Kilroy Realty Corporation Reports Fourth Quarter Financial Results Business Wire LOS ANGELES -- February 3, 2014 Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its fourth quarter ended December31,2013. Fourth Quarter Highlights *Funds from operations (FFO) of $0.67 per share *Net income available to common stockholders of $0.23 per share *Revenues from continuing operations of $120.6million *Stabilized portfolio 93.4% occupied and 95.1% leased at December31,2013 *Signed new or renewing leases on 732,000 square feet of space, achieving full-year leasing results of two million square feet for the sixth consecutive year *Initiated construction on three development projects totaling approximately 1.2 million square feet *Acquired for approximately $46 million a 3.6 acre development site in the Hollywood submarket of Los Angeles for a planned 475,000 square-foot, mixed-use media focused office campus Recent Activity *Completed the sale of 14 office properties located in San Diego and Orange County for total proceeds of approximately $337million (the disposition of 12 San Diego properties closed in January 2014) *In January 2014, executed an approximate 182,000 square-foot lease for 100% of the company’s 333Brannan Street office project in the SOMA submarket of San Francisco Results for the quarter and full year ended December31,2013 For its fourth quarter ended December31,2013, KRC reported FFO of $58.5million, or $0.67per share, compared to $49.8million, or $0.63per share, in the fourth quarter of 2012. Net income available to common stockholders was $19.3million, or $0.23per share, compared to $185.8million, or $2.49 per share, in the year earlier period. Net income for the fourth quarters ended December31,2013 and 2012 included approximately $11.8 million and $186.4 million, respectively, in net gains from property dispositions. Including discontinued operations, the company’s revenues in the fourth quarter of 2013 totaled $128.0million, up from $115.8million in the fourth quarter of 2012. For the yearended December31,2013, KRC reported FFO of $218.6million, or $2.66per share, compared to $165.5million, or $2.25per share, in the yearended December 31, 2012. Net income available to common stockholders in the twelve-month period was $30.6million, or $0.36per share, compared to $249.8million, or $3.56per share, in the same period of 2012. Net income for the full years ended December31,2013 and 2012 include approximately $12.3million and $259.2million, respectively, in net gains from property dispositions. Results for the full year ended December31,2013 included the receipt of two cash payments totaling approximately $0.11per share related to prior tenant matters and $0.02per share of acquisition-related expenses. Results for the full year ended December 31, 2012 included a non-cash charge of approximately $0.10per share related to the redemption of all of the Company’s SeriesE and SeriesF preferred stock and the Operating Partnership’s Series A preferred units and $0.07per share of acquisition-related expenses. Including discontinued operations, revenues in 2013 totaled $497.8million, up from $431.5million in 2012. All per share amounts in this report are presented on a diluted basis. Operating and Leasing Activity At December31,2013, KRC’s stabilized portfolio, which excludes properties held for sale, encompassed approximately 12.7million square feet of office space located in LosAngeles, OrangeCounty, SanDiego, the SanFrancisco Bay Area and greater Seattle. The stabilized portfolio was 93.4% occupied at year-end 2013, compared to 92.2% at the end of the third quarter and 92.8% at year-end 2012. During the fourth quarter, the company signed new or renewing leases on approximately 732,000 square feet of space, including redevelopment leasing. Across all of 2013, the company signed new or renewing leases on approximately 2.3million square feet (including redevelopment leasing), marking the sixth consecutive year that KRC has achieved full-year leasing of two million square feet. The company’s stabilized portfolio was 95.1% leased at year-end 2013. Real Estate Investment Activity During the fourth quarter, KRC initiated construction on threedevelopment projects totaling approximately 1.2million square feet of space. These include a 185,000square-foot office building located at 333Brannan Street in the SOMA submarket of San Francisco, CA, a 300,000square-foot, two-building office campus known as Crossing/900 in Redwood City, CA and the second phase of a 675,000square-foot mixed-use campus at Columbia Square in Hollywood, CA. With