Kilroy Realty Corporation Reports First Quarter Financial Results

Kilroy Realty Corporation Reports First Quarter Financial Results

LOS ANGELES--(BUSINESS WIRE)-- Kilroy Realty Corporation today reported financial results for its first quarter ended March 31, 2013.


First Quarter Highlights

  • Funds from operations (FFO) per share of $0.62.

  • Net loss available to common stockholders of $0.02 per share, primarily attributable to an increase in depreciation and amortization expense.

  • Revenues from continuing operations of $117.5 million.

  • Stabilized portfolio was 90.3% occupied and 93.4% leased at March 31, 2013.

  • The company signed new or renewing leases on 434,000 square feet of space.

  • The company acquired a two-building, approximately 321,000 square-foot office property in the South Lake Union submarket of Seattle for approximately $170 million, including the assumption of approximately $84 million in debt.

  • The company completed a public offering of 3.8% senior unsecured 10-year notes for net proceeds of approximately $297 million.

Results for the quarter ended March 31, 2013

For its first quarter ended March 31, 2013, KRC reported FFO for the period of $49.1 million, or $0.62 per share, compared to $33.0 million, or $0.49 per share, in the first quarter of 2012. Net loss available to common stockholders was $0.9 million, or $0.02 per share, compared to net income available to common stockholders of $67.5 million, or $1.06 per share, in the first quarter of 2012. Net loss available to common stockholders in the first quarter of 2013 included a year over year increase in depreciation and amortization expense of approximately $11.0 million related to properties the company acquired in 2012 and 2013. Net income available to common stockholders in the first quarter of 2012 included approximately $3.7 million of income from discontinued operations, $72.8 million of net gains from property dispositions and a $4.9 million charge for the early redemption of preferred stock.

The company's revenues from continuing operations in the first quarter of 2013 totaled $117.5 million, up from $92.4 million in the first quarter of 2012.

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

Operating and Leasing Activity

At March 31, 2013, the company's stabilized portfolio, encompassing approximately 13.6 million square feet of office space located in Los Angeles, Orange County, San Diego, the San Francisco Bay Area and greater Seattle, was 90.3% occupied, down from 92.8% at year-end 2012. The decline was largely due to scheduled expirations. At the end of the first quarter, KRC's stabilized portfolio was 93.4% leased. During the first quarter, the company also signed new or renewing leases on approximately 434,000 square feet of office space.

Real Estate Investment Activity

In January, KRC completed the acquisition of a two-building, 321,000 square-foot office property located in the South Lake Union submarket of greater Seattle. The company paid approximately $170 million for the property, including the assumption of approximately $84 million in debt. The property is currently 100% occupied.

KRC currently has four 100% pre-leased development projects under construction aggregating approximately 1.4 million square feet of space. The company estimates its total investment in the four development projects will be approximately $809.5 million. Scheduled completion dates for the four projects range from fourth quarter 2013 to first half of 2015.

Capital Financing Activity

In January, KRC completed a public offering of $300.0 million aggregate principal amount of 3.8% senior unsecured notes that mature on January 15, 2023 for net proceeds of approximately $297.0 million. During the quarter, the company also sold approximately $23.4 million, net of selling commissions, of its common stock via its at-the-market stock offering program.

Management Comments

"As our first quarter activity demonstrates, we remain focused on building the long-term value of our portfolio through both opportunistic acquisitions and well-executed development, while maintaining a strong balance sheet," said John Kilroy, Jr., the company's president and chief executive officer.

"Our first-quarter purchase of Westlake Terry, a fully leased, premier office property located in one of greater Seattle's most desirable submarkets, strengthens our footprint in the region, continues our strategic expansion into high quality West Coast markets, and underscores the competitive advantage we believe we are gaining from a larger operating platform and more visible franchise."

Conference Call and Audio Webcast

KRC management will discuss updated earnings guidance for fiscal 2013 during the company's May 1, 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) 679-8033 reservation # 57852562. A replay of the conference call will be available via phone through May 8, 2013 at 888-286-8010, reservation # 50797205, or via the Internet at the company's website.

About Kilroy Realty Corporation

Kilroy Realty Corporation, a member of the S&P MidCap 400 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 March 31, 2013, the company owned 13.6 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, 2012 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 U.S. securities laws.

KILROY REALTY CORPORATION

SUMMARY QUARTERLY RESULTS

(unaudited, in thousands, except per share data)

Three Months

Ended

March 31, 2013

Three Months

Ended

March 31, 2012

Revenues from continuing operations

$

117,497

$

92,397

Revenues including discontinued operations

$

117,497

$

100,413

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

$

(903

)

$

67,540

Weighted average common shares outstanding - basic

74,977

63,649

Weighted average common shares outstanding - diluted

74,977

63,649

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

$

(0.02

)

$

1.06

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

$

(0.02

)

$

1.06

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

$

49,086

$

32,990

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

78,039

66,371

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

79,725

67,156

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

$

0.63

$

0.50

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

$

0.62

$

0.49

Common shares outstanding at end of period:

75,350

68,350

Common partnership units outstanding at end of period

1,827

1,718

Total common shares and units outstanding at end of period

77,177

70,068

March 31, 2013

March 31, 2012

Stabilized office portfolio occupancy rates:(5)

