Kilroy Realty Corporation (NYSE: KRC) today reported
financial results for its second quarter ended June
30, 2016.
Second Quarter
Highlights
Financial Results
- Net income available to common
stockholders of $0.31 per share
- Funds from operations (FFO) of $0.86
per share which includes $0.01 per share of acquisition-related
expenses
- Revenues of $160.1 million
- In May, increased our regular quarterly
cash dividend to an annualized rate of $1.50 per share, a 7.1%
increase from the previous annualized dividend level of $1.40 per
share
Stabilized Portfolio
- Stabilized portfolio was 95.5% occupied
and 96.6% leased at June 30, 2016
- Signed approximately 266,000 square
feet of new or renewing leases
Development
- In June, completed construction of the
200 unit, 21-story residential building at the company’s mixed-used
Columbia Square project in Hollywood. As of June 30, 2016, 22%
of the 200 units were leased
Acquisitions
- In June, acquired a fully leased
114,000 square-foot office building in Mountain View, CA for $55.4
million
Capital Recycling
- In June, completed the sale of three
land parcels aggregating 24.4 acres in Carlsbad, CA for total gross
proceeds of $14.9 million
Recent Developments
- In July, received final entitlement
approval for the company’s 1.1 million square-foot mixed-used One
Paseo project in the Del Mar submarket of San Diego
- In July, completed the sale of two
office properties aggregating 137,000 rentable square feet and a
7.0 acre land site in the Sorrento Mesa submarket of San Diego for
gross proceeds of $49.0 million
Results for the Quarter Ended June 30, 2016
For the second quarter ended June 30, 2016, KRC reported
net income available to common stockholders of $29.5 million,
or $0.31 per share, compared to $54.2 million, or $0.61
per share, in the prior year period, which included a $31.4
million, or $0.35 per share, gain from property dispositions. FFO
for the period was $82.7 million, or $0.86 per share,
compared to $74.8 million, or $0.82 per share, in the
second quarter of 2015. FFO per share in 2Q16 includes
approximately $0.01 per share of acquisition-related expenses
compared to $0.003 in 2Q15. Total revenues in the second quarter of
2016 were $160.1 million, compared to $146.2 million in the
second quarter of 2015.
All per share amounts in this report are presented on a diluted
basis.
Operating and Leasing Activity
At June 30, 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 second
quarter, the company signed new or renewing leases in its
stabilized portfolio totaling 266,112 square feet of space. At
quarter-end, the portfolio was 95.5% occupied, compared to 94.8% at
December 31, 2015 and 96.7% at June 30, 2015, and
was 96.6% leased.
Real Estate Development Activity
KRC currently has one project under construction, The Exchange
on 16th in the Mission Bay submarket of San Francisco. It has a
total estimated investment of approximately $485.0 million. The
company also has two office properties currently in lease-up that
represent a total estimated investment of approximately $265.0
million and one recently completed residential property with a
total estimated investment of $160.0 million. As of June
30, 2016, the office properties were 73% committed and the
residential property was 22% leased.
Management Comments
“Six months into 2016, we’re on track for another strong
financial and operating year at KRC,” said John Kilroy, the
company’s chairman, president and chief executive officer. “Our
stabilized portfolio is at frictional occupancy levels and
generating strong same-store NOI growth. We’re making excellent
progress moving our in-process development projects forward, on
both the construction and leasing fronts. And we continue to
advance our development pipeline, acquiring key entitlements and
ensuring broad access to capital, including 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 - $3.44 per
share with a midpoint of $3.40 per share. The updated guidance
reflects an increase in proceeds related to 2016 capital recycling
to a new estimated 2016 target of approximately $800 million from
the previous midpoint of $500 million.
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.
Conference Call and Audio Webcast
KRC management will discuss earnings guidance for fiscal year
2016 during the company’s July 26, 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) 680-0878 reservation #80256205. A replay
of the conference call will be available via phone through August
2, 2016 at (888) 286-8010, reservation #85935244, or via the
Internet at the company’s website.
About Kilroy Realty Corporation
With nearly 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 June 30, 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 second
quarter, the company’s properties were 47% LEED certified and 69%
of eligible properties were ENERGY STAR certified. In addition, KRC
had one office project totaling approximately 700,000 square feet
under construction, two office projects in lease-up totaling
approximately 443,000 square feet and a 200-unit residential tower
in lease-up. More information is available at http://www.kilroyrealty.com.
