Kilroy Realty Corporation Reports Second Quarter Financial Results

  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  
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