Kilroy Realty Corporation (NYSE: KRC) today reported
financial results for its first quarter ended March
31, 2016.
First Quarter Highlights
Financial Results
- Funds from operations (FFO) of $0.82
per share
- Net income available to common
stockholders of $1.84 per share
- Revenues of $145.4 million
Stabilized Portfolio
- Stabilized portfolio was 94.9% occupied
and 96.2% leased at March 31, 2016
- Signed approximately 239,000 square
feet of new or renewing leases
Development
- Delivered and stabilized two properties
totaling approximately 641,000 rentable square feet at 350 Mission
Street and 333 Brannan Street in San Francisco. The office
components of each property are 100% leased
- Completed construction on the core and
shell of the company’s 370,000 square foot new office component at
Columbia Square. The project is now in lease-up and is 80%
committed
- Acquired an approximately 1.75 acre
development site at the corner of 5th and Brannan Streets,
immediately adjacent to the Flower Mart development site the
company currently owns in San Francisco for approximately $31.0
million in cash and 867,701 Kilroy Realty, L.P. operating
partnership units plus transaction costs
- Executed a 32,000 square foot letter of
intent at the company’s The Heights project in San Diego that is
currently in lease-up. The project is now 44% committed
Capital Recycling
- Completed the sale of four operating
properties encompassing just under 466,000 rentable square feet
located in San Diego and a 7.6 acre land parcel located in
Carlsbad, California, for total gross proceeds of just under $267.0
million and a gain of $146.0 million
Results for the Quarter Ended March 31, 2016
For the first quarter ended March 31, 2016, KRC reported
FFO of $78.2 million, or $0.82 per share, compared to
$91.5 million, or $1.01 per share, in the first quarter
of 2015. Net income available to common stockholders in the period
was $171.0 million, or $1.84 per share, compared to
$39.9 million, or $0.45 per share, in the prior year period.
In the first quarter of 2016, net income included a $146.0 million
gain from operating property dispositions. In the first quarter of
2015, net income and FFO included a $17.3 million gain from a land
disposition. Total revenues in the first quarter of 2016 were
$145.4 million, compared to $146.1 million in the first
quarter of 2015.
All per share amounts in this report are presented on a diluted
basis.
Operating and Leasing Activity
At March 31, 2016, KRC’s stabilized portfolio totaled
approximately 13.7 million square feet of office space located
in Los Angeles, Orange County, San Diego, the
San Francisco Bay Area and greater Seattle. During the first
quarter, the company signed new or renewing leases in its
stabilized portfolio totaling 239,314 square feet of space. At
quarter-end, the portfolio was 94.9% occupied, compared to 94.8% at
December 31, 2015 and 96.1% at March 31, 2015, and
was 96.2% leased.
Real Estate Development Activity
At the end of March, KRC delivered and stabilized its 455,000
square-foot high-rise office property at 350 Mission and its
186,000 square-foot, six-story office property at 333 Brannan, both
located in San Francisco’s SOMA District. The office components at
the two properties are fully leased to salesforce.com, inc. and
Dropbox, Inc., respectively.
KRC currently has two projects under construction, The Exchange
on 16th in San Francisco and a residential tower at Columbia Square
in Hollywood. The two projects represent a total estimated
investment of approximately $645.0 million. KRC also has two office
properties currently in lease-up that, together, represent a total
estimated investment of approximately $265.0 million and are 48%
leased and 74% committed.
Management Comments
“We’re off to another terrific start in 2016,” said John Kilroy,
the company’s chairman, president and chief executive officer,
“with strong cash same-store NOI growth, higher occupancy in our
stabilized portfolio, the delivery of two 100% leased development
projects ahead of schedule, additional leasing progress in our
development pipeline, and continued success in our capital
recycling program.”
FFO per Share Guidance
The company has updated its guidance range of NAREIT defined FFO
per share (diluted) for the full year 2016 to $3.36 - $3.50 per
share. The updated guidance reflects, when compared to the
company’s prior guidance, a midpoint increase of $0.02 per
share.
