Kilroy Realty Corporation (NYSE: KRC) today reported
financial results for its third quarter ended
September 30, 2013.
Third Quarter Highlights
- Funds from operations (FFO) per share
of $0.69
- Net income available to common
stockholders of $0.07 per share
- Revenues from continuing operations of
$115.7 million
- Financial results include the receipt
of a net $0.05 per share cash payment related to the default
of a prior tenant
- Stabilized portfolio 92.2% occupied and
93.7% leased at September 30, 2013
- Signed new or renewing leases on
510,000 square feet of space
- Acquired for approximately $126 million
a 13.8 acre office campus in the Del Mar submarket of
San Diego that includes two 100% leased buildings totaling
approximately 219,000 square feet and an entitled development
site
- Entered into agreements to sell 13
properties in San Diego and one property in Orange County totaling
in aggregate approximately 1.2 million square feet
- Completed a public offering of
6,175,000 shares of common stock for net proceeds of approximately
$296 million
Results for the quarter and nine months ended
September 30, 2013
For its third quarter ended September 30, 2013, KRC
reported FFO of $55.9 million, or $0.69 per share,
compared to $43.1 million, or $0.57 per share, in the
third quarter of 2012. Net income available to common stockholders
was $5.6 million, or $0.07 per share, compared to a net
loss available to common stockholders of $2.8 million, or
$0.04 per share, in the third quarter of 2012. Results for the
third quarter ended September 30, 2013 included the
receipt of a net $0.05 per share cash payment related to the
default of a prior tenant as well as $0.01 per share of
acquisition-related expenses. Results for the third quarter ended
September 30, 2012 included a one-time, non-cash charge
of $0.03 per share related to the redemption of all of the
company’s Series A preferred units and $0.01 per share of
acquisition-related expenses. The company’s revenues, including
discontinued operations, in the third quarter of 2013 totaled
$127.8 million, up from $111.4 million in the third
quarter of 2012.
For the first nine months of 2013, KRC reported FFO of
$160.1 million, or $1.99 per share, compared to
$115.6 million, or $1.61 per share, in the first
nine months of 2012. Net income available to common
stockholders in the nine-month period was $11.3 million, or
$0.13 per share, compared to $64.0 million, or
$0.92 per share, in the same period of 2012. Results for the
first nine months ended September 30, 2013 included the
receipt of two cash payments totaling approximately $0.11 per share
related to prior tenant matters and $0.02 per share of
acquisition-related expenses. Results for the nine months ended
September 30, 2012 included the receipt of a $0.01 per
share cash payment related to a property damage settlement, $0.05
per share of acquisition-related expenses and a non-cash charge of
$0.10 per share related to the redemption of all of the company’s
Series E and Series F preferred stock and Series A preferred units.
Net income for the nine months ended September 30, 2013 included an
approximately $0.4 million net gain from a property
disposition. Net income for the nine months ended
September 30, 2012 included approximately
$72.8 million of net gains from property dispositions. The
company’s revenues, including discontinued operations, in the first
nine months of 2013 totaled $369.8 million, up from
$315.7 million in the same period of 2012.
All per share amounts in this report are presented on a diluted
basis.
Operating and Leasing Activity
At September 30, 2013, KRC’s stabilized portfolio,
which excludes properties held for sale, encompassing approximately
12.5 million square feet of office space located in
Los Angeles, Orange County, San Diego, the
San Francisco Bay Area and greater Seattle, was 92.2%
occupied, up from 90.7% at the end of the second quarter. During
the third quarter, the company signed new or renewing leases on
approximately 510,000 square feet of space. At September 30, 2013,
the stabilized portfolio was 93.7% leased.
Real Estate Investment Activity
In September, KRC completed the acquisition of a 13.8 acre
Class A office campus in the coastal Del Mar sub-market of San
Diego for approximately $126 million. The campus includes a
three-story office building and a three-story life science
building, which together total approximately 219,000 square
feet, and a land site that is fully entitled for an additional
75,000 square-foot office building.
