Kilroy Realty Corporation (NYSE: KRC) today reported
financial results for its third quarter ended September
30, 2015.
Third Quarter Highlights
Financial Results
- Funds from operations (FFO) of $0.77
per share, up 12% from $0.69 per share in the third quarter of
2014
- Net income available to common
stockholders of $1.09 per share; includes an $0.85 per share gain
on property dispositions
- Revenues of $141.6 million
Stabilized Portfolio
- Stabilized portfolio was 95.6% occupied
and 97.2% leased at September 30, 2015
- Signed over 385,000 square feet of new
or renewing office leases
Development
- Delivered the fully leased office
component of the historic buildings at the Columbia Square
mixed-use development project in Hollywood
- Completed the acquisition of a fully
entitled, 3.3 acre mixed-use development site in the south of
market area of San Francisco for approximately $78.0 million in
cash
Capital Recycling
- Completed the sale of the second
tranche of a two-part transaction encompassing six office
properties in San Diego for gross proceeds of approximately $163.0
million
Finance
- Completed the sale of 3,773,766 shares
of common stock at a price of $66.19 per share for aggregate net
proceeds of $249.6 million
- Completed an underwritten public
offering of 10-year, 4.375% senior unsecured notes for gross
proceeds of approximately $400.0 million
Recent Developments
- In October, re-paid at par, two secured
mortgages totaling approximately $90.1 million
- In October, completed and delivered the
first of two buildings encompassing 226,000 rentable square feet at
the company’s Crossing/900 project in Redwood City. Both buildings
are fully leased to Box, Inc.
Results for the Quarter Ended September 30, 2015
For its third quarter ended September 30, 2015, KRC
reported FFO of $73.6 million, or $0.77 per share,
compared to $60.4 million, or $0.69 per share, in the
third quarter of 2014. Net income available to common stockholders
was $101.4 million, or $1.09 per share, compared to
$15.7 million, or $0.18 per share, in the year-earlier period.
Net income in the third quarter of 2015 included a $78.5 million
gain from property dispositions. Net income in the third quarter of
2014 included a $5.6 million gain from property dispositions.
The company’s total revenues in the third quarter of 2015 were
$141.6 million, up from $131.1 million in the third quarter of
2014.
All per share amounts in this report are presented on a diluted
basis.
Operating and Leasing Activity
At September 30, 2015, KRC’s stabilized portfolio totaled
approximately 13.1 million square feet of office space located
in Los Angeles, Orange County, San Diego, the
San Francisco Bay Area and greater Seattle. During the third
quarter, the company signed new or renewing leases on 385,026
square feet of space in the stabilized portfolio. At quarter end,
the portfolio was 95.6% occupied, up from 94.1% at
September 30, 2014, and was 97.2% leased.
Real Estate Development Activity
In July, KRC delivered the office component of the historic
buildings at the company’s 685,000-square-foot mixed-use Columbia
Square project in Hollywood. The two buildings total just under
100,000 square feet of office space and are fully leased to
NeueHouse, a private workspace collective.
Also in July, KRC acquired a fully designed and entitled
development project situated on 3.3 acres at 100 Hooper Street in
the south of market area of San Francisco for approximately $78.0
million in cash. The company plans to develop, own and manage
approximately 400,000 square feet of office, production,
distribution and repair space within the project, for a total
investment, including the acquisition costs, of approximately
$250.0 million.
At September 30, 2015, KRC had seven projects under
construction totaling approximately 2.3 million square feet of
space representing a total estimated investment of approximately
$1.5 billion. The office portion of these seven projects is 56%
leased.
Management Comments
“Operating conditions for commercial real estate in our West
Coast markets remain strong, driven by a continuing healthy economy
and robust demand for well-designed contemporary office
environments,” said John Kilroy, the company’s chairman, president
and chief executive officer. “With this favorable backdrop, we
continue to make steady progress on all fronts, including leasing,
occupancy, development, capital recycling and financial
strength—all of which drive our ability to build the long-term
value of our enterprise.”
FFO per Share Guidance
The company has updated its guidance range for NAREIT defined
FFO per share (diluted) for full year 2015 to $3.36 - $3.40 per
share from $3.30 - $3.40 per share. The updated guidance reflects,
when compared to the company’s prior guidance, a midpoint increase
of $0.03 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 updated earnings guidance for fiscal
2015 during the company’s October 29, 2015 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) 679-8035 reservation #64060462. A replay
of the conference call will be available via phone through November
5, 2015 at (888) 286-8010, reservation #37153501, 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 broad roster of dynamic, innovation-driven tenants,
including technology, entertainment, digital media and health care
companies.