These estimates reflect management’s view of current and future
market conditions, including assumptions with respect to rental
rates, occupancy levels and the earnings impact of the events
referenced in this release and otherwise referenced during the
conference call referred to below. These estimates do not include
possible future gains or losses or the impact on operating results
from other possible future property acquisitions or dispositions,
other possible capital markets activity or possible future
impairment charges. There can be no assurance that the company’s
actual results will not differ materially from these estimates. A
reconciliation of the company’s NAREIT defined FFO guidance range
to its projected net income range is provided at the company’s
website http://www.kilroyrealty.com in
the quarterly supplemental report.
Conference Call and Audio Webcast
KRC management will discuss earnings guidance for fiscal year
2016 during the company’s April 28, 2016 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 #82355290. A replay
of the conference call will be available via phone through May
5, 2016 at (888) 286-8010, reservation #35980885, or via the
Internet at the company’s website.
About Kilroy Realty Corporation
With almost 70 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 broad roster of dynamic, innovation-driven tenants,
including technology, entertainment, digital media and health care
companies.
At March 31, 2016, the company’s stabilized portfolio
totaled 13.7 million 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. The
company is recognized by GRESB as the North American leader in
sustainability, ranking first among 155 North American
participants across all asset types. At the end of the first
quarter, the company’s properties were 46% LEED certified and 66%
of eligible properties were ENERGY STAR certified. In addition, KRC
had approximately 905,000 square feet of office and residential
projects under construction with a total estimated investment of
approximately $645.0 million. 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, 2015 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 OF QUARTERLY
RESULTS
(unaudited, in thousands, except per share data)
Three
Months EndedMarch 31, 2016 2015
Revenues $ 145,446 $ 146,082 Net income available to common
stockholders (1) $ 170,995 $ 39,874 Weighted average common
shares outstanding – basic 92,225 86,897 Weighted average common
shares outstanding – diluted 92,735 87,434 Net income
available to common stockholders per share – basic (1) $ 1.85 $
0.45 Net income available to common stockholders per share –
diluted (1) $ 1.84 $ 0.45 Funds From Operations (1)(2)(3) $
78,193 $ 91,532 Weighted average common shares/units
outstanding – basic (4) 95,319 89,881 Weighted average common
shares/units outstanding – diluted (4) 95,829 90,419 Funds
From Operations per common share/unit – basic (4) $ 0.82 $ 1.02
Funds From Operations per common share/unit – diluted (4) $ 0.82 $
1.01 Common shares outstanding at end of period 92,229
88,031 Common partnership units outstanding at end of period 2,631
1,793 Total common shares and units outstanding at
end of period 94,860 89,824
March 31, 2016 March
31, 2015 Stabilized office portfolio occupancy rates: (5) Los
Angeles and Ventura Counties 94.3 % 94.3 % Orange County 97.6 %
96.0 % San Diego County 88.8 % 95.8 % San Francisco Bay Area 98.6 %
97.3 % Greater Seattle 95.3 % 97.5 % Weighted average total 94.9 %
96.1 % Total square feet of stabilized office properties
owned at end of period: (5) Los Angeles and Ventura Counties 3,613
3,506 Orange County 272 272 San Diego County 2,850 3,317 San
Francisco Bay Area 4,871 3,887 Greater Seattle 2,066 2,066
Total 13,672 13,048 ________________________ (1) Net
income available to common stockholders for the three months ended
March 31, 2016 includes a gain on sale of depreciable operating
properties of $146.0 million. Net income available to common
stockholders and Funds From Operations for the three months ended
March 31, 2015 includes a gain on sale of land of $17.3 million.
(2) Reconciliation of Net income available to common stockholders
to Funds From Operations and management statement on Funds From
Operations are included after the Consolidated Statements of
Operations. (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 periods presented. Occupancy percentages and
total square feet shown for March 31, 2015 include the office
properties that were sold subsequent to March 31, 2015.