Non-GAAP Financial Information
The Company does not provide a reconciliation for its guidance
range of FFO per common share/unit - diluted to net income
available to common stockholders per common share - diluted, the
most directly comparable forward-looking GAAP financial measure,
because it is unable to provide a meaningful or accurate estimation
of reconciling items and the information is not available without
unreasonable effort. This is due to the inherent difficulty of
forecasting the timing and/or amount of various items that would
impact net income available to common stockholders per share -
diluted, including, for example, gains on sales of depreciable real
estate and other items that have not yet occurred and are out of
the Company’s control. For the same reasons, the Company is unable
to address the probable significance of the unavailable information
and believes that providing a reconciliation for its guidance range
of FFO per common share/unit - diluted would imply a degree of
precision as to its forward-looking net income available to common
stockholders per common share - diluted that would be confusing or
misleading to investors.
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 EndedJune 30, Six Months EndedJune
30, 2016 2015 2016
2015 Revenues $ 160,133 $ 146,227 $ 305,579 $ 292,309
Net income available to common stockholders (1) $ 29,535 $ 54,188 $
200,530 $ 94,062 Weighted average common shares outstanding
– basic 92,210 88,126 92,217 87,515 Weighted average common shares
outstanding – diluted 92,825 88,646 92,784 88,044 Net income
available to common stockholders per share – basic (1) $ 0.32 $
0.61 $ 2.17 $ 1.07 Net income available to common stockholders per
share – diluted (1) $ 0.31 $ 0.61 $ 2.15 $ 1.06 Funds From
Operations (1)(2)(3) $ 82,722 $ 74,819 $ 160,915 $ 166,351
Weighted average common shares/units outstanding – basic (4) 95,966
91,109 95,642 90,498 Weighted average common shares/units
outstanding – diluted (4) 96,581 91,629 96,209 91,028 Funds
From Operations per common share/unit – basic (4) $ 0.86 $ 0.82 $
1.68 $ 1.84 Funds From Operations per common share/unit – diluted
(4) $ 0.86 $ 0.82 $ 1.67 $ 1.83 Common shares outstanding at
end of period 92,255 88,406 Common partnership units outstanding at
end of period 2,631 1,793 Total common shares and
units outstanding at end of period 94,886 90,199
June 30,
2016 June 30, 2015 Stabilized office portfolio occupancy
rates: (5) Los Angeles and Ventura Counties 94.2 % 95.4 % Orange
County 97.8 % 98.1 % San Diego County 89.0 % 95.5 % San Francisco
Bay Area 98.7 % 98.5 % Greater Seattle 98.1 % 97.0 % Weighted
average total 95.5 % 96.7 % Total square feet of stabilized
office properties owned at end of period: (5) Los Angeles and
Ventura Counties 3,619 3,505 Orange County 272 272 San Diego County
2,711 3,318 San Francisco Bay Area 4,992 3,890 Greater Seattle
2,066 2,066 Total 13,660 13,051
________________________ (1) Net income available to common
stockholders for the six months ended June 30, 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 and six months ended June 30, 2016 includes a loss on
sale of land of $0.3 million. Net income available to common
stockholders for the three and six months ended June 30, 2015
includes gains on sales of depreciable operating properties of
$31.4 million. Net income available to common stockholders and
Funds From Operations for the six months ended June 30, 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 June 30, 2015 include the office
properties that were sold subsequent to June 30, 2015 and held for
sale at June 30, 2016.