At September 30, 2015, the company’s stabilized portfolio
totaled 13.1 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 the Global Real Estate Sustainability
Benchmark (GRESB) as the North American leader in sustainability
and was ranked first among 155 North American participants
across all asset types. At the end of the third quarter, the
company’s properties were 45% LEED certified and 64% of eligible
properties were ENERGY STAR certified. In addition, KRC had
approximately 2.3 million square feet of office and mixed-use
development under construction with a total estimated investment of
approximately $1.5 billion. 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, 2014 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 Nine Months Ended
September 30, September 30, 2015
2014 2015 2014
Revenues from continuing operations $ 141,553 $ 129,024 $
433,862 $ 379,960 Revenues including discontinued operations
$ 141,553 $ 131,082 $ 433,862 $ 386,594 Net income available
to common stockholders (1)(2) $ 101,446 $ 15,669 $ 195,508 $
139,429 Weighted average common shares outstanding – basic
92,150 83,161 89,077 82,525 Weighted average common shares
outstanding – diluted 92,639 85,110 89,593 84,623 Net income
available to common stockholders per share – basic (1)(2) $ 1.10 $
0.18 $ 2.18 $ 1.67 Net income available to common stockholders per
share – diluted (1)(2) $ 1.09 $ 0.18 $ 2.17 $ 1.63
Funds From Operations (1)(3)(4)
$ 73,588 $ 60,399 $ 239,939 $ 180,927
Weighted average common shares/units
outstanding – basic (5)
95,097 86,189 92,048 85,555
Weighted average common shares/units
outstanding – diluted (5)
95,586 88,138 92,564 87,653 Funds From Operations per common
share/unit – basic (5) $ 0.77 $ 0.70 $ 2.61 $ 2.11 Funds From
Operations per common share/unit – diluted (5) $ 0.77 $ 0.69 $ 2.59
$ 2.06 Common shares outstanding at end of period 92,220
83,388 Common partnership units outstanding at end of period
1,788 1,804
Total common shares and units outstanding
at end of period
94,008 85,192
September 30, September 30,
2015 2014 Stabilized
office portfolio occupancy rates: (6) Los Angeles and Ventura
Counties 94.1 % 92.7 % Orange County 95.7 % 97.8 % San Diego County
96.3 % 90.8 % San Francisco Bay Area 96.8 % 98.8 % Greater Seattle
94.7 % 95.2 % Weighted average total 95.6 % 94.1 %
Total square feet of stabilized office properties owned at
end of period: (6) Los Angeles and Ventura Counties 3,505 3,503
Orange County 272 272 San Diego County 3,318 4,244 San Francisco
Bay Area 3,890 3,279 Greater Seattle 2,066
2,188 Total 13,051 13,486
________________________
(1) Net income available to common stockholders and Funds
From Operations for the nine months ended September 30, 2015 and
2014 includes gains on sale of land of $17.3 million and $3.5
million, respectively. (2) Net income available to common
stockholders for the three and nine months ended September 30, 2015
includes gains of sales of depreciable operating properties of
$78.5 million and $110.0 million, respectively. Net income
available to common stockholders for the three and nine months
ended September 30, 2014 includes gains on dispositions of
discontinued operations of $5.6 million and $110.4 million,
respectively. (3) 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. (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, 2014 include the office
properties that were sold during 2014 and 2015.
KILROY REALTY
CORPORATION
CONSOLIDATED BALANCE
SHEETS
(in thousands)
September 30, 2015
December 31, 2014
(unaudited)
ASSETS
REAL ESTATE ASSETS: Land and improvements $ 850,280 $ 877,633
Buildings and improvements 4,028,044 4,059,639 Undeveloped land and
construction in progress 1,475,718 1,120,660
Total real estate assets held for investment 6,354,042
6,057,932 Accumulated depreciation and amortization (999,557
) (947,664 ) Total real estate assets held for investment,
net 5,354,485 5,110,268 Real estate assets and other assets
held for sale, net — 8,211 Cash and cash equivalents 567,940 23,781
Restricted cash 8,130 75,185 Marketable securities 12,638 11,971
Current receivables, net 11,533 7,229 Deferred rent receivables,
net 183,352 156,416 Deferred leasing costs and acquisition-related
intangible assets, net 173,457 201,926 Deferred financing costs,
net 18,709 18,374 Prepaid expenses and other assets, net
23,148 20,375 TOTAL ASSETS $ 6,353,392
$ 5,633,736
LIABILITIES AND
EQUITY
LIABILITIES: Secured debt $ 475,923 $ 546,292 Unsecured debt, net
2,181,382 1,783,121 Unsecured line of credit — 140,000 Accounts
