Kilroy Realty Corporation Reports Third Quarter Financial Results
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LOS ANGELES--(BUSINESS WIRE)-- Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its third quarter ended September 30, 2009 with net income available for common stockholders of $8.1 million, or $0.17 per share, compared to $12.0 million, or $0.37 per share, in the third quarter of 2008. Revenues from continuing operations in the third quarter totaled $68.5 million, compared to $76.9 million in the prior year's third quarter. Funds from operations (FFO) for the period totaled $30.2 million, or $0.66 per share, compared to $33.3 million, or $0.95 per share, in the year-earlier period.
For the first nine months of 2009, KRC reported net income available to common stockholders of $24.8 million, or $0.64 per share, compared to $25.3 million, or $0.77 per share, in the first nine months of 2008. Revenues from continuing operations in the nine-month period totaled $212.1 million, compared to $217.1 million in the same period of 2008. FFO in the first nine months of 2009 totaled $89.5 million, or $2.25 per share, compared to $88.2 million, or $2.52 per share, in the first nine months of 2008.
Included in the results for the three and nine months ended September 30, 2009 is an approximate $3.1 million, or $0.07 per share, gain on early extinguishment of debt from the company's repurchase of $40 million of its exchangeable senior notes, which mature in 2012. Included in the results for the three and nine months ended September 30, 2008 is an approximate $4.9 million, or $0.14 per share, net lease termination fee related to an early termination agreement.
All per share amounts in this report are presented on a diluted basis. Financial information for prior periods has been adjusted for the retroactive application of new accounting guidance adopted by the company effective January 1, 2009.
"While the market remains challenging and some tenants continue to experience financial difficulties, we executed new leases and letters of intent during the quarter that totaled approximately 600,000 square feet of space," said John B. Kilroy, Jr., the company's president and chief executive officer. "In addition, we converted the bulk of the letters of intent we signed in the second quarter into executed leases this quarter."
At September 30, 2009, KRC's stabilized portfolio totaled 12.3 million square feet and was 82.5% occupied.
The company has one completed development project in lease-up, a 51,000 square-foot medical office building located in the company's Sorrento Gateway development in coastal San Diego County. The property represents a total investment of approximately $23 million, of which about $17 million has been spent to date.
KRC management will discuss updated earnings guidance for fiscal 2009 during the company's October 27, 2009 earnings conference call. The call will begin at 11:00 a.m. Pacific time and last approximately one hour. Those interested in listening via the Internet can access the conference call at 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) 679-8038, reservation #94416080. A replay of the conference call will be available via phone through November 10, 2009 at (888) 286-8010, reservation #98121628, or via the Internet at the company's website.
Some of the information presented in this release is forward looking in nature within the meaning of the Private Securities Litigation Reform Act of 1995. Although Kilroy Realty Corporation believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, there can be no assurance that its expectations will be achieved. Certain factors that could cause actual results to differ materially from Kilroy Realty's expectations are set forth as risk factors in the company's Securities and Exchange Commission reports and filings. Included among these factors are changes in general economic conditions, including changes in the economic conditions affecting industries in which its principal tenants compete; Kilroy Realty's ability to timely lease or re-lease space at current or anticipated rents; changes in interest rates; changes in operating costs, including utility costs; future demand for its debt and equity securities; its ability to refinance its debt on reasonable terms at maturity; its ability to complete current and future development projects on schedule and on budget; the demand for office space in markets in which Kilroy Realty has a presence; and risks detailed from time to time in the company's SEC reports, including quarterly reports on Form 10-Q, current reports on Form 8-K and annual reports on Form 10-K. Many of these factors are beyond Kilroy Realty's ability to control or predict. Forward-looking statements are not guarantees of performance. For forward-looking statements herein, Kilroy Realty claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.
Kilroy Realty Corporation, a member of the S&P Small Cap 600 Index, is a Southern California-based real estate investment trust active in the office and industrial property sectors. For over 60 years, the company has owned, developed, acquired and managed real estate assets primarily in the coastal regions of Los Angeles, Orange and San Diego counties. At September 30, 2009, the company owned 8.66 million rentable square feet of commercial office space and 3.65 million rentable square feet of industrial space. More information is available at www.kilroyrealty.com.