KILROY REALTY
CORPORATION
CONSOLIDATED BALANCE
SHEETS
(in thousands)
March 31, 2016 December 31,
2015 (unaudited)
ASSETS
REAL ESTATE ASSETS: Land and improvements $ 978,643 $ 875,794
Buildings and improvements 4,501,062 4,091,012 Undeveloped land and
construction in progress 1,018,738 1,361,340 Total
real estate assets held for investment 6,498,443 6,328,146
Accumulated depreciation and amortization (1,034,315 ) (994,241 )
Total real estate assets held for investment, net 5,464,128
5,333,905 Real estate assets and other assets held for sale,
net — 117,666 Cash and cash equivalents 38,645 56,508 Restricted
cash 261,600 696 Marketable securities 13,418 12,882 Current
receivables, net 9,540 11,153 Deferred rent receivables, net
199,232 189,704 Deferred leasing costs and acquisition-related
intangible assets, net 186,271 176,683 Prepaid expenses and other
assets, net (1) 31,276 27,233 TOTAL ASSETS $
6,204,110 $ 5,926,430
LIABILITIES AND
EQUITY
LIABILITIES: Secured debt, net (1) $ 378,080 $ 380,835 Unsecured
debt, net (1) 1,845,313 1,844,634 Unsecured line of credit 75,000 —
Accounts payable, accrued expenses and other liabilities 265,863
246,323 Accrued dividends and distributions 35,317 34,992 Deferred
revenue and acquisition-related intangible liabilities, net 131,296
128,156 Rents received in advance and tenant security deposits
48,543 49,361 Liabilities of real estate assets held for sale —
7,543 Total liabilities 2,779,412 2,691,844
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
922 923 Additional paid-in capital 3,066,994 3,047,894 Retained
earnings/(distributions in excess of earnings) 67,981
(70,262 ) Total stockholders’ equity 3,328,308 3,170,966
Noncontrolling Interests Common units of the Operating Partnership
89,675 57,100 Noncontrolling interest in consolidated subsidiary
6,715 6,520 Total noncontrolling interests 96,390
63,620 Total equity 3,424,698 3,234,586
TOTAL LIABILITIES AND EQUITY $ 6,204,110 $ 5,926,430
________________________ (1) Effective January 1, 2016, the
Company adopted Financial Accounting Standards Board Accounting
Standards Update No. 2015-03 and 2015-15, which changed the
presentation of deferred financing costs on the balance sheet. As a
result, for all periods presented, deferred financing costs, with
the exception of deferred financing costs related to the unsecured
line of credit, have been reclassified as a reduction to the
related secured debt, net and unsecured debt, net line items.
Deferred financing costs related to the unsecured line of credit
are included in prepaid expenses and other assets, net.
KILROY REALTY
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
Three
Months EndedMarch 31, 2016 2015
REVENUES Rental income $ 133,755 $ 130,932 Tenant reimbursements
11,404 14,425 Other property income 287 725 Total
revenues 145,446 146,082 EXPENSES Property
expenses 25,965 24,714 Real estate taxes 11,032 12,715 Provision
for bad debts — 242 Ground leases 829 776 General and
administrative expenses 13,437 12,768 Acquisition-related expenses
62 128 Depreciation and amortization 50,440 51,487
Total expenses 101,765 102,830 OTHER
(EXPENSES) INCOME Interest income and other net investment gains
271 360 Interest expense (11,829 ) (16,878 ) Total other (expenses)
income (11,558 ) (16,518 ) INCOME FROM OPERATIONS BEFORE
GAINS ON SALES OF REAL ESTATE 32,123 26,734 Gains on sale of land —
17,268 Gains on sale of depreciable operating properties 145,990
— NET INCOME 178,113 44,002 Net
income attributable to noncontrolling common units of the Operating
Partnership (3,610 ) (815 ) Net income attributable to
noncontrolling interest in consolidated subsidiary (195 ) —
Total income attributable to noncontrolling interests (3,805 ) (815
) NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION
174,308 43,187 PREFERRED DIVIDENDS (3,313 ) (3,313 ) NET
INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 170,995 $ 39,874
Weighted average common shares outstanding – basic
92,225 86,897 Weighted average common shares outstanding – diluted
92,735 87,434 Net income available to common stockholders
per share – basic $ 1.85 $ 0.45 Net income available
to common stockholders per share – diluted $ 1.84 $ 0.45
KILROY REALTY