Also in the third quarter, as part of the company’s ongoing
capital recycling program, KRC negotiated sales agreements for
14 non-strategic properties totaling 1.2 million square
feet in three separate transactions. Thirteen of the 14 properties
are located in submarkets of San Diego County and one property is
located in Orange County. The transactions for the properties in
San Diego are expected to close by year-end 2013, subject to
customary closing conditions. The sale of the Orange County
property closed in October 2013. All 14 assets have been
reclassified as properties held for sale as of
September 30, 2013 and their financial results are
accounted for as discontinued operations for all periods
presented.
Also during the quarter, KRC had five development projects under
construction, four of which are 100% preleased. The five
projects aggregate approximately 1.5 million square feet, and
the company estimates its total investment in the five projects
will be approximately $861.7 million. Scheduled completion
dates range from the fourth quarter of 2013 to the first quarter of
2015. In October 2013, the company stabilized the 331
Fairchild development project in Mountain View, California.
Capital Financing Activity
During the third quarter, KRC completed an underwritten public
offering of 6,175,000 shares of its common stock for net proceeds
of approximately $296 million. The company also raised
approximately $11 million of net proceeds from the sale of its
common stock via its at-the-market stock offering program.
Management Comments
“Demand for contemporary, well-located and well-designed
commercial real estate is growing in all of our West Coast
markets,” said John Kilroy, Jr., the company’s president and chief
executive officer. “Against this welcome backdrop, our organization
continues to execute a disciplined strategy of portfolio
transformation and long-term value creation.”
“Over the past three months, we increased our occupancy,
remained on-time and on budget with our four fully preleased
development projects, acquired a top quality Del Mar campus
and negotiated the sale of 1.2 million square feet of
non-strategic properties. KRC continues to deliver on all
fronts.”
Conference Call and Audio Webcast
KRC management will discuss updated earnings guidance for fiscal
2013 during the company’s October 29, 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) 713-4213 reservation # 29681690.
A replay of the conference call will be available via phone through
November 5, 2013 at (888) 286-8010, reservation
# 92159760, 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 September 30, 2013, the
company owned 12.5 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
September 30,
Nine Months Ended
September 30,
2013 2012 2013 2012
Revenues from continuing operations $ 115,697 $ 98,985 $ 344,496 $
276,427 Revenues including discontinued operations $ 127,803
$ 111,375 $ 369,778 $ 315,712 Net income (loss) available to
common stockholders (1) (2) $ 5,584 $ (2,753 ) $ 11,314 $ 63,988
Weighted average common shares outstanding - basic 76,769
71,889 75,751 67,975 Weighted average common shares outstanding -
diluted 76,769 71,889 75,751 67,975 Net income (loss)
available to common stockholders per share - basic (1) (2) $ 0.07 $
(0.04 ) $ 0.13 $ 0.92 Net income (loss) available to common
stockholders per share - diluted (1) (2) $ 0.07 $ (0.04 ) $ 0.13 $
0.92 Funds From Operations (1) (3) (4) $ 55,899 $ 43,142 $
160,139 $ 115,641 Weighted average common shares/units
outstanding - basic (5) 79,806 74,850 78,795 70,830 Weighted
average common shares/units outstanding - diluted (5) 81,527 76,185
80,586 71,953 Funds From Operations per common share/unit -
basic (1) (5) $ 0.70 $ 0.58 $ 2.03 $ 1.63 Funds From Operations per
common share/unit - diluted (1) (5) $ 0.69 $ 0.57 $ 1.99 $ 1.61
Common shares outstanding at end of period 82,113 74,693