KILROY REALTY
CORPORATION
CONSOLIDATED BALANCE
SHEETS
(in thousands)
June 30, 2016 December 31, 2015
(unaudited)
ASSETS
REAL ESTATE ASSETS: Land and improvements $ 1,020,287 $ 875,794
Buildings and improvements 4,639,003 4,091,012 Undeveloped land and
construction in progress 894,057 1,361,340 Total real
estate assets held for investment 6,553,347 6,328,146 Accumulated
depreciation and amortization (1,054,828 ) (994,241 ) Total real
estate assets held for investment, net 5,498,519 5,333,905
Real estate assets and other assets held for sale, net 30,257
117,666 Cash and cash equivalents 26,332 56,508 Restricted cash
266,158 696 Marketable securities 13,388 12,882 Current
receivables, net 10,112 11,153 Deferred rent receivables, net
207,851 189,704 Deferred leasing costs and acquisition-related
intangible assets, net 186,903 176,683 Prepaid expenses and other
assets, net (1) 58,913 27,233 TOTAL ASSETS $
6,298,433 $ 5,926,430
LIABILITIES AND
EQUITY
LIABILITIES: Secured debt, net (1) $ 373,500 $ 380,835 Unsecured
debt, net (1) 1,845,992 1,844,634 Unsecured line of credit 220,000
— Accounts payable, accrued expenses and other liabilities 211,196
246,323 Accrued dividends and distributions 37,733 34,992 Deferred
revenue and acquisition-related intangible liabilities, net 138,394
128,156 Rents received in advance and tenant security deposits
44,663 49,361 Liabilities of real estate assets held for sale 321
7,543 Total liabilities 2,871,799 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
923 923 Additional paid-in capital 3,074,508 3,047,894 Retained
earnings/(distributions in excess of earnings) 62,647
(70,262 ) Total stockholders’ equity 3,330,489 3,170,966
Noncontrolling Interests Common units of the Operating Partnership
89,495 57,100 Noncontrolling interest in consolidated subsidiary
6,650 6,520 Total noncontrolling interests 96,145
63,620 Total equity 3,426,634 3,234,586
TOTAL LIABILITIES AND EQUITY $ 6,298,433 $ 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 EndedJune 30, Six Months EndedJune
30, 2016 2015 2016
2015 REVENUES Rental income $ 143,653 $ 131,450 $ 277,408 $
262,382 Tenant reimbursements 16,138 14,174 27,542 28,599 Other
property income 342 603 629 1,328 Total
revenues 160,133 146,227 305,579 292,309
EXPENSES Property expenses 29,221 26,866 55,186
51,580 Real estate taxes 13,845 12,430 24,877 25,145 Provision for
bad debts — 47 — 289 Ground leases 768 813 1,597 1,589 General and
administrative expenses 13,979 12,633 27,416 25,401
Acquisition-related expenses 714 265 776 393 Depreciation and
amortization 53,346 51,658 103,786 103,145
Total expenses 111,873 104,712 213,638
207,542 OTHER (EXPENSES) INCOME Interest income and
other net investment gains 311 511 582 871 Interest expense (14,384
) (14,864 ) (26,213 ) (31,742 ) Total other (expenses) income
(14,073 ) (14,353 ) (25,631 ) (30,871 ) INCOME FROM
OPERATIONS BEFORE GAINS (LOSSES) ON SALES OF REAL ESTATE 34,187
27,162 66,310 53,896 Net (loss) gain on sales of land (295 ) — (295
) 17,268 Gains on sale of depreciable operating properties —
31,428 145,990 31,428 NET INCOME 33,892
58,590 212,005 102,592 Net income
attributable to noncontrolling common units of the Operating
Partnership (829 ) (1,090 ) (4,439 ) (1,905 ) Net income
attributable to noncontrolling interest in consolidated subsidiary
(216 ) — (411 ) — Total income attributable to
noncontrolling interests (1,045 ) (1,090 ) (4,850 ) (1,905 )
NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION 32,847 57,500
207,155 100,687 PREFERRED DIVIDENDS (3,312 ) (3,312 ) (6,625
) (6,625 ) NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 29,535
$ 54,188 $ 200,530 $ 94,062
Weighted average common shares outstanding – basic 92,210 88,126
92,217 87,515 Weighted average common shares outstanding – diluted
92,825 88,646 92,784 88,044 Net income available to common
stockholders per share – basic $ 0.32 $ 0.61 $ 2.17
$ 1.07 Net income available to common stockholders
per share – diluted $ 0.31 $ 0.61 $ 2.15 $
1.06
KILROY REALTY
CORPORATION
FUNDS FROM
OPERATIONS
(unaudited, in thousands, except per share data)
Three
Months Ended June 30, Six Months Ended June 30,
2016 2015 2016 2015 Net
income available to common stockholders $ 29,535 $ 54,188 $ 200,530
$ 94,062 Adjustments: Net income attributable to noncontrolling
common units of the Operating Partnership 829 1,090 4,439 1,905
Depreciation and amortization of real estate assets 52,358 50,969
101,936 101,812 Gains on sales of depreciable real estate —
(31,428 ) (145,990 ) (31,428 ) Funds From Operations (1)(2)(3) $
82,722 $ 74,819 $ 160,915 $ 166,351
Weighted average common shares/units outstanding – basic
95,966 91,109 95,642 90,498 Weighted average common shares/units
outstanding – diluted 96,581 91,629 96,209 91,028 Funds From
Operations per common share/unit – basic (3) $ 0.86 $ 0.82
$ 1.68 $ 1.84 Funds From Operations per common
share/unit – diluted (3) $ 0.86 $ 0.82 $ 1.67
$ 1.83 ________________________ (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 $3.2 million and $3.3 million
for the three months ended June 30, 2016 and 2015, respectively,
and $6.1 million and $6.3 million for the six months ended June 30,
2016 and 2015, 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/20160725006381/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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