payable, accrued expenses and other liabilities 249,980 225,830
Accrued distributions 34,993 32,899 Deferred revenue and
acquisition-related intangible liabilities, net 127,473 132,239
Rents received in advance and tenant security deposits 46,579
49,363 Liabilities of real estate assets held for sale —
56 Total liabilities 3,116,330
2,909,800 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 922 863 Additional paid-in capital 3,042,330 2,635,900
Distributions in excess of earnings (62,850 )
(162,964 ) Total stockholders’ equity 3,172,813 2,666,210
Noncontrolling Interests Common units of the Operating Partnership
57,913 51,864 Noncontrolling interest in consolidated subsidiary
6,336 5,862 Total noncontrolling
interests 64,249 57,726 Total equity
3,237,062 2,723,936 TOTAL LIABILITIES
AND EQUITY $ 6,353,392 $ 5,633,736
KILROY REALTY
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share
data)
Three Months Ended Nine Months
Ended September 30, September 30,
2015 2014
2015 2014 REVENUES Rental
income $ 129,510 $ 115,221 $ 391,892 $ 338,911 Tenant
reimbursements 11,681 11,346 40,280 33,399 Other property income
362 2,457 1,690
7,650 Total revenues 141,553 129,024
433,862 379,960 EXPENSES
Property expenses 26,684 25,801 78,264 75,448 Real estate taxes
12,087 11,008 37,232 32,728 Provision for bad debts — 58 289 58
Ground leases 862 771 2,451 2,306 General and administrative
expenses 10,799 11,138 36,200 33,806 Acquisition-related expenses 4
431 397 1,268 Depreciation and amortization 49,422
50,032 152,567 148,647
Total expenses 99,858 99,239
307,400 294,261 OTHER (EXPENSES) INCOME
Interest income and other net investment (loss) gain (694 ) (9 )
177 587 Interest expense (12,819 ) (16,608 )
(44,561 ) (49,880 ) Total other (expenses) income (13,513 )
(16,617 ) (44,384 ) (49,293 ) INCOME FROM CONTINUING
OPERATIONS BEFORE GAINS ON SALES OF REAL ESTATE 28,182 13,168
82,078 36,406 Gain on sale of land — — 17,268 3,490 Gains on sales
of depreciable operating properties 78,522 —
109,950 — INCOME FROM CONTINUING
OPERATIONS 106,704 13,168
209,296 39,896 DISCONTINUED OPERATIONS:
Income from discontinued operations — 548 — 2,091 Gains on
dispositions of discontinued operations —
5,587 — 110,391 Total income
from discontinued operations — 6,135
— 112,482 NET INCOME 106,704
19,303 209,296 152,378 Net income attributable to
noncontrolling common units of the Operating Partnership
(1,945 ) (321 ) (3,850 ) (3,011 ) NET
INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION 104,759 18,982
205,446 149,367 PREFERRED DIVIDENDS (3,313 )
(3,313 ) (9,938 ) (9,938 ) NET INCOME AVAILABLE TO
COMMON STOCKHOLDERS $ 101,446 $ 15,669 $ 195,508
$ 139,429 Weighted average common shares
outstanding – basic 92,150 83,161 89,077 82,525 Weighted average
common shares outstanding – diluted 92,639 85,110 89,593 84,623
Net income available to common stockholders per share –
basic $ 1.10 $ 0.18 $ 2.18 $ 1.67 Net
income available to common stockholders per share – diluted $ 1.09
$ 0.18 $ 2.17 $ 1.63
KILROY REALTY
CORPORATION
FUNDS FROM
OPERATIONS
(unaudited, in thousands, except per share
data)
Three Months Ended September
30,
Nine Months Ended September 30,
2015 2014
2015 2014 Net income
available to common stockholders $ 101,446 $ 15,669 $ 195,508 $
139,429 Adjustments: Net income attributable to noncontrolling
common units of the Operating Partnership 1,945 321 3,850 3,011
Depreciation and amortization of real estate assets 48,719 49,996
150,531 148,878 Gains on sales of depreciable real estate
(78,522 ) (5,587 ) (109,950 ) (110,391 ) Funds
From Operations (1)(2)(3) $ 73,588 $ 60,399 $ 239,939
$ 180,927 Weighted average common shares/units
outstanding – basic 95,097 86,189 92,048 85,555 Weighted average
common shares/units outstanding – diluted 95,586 88,138 92,564
87,653 Funds From Operations per common share/unit – basic
(3) $ 0.77 $ 0.70 $ 2.61 $ 2.11 Funds
From Operations per common share/unit – diluted (3) $ 0.77 $
0.69 $ 2.59 $ 2.06
________________________
(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 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 $3.7 million and $2.7 million for the three
months ended September 30, 2015 and 2014, respectively and $10.0
million and $7.7 million for the nine months ended September 30,
2015 and 2014, respectively. (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/20151028006823/en/
Kilroy Realty CorporationTyler H. RoseExecutive Vice President
and Chief Financial Officer(310) 481-8484orMichelle NgoSenior Vice
President and Treasurer(310) 481-8581
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