Kilroy Realty Corporation (NYSE: KRC) today reported
financial results for its fourth quarter ended December 31,
2018.
Fourth Quarter
Highlights
Financial Results
- Net income available to common
stockholders per share of $1.58 and funds from operations available
to common stockholders and unitholders (“FFO”) per share of $0.78
included the following on a per share basis:
- Charge of $0.13 ($0.12 for FFO) related
to the early redemption of the company’s 6.625% unsecured senior
notes due June 2020
- Total gains on real estate sales of
$1.53, comprised of a land gain of $0.12 ($0.11 for FFO) and
operating property gains of $1.41 (gains on sales of operating
properties not included in FFO)
- Non-cash charge of $0.12 related to
accrued potential future executive retirement benefits
- Revenues of $190.8 million
Stabilized Portfolio
- Stabilized portfolio was 94.4% occupied
and 96.6% leased at December 31, 2018
- Signed approximately 768,000 square
feet of new or renewing leases
Development
- In October, commenced GAAP revenue
recognition on all 312,000 square feet of office space 100% leased
to Adobe at 100 Hooper, the company’s recently completed office and
production, distribution and repair (“PDR”) project in San
Francisco’s SOMA district
- In November, signed a long-term lease
with Netflix for 100% of the 355,000 square feet of office space
currently under construction at the company’s Hollywood mixed-use
project in Los Angeles
- During the fourth quarter, commenced
construction on the residential component of the Hollywood
mixed-use project in Los Angeles and the office component of the
One Paseo mixed-use project in the Del Mar submarket of San Diego
- The residential component of the
Hollywood development encompasses 193 residential units and
represents a total estimated investment of $195.0 million
- The office component of One Paseo
encompasses 285,000 square feet and represents a total estimated
investment of $205.0 million. It is approximately 42%
pre-leased
Acquisitions
- In December, completed the acquisition
of 345 Brannan Street, a 110,000 square foot office building in San
Francisco’s SOMA district, for $146.0 million. The property is one
of three adjacent KRC buildings, all of which are 100% leased to GM
Cruise
Dispositions
- Across the fourth quarter, completed
the sale of 11 operating properties and a land parcel in three
separate transactions for total gross proceeds of $373.0 million
and total gains on sales of $154.8 million. The 11 properties total
approximately 772,000 square feet of space and are located in the
Sunnyvale submarket of San Francisco, Kirkland submarket of
Seattle, and the 101 Corridor of Los Angeles
Finance
- In October, drew the entire $200.0
million of eight-year, 4.35% unsecured senior notes privately
offered in May 2018
- In November, completed a public
offering of $400.0 million of 10-year senior unsecured notes at
4.750% due December 2028
- In December, completed the early
redemption of all $250.0 million of 6.625% unsecured senior notes
due June 2020 for a make whole cash redemption price of
approximately $261.8 million
Full Year 2018 Highlights
- Achieved a company record in annual
leasing, signing 3.4 million square feet of leases, including just
over 2.8 million square feet of new or renewal leases in the
stabilized portfolio and 560,000 square feet in the in-process
development pipeline
- Commenced tenant improvements on 1.2
million square feet of newly developed, fully leased office space
in San Francisco with a total estimated investment of $855.0
million
- Acquired a 39-acre waterfront
development site in South San Francisco for approximately $308.2
million; the site is fully entitled for 2.5 million square feet of
office and laboratory space
- Acquired operating properties in San
Francisco and South San Francisco totaling just over 255,000 square
feet of office and laboratory space for an aggregate cost of $257.0
million
- Generated gross proceeds of
approximately $373.0 million from the company’s capital recycling
program through the disposition of non-core assets
- Raised gross proceeds of $650.0 million
through the public offering and private placement of debt at a
weighted average rate of 4.592%, including $400.0 million of green
bonds
- Completed a public offering of
5,000,000 shares of common stock priced at $72.10 per share
structured as a forward sale with a final settlement date of August
1, 2019
- Established a new $500.0 million ATM
offering program and issued an aggregate of $132.1 million in net
proceeds of common stock at a weighted average price of $73.64,
under both the old and new ATM programs
- Increased the annual dividend on the
company’s common stock by 7.1% to $1.82 per share
- Received continued recognition for
industry leadership in sustainability, including repeat awards from
GRESB, NAREIT, the U.S. Department of Energy and the EPA
Results for the Quarter Ended December 31, 2018
For the fourth quarter ended December 31, 2018, KRC
reported net income available to common stockholders of
$160.2 million, or $1.58 per share, compared to
$28.5 million, or $0.28 per share, in the fourth quarter of
2017. FFO in the fourth quarter of 2018 was $81.3 million, or
$0.78 per share, compared to $86.5 million, or
$0.85 per share, in the year-earlier quarter. Net income per
share in the 2018 fourth quarter included a $0.13 per share charge
from the early extinguishment of debt related to the redemption of
the 6.625% unsecured senior notes, a $0.12 per share non-cash
charge related to accrued potential future executive retirement
benefits, a $0.12 per share gain on the sale of land, and a $1.41
per share gain on the sale of operating properties. FFO per share
in the 2018 fourth quarter included a $0.12 per share charge from
the early extinguishment of debt related to the redemption of
notes, a $0.12 per share non-cash charge related to accrued
potential future executive retirement benefits, and an $0.11 per
share gain on the sale of land. In the prior year’s fourth quarter,
net income and FFO per share both included a $0.06 per share charge
related to the early extinguishment of debt. Revenues in the fourth
quarter totaled $190.8 million, up from $177.6 million in the
prior year’s period.
