Kilroy Realty Corporation Reports Fourth Quarter Financial Results

  Kilroy Realty Corporation Reports Fourth Quarter Financial Results

Business Wire

LOS ANGELES -- January 30, 2013

Kilroy Realty Corporation (NYSE: KRC) 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 10:00a.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 65years, 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    Three Months
                                                    Year Ended     Year Ended
                    Ended          Ended                      
                                                    December 31,   December
                     December 31,    December 31,   2012           31, 2011
                     2012            2011
Revenues from
continuing           $   111,111     $  94,226      $  404,912     $ 337,629
operations
                                                                   
Revenues including
discontinued         $   115,763     $  105,136     $  431,474     $ 383,147
operations
                                                                   
Net income
available to         $   185,839     $  39,907      $  249,826     $ 50,819
common
stockholders^(1)
                                                                   
Weighted average
common shares        74,596          58,440         69,640         56,717
outstanding -
basic
Weighted average
common shares        75,721          58,440         69,640         56,717
outstanding -
diluted
                                                                   
Net income
available to
common               $   2.49        $  0.68        $  3.56        $ 0.87
stockholders per
share - basic ^(1)
Net income
available to
common               $   2.45        $  0.68        $  3.56        $ 0.87
stockholders per
share - diluted
^(1)
                                                                   
Funds From
Operations ^(1),     $   49,816      $  40,525      $  165,455     $ 136,173
(2), (3)
                                                                   
Weighted average
common
shares/units         77,595          61,108         72,531         59,362
outstanding -
basic ^ (4)
Weighted average
common
shares/units         78,720          61,110         73,654         59,549
outstanding -
diluted ^ (4)
                                                                   
Funds From
Operations per       $   0.64        $  0.66        $  2.28        $ 2.29
common share/unit
- basic ^(1), (4)
Funds From
Operations per
common share/unit    $   0.63        $  0.66        $  2.25        $ 2.29
- diluted ^(1),
(4)
                                                                   
Common shares
outstanding at end                                  74,927         58,820
of period:
Common partnership
units outstanding                                   1,827         1,718     
at end of period
Total common
shares and units                                    76,754         60,538
outstanding at end
of period
                                                                   
                                                    December 31,   December
                                                    2012           31, 2011
Stabilized office
portfolio
occupancy
rates:^(5)
Los Angeles and                                     94.0       %   83.5      %
Ventura Counties
San Diego County                                    90.7       %   92.5      %
Orange County                                       92.0       %   93.4      %
San Francisco Bay                                   95.5       %   93.3      %
Area
Greater Seattle                                     93.3       %   89.9      %
Weighted average                                    92.8       %   90.1      %
total
                                                                   
Total square feet
of stabilized
office properties
owned at end of
period:^(5)
Los Angeles and                                     3,488          2,981
Ventura Counties
San Diego County                                    5,250          5,182
Orange County                                       497            541
San Francisco Bay                                   2,287          1,827
Area
Greater Seattle                                     1,727         890       
Total                                               13,249         11,421

      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,
(1)  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.
      Reconciliation of Net Income Available to Common Stockholders to Funds
(2)   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.
      Calculated based on weighted average shares outstanding including
(4)   participating share-based awards and assuming the exchange of all common
      limited partnership units outstanding.
      Occupancy percentages and total square feet reported are based on the
      Company's stabilized office portfolio for the period presented.
(5)   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     809,654            430,806        
progress
Total real estate held for investment    4,757,394           3,798,690
Accumulated depreciation and             (756,515       )    (742,503       )
amortization
Total real estate held for investment,   4,000,879           3,056,187
net
                                                             
Real estate assets and other assets      —                   84,156
held for sale, net
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,   189,968             155,522
net
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   154,734             81,713
other liabilities
Accrued distributions                    28,924              22,692
Deferred revenue and
acquisition-related intangible           117,904             79,781
liabilities, net
Rents received in advance and tenant     37,654              26,917
security deposits
Liabilities and deferred revenue of      —                  13,286         
real estate assets held for sale
Total liabilities                        2,380,151          2,045,675      
                                                             
NONCONTROLLING INTEREST:
7.45% Series A Cumulative Redeemable
Preferred units of the Operating         —                   73,638
Partnership
                                                             
EQUITY:
Stockholders' Equity
7.80% Series E Cumulative Redeemable     —                   38,425
Preferred stock
7.50% Series F Cumulative Redeemable     —                   83,157
Preferred stock
6.875% Series G Cumulative Redeemable    96,155              —
Preferred stock
6.375% Series H Cumulative Redeemable    96,256              —
Preferred stock
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            46,303             33,765         
Partnership
Total equity                             2,235,933          1,327,482      
TOTAL LIABILITIES, NONCONTROLLING        $   4,616,084      $   3,446,795  
INTEREST AND EQUITY
                                                                            
                                                                            

KILROY REALTY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
                                                              
                       Three Months     Three
                       Ended            Months       Year Ended    Year Ended
                       December 31,     Ended        December      December
                       2012             December     31, 2012      31, 2011
                                        31, 2011
REVENUES:
Rental income          $  101,288       $ 83,265     $ 369,516     $ 307,118
Tenant                 8,362            6,563        32,309        23,977
reimbursements
Other property         1,461           4,398       3,087        6,534     
income
Total revenues         111,111         94,226      404,912      337,629   
                                                                   
EXPENSES:
Property expenses      21,451           17,729       79,357        66,821
Real estate taxes      9,341            7,691        34,479        29,633
Provision for bad      151              516          153           781
debts
Ground leases          892              513          3,168         1,779
General and
administrative         9,443            7,793        36,188        28,148
expenses
Acquisition-related    1,040            1,224        4,937         4,053
expenses
Depreciation and       46,085          35,960      162,917      124,928   
amortization
Total expenses         88,403          71,426      321,199      256,143   
                                                                   
