Kilroy Realty Corporation Reports First Quarter Financial Results

  Kilroy Realty Corporation Reports First Quarter Financial Results

Business Wire

LOS ANGELES -- April 30, 2013

Kilroy Realty Corporation (NYSE: KRC) 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
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 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     Three Months

                                               Ended           Ended

                                               March 31, 2013   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          $  (903     )    $  67,540
stockholders^(1)
                                                                
Weighted average common shares outstanding -   74,977           63,649
basic
Weighted average common shares outstanding -   74,977           63,649
diluted
                                                                
Net (loss) income available to common          $  (0.02    )    $  1.06
stockholders per share - basic ^(1)
Net (loss) income available to common          $  (0.02    )    $  1.06
stockholders per share - diluted ^(1)
                                                                
Funds From Operations ^(1), (2), (3)           $  49,086        $  32,990
                                                                
Weighted average common shares/units           78,039           66,371
outstanding - basic ^ (4)
Weighted average common shares/units           79,725           67,156
outstanding - diluted ^ (4)
                                                                
Funds From Operations per common share/unit -  $  0.63          $  0.50
basic ^(1), (4)
Funds From Operations per common share/unit -  $  0.62          $  0.49
diluted ^(1), (4)
                                                                
Common shares outstanding at end of period:    75,350           68,350
Common partnership units outstanding at end of 1,827           1,718       
period
Total common shares and units outstanding at   77,177           70,068
end of period
                                                                
                                               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        747,679         809,654        
progress
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                  196,525          189,968
acquisition-related intangible assets, net
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      171,694          154,734
other liabilities
Accrued distributions                       29,106           28,924
Deferred revenue and acquisition-related    118,118          117,904
intangible liabilities, net
Rents received in advance and tenant        37,251          37,654         
security deposits
Total liabilities                           2,522,747       2,380,151      
                                                             
EQUITY:
Stockholders' Equity
6.875% Series G Cumulative Redeemable       96,155           96,155
Preferred stock
6.375% Series H Cumulative Redeemable       96,256           96,256
Preferred stock
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     Three Months

                                               Ended            Ended

                                               March 31, 2013   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       —               72,809      
operations
Total income from discontinued operations      —               76,506      
                                                                
NET INCOME                                     2,388            78,671
                                                                
Net loss (income) attributable to
noncontrolling common units of the Operating   22              (1,795      )
Partnership
                                                                
NET INCOME ATTRIBUTABLE TO KILROY REALTY       2,410            76,876
CORPORATION
                                                                
PREFERRED DISTRIBUTIONS AND DIVIDENDS:
Distributions on noncontrolling cumulative
redeemable preferred units of the Operating    —                (1,397      )
Partnership
Preferred dividends                            (3,313      )    (3,021      )
Original issuance costs of redeemed preferred  —               (4,918      )
stock
Total preferred distributions and dividends    (3,313      )    (9,336      )
                                                                
NET (LOSS) INCOME AVAILABLE TO COMMON          $  (903     )    $   67,540  
STOCKHOLDERS
                                                                
Weighted average common shares outstanding -   74,977           63,649
basic
Weighted average common shares outstanding -   74,977           63,649
diluted
                                                                
Net (loss) income available to common          $  (0.02    )    $   1.06    
stockholders per share - basic
Net (loss) income available to common          $  (0.02    )    $   1.06    
stockholders per share - diluted
                                                                            

KILROY REALTY CORPORATION FUNDS FROM OPERATIONS

(unaudited, in thousands, except per share data)
                                                              
                                               Three Months     Three Months

                                               Ended            Ended

                                               March 31, 2013   March 31, 2012
Net (loss) income available to common          $   (903    )    $   67,540
stockholders
Adjustments:
Net (loss) income attributable to
noncontrolling common units of the Operating   (22         )    1,795
Partnership
Depreciation and amortization of real estate   50,011           36,464
assets
Net gain on dispositions of discontinued       —               (72,809     )
operations
Funds From Operations ^(1)(2)                  $   49,086      $   32,990  
                                                                
Weighted average common shares/units           78,039           66,371
outstanding - basic
Weighted average common shares/units           79,725           67,156
outstanding - diluted
                                                                
Funds From Operations per common share/unit -  $   0.63        $   0.50    
basic ^(3)
Funds From Operations per common share/unit -  $   0.62        $   0.49    
diluted ^(3)
                                                                            

^(1) 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 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. Our
calculation of FFO includes the amortization of deferred revenue related to
tenant-funded tenant improvements and excludes the depreciation of the related
tenant improvement assets.

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) FFO includes amortization of deferred revenue related to tenant-funded
tenant improvements of $2.4 million and $2.3 million for the three months
ended March 31, 2013 and March 31, 2012, respectively.

^(3) 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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