All per share amounts in this report are presented on a diluted
basis.
Net Income Available to Common Stockholders / FFO Guidance
and Outlook
The company is providing an initial guidance range of
NAREIT-defined FFO per diluted share for its fiscal year 2019 of
$3.58 to $3.78 per share, with a midpoint of $3.68 per share,
reflecting management’s views on current and future market
conditions, including assumptions with respect to rental rates,
occupancy levels, and the earnings impact of events referenced in
this press release.
Full Year 2019 Range Low End
High End Net income available to common stockholders per
share - diluted $ 1.51 $ 1.71 Weighted average common shares
outstanding - diluted (1) 106,000 106,000 Net income
available to common stockholders $ 160,000 $ 181,000 Adjustments:
Net income attributable to noncontrolling common units of the
Operating Partnership 3,400 3,800 Net income attributable to
noncontrolling interests in consolidated property partnerships
20,000 23,000 Depreciation and amortization of real estate assets
232,500 232,500 Gains on sales of depreciable real estate — — Funds
From Operations attributable to noncontrolling interests in
consolidated property partnerships (29,500 ) (32,500
) Funds From Operations (2) $ 386,400 $ 407,800
Weighted average common shares/units outstanding – diluted
(3) 108,000 108,000 Funds From Operations per common
share/unit – diluted (2)(3) $ 3.58 $ 3.78
Key 2019 assumptions include:
- Dispositions of approximately $150.0
million to $350.0 million
- Flat same store cash net operating
income
- Year-end occupancy of 94.0% to
95.0%
- Total development spending of
approximately $500.0 million to $600.0 million
________________________ (1) Calculated based on estimated
weighted average shares outstanding including non-participating
share-based awards. (2)
See management statement for FFO at end of
release.
(3) Calculated based on weighted average shares outstanding
including participating and non-participating share-based awards,
dilutive impact of stock options, contingently issuable shares, and
shares issuable under forward equity sale agreements and assuming
the exchange of all common limited partnership units outstanding.
Reported amounts are attributable to common stockholders, common
unitholders and restricted stock unitholders.
The company’s guidance estimates for the full year 2019, and the
reconciliation of net income available to common stockholders per
share - diluted and FFO per share and unit - diluted included
within this press release, reflect management’s views on current
and future market conditions, including assumptions with respect to
rental rates, occupancy levels, and the earnings impact of the
events referenced in this press release. Although these guidance
estimates reflect the impact on the company’s operating results of
an assumed range of future disposition activity, these guidance
estimates do not include any estimates of possible future gains or
losses from possible future dispositions because the magnitude of
gains or losses on sales of depreciable operating properties, if
any, will depend on the sales price and depreciated cost basis of
the disposed assets at the time of disposition, information that is
not known at the time the company provides guidance, and the timing
of any gain recognition will depend on the closing of the
dispositions, information that is also not known at the time the
company provides guidance and may occur after the relevant guidance
period. We caution you not to place undue reliance on our assumed
range of future disposition activity because any potential future
disposition transactions will ultimately depend on the market
conditions and other factors, including but not limited to the
company’s capital needs, the particular assets being sold and the
company’s ability to defer some or all of the taxable gain on the
sales. These guidance estimates also do not include the impact on
operating results from potential future acquisitions, possible
capital markets activity, possible future impairment charges or any
events outside of the company’s control. 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 initial earnings guidance for fiscal
year 2019 during the company’s February 5, 2019 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 https://services.choruscall.com/links/krc190205.html.