the addition of these three projects, KRC has six development projects under construction, four of which are 100% preleased. These six projects aggregate approximately 2.5million square feet of space, and the company estimates its total investment in these projects will be approximately $1.5billion. Scheduled completion dates range from 2014 to 2016. As part of the company’s ongoing capital recycling program, KRC completed the previously announced disposition of 14 properties, located in submarkets of Orange County and San Diego, during the fourth quarter and in early January 2014, for total proceeds of approximately $337million. The 12properties sold in January2014 were reported as properties held for sale as of December31,2013. The financial results of all 14properties have been accounted for as discontinued operations for all periods presented. Also in November2013, KRC completed the acquisition of an approximate four-acre development site in the Hollywood submarket of Los Angeles for approximately $46million. Upon receipt of entitlements, the company plans to develop a 475,000square-foot, mixed-use media focused office campus on the site, including low- and mid-rise office space, apartments and retail space. Management Comments “Against a backdrop of improving economic and commercial real estate fundamentals, KRC continued to create value across the franchise and delivered another strong performance in fiscal 2013,” said John Kilroy, Jr., the company’s chairman, president and chief executive officer. “Throughout the year, we executed an ambitious leasing program — driving occupancy up to 93.4%, decreasing 2015 lease expirations by 440 bps, and fully leasing up our two redevelopment projects at 360 Third Street and 3880 Kilroy Airport Way. “Leveraging our strong balance sheet and the funds generated from our ongoing capital recycling program, we made significant progress in expanding our market presence within the West Coast’s most dynamic economies and reshaping our real estate assets to deliver the quality, efficiency and sustainability that our tenants now expect in their professional work environment. This transformation will serve our company and shareholders well, not just over the coming year, but across the next decade.” Conference Call and Audio Webcast KRC management will discuss initial earnings guidance for fiscal 2014 during the company’s February4,2014 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) 680-0890 reservation #29128751. A replay of the conference call will be available via phone through February 11, 2014 at (888) 286-8010, reservation #96412388, or via the Internet at the company’s website. About Kilroy Realty Corporation With more than 65 years’ experience owning, developing, acquiring and managing real estate assets in West Coast real estate markets; publicly traded real estate investment trust Kilroy Realty Corporation (KRC), a member of the S&P MidCap 400 Index, is one of the region’s premier landlords. The company provides physical work environments that can advance creativity and productivity to serve a roster of dynamic, innovation-driven tenants that includes technology, entertainment, digital media and health care companies. At December31,2013, the company’s stabilized portfolio totaled 12.7million square feet of office properties, all located in the coastal regions of greater Seattle, the San Francisco Bay Area, Los Angeles, Orange County, and San Diego. 40% of the company’s properties were LEED certified and 53% were Energy Star certified. In addition, KRC has approximately 2.5million square feet of new office development under construction with a total estimated investment of approximately $1.5billion. 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 Year Ended December 31, December 31, 2013 2012 2013 2012 Revenues from continuing $ 120,602 $ 104,573 $ 465,098 $ 381,000 operations Revenues including $ 128,041 $ 115,763 $ 497,819 $ 431,474 discontinued operations Net income available to common $ 19,316 $ 185,839 $ 30,630 $ 249,826 stockholders ^(1) (2) Weighted average common shares 82,071 74,596 77,344 69,640 outstanding – basic Weighted average common shares 83,761 74,596 79,109 69,640 outstanding – diluted Net income available to common $ 0.23 $ 2.49 $ 0.37 $ 3.56 stockholders per share – basic ^(1)(2) Net income available to common $ 0.23 $ 2.49 $ 0.36 $ 3.56 stockholders per share – diluted ^(1)(2) Funds From Operations $ 58,482 $ 49,816 $ 218,621 $ 165,455 ^(1)(3)(4) Weighted average common shares/units 85,124 77,595 80,390 72,531 outstanding - basic ^ (5) Weighted average common shares/units 86,813 78,720 82,155 73,654 outstanding - diluted ^ (5) Funds From Operations per common $ 0.69 $ 0.64 $ 2.72 $ 2.28 share/unit – basic ^(1)(5) Funds From Operations per common $ 0.67 $ 0.63 $ 2.66 $ 2.25 share/unit – diluted ^(1)(5) Common shares outstanding at 82,154 74,927 end of period Common partnership units 1,805 1,827 outstanding at end of period Total common shares and units 83,959 76,754 outstanding at end of period December 31, December 31, 2013 2012 Stabilized office portfolio occupancy rates: ^(6) Los Angeles and 93.7 % 94.0 % Ventura Counties Orange County 92.8 % 92.0 % San Diego County 90.8 % 90.7 % San Francisco 94.8 % 95.5 % Bay Area Greater Seattle 96.7 % 93.3 % Weighted average 93.4 % 92.8 % total Total square feet of stabilized office properties owned at end of period: ^(6) Los Angeles and 3,507 3,488 Ventura Counties Orange County 437 497 San Diego County 4,368 5,250 San Francisco 2,377 2,287 Bay Area Greater Seattle 2,048 1,727 Total 12,737 13,249 ________________________ (1) Net income available to common stockholders and Funds From Operations for theyearended December31, 2013, also includes the receipt of a $3.7million net cash payment related the default of a former tenant and the receipt of a $5.2million payment related to a property damage settlement. In addition, Net income available to common stockholders and Funds From Operations for the year ended December31, 2012, included a non-cash charge of $2.1million related to the original issuance costs of the SeriesA Preferred Units that were redeemed on August15,2012 and a non-cash charge of $4.9million related to the original issuance cost of the Series E and F Preferred Stock redeemed on April16,2012. (2) Net income available to common stockholders includes a net gain on dispositions of discontinued operations of $12.3million and $259.2million for the year ending December31, 2013 and December31, 2012, respectively. (3) 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. (4) Reported amounts are attributable to common stockholders and common unitholders. (5) Calculated based on weighted average shares outstanding including participating share-based awards and assuming the exchange of all common limited partnership units outstanding. (6) Occupancy percentages and total square feet reported are based on the company’s stabilized office portfolio for the periods presented. Occupancy percentages and total square feet shown for December31, 2012 include the office properties that were sold during 2013 and held for sale at December31, 2013. KILROY REALTY CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands) December 31, December 31, 2013 2012 (unaudited) ASSETS REAL ESTATE ASSETS: Land and improvements $ 657,491 $ 612,714 Buildings and improvements 3,590,699 3,335,026 Undeveloped land and construction in 1,016,757 809,654 progress Total real estate held for investment 5,264,947 4,757,394 Accumulated depreciation and amortization (818,957 ) (756,515 ) Total real estate held for investment, net 4,445,990 4,000,879 Real estate assets and other assets held 213,100 — for sale, net Cash and cash equivalents 35,377 16,700 Restricted cash 49,780 247,544 Marketable securities 10,008 7,435 Current receivables, net 10,743 9,220 Deferred rent receivables, net 127,123 115,418 Deferred leasing costs and 186,622 189,968 acquisition-related intangible assets, net Deferred financing costs, net 16,502 18,971 Prepaid expenses and other assets, net 15,783 9,949 TOTAL ASSETS $ 5,111,028 $ 4,616,084 LIABILITIES AND EQUITY LIABILITIES: Secured debt $ 560,434 $ 561,096 Exchangeable senior notes, net 168,372 163,944 Unsecured debt, net 1,431,132 1,130,895 Unsecured line of credit 45,000 185,000 Accounts payable, accrued expenses and 198,467 154,734 other liabilities Accrued distributions 31,490 28,924 Deferred revenue and acquisition-related 101,286 117,904 intangible liabilities, net Rents received in advance and tenant 44,240 37,654 security deposits Liabilities and deferred revenue of real 14,447 — estate assets held for sale Total liabilities 2,594,868 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 822 749 Additional paid-in capital 2,478,975 2,126,005 Distributions in excess of earnings (210,896 ) (129,535 ) Total stockholders’ equity 2,461,312 2,189,630 Noncontrolling Interests Common units of the Operating Partnership 49,963 46,303 Noncontrolling interest in consolidated 4,885 — subsidiary Total noncontrolling interests 54,848 46,303 Total equity 2,516,160 2,235,933 TOTAL LIABILITIES AND EQUITY $ 5,111,028 $ 4,616,084 KILROY REALTY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands, except per share data) Three Months Ended Year Ended December 31, December 31, 2013 2012 2013 2012 REVENUES: Rental income $ 110,258 $ 96,014 $ 419,189 $ 349,613 Tenant 9,810 8,022 38,313 29,889 reimbursements Other property 534 537 7,596 1,498 income Total revenues 120,602 104,573 465,098 381,000 EXPENSES: Property expenses 24,878 20,688 96,606 76,219 Real estate taxes 10,466 8,655 40,156 32,323 Provision for bad 185 151 404 153 debts Ground leases 839 892 3,504 3,168 General and administrative 9,910 9,443 39,660 36,188 expenses Acquisition-related 575 1,040 1,962 4,937 expenses Depreciation and 50,920 43,550 192,734 153,251 amortization Total expenses 97,773 84,419 375,026 306,239 OTHER (EXPENSES) INCOME: Interest income and other net 551 145 1,635 848 investment gains Interest expense (17,849 ) (18,942 ) (75,870 ) (79,114 ) Total other (17,298 ) (18,797 ) (74,235 ) (78,266 ) (expenses) income INCOME (LOSS) FROM CONTINUING 5,531 1,357 15,837 (3,505 ) OPERATIONS DISCONTINUED OPERATIONS: Income from discontinued 5,687 5,839 16,476 21,361 operations Net gain on dispositions of 11,829 186,435 12,252 259,245 discontinued operations Total income from discontinued 17,516 192,274 28,728 280,606 operations NET INCOME 23,047 193,631 44,565 277,101 Net income attributable to noncontrolling (419 ) (4,479 ) (685 ) (6,187 ) common units of the Operating Partnership NET INCOME ATTRIBUTABLE TO 22,628 189,152 43,880 270,914 KILROY REALTY CORPORATION PREFERRED DISTRIBUTIONS AND DIVIDENDS: Distributions on noncontrolling cumulative redeemable — — — (3,541 ) preferred units of the Operating Partnership Preferred dividends (3,312 ) (3,313 ) (13,250 ) (10,567 ) Original issuance costs of redeemed — — — (6,980 ) preferred stock Total preferred distributions and (3,312 ) (3,313 ) (13,250 ) (21,088 ) dividends NET INCOME AVAILABLE TO COMMON $ 19,316 $ 185,839 $ 30,630 $ 249,826 STOCKHOLDERS Weighted average common shares 82,071 74,596 77,344 69,640 outstanding – basic Weighted average common shares 83,761 74,596 79,109 69,640 outstanding – diluted Net income available to common $ 0.23 $ 2.49 $ 0.37 $ 3.56 stockholders per share – basic Net income available to common $ 0.23 $ 2.49 $ 0.36 $ 3.56 stockholders per share – diluted KILROY REALTY CORPORATION FUNDS FROM OPERATIONS (unaudited, in thousands, except per share data) Three Months Ended Year Ended December 31, December 31, 2013 2012 2013 2012 Net income available to $ 19,316 $ 185,839 $ 30,630 $ 249,826 common stockholders Adjustments: Net income attributable to noncontrolling 419 4,479 685 6,187 common units of the Operating Partnership Depreciation and amortization 50,576 45,933 199,558 168,687 of real estate assets Net gain on dispositions of (11,829 ) (186,435 ) (12,252 ) (259,245 ) discontinued operations Funds From Operations $ 58,482 $ 49,816 $ 218,621 $ 165,455 ^(1)(2) Weighted average common shares/units 85,124 77,595 80,390 72,531 outstanding – basic Weighted average common shares/units 86,813 78,720 82,155 73,654 outstanding – diluted Funds From Operations per common $ 0.69 $ 0.64 $ 2.72 $ 2.28 share/unit – basic ^(3) Funds From Operations per common $ 0.67 $ 0.63 $ 2.66 $ 2.25 share/unit – diluted ^(3) ________________________ (1) We calculate 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. We believe that FFO is a useful supplemental measure of our 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 our 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 operating performance to other REITs. However, other REITs may use different methodologies to calculate FFO, and accordingly, our 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, we believe that FFO along with the required GAAP presentations provides a more complete measurement of our performance relative to our 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 our operating performance because 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 our properties, which are significant economic costs and could materially impact our results from operations. (2) FFO includes amortization of deferred revenue related to tenant-funded tenant improvements of $3.1million and $2.3million for the three months ended December31, 2013 and 2012, respectively, and $10.7million and $9.1million for the yearsended December31, 2013 and 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 Senior Vice President and Treasurer (310) 481-8581
Kilroy Realty Corporation Reports Fourth Quarter Financial Results
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