KILROY REALTY CORPORATION
SUMMARY QUARTERLY RESULTS
(unaudited, in thousands, except per share data)
Three Three Nine Months Nine Months
Months Months
Ended Ended Ended Ended
September 30, September 30, September 30, 2009 September 30,
2009 2008 (1) 2008 (1)
Revenues
from $ 68,494 $ 76,946 $ 212,055 $ 217,071
continuing
operations
Revenues
including $ 68,494 $ 77,100 $ 212,055 $ 217,730
discontinued
operations
Net income
available
for common $ 8,111 $ 12,037 $ 24,803 $ 25,308
stockholders
(1)
Weighted
average
common 42,935 32,339 37,279 32,382
shares
outstanding
- basic
Weighted
average
common 42,935 32,383 37,297 32,411
shares
outstanding
- diluted
Net income
available to
common $ 0.17 $ 0.37 $ 0.64 $ 0.77
stockholders
per share -
basic
Net income
available to
common $ 0.17 $ 0.37 $ 0.64 $ 0.77
stockholders
per share -
diluted
Funds From
Operations $ 30,190 $ 33,296 $ 89,480 $ 88,236
(2), (3)
Weighted
average
common 45,493 34,848 39,779 34,923
shares/units
outstanding
- basic (4)
Weighted
average
common
shares/units 45,494 34,892 39,797 34,952
outstanding
- diluted
(4)
Funds From
Operations
per common $ 0.66 $ 0.96 $ 2.25 $ 2.53
share/unit -
basic (4)
Funds From
Operations
per common $ 0.66 $ 0.95 $ 2.25 $ 2.52
share/unit -
diluted (4)
Common
shares
outstanding 43,149 33,087
at end of
period
Common
partnership
units 1,723 1,754
outstanding
at end of
period
Total common shares
and units outstanding 44,872 34,841
at end of period
September 30, 2009 September 30,
2008
Stabilized
portfolio
occupancy
rates:
Office 81.6 % 89.5 %
Industrial 84.6 % 93.4 %
Weighted
average 82.5 % 90.7 %
total
Los Angeles 89.4 % 91.7 %
San Diego 78.2 % 89.0 %
Orange 81.4 % 91.7 %
County
Other 93.8 % 94.2 %
Weighted
average 82.5 % 90.7 %
total
Total square feet of
stabilized properties
owned at end of
period:
Office 8,658 8,343
Industrial 3,654 3,876
Total 12,312 12,219
(1) Results have been adjusted for the retroactive application of the new
accounting pronouncements adopted by the company on January 1, 2009.
(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.
KILROY REALTY CORPORATION CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
2009 2008 (1)
(unaudited)
ASSETS
REAL ESTATE ASSETS:
Land and improvements $ 335,932 $ 336,874
Buildings and improvements 1,909,876 1,889,833
Undeveloped land and construction in 259,108 248,889
progress
Total real estate held for investment 2,504,916 2,475,596
Accumulated depreciation and amortization (587,968 ) (532,769 )
Total real estate assets, net 1,916,948 1,942,827
Cash and cash equivalents 9,265 9,553
Restricted cash 2,936 672
Marketable securities 3,229 1,888
Current receivables, net 3,139 5,753
Deferred rent receivables, net 72,623 67,144
Notes receivable 10,716 10,824
Deferred leasing costs and 49,627 53,539
acquisition-related intangibles, net
Deferred financing costs, net 4,393 5,883
Prepaid expenses and other assets, net 6,126 4,835
TOTAL ASSETS $ 2,079,002 $ 2,102,918
LIABILITIES, NONCONTROLLING INTERESTS AND
EQUITY
LIABILITIES:
Secured debt $ 296,788 $ 316,456
Exchangeable senior notes, net 398,347 429,892
Unsecured senior notes 144,000 144,000
Unsecured line of credit 126,000 252,000
Accounts payable, accrued expenses and 42,565 55,066
other liabilities
Accrued distributions 17,133 21,421
Deferred revenue and acquisition-related 69,252 76,219
liabilities
Rents received in advance and tenant 18,381 19,340
security deposits
Total liabilities 1,112,466 1,314,394
NONCONTROLLING INTEREST:
7.45% Series A cumulative redeemable
preferred units of the Operating 73,638 73,638
Partnership
EQUITY
Stockholders' Equity
7.80% Series E Cumulative Redeemable 38,425 38,425
Preferred stock
7.50% Series F Cumulative Redeemable 83,157 83,157
Preferred stock
Common stock 431 331
Additional paid-in capital 904,043 700,122
Distributions in excess of earnings (162,391 ) (137,052 )
Total stockholders' equity 863,665 684,983
Noncontrolling Interest
Common units of the Operating Partnership 29,233 29,903
Total equity 892,898 714,886
TOTAL LIABILITIES, NONCONTROLLING INTERESTS AND $ 2,079,002 $ 2,102,918
EQUITY
(1) Results have been adjusted for the retroactive application of the new
accounting pronouncements adopted by the company on January 1, 2009.
