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 65 years, 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
Ended
March 31, 2013
Three Months
Ended
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 stockholders(1) $ (903
) $ 67,540 Weighted average common shares outstanding -
basic 74,977 63,649 Weighted average common shares outstanding -
diluted 74,977 63,649 Net (loss) income available to common
stockholders per share - basic (1) $ (0.02 ) $ 1.06 Net (loss)
income available to common stockholders per share - diluted (1) $
(0.02 ) $ 1.06 Funds From Operations (1), (2), (3) $ 49,086
$ 32,990 Weighted average common shares/units outstanding -
basic (4) 78,039 66,371 Weighted average common shares/units
outstanding - diluted (4) 79,725 67,156 Funds From
Operations per common share/unit - basic (1), (4) $ 0.63 $ 0.50
Funds From Operations per common share/unit - diluted (1), (4) $
0.62 $ 0.49 Common shares outstanding at end of period:
75,350 68,350 Common partnership units outstanding at end of period
1,827 1,718 Total common shares and units outstanding
at end of period 77,177 70,068
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 progress 747,679 809,654 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 acquisition-related intangible assets, net
196,525 189,968 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 other liabilities 171,694 154,734 Accrued
distributions 29,106 28,924 Deferred revenue and
acquisition-related intangible liabilities, net 118,118 117,904
Rents received in advance and tenant security deposits 37,251
37,654 Total liabilities 2,522,747 2,380,151
EQUITY: Stockholders' Equity 6.875% Series G
Cumulative Redeemable Preferred stock 96,155 96,155 6.375% Series H
Cumulative Redeemable Preferred stock 96,256 96,256 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
Ended
March 31, 2013
Three Months
Ended
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
operations — 72,809 Total income from discontinued
operations — 76,506 NET INCOME 2,388 78,671
Net loss (income) attributable to noncontrolling common
units of the Operating Partnership 22 (1,795 ) NET
INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION 2,410 76,876
PREFERRED DISTRIBUTIONS AND DIVIDENDS: Distributions on
noncontrolling cumulative redeemable preferred units of the
Operating Partnership — (1,397 ) Preferred dividends (3,313 )
(3,021 ) Original issuance costs of redeemed preferred stock —
(4,918 ) Total preferred distributions and dividends (3,313
) (9,336 ) NET (LOSS) INCOME AVAILABLE TO COMMON
STOCKHOLDERS $ (903 ) $ 67,540 Weighted average
common shares outstanding - basic 74,977 63,649 Weighted average
common shares outstanding - diluted 74,977 63,649 Net (loss)
income available to common stockholders per share - basic $ (0.02 )
$ 1.06 Net (loss) income available to common stockholders
per share - diluted $ (0.02 ) $ 1.06
KILROY REALTY
CORPORATION FUNDS FROM OPERATIONS
(unaudited, in thousands, except per share
data)
Three Months
Ended
March 31, 2013
Three Months
Ended
March 31, 2012
Net (loss) income available to common stockholders $ (903 ) $
67,540 Adjustments: Net (loss) income attributable to
noncontrolling common units of the Operating Partnership (22 )
1,795 Depreciation and amortization of real estate assets 50,011
36,464 Net gain on dispositions of discontinued operations —
(72,809 ) Funds From Operations (1)(2) $ 49,086 $ 32,990
Weighted average common shares/units outstanding -
basic 78,039 66,371 Weighted average common shares/units
outstanding - diluted 79,725 67,156 Funds From Operations
per common share/unit - basic (3) $ 0.63 $ 0.50 Funds
From Operations per common share/unit - diluted (3) $ 0.62 $
0.49
(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.
Kilroy Realty (NYSE:KRC)
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