregating approximately 1.8 million square feet of space for an aggregate purchase price of approximately $674.0 million. The company also added six individual projects to its development pipeline, acquiring the projects for an aggregate land purchase price of approximately $335.0 million. The company estimates that its total investment, including land, in these six development projects will aggregate approximately $1.2 billion. In addition, it sold 46 office and industrial buildings, generating aggregate gross proceeds of approximately $500.3 million.

Details of all these transactions are available in the News and Investor Relations sections on the company's website.

"KRC entered 2012 a significantly stronger enterprise-with a bigger geographic footprint, a deeper talent bench, broader, more cost-efficient access to capital, and a sharper focus on the West Coast's most economically vibrant markets," said John Kilroy, Jr., the company's president and chief executive officer.

"Throughout the year, we've leveraged those strengths to improve the quality and diversity of our office portfolio, establish a leading role in the creation of a new generation of office space, maintain and capitalize on the market's strong demand for quality real estate assets to dispose of non-strategic properties at advantageous prices," said Kilroy. "The results can be seen in our growing roster of dynamic tenants, our improving financial results, and our strong total return to shareholders."

KRC management will discuss initial earnings guidance for fiscal 2013 during the company's January 31, 2013 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 888-679-8018 reservation # 14346152. A replay of the conference call will be available via phone through February 7, 2013 at 888-286-8010, reservation # 13461889, 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 major West Coast office markets. For over 65 years, the company has owned, developed, acquired and managed real estate assets primarily in the coastal regions of Los Angeles, Orange County, San Diego, the San Francisco Bay Area and greater Seattle. At December 31, 2012, the company owned 13.2 million rentable square feet of commercial office 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

December 31, 2012

Three Months

Ended

December 31, 2011

Year Ended

December 31, 2012

Year Ended

December 31, 2011

Revenues from continuing operations

$

111,111

$

94,226

$

404,912

$

337,629

Revenues including discontinued operations

$

115,763

$

105,136

$

431,474

$

383,147

Net income available to common stockholders(1)

$

185,839

$

39,907

$

249,826

$

50,819

Weighted average common shares outstanding - basic

74,596

58,440

69,640

56,717

Weighted average common shares outstanding - diluted

75,721

58,440

69,640

56,717

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

$

2.49

$

0.68

$

3.56

$

0.87

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

$

2.45

$

0.68

$

3.56

$

0.87

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

$

49,816

$

40,525

$

165,455

$

136,173

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

77,595

61,108

72,531

59,362

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

78,720

61,110

73,654

59,549

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

$

0.64

$

0.66

$

2.28

$

2.29

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

$

0.63

$

0.66

$

2.25

$

2.29

Common shares outstanding at end of period:

74,927

58,820

Common partnership units outstanding at end of period

1,827

1,718

Total common shares and units outstanding at end of period

76,754

60,538

December 31, 2012

December 31, 2011

Stabilized office portfolio occupancy rates:(5)

Los Angeles and Ventura Counties

94.0

%

83.5

%

San Diego County

90.7

%

92.5

%

Orange County

92.0

%

93.4

%

San Francisco Bay Area

95.5

%

93.3

%

Greater Seattle

93.3

%

89.9

%

Weighted average total

92.8

%

90.1

%

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

Los Angeles and Ventura Counties

3,488

2,981

San Diego County

5,250

5,182

Orange County

497

541

San Francisco Bay Area

2,287

1,827

Greater Seattle

1,727

890

Total

13,249

11,421

(1)

Net Income Available to Common Stockholders includes a net gain on dispositions of discontinued operations of $186.4 million and $259.2 million for the three months and year ended December 31, 2012, respectively. Net Income Available to Common Stockholders includes a net gain on dispositions of discontinued operations of $39.0 million and $51.6 million for the three months and year ended December 31, 2011, respectively.

(2)

Reconciliation of Net 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 December 31, 2011 include the office properties that were sold during the fourth quarter of 2012.

KILROY REALTY CORPORATION CONSOLIDATED BALANCE SHEETS

(unaudited, in thousands)

December 31, 2012

December 31, 2011

ASSETS

REAL ESTATE ASSETS:

Land and improvements

$

612,714

$

537,574

Buildings and improvements

3,335,026

2,830,310

Undeveloped land and construction in progress

809,654

430,806

Total real estate held for investment

4,757,394

3,798,690

Accumulated depreciation and amortization

(756,515

)

(742,503

)

Total real estate held for investment, net

4,000,879

3,056,187

Real estate assets and other assets held for sale, net

84,156

Cash and cash equivalents

16,700

4,777

Restricted cash

247,544

358

Marketable securities

7,435

5,691

Current receivables, net

9,220

8,395

Deferred rent receivables, net

115,418

101,142

Deferred leasing costs and acquisition-related intangible assets, net

189,968

155,522

Deferred financing costs, net

18,971

18,368

Prepaid expenses and other assets, net

9,949

12,199

TOTAL ASSETS

$

4,616,084

$

3,446,795

LIABILITIES, NONCONTROLLING INTEREST AND EQUITY

LIABILITIES:

Secured debt

$

561,096

$

351,825

Exchangeable senior notes, net

163,944

306,892

Unsecured debt, net

1,130,895

980,569

Unsecured line of credit

185,000

182,000

Accounts payable, accrued expenses and other liabilities

154,734

81,713

Accrued distributions

28,924

22,692

Deferred revenue and acquisition-related intangible liabilities, net

117,904

79,781

Rents received in advance and tenant security deposits

37,654

26,917

Liabilities and deferred revenue of real estate assets held for sale

13,286

Total liabilities

2,380,151

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

749

588

Additional paid-in capital

2,126,005

1,448,997

Distributions in excess of earnings

(129,535

)

(277,450

)

Total stockholders' equity

2,189,630

1,293,717

Noncontrolling Interest

Common units of the Operating Partnership

46,303

33,765

Total equity

2,235,933

1,327,482

TOTAL LIABILITIES, NONCONTROLLING INTEREST AND EQUITY

$

4,616,084

$

3,446,795

KILROY REALTY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share data)

Three Months
Ended
December 31, 2012

Three Months
Ended
December 31, 2011

Year Ended
December 31, 2012

Year Ended
December 31, 2011

REVENUES:

Rental income

$

101,288

$

83,265

$

369,516

$

307,118

Tenant reimbursements

8,362

6,563

32,309

23,977

Other property income

1,461

4,398

3,087