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 (866) 312-7299. International callers
should dial (412) 317-1070. In order to bypass speaking to the
operator on the day of the call, please pre-register anytime at
http://dpregister.com/10121412. A
replay of the conference call will be available via telephone on
February 5, 2019 through February 12, 2019 by dialing (877)
344-7529 and entering passcode 10121412. International callers
should dial (412) 317-0088 and enter the same passcode. The replay
will also be available on our website at http://investors.kilroyrealty.com/CustomPage/Index?KeyGenPage=1073743647.
About Kilroy Realty Corporation
Kilroy Realty Corporation (KRC), a publicly traded real estate
investment trust and member of the S&P MidCap 400 Index, is one
of the West Coast’s premier landlords. The company has over 70
years of experience developing, acquiring and managing office and
mixed-use real estate assets. 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 December 31, 2018, the company’s stabilized portfolio
totaled approximately 13.2 million square feet of office space
located in the coastal regions of Los Angeles, Orange County, San
Diego, the San Francisco Bay Area and Greater Seattle and 200
residential units located in the Hollywood submarket of Los
Angeles. The stabilized portfolio was 94.4% occupied and 96.6%
leased. In addition, KRC had three projects under construction
totaling approximately 1.3 million square feet of office space that
was 37% leased, 801 residential units and 96,000 square feet of
retail space that was 91% leased, as well as two projects in the
tenant improvement phase totaling approximately 1.2 million square
feet of office and PDR space. The office components of the two
projects are fully leased to Adobe and Dropbox.
The company’s commitment and leadership position in
sustainability has been recognized by various industry groups
across the world. In September 2018, the company was recognized by
GRESB both as North American leader across all asset classes and a
global leader among all publicly traded real estate companies.
Other sustainability accolades include NAREIT’s Leader in the Light
award for the past five years, the EPA’s highest honor of Sustained
Excellence and winner of Energy Star Partner of the Year for the
past five years. The company is listed in the Dow Jones
Sustainability World Index. At the end of the fourth quarter, the
company’s stabilized portfolio was 63% LEED certified and 79% of
eligible properties were ENERGY STAR certified. 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 or implied in
the forward-looking statements, and you should not rely on the
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 the forward-looking statements, including, among
others: global market and general economic conditions and their
effect on our liquidity and financial conditions and those of our
tenants; adverse economic or real estate conditions generally, and
specifically, in the States of California and Washington; risks
associated with our investment in real estate assets, which are
illiquid, and with trends in the real estate industry; defaults on
or non-renewal of leases by tenants; any significant downturn in
tenants’ businesses; our ability to re-lease property at or above
current market rates; costs to comply with government regulations,
including environmental remediation; the availability of cash for
distribution and debt service and exposure to risk of default under
debt obligations; increases in interest rates and our ability to
manage interest rate exposure; the availability of financing on
attractive terms or at all, which may adversely impact our future
interest expense and our ability to pursue development,
redevelopment and acquisition opportunities and refinance existing
debt; a decline in real estate asset valuations, which may limit
our ability to dispose of assets at attractive prices or obtain or
maintain debt financing, and which may result in write offs or
impairment charges; significant competition, which may decrease the
occupancy and rental rates of properties; potential losses that may
not be covered by insurance; the ability to successfully complete
acquisitions and dispositions on announced terms; the ability to
successfully operate acquired, developed and redeveloped
properties; the ability to successfully complete development and
redevelopment projects on schedule and within budgeted amounts;
delays or refusals in obtaining all necessary zoning, land use and
other required entitlements, governmental permits and
authorizations for our development and redevelopment properties;
increases in anticipated capital expenditures, tenant improvement
and/or leasing costs; defaults on leases for land on which some of
our properties are located; adverse changes to, or enactment or
implementations of, tax laws or other applicable laws, regulations
or legislation, as well as business and consumer reactions to such
changes; risks associated with joint venture investments, including
our lack of sole decision-making authority, our reliance on
co-venturers’ financial condition and disputes between us and our
co-venturers; environmental uncertainties and risks related to
natural disasters; and our ability to maintain our status as a
REIT. These factors are not exhaustive and additional factors could
adversely affect our business and financial performance. 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, 2017 and
our other filings with the Securities and Exchange Commission. All
forward-looking statements are based on currently available
information, 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 we are required to do so in connection with our ongoing
requirements under federal securities laws.
