Kilroy Realty Corporation Reports Second Quarter Financial Results Business Wire LOS ANGELES -- July 28, 2014 Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its second quarter ended June30,2014. Second Quarter Highlights *Funds from operations (FFO) of $0.72 per share *Net income available to common stockholders of $0.32 per share, including a gain from dispositions of $0.17 per share and a gain on sale of land of $0.04 per share *Revenues from continuing operations of $129.2million *Stabilized portfolio was 93.6% occupied and 95.7% leased at June30,2014 *Signed new or renewing leases on 429,331 square feet of space in the stabilized portfolio *Acquired a fully entitled, 3.1 acre land parcel in the Mission Bay submarket of San Francisco for $95.0million with plans to develop an office project totaling approximately 680,000 gross square feet *Completed the sale of two vacant office buildings in the University Towne Center submarket of San Diego and a land parcel in the Rancho Bernardo submarket of San Diego for combined gross proceeds of $62.6million *Increased the size of the company’s unsecured credit facility to $600 million. Additionally, lowered pricing and extended the term to July 2019 on both the credit facility and the company’s $150million term loan Recent Activity *In July 2014, executed a 15-year, 93,000 square foot lease with NeueHouse, a creative workspace provider for entrepreneurs in innovative industries, for the entire historical office component of the company’s 685,000 square foot, Columbia Square mixed-use campus in the Hollywood submarket of Los Angeles *In July 2014, entered into an agreement to acquire a development opportunity in the Central SOMA submarket of San Francisco for approximately $27 million Results for the Quarter and First Half ended June30,2014 For its second quarter ended June30,2014, KRC reported FFO of $63.3million, or $0.72per share, compared to $55.2million, or $0.69per share, in the second quarter of 2013. Net income available to common stockholders in the second quarter was $27.2million, or $0.32per share, compared to $6.6million, or $0.08 per share, in the year earlier period. Net income for the 2014 second quarter included approximately $18.2million in gains from property and land dispositions. Net income for the 2013 second quarter included approximately $0.4 million in gains from a property disposition. Including discontinued operations, the company’s revenues in the second quarter of 2014 totaled $129.2million, up from $124.5million in the second quarter of 2013. For the first sixmonths of 2014, KRC reported FFO of $120.5million, or $1.38per share, compared to $104.2million, or $1.30per share, in the first six months of 2013. Net income available to common stockholders in the first half of 2014 was $123.8million, or $1.46per share, compared to $5.7million, or $0.06 per share, in the year earlier period. Net income in the 2014 first half included approximately $108.3 million in gains from property and land dispositions. Net income in the 2013 first half included the $0.4 million gain from a property disposition, as noted above. Including discontinued operations, the company’s revenues in the first half of 2014 totaled $255.5million, up from $242.0million in the first half of 2013. Revenues from continuing operations in the first half of 2014 totaled $255.0million, up from $228.8million in the first half of 2013. All per share amounts in this report are presented on a diluted basis. Operating and Leasing Activity At June30,2014, KRC’s stabilized portfolio encompassed approximately 13.2million square feet of office space located in LosAngeles, OrangeCounty, SanDiego, the SanFrancisco Bay Area and greater Seattle. The portfolio was 93.6% occupied at June30,2014, compared to 92.4% at March31,2014 and 90.7% at June30,2013. During the second quarter, the company signed new or renewing leases on 429,331 square feet of space in the stabilized portfolio. At June30,2014, the company’s stabilized portfolio was 95.7% leased. Real Estate Investment Activity During the second quarter, KRC acquired a 3.1 acre land parcel in the Mission Bay submarket of San Francisco for approximately $95 million. The site is fully entitled for the development of a 680,000 gross square-foot office project. The company expects to invest approximately $450 million, including the land purchase, to develop a LEED-Gold designed project, with construction on the first of two phases expected to begin by mid 2015. The company made two dispositions in the second quarter, selling two vacant office buildings located in the University Towne Center submarket of San Diego for gross proceeds of approximately $29.5 million, and completing the previously disclosed sale of a land parcel in the Rancho Bernardo submarket of San Diego for gross proceeds of approximately $33.1 million. During the quarter, KRC continued construction on six development projects aggregating approximately 2.5 million square feet, with 71% of the office space pre-leased. Four of the six projects are 100% pre-leased. The company estimates its total investment in these six projects will be approximately $1.5 billion. Scheduled completion dates range from 2014 to 2016. Financing Activity In June 2014, KRC amended the terms of its unsecured credit facility and $150 million term loan, extending the maturity of both to July 2019 and increasing the size of the unsecured credit facility to $600 million. The unsecured credit facility now bears interest at LIBOR plus 1.25% and includes a 25 basis point facility fee. The term loan facility now bears interest at LIBOR plus 1.40%. The company also raised $22.6 million of equity during the second quarter through its at-the-market stock offering program. In June and July, Standard & Poor’s and Moody’s, respectively, affirmed the company’s senior unsecured debt rating and revised the outlook to positive from stable. Management Comments “Our stabilized portfolio is now nearly 96% leased, and our current development pipeline is just over 70% pre-leased, strong evidence of the economic dynamism occurring in coastal regions from Seattle to San Diego,” said John Kilroy, Jr., the company’s chairman, president and chief executive officer. “Demand for high quality, contemporary office space continues to grow and our strong franchise is allowing us to take advantage of these significant opportunities. As the current real estate cycle heats up, we remain focused on creating long-term shareholder value through disciplined and well-integrated leasing, acquisition, development and capital recycling strategies.” Conference Call and Audio Webcast KRC management will discuss updated earnings guidance for fiscal 2014 during the company’s July29,2014 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)713-4214, reservation #87335700. A replay of the conference call will be available via phone through August 6,2014 at (888) 286-8010, reservation #46042773, 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, Kilroy Realty Corporation (KRC), a publicly traded real estate investment trust and member of the S&P MidCap 400 Index, is one of the region’s premier landlords. The company provides physical work environments that foster creativity and productivity and serves a roster of dynamic, innovation-driven tenants, including technology, entertainment, digital media and health care companies. At June30,2014, the company’s stabilized portfolio totaled 13.2million 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. 41% of the company’s properties were LEED certified and 57% of the eligible properties 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 Form10-K/A for the year ended December 31, 2013 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 Six Months Ended June 30, June 30, 2014 2013 2014 2013 Revenues from continuing $ 129,194 $ 117,835 $ 254,979 $ 228,799 operations Revenues including discontinued $ 129,194 $ 124,478 $ 255,512 $ 241,975 operations Net income available to common $ 27,228 $ 6,633 $ 123,760 $ 5,730 stockholders ^(1)(2) Weighted average common shares 82,278 75,486 82,202 75,233 outstanding – basic Weighted average common shares 84,602 77,454 84,375 77,059 outstanding – diluted Net income available to common $ 0.33 $ 0.08 $ 1.49 $ 0.06 stockholders per share – basic ^(1)(2) Net income available to common $ 0.32 $ 0.08 $ 1.46 $ 0.06 stockholders per share – diluted ^(1)(2) Funds From $ 63,307 $ 55,154 $ 120,528 $ 104,240 Operations ^(3)(4) Weighted average common shares/units 85,305 78,518 85,233 78,282 outstanding – basic ^ (5) Weighted average common shares/units 87,629 80,485 87,407 80,107 outstanding – diluted ^ (5) Funds From Operations per $ 0.74 $ 0.70 $ 1.41 $ 1.33 common share/unit – basic ^(5) Funds From Operations per $ 0.72 $ 0.69 $ 1.38 $ 1.30 common share/unit – diluted ^(5) Common shares outstanding at end 82,916 75,711 of period Common partnership units outstanding 1,804 1,822 at end of period Total common shares and units 84,720 77,533 outstanding at end of period June 30, 2014 June 30, 2013 Stabilized office portfolio occupancy rates: ^(6) Los Angeles and 91.9 % 91.9 % Ventura Counties Orange County 94.1 % 89.3 % San Diego County 92.0 % 87.6 % San Francisco Bay 96.7 % 91.8 % Area Greater Seattle 95.5 % 95.7 % Weighted average 93.6 % 90.7 % total Total square feet of stabilized office properties owned at end of period: ^(6) Los Angeles and 3,503 3,398 Ventura Counties Orange County 438 497 San Diego County 4,241 5,249 San Francisco Bay 2,819 2,287 Area Greater Seattle 2,188 2,048 Total 13,189 13,479 ________________________ Net income available to common stockholders and Funds From Operations (1) for the three and six months ended June 30, 2013 include the receipt of a $5.2 million payment related to a property damage settlement. Net income available to common stockholders includes gains on dispositions of discontinued operations of $14.7 million and $104.8 (2) million for the three and six months ended June 30, 2014, respectively, $0.4 million for the three and six months ended June 30, 2013 and a $3.5 million gain on sale of land for the three and six months ended June 30, 2014. Reconciliation of Net income available to common stockholders to Funds (3) 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. Calculated based on weighted average shares outstanding including (5) 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 (6) company’s stabilized office portfolio for the periods presented. Occupancy percentages and total square feet shown for June 30, 2013 include the office properties that were sold during 2013 and 2014. KILROY REALTY CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands) June 30, 2014 December 31, 2013 (unaudited) ASSETS REAL ESTATE ASSETS: Land and improvements $ 675,489 $ 657,491 Buildings and improvements 3,720,863 3,590,699 Undeveloped land and construction in 1,270,675 1,016,757 progress Total real estate assets held for 5,667,027 5,264,947 investment Accumulated depreciation and (885,580 ) (818,957 ) amortization Total real estate assets held for 4,781,447 4,445,990 investment, net Real estate assets and other assets held — 213,100 for sale, net Cash and cash equivalents 24,571 35,377 Restricted cash 93,522 49,780 Marketable securities 11,747 10,008 Current receivables, net 10,588 10,743 Deferred rent receivables, net 134,269 127,123 Deferred leasing costs and acquisition-related intangible assets, 178,841 186,622 net Deferred financing costs, net 16,978 16,502 Prepaid expenses and other assets, net 21,829 15,783 TOTAL ASSETS $ 5,273,792 $ 5,111,028 LIABILITIES AND EQUITY LIABILITIES: Secured debt $ 553,427 $ 560,434 Exchangeable senior notes, net 170,704 168,372 Unsecured debt, net 1,431,301 1,431,132 Unsecured line of credit 90,000 45,000 Accounts payable, accrued expenses and 215,535 198,467 other liabilities Accrued distributions 31,730 31,490 Deferred revenue and acquisition-related 114,670 101,286 intangible liabilities, net Rents received in advance and tenant 43,085 44,240 security deposits Liabilities of real estate assets held — 14,447 for sale Total liabilities 2,650,452 2,594,868 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 829 822 Additional paid-in capital 2,519,268 2,478,975 Distributions in excess of earnings (145,851 ) (210,896 ) Total stockholders’ equity 2,566,657 2,461,312 Noncontrolling Interests Common units of the Operating 51,798 49,963 Partnership Noncontrolling interest in consolidated 4,885 4,885 subsidiary Total noncontrolling interests 56,683 54,848 Total equity 2,623,340 2,516,160 TOTAL LIABILITIES AND EQUITY $ 5,273,792 $ 5,111,028 KILROY REALTY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited, in thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, 2014 2013 2014 2013 REVENUES Rental income $ 115,555 $ 102,385 $ 227,611 $ 203,992 Tenant 10,592 9,717 22,164 18,847 reimbursements Other property 3,047 5,733 5,204 5,960 income Total revenues 129,194 117,835 254,979 228,799 EXPENSES Property expenses 25,713 23,800 50,807 46,605 Real estate taxes 10,910 9,748 22,083 19,412 Provision for bad — — — 95 debts Ground leases 773 889 1,535 1,736 General and administrative 11,857 9,855 22,668 19,524 expenses Acquisition-related 609 164 837 819 expenses Depreciation and 50,767 46,527 99,969 94,228 amortization Total expenses 100,629 90,983 197,899 182,419 OTHER (EXPENSES) INCOME Interest income and other net investment 419 19 596 411 gains Interest expense (16,020 ) (19,434 ) (33,272 ) (39,168 ) Total other (15,601 ) (19,415 ) (32,676 ) (38,757 ) (expenses) income INCOME FROM CONTINUING 12,964 7,437 24,404 7,623 OPERATIONS BEFORE GAIN ON SALE OF LAND Gain on sale of land 3,490 — 3,490 — INCOME FROM CONTINUING 16,454 7,437 27,894 7,623 OPERATIONS DISCONTINUED OPERATIONS: Income from discontinued — 2,243 377 4,445 operations Gains on dispositions of 14,689 423 104,804 423 discontinued operations Total income from discontinued 14,689 2,666 105,181 4,868 operations NET INCOME 31,143 10,103 133,075 12,491 Net income attributable to noncontrolling (603 ) (157 ) (2,690 ) (135 ) common units of the Operating Partnership NET INCOME ATTRIBUTABLE TO 30,540 9,946 130,385 12,356 KILROY REALTY CORPORATION PREFERRED DIVIDENDS (3,312 ) (3,313 ) (6,625 ) (6,626 ) NET INCOME AVAILABLE TO COMMON $ 27,228 $ 6,633 $ 123,760 $ 5,730 STOCKHOLDERS Weighted average common shares 82,278 75,486 82,202 75,233 outstanding – basic Weighted average common shares 84,602 77,454 84,375 77,059 outstanding – diluted Net income available to common $ 0.33 $ 0.08 $ 1.49 $ 0.06 stockholders per share – basic Net income available to common $ 0.32 $ 0.08 $ 1.46 $ 0.06 stockholders per share – diluted KILROY REALTY CORPORATION FUNDS FROM OPERATIONS (unaudited, in thousands, except per share data) Three Months Ended June 30, Six Months Ended June 30, 2014 2013 2014 2013 Net income available to $ 27,228 $ 6,633 $ 123,760 $ 5,730 common stockholders Adjustments: Net income attributable to noncontrolling 603 157 2,690 135 common units of the Operating Partnership Depreciation and amortization of 50,165 48,787 98,882 98,798 real estate assets Gains on dispositions of (14,689 ) (423 ) (104,804 ) (423 ) discontinued operations Funds From Operations $ 63,307 $ 55,154 $ 120,528 $ 104,240 ^(1)(2)(3) Weighted average common shares/units 85,305 78,518 85,233 78,282 outstanding – basic Weighted average common shares/units 87,629 80,485 87,407 80,107 outstanding – diluted Funds From Operations per $ 0.74 $ 0.70 $ 1.41 $ 1.33 common share/unit – basic ^(3) Funds From Operations per $ 0.72 $ 0.69 $ 1.38 $ 1.30 common share/unit – diluted ^(3) ________________________ 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 (1) 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. FFO includes amortization of deferred revenue related to tenant-funded tenant improvements of $2.7 million and $2.5 million for the three (2) months ended June 30, 2014 and 2013, respectively, and $5.0 million and $5.0 million for the six months ended June 30, 2014 and 2013, 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 Second Quarter Financial Results
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