KILROY REALTY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share data)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, 2008 September 30, September 30,
2009 (1) 2009 2008 (1)
REVENUES:
Rental income $ 61,297 $ 64,405 $ 186,959 $ 187,914
Tenant 6,843 7,256 21,898 23,111
reimbursements
Other property 354 5,285 3,198 6,046
income
Total revenues 68,494 76,946 212,055 217,071
EXPENSES:
Property 12,699 12,822 37,611 36,180
expenses
Real estate 5,988 5,816 18,260 16,115
taxes
Provision for 243 9 395 3,668
bad debts
Ground leases 398 431 1,227 1,226
General and
administrative 7,662 9,627 22,023 28,050
expenses
Interest 10,926 10,941 35,041 32,422
expense
Depreciation
and 21,968 20,646 66,608 62,018
amortization
Total expenses 59,884 60,292 181,165 179,679
OTHER INCOME
(LOSS):
Interest
income and
other net 501 (149 ) 1,074 192
investment
gains (losses)
Gain on early
extinguishment 3,119 - 3,119 -
of debt
Total other 3,620 (149 ) 4,193 192
income (loss)
INCOME FROM
CONTINUING 12,230 16,505 35,083 37,584
OPERATIONS
DISCONTINUED
OPERATIONS:
Revenues from
discontinued - 154 - 659
operations
Expenses from
discontinued - (28 ) (224 ) (84 )
operations
Net gain on
dispositions
of - - 2,485 234
discontinued
operations
Total income
from - 126 2,261 809
discontinued
operations
NET INCOME 12,230 16,631 37,344 38,393
Net income
attributable
to
noncontrolling (320 ) (795 ) (1,144 ) (1,688 )
common units
of the
Operating
Partnership
NET INCOME
ATTRIBUTABLE
TO KILROY 11,910 15,836 36,200 36,705
REALTY
CORPORATION
PREFERRED
DISTRIBUTIONS
AND DIVIDENDS:
Distributions
on
noncontrolling
cumulative
redeemable (1,397 ) (1,397 ) (4,191 ) (4,191 )
preferred
units of the
Operating
Partnership
Preferred (2,402 ) (2,402 ) (7,206 ) (7,206 )
dividends
Total
preferred (3,799 ) (3,799 ) (11,397 ) (11,397 )
distributions
and dividends
NET INCOME
AVAILABLE TO $ 8,111 $ 12,037 $ 24,803 $ 25,308
COMMON
STOCKHOLDERS
Weighted
average common
shares 42,935 32,339 37,279 32,382
outstanding -
basic
Weighted
average common
shares 42,935 32,383 37,297 32,411
outstanding -
diluted
Net income
available to
common $ 0.17 $ 0.37 $ 0.64 $ 0.77
stockholders
per share -
basic
Net income
available to
common $ 0.17 $ 0.37 $ 0.64 $ 0.77
stockholders
per share -
diluted
(1) Results have been adjusted for the retroactive application of the new
accounting pronouncements adopted by the company on January 1, 2009.
KILROY REALTY CORPORATION FUNDS FROM OPERATIONS
(unaudited, in thousands, except per share data)
Three Three Nine Nine Months
Months Months Months
Ended Ended Ended Ended
September 30, September 30, September 30, September
2009 2008(1) 2009 30, 2008(1)
Net income
available for $ 8,111 $ 12,037 $ 24,803 $ 25,308
common
stockholders
Adjustments:
Net income
attributable
to
noncontrolling
common units
of
the Operating 320 795 1,144 1,688
Partnership
Depreciation
and
amortization 21,759 20,464 66,018 61,474
of real estate
assets
Net gain on
dispositions
of - - (2,485) (234)
discontinued
operations
Funds From
Operations $ 30,190 $ 33,296 $ 89,480 $ 88,236
(1), (2)
Weighted
average common
shares/units 45,493 34,848 39,779 34,923
outstanding -
basic
Weighted
average common
shares/units 45,494 34,892 39,797 34,952
outstanding -
diluted
Funds From
Operations per
common $ 0.66 $ 0.96 $ 2.25 $ 2.53
share/unit -
basic(3)
Funds From
Operations per
common $ 0.66 $ 0.95 $ 2.25 $ 2.52
share/unit -
diluted (3)
(1) Results have been adjusted for the retroactive application of the new
accounting pronouncements adopted by the company on January 1, 2009.
(2) 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, and gains and losses from sales of depreciable
operating property, 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.
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.
(3) Reported amounts are attributable to common stockholders and common
unitholders.
Source: Kilroy Realty Corporation
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