CORPORATION
FUNDS FROM
OPERATIONS
(unaudited, in thousands, except per share data)
Three
Months Ended March 31, 2016 2015 Net
income available to common stockholders $ 170,995 $ 39,874
Adjustments: Net income attributable to noncontrolling common units
of the Operating Partnership 3,610 815 Depreciation and
amortization of real estate assets 49,578 50,843 Gains on sales of
depreciable real estate (145,990 ) — Funds From Operations
(1)(2)(3) $ 78,193 $ 91,532 Weighted average common
shares/units outstanding – basic 95,319 89,881 Weighted average
common shares/units outstanding – diluted 95,829 90,419
Funds From Operations per common share/unit – basic (3) $ 0.82
$ 1.02 Funds From Operations per common share/unit – diluted
(3) $ 0.82 $ 1.01 ________________________ (1) We
calculate FFO in accordance with the White Paper on FFO approved by
the Board of Governors of NAREIT. The White Paper defines FFO as
net income or loss calculated in accordance with GAAP, excluding
extraordinary items, as defined by GAAP, gains and losses from
sales of depreciable real estate and impairment write-downs
associated with depreciable real estate, plus real estate-related
depreciation and amortization (excluding amortization of deferred
financing costs and depreciation of non-real estate assets) and
after adjustment for unconsolidated partnerships and joint
ventures. Our calculation of FFO includes the amortization of
deferred revenue related to tenant-funded tenant improvements and
excludes the depreciation of the related tenant improvement assets.
We also add back net income attributable to noncontrolling common
units of the Operating Partnership because we report FFO
attributable to common stockholders and common unitholders.
We believe that FFO is a useful supplemental measure of our
operating performance. The exclusion from FFO of gains and losses
from the sale of operating real estate assets allows investors and
analysts to readily identify the operating results of the assets
that form the core of our activity and assists in comparing those
operating results between periods. Also, because FFO is generally
recognized as the industry standard for reporting the operations of
REITs, it facilitates comparisons of operating performance to other
REITs. However, other REITs may use different methodologies to
calculate FFO, and accordingly, our FFO may not be comparable to
all other REITs. Implicit in historical cost accounting for
real estate assets in accordance with GAAP is the assumption that
the value of real estate assets diminishes predictably over time.
Since real estate values have historically risen or fallen with
market conditions, many industry investors and analysts have
considered presentations of operating results for real estate
companies using historical cost accounting alone to be
insufficient. Because FFO excludes depreciation and amortization of
real estate assets, we believe that FFO along with the required
GAAP presentations provides a more complete measurement of our
performance relative to our competitors and a more appropriate
basis on which to make decisions involving operating, financing and
investing activities than the required GAAP presentations alone
would provide. However, FFO should not be viewed as an
alternative measure of our operating performance because it does
not reflect either depreciation and amortization costs or the level
of capital expenditures and leasing costs necessary to maintain the
operating performance of our properties, which are significant
economic costs and could materially impact our results from
operations. (2) FFO includes amortization of deferred
revenue related to tenant-funded tenant improvements of $2.9
million and $3.0 million for the three months ended March 31, 2016
and 2015. (3) Reported amounts are attributable to common
stockholders and common unitholders.
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version on businesswire.com: http://www.businesswire.com/news/home/20160427006793/en/
Kilroy Realty CorporationTyler H. RoseExecutive Vice
Presidentand Chief Financial Officer(310) 481-8484orMichelle
NgoSenior Vice Presidentand Treasurer(310) 481-8581
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