KILROY REALTY CORPORATION
SUMMARY OF QUARTERLY
RESULTS
(unaudited, in thousands, except per share
data)
Three Months Ended December 31,
Twelve Months Ended December 31, 2018
2017 2018 2017
Revenues $ 190,842 $ 177,561 $ 747,298 $ 719,001 Net
income available to common stockholders (1) $ 160,220 $ 28,529 $
258,415 $ 151,249 Weighted average common shares outstanding
– basic 100,747 98,424 99,972 98,114 Weighted average common shares
outstanding – diluted 101,380 99,128 100,482 98,727 Net
income available to common stockholders per share – basic (1) $
1.59 $ 0.28 $ 2.56 $ 1.52 Net income available to common
stockholders per share – diluted (1) $ 1.58 $ 0.28 $ 2.55 $ 1.51
Funds From Operations (1)(2)(3) $ 81,330 $ 86,539 $ 360,491
$ 346,787 Weighted average common shares/units outstanding –
basic (4) 103,892 101,707 103,167 101,443 Weighted average common
shares/units outstanding – diluted (5) 104,524 102,411 103,677
102,056 Funds From Operations per common share/unit – basic
(3) $ 0.78 $ 0.85 $ 3.49 $ 3.42 Funds From Operations per common
share/unit – diluted (3) $ 0.78 $ 0.85 $ 3.48 $ 3.40 Common
shares outstanding at end of period 100,747 98,620 Common
partnership units outstanding at end of period 2,025
2,077 Total common shares and units outstanding at
end of period 102,772 100,697
December 31,
2018
December 31,
2017
Stabilized office portfolio occupancy rates: (6) Greater Los
Angeles 95.1 % 93.3 % Orange County 89.6 % 86.6 % San Diego County
89.3 % 97.4 % San Francisco Bay Area 96.4 % 96.1 % Greater Seattle
93.6 % 95.4 % Weighted average total 94.4 % 95.2 %
Total square feet of stabilized office properties owned at
end of period: (6) Greater Los Angeles 3,956 4,182 Orange County
272 272 San Diego County 2,046 2,044 San Francisco Bay Area 5,161
5,157 Greater Seattle 1,798 2,066 Total
13,233 13,721 ________________________
(1)
Net income available to common stockholders includes gains
on sales of depreciable operating properties of $142.9 million for
the three months and year ended December 31, 2018. Net income
available to common stockholders and funds from operations include
a loss on early extinguishment of debt of $12.6 million, a non-cash
charge of $12.1 million related to accrued potential executive
retirement benefits and a gain on sale of land of $11.8 million for
the three months and year ended December 31, 2018 and a provision
for bad debts of $5.7 million for the year ended December 31, 2018.
Net income available to common stockholders includes gains on sales
of depreciable operating properties of $39.5 million for the year
ended December 31, 2017. Net income available to common
stockholders and funds from operations include a loss on early
extinguishment of debt of $5.3 million for the three months and
year ended December 31, 2017 and a gain on sale of land of $0.4
million and a non-cash charge for the original issuance costs of
redeemed preferred stock of $7.6 million for the year ended
December 31, 2017.
(2)
Reconciliation of Net income available to common stockholders to
Funds From Operations available to common stockholders and
unitholders and management statement on Funds From Operations are
included after the Consolidated Statements of Operations.
(3)
Reported amounts are attributable to common stockholders, common
unitholders, and restricted stock unitholders.
(4)
Calculated based on weighted average shares outstanding including
participating share-based awards (i.e. nonvested stock and certain
time based restricted stock units) and assuming the exchange of all
common limited partnership units outstanding.
(5)
Calculated based on weighted average shares outstanding including
participating and non-participating share-based awards, dilutive
impact of stock options, contingently issuable shares, and shares
issuable under forward equity sale agreements 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
December 31, 2017 include the office properties that were sold
subsequent to December 31, 2017.
KILROY REALTY
CORPORATION
CONSOLIDATED BALANCE
SHEETS
(in thousands)
December 31, 2018 December 31,
2017 (unaudited)
ASSETS
REAL ESTATE ASSETS: Land and improvements $ 1,160,138 $ 1,076,172
Buildings and improvements 5,207,984 4,908,797 Undeveloped land and
construction in progress 2,058,510 1,432,808
Total real estate assets held for investment 8,426,632
7,417,777 Accumulated depreciation and amortization
(1,391,368 ) (1,264,162 ) Total real estate assets held for
investment, net 7,035,264 6,153,615 Cash and cash
equivalents 51,604 57,649 Restricted cash 119,430 9,149 Marketable
securities 21,779 20,674 Current receivables, net 20,176 16,926
Deferred rent receivables, net 267,007 246,391 Deferred leasing
costs and acquisition-related intangible assets, net 197,574
183,728 Prepaid expenses and other assets, net 52,873
114,706 TOTAL ASSETS $ 7,765,707 $ 6,802,838
LIABILITIES AND
EQUITY
LIABILITIES: Secured debt, net $ 335,531 $ 340,800 Unsecured debt,
net 2,552,070 2,006,263 Unsecured line of credit 45,000 — Accounts
payable, accrued expenses and other liabilities 374,415 249,637
Accrued dividends and distributions 47,559 43,448 Deferred revenue
and acquisition-related intangible liabilities, net 149,646 145,890
Rents received in advance and tenant security deposits
60,225 56,484 Total liabilities
3,564,446 2,842,522 EQUITY:
Stockholders’ Equity Common stock 1,007 986 Additional paid-in
capital 3,976,953 3,822,492 Distributions in excess of earnings
(48,053 ) (122,685 ) Total stockholders’ equity
3,929,907 3,700,793 Noncontrolling Interests Common units of the
Operating Partnership 78,991 77,948 Noncontrolling interests in
consolidated property partnerships 192,363
181,575 Total noncontrolling interests 271,354
259,523 Total equity 4,201,261
3,960,316 TOTAL LIABILITIES AND EQUITY $ 7,765,707 $
6,802,838
KILROY REALTY
CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share
data)
Three Months Ended December 31,
Twelve Months Ended December 31, 2018
2017 2018
2017 REVENUES Rental income $ 166,957 $
158,369 $ 656,631 $ 633,896 Tenant reimbursements 20,511 18,331
80,982 76,559 Other property income 3,374 861
9,685 8,546 Total revenues
190,842 177,561 747,298
719,001 EXPENSES Property expenses 34,386
32,356 133,787 129,971 Real estate taxes 18,399 15,571 70,820
66,449 Provision for bad debts (1,029 ) 526 5,685 3,269 Ground
leases 1,450 1,586 6,176 6,337 General and administrative expenses
33,872 16,831 90,471 60,581 Depreciation and amortization
64,860 60,149 254,281
245,886 Total expenses 151,938 127,019
561,220 512,493 OTHER
(EXPENSES) INCOME Interest income and other net investment (loss)
gain (1,706 ) 1,874 (559 ) 5,503 Interest expense (12,436 ) (14,564
) (49,721 ) (66,040 ) Loss on early extinguishment of debt (12,623
) (5,312 ) (12,623 ) (5,312 ) Gain on sales of land 11,825 — 11,825
449 Gains on sales of depreciable operating properties
142,926 — 142,926 39,507
Total other (expenses) income 127,986
(18,002 ) 91,848 (25,893 ) NET INCOME
166,890 32,540 277,926
180,615 Net income attributable to
noncontrolling common units of the Operating Partnership (3,185 )
(590 ) (5,193 ) (3,223 ) Net income attributable to noncontrolling
interests in consolidated property partnerships (3,485 )
(3,421 ) (14,318 ) (12,780 ) Total income
attributable to noncontrolling interests (6,670 )
(4,011 ) (19,511 ) (16,003 ) NET INCOME
ATTRIBUTABLE TO KILROY REALTY CORPORATION 160,220
28,529 258,415 164,612
Preferred dividends — — — (5,774 ) Original issuance costs
of redeemed preferred stock — —
— (7,589 ) Total preferred dividends —
— — (13,363 ) NET INCOME
AVAILABLE TO COMMON STOCKHOLDERS $ 160,220 $ 28,529 $
258,415 $ 151,249 Weighted average common
shares outstanding – basic 100,747 98,424 99,972 98,114 Weighted
average common shares outstanding – diluted 101,380 99,128 