Common partnership units outstanding at end of period 1,822
1,827 Total common shares and units outstanding at end of
period 83,935 76,520
September 30,2013
September 30,2012
Stabilized office portfolio occupancy rates: (6) Los Angeles and
Ventura Counties 93.2 % 94.3 % Orange County 93.3 % 95.6 % San
Diego County 89.6 % 87.8 % San Francisco Bay Area 92.7 % 92.0 %
Greater Seattle 95.2 % 93.2 % Weighted average total 92.2 % 91.1 %
Total square feet of stabilized office properties owned at
end of period: (6) Los Angeles and Ventura Counties 3,398 3,038
Orange County 437 497 San Diego County 4,364 5,183 San Francisco
Bay Area 2,289 2,211 Greater Seattle 2,048 1,727
Total 12,536 12,656
________________________
(1) Net income (loss) available to common stockholders and
Funds From Operations for the three and nine months ended September
30, 2013 includes the receipt of $3.7 million net cash payment
related the default of a former tenant and for the nine months
ended September 30, 2013, also includes the receipt of a $5.2
million payment related to a property damage settlement. In
addition, Net income (loss) available to common stockholders and
Funds From Operations for the three months and nine months ended
September 30, 2012 included a non-cash charge of $2.1 million
related to the original issuance costs of the Series A Preferred
Units that were redeemed on August 15, 2012 and for the nine months
ended September 30, 2012, also included a non-cash charge of $4.9
million related to the original issuance cost of the Series E and F
Preferred Stock redeemed on April 16, 2012. (2) Net income (loss)
available to common stockholders includes a net gain on
dispositions of discontinued operations of $0.4 million and $72.8
million for the nine months ended September 30, 2013 and September
30, 2012, respectively. (3) Reconciliation of Net income (loss)
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 September 30, 2012 include the office
properties that were sold during the fourth quarter of 2012.
KILROY REALTY
CORPORATION
CONSOLIDATED BALANCE
SHEETS
(in thousands)
September 30, 2013 December 31,
2012 (unaudited)
ASSETS
REAL ESTATE ASSETS: Land and improvements $ 612,843 $ 612,714
Buildings and improvements 3,527,729 3,335,026 Undeveloped land and
construction in progress 907,959 809,654 Total real
estate held for investment 5,048,531 4,757,394 Accumulated
depreciation and amortization (781,580 ) (756,515 ) Total real
estate held for investment, net 4,266,951 4,000,879 Real
estate assets and other assets held for sale, net 239,411 — Cash
and cash equivalents 197,150 16,700 Restricted cash 17,931 247,544
Marketable securities 9,192 7,435 Current receivables, net 11,769
9,220 Deferred rent receivables, net 121,659 115,418 Deferred
leasing costs and acquisition-related intangible assets, net
190,085 189,968 Deferred financing costs, net 17,809 18,971 Prepaid
expenses and other assets, net 17,319 9,949 TOTAL
ASSETS $ 5,089,276 $ 4,616,084
LIABILITIES AND
EQUITY
LIABILITIES: Secured debt $ 563,898 $ 561,096 Exchangeable senior
notes, net 167,236 163,944 Unsecured debt, net 1,431,048 1,130,895
Unsecured line of credit — 185,000 Accounts payable, accrued
expenses and other liabilities 210,111 154,734 Accrued
distributions 31,479 28,924 Deferred revenue and
acquisition-related intangible liabilities, net 102,991 117,904
Rents received in advance and tenant security deposits 41,668
37,654 Liabilities and deferred revenue of real estate assets held
for sale 16,751 — Total liabilities 2,565,182
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
821 749 Additional paid-in capital 2,476,424 2,126,005
Distributions in excess of earnings (201,048 ) (129,535 ) Total
stockholders’ equity 2,468,608 2,189,630
Noncontrolling Interests Common units of the Operating Partnership
50,601 46,303 Noncontrolling interest in consolidated subsidiary
4,885 — Total noncontrolling interests 55,486
46,303 Total equity 2,524,094 2,235,933 TOTAL
LIABILITIES AND EQUITY $ 5,089,276 $ 4,616,084
KILROY REALTY
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
Three
Months Ended
September 30,
Nine Months Ended
September 30,
2013 2012 2013 2012
REVENUES: Rental income $ 104,939 $ 90,828 $ 308,931 $ 253,599
Tenant reimbursements 9,656 8,022 28,503 21,867 Other property
income 1,102 135 7,062 961 Total
revenues 115,697 98,985 344,496 276,427
EXPENSES: Property expenses 25,123 21,016 71,728 55,531 Real
estate taxes 10,295 8,746 29,707 23,668 Provision for bad debts 124
— 219 2 Ground leases 929 859 2,665 2,276 General and
administrative expenses 10,226 8,727 29,750 26,745
Acquisition-related expenses 568 556 1,387 3,897 Depreciation and
amortization 47,569 41,724 141,814 109,780
Total expenses 94,834 81,628 277,270
221,899 OTHER (EXPENSES) INCOME: Interest income and
other net investment gains 673 330 1,084 703 Interest expense
(18,853 ) (19,854 ) (58,021 ) (60,172 ) Total other (expenses)
income (18,180 ) (19,524 ) (56,937 ) (59,469 ) INCOME (LOSS)
FROM CONTINUING OPERATIONS 2,683 (2,167 ) 10,289 (4,941 )
DISCONTINUED OPERATIONS: Income from discontinued operations 6,344
4,689 10,806 15,603 Net gain on dispositions of discontinued
operations — — 423 72,809 Total income
from discontinued operations 6,344 4,689 11,229
88,412 NET INCOME 9,027 2,522 21,518 83,471
Net (income) loss attributable to noncontrolling common
units of the Operating Partnership
(131 ) 67 (266 ) (1,708 ) NET INCOME ATTRIBUTABLE TO
KILROY REALTY CORPORATION 8,896 2,589 21,252 81,763
PREFERRED DISTRIBUTIONS AND DIVIDENDS: Distributions on
noncontrolling cumulative redeemable
preferred units of the Operating
Partnership
— (747 ) — (3,541 ) Preferred dividends (3,312 ) (2,533 ) (9,938 )
(7,254 ) Original issuance costs of redeemed preferred stock —
(2,062 ) — (6,980 ) Total preferred distributions and
dividends (3,312 ) (5,342 ) (9,938 ) (17,775 ) NET INCOME (LOSS)
AVAILABLE TO COMMON STOCKHOLDERS $ 5,584 $ (2,753 ) $ 11,314
$ 63,988 Weighted average common shares
outstanding - basic 76,769 71,889 75,751 67,975 Weighted average
common shares outstanding - diluted 76,769 71,889 75,751 67,975
Net income (loss) available to common stockholders per share
- basic $ 0.07 $ (0.04 ) $ 0.13 $ 0.92 Net
income (loss) available to common stockholders per share - diluted
$ 0.07 $ (0.04 ) $ 0.13 $ 0.92
KILROY REALTY
CORPORATION
FUNDS FROM
OPERATIONS
(unaudited, in thousands, except per share data)
Three
Months Ended September 30, Nine Months Ended September
30, 2013 2012 2013
2012 Net income (loss) available to common stockholders $
5,584 $ (2,753 ) $ 11,314 $ 63,988 Adjustments: Net income (loss)
attributable to noncontrolling
common units of the Operating
Partnership
131 (67 ) 266 1,708 Depreciation and amortization of real estate
assets 50,184 45,962 148,982 122,754 Net gain on dispositions of
discontinued operations — — (423 ) (72,809 ) Funds
From Operations (1)(2) $ 55,899 $ 43,142 $ 160,139
$ 115,641 Weighted average common shares/units
outstanding - basic 79,806 74,850 78,795 70,830 Weighted average
common shares/units outstanding - diluted 81,527 76,185 80,586
71,953 Funds From Operations per common share/unit - basic
(3) $ 0.70 $ 0.58 $ 2.03 $ 1.63 Funds
From Operations per common share/unit - diluted (3) $ 0.69 $
0.57 $ 1.99 $ 1.61
________________________
(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 $2.6 million and $2.4 million
for the three months ended September 30, 2013 and 2012,
respectively, and $7.6 million and $6.9 million for the nine months
ended September 30, 2013 and 2012, respectively. (3)
Reported amounts are attributable to common stockholders and common
unitholders.
Kilroy Realty CorporationTyler H. RoseExecutive Vice President
and Chief Financial Officer(310) 481-8484orMichelle NgoSenior Vice
President and Treasurer(310) 481-8581
Kilroy Realty (NYSE:KRC)
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