Los Angeles and Ventura Counties

93.4

%

87.0

%

Orange County

90.0

%

93.3

%

San Diego County

87.2

%

91.7

%

San Francisco Bay Area

94.5

%

89.2

%

Greater Seattle

88.7

%

90.3

%

Weighted average total

90.3

%

90.0

%

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

Los Angeles and Ventura Counties

3,488

2,981

Orange County

497

541

San Diego County

5,250

5,184

San Francisco Bay Area

2,287

2,201

Greater Seattle

2,048

890

Total

13,570

11,797

(1) Net Income Available to Common Stockholders includes a net gain on dispositions of discontinued operations of $72.8 million for the three months ended March 31, 2012. In addition, Net Income Available to Common Stockholders and Funds from Operations for the three months ended March 31, 2012 include a non-cash charge of $4.9 million related to the original issuance cost of the Series E and F Preferred Stock called for redemption on March 16, 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 March 31, 2012 include the office properties that were sold during the fourth quarter of 2012.

KILROY REALTY CORPORATION CONSOLIDATED BALANCE SHEETS

(in thousands)

March 31, 2013

December 31, 2012

(unaudited)

ASSETS

REAL ESTATE ASSETS:

Land and improvements

$

637,854

$

612,714

Buildings and improvements

3,631,057

3,335,026

Undeveloped land and construction in progress

747,679

809,654

Total real estate held for investment

5,016,590

4,757,394

Accumulated depreciation and amortization

(790,878

)

(756,515

)

Total real estate held for investment, net

4,225,712

4,000,879

Cash and cash equivalents

135,676

16,700

Restricted cash

19,465

247,544

Marketable securities

8,029

7,435

Current receivables, net

10,666

9,220

Deferred rent receivables, net

122,142

115,418

Deferred leasing costs and acquisition-related intangible assets, net

196,525

189,968

Deferred financing costs, net

20,501

18,971

Prepaid expenses and other assets, net

16,571

9,949

TOTAL ASSETS

$

4,755,287

$

4,616,084

LIABILITIES AND EQUITY

LIABILITIES:

Secured debt

$

570,676

$

561,096

Exchangeable senior notes, net

165,022

163,944

Unsecured debt, net

1,430,880

1,130,895

Unsecured line of credit

185,000

Accounts payable, accrued expenses and other liabilities

171,694

154,734

Accrued distributions

29,106

28,924

Deferred revenue and acquisition-related intangible liabilities, net

118,118

117,904

Rents received in advance and tenant security deposits

37,251

37,654

Total liabilities

2,522,747

2,380,151

EQUITY:

Stockholders' Equity

6.875% Series G Cumulative Redeemable Preferred stock

96,155

96,155

6.375% Series H Cumulative Redeemable Preferred stock

96,256

96,256

Common stock

753

749

Additional paid-in capital

2,149,052

2,126,005

Distributions in excess of earnings

(157,211

)

(129,535

)

Total stockholders' equity

2,185,005

2,189,630

Noncontrolling Interest

Common units of the Operating Partnership

47,535

46,303

Total equity

2,232,540

2,235,933

TOTAL LIABILITIES AND EQUITY

$

4,755,287

$

4,616,084

KILROY REALTY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share data)

Three Months

Ended

March 31, 2013

Three Months

Ended

March 31, 2012

REVENUES:

Rental income

$

107,380

$

84,349

Tenant reimbursements

9,887

7,180

Other property income

230

868

Total revenues

117,497

92,397

EXPENSES:

Property expenses

23,773

16,132

Real estate taxes

10,337

7,665

Provision for bad debts

95

2

Ground leases

847

807

General and administrative expenses

9,669

8,767

Acquisition-related expenses

655

1,528

Depreciation and amortization

50,391

34,652

Total expenses

95,767

69,553

OTHER (EXPENSES) INCOME:

Interest income and other net investment gains

392

484

Interest expense

(19,734

)

(21,163

)

Total other (expenses) income

(19,342

)

(20,679

)

INCOME FROM CONTINUING OPERATIONS

2,388

2,165

DISCONTINUED OPERATIONS:

Income from discontinued operations

3,697

Net gain on dispositions of discontinued operations

72,809

Total income from discontinued operations

76,506

NET INCOME

2,388

78,671

Net loss (income) attributable to noncontrolling common units of the Operating Partnership

22

(1,795

)

NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION

2,410

76,876

PREFERRED DISTRIBUTIONS AND DIVIDENDS:

Distributions on noncontrolling cumulative redeemable preferred units of the Operating Partnership

(1,397

)

Preferred dividends

(3,313

)

(3,021

)

Original issuance costs of redeemed preferred stock

(4,918

)

Total preferred distributions and dividends

(3,313

)

(9,336

)

NET (LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS

$

(903

)

$

67,540

Weighted average common shares outstanding - basic

74,977

63,649

Weighted average common shares outstanding - diluted

74,977

63,649

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

$

(0.02

)

$

1.06

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

$

(0.02

)

$

1.06

KILROY REALTY CORPORATION FUNDS FROM OPERATIONS

(unaudited, in thousands, except per share data)

Three Months

Ended

March 31, 2013

Three Months

Ended

March 31, 2012

Net (loss) income available to common stockholders

$

(903