OTHER (EXPENSES)
INCOME:
Interest income and
other net investment   145              299          848           571
gains
Interest expense       (18,942     )    (23,115  )   (79,114   )   (85,785   )
Total other            (18,797     )    (22,816  )   (78,266   )   (85,214   )
(expenses) income
                                                                   
INCOME (LOSS) FROM
CONTINUING             3,911            (16      )   5,447         (3,728    )
OPERATIONS
                                                                   
DISCONTINUED
OPERATIONS:
Income from
discontinued           3,285            5,844        12,409        19,630
operations
Net gain on
dispositions of        186,435         39,032      259,245      51,587    
discontinued
operations
Total income from
discontinued           189,720         44,876      271,654      71,217    
operations
                                                                   
NET INCOME             193,631          44,860       277,101       67,489
                                                                   
Net income
attributable to
noncontrolling         (4,479      )    (1,154   )   (6,187    )   (1,474    )
common units of the
Operating
Partnership
                                                                   
NET INCOME
ATTRIBUTABLE TO        189,152          43,706       270,914       66,015
KILROY REALTY
CORPORATION
                                                                   
PREFERRED
DISTRIBUTIONS AND
DIVIDENDS:
Distributions on
noncontrolling
cumulative
redeemable preferred   —                (1,397   )   (3,541    )   (5,588    )
units of the
Operating
Partnership
Preferred dividends    (3,313      )    (2,402   )   (10,567   )   (9,608    )
Original issuance
costs of redeemed      —               —           (6,980    )   —         
preferred stock and
preferred units
Total preferred
distributions and      (3,313      )    (3,799   )   (21,088   )   (15,196   )
dividends
                                                                   
NET INCOME AVAILABLE
TO COMMON              $  185,839      $ 39,907    $ 249,826    $ 50,819  
STOCKHOLDERS
                                                                   
Weighted average
common shares          74,596           58,440       69,640        56,717
outstanding - basic
Weighted average
common shares          75,721           58,440       69,640        56,717
outstanding -
diluted
                                                                   
Net income available
to common              $  2.49         $ 0.68      $ 3.56       $ 0.87    
stockholders per
share - basic
Net income available
to common              $  2.45         $ 0.68      $ 3.56       $ 0.87    
stockholders per
share - diluted
                                                                             
                                                                             

KILROY REALTY CORPORATION FUNDS FROM OPERATIONS
(unaudited, in thousands, except per share data)
                                                              
                  Three Months     Three Months    Year Ended      Year Ended
                  Ended            Ended           December 31,    December
                  December 31,     December 31,    2012            31, 2011
                  2012             2011
Net income
available to      $  185,839       $  39,907       $  249,826      $ 50,819
common
stockholders
Adjustments:
Net income
attributable to
noncontrolling    4,479            1,154           6,187           1,474
common units of
the Operating
Partnership
Depreciation
and
amortization of   45,933           38,496          168,687         135,467
real estate
assets
Net gain on
dispositions of   (186,435    )    (39,032    )    (259,245    )   (51,587   )
discontinued
operations
Funds From        $  49,816       $  40,525      $  165,455     $ 136,173 
Operations ^(1)
                                                                   
Weighted
average common
shares/units      77,595           61,108          72,531          59,362
outstanding -
basic
Weighted
average common
shares/units      78,720           61,110          73,654          59,549
outstanding -
diluted
                                                                   
Funds From
Operations per
common            $  0.64         $  0.66        $  2.28        $ 2.29    
share/unit -
basic ^(2)
Funds From
Operations per
common            $  0.63         $  0.66        $  2.25        $ 2.29    
share/unit -
diluted ^(2)

      The company calculates FFO in accordance with the White Paper on FFO
      approved by the Board of Governors of NAREIT. The White Paper defines
      FFO as net income or loss calculated in accordance with GAAP, excluding
      extraordinary items, as defined by GAAP, gains and losses from sales of
(1)  depreciable real estate and impairment write-downs associated with
      depreciable real estate, 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.
      
      Management believes that FFO is a useful supplemental measure of the
      company's operating performance. The exclusion from FFO of gains and
      losses from the sale of operating real estate assets allows investors
      and analysts to readily identify the operating results of the assets
      that form the core of the company's activity and assists in comparing
      those operating results between periods. Also, because FFO is generally
      recognized as the industry standard for reporting the operations of
      REITs, it facilitates comparisons of the company's operating performance
      to other REITs. However, other REITs may use different methodologies to
      calculate FFO, and accordingly, the company's FFO may not be comparable
      to all other REITs.
      
      Implicit in historical cost accounting for real estate assets in
      accordance with GAAP is the assumption that the value of real estate
      assets diminishes predictably over time. Since real estate values have
      historically risen or fallen with market conditions, many industry
      investors and analysts have considered presentations of operating
      results for real estate companies using historical cost accounting alone
      to be insufficient. Because FFO excludes depreciation and amortization
      of real estate assets, management believes that FFO along with the
      required GAAP presentations provides a more complete measurement of the
      company's performance relative to its competitors and a more appropriate
      basis on which to make decisions involving operating, financing and
      investing activities than the required GAAP presentations alone would
      provide.
      
      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 and could
      materially impact the company's results from operations.
      
(2)   Reported amounts are attributable to common stockholders and common
      unitholders.

Contact:

Kilroy Realty Corporation
Tyler H. Rose
Executive Vice President and Chief Financial Officer
310-481-8484
or
Michelle Ngo
Vice President and Treasurer
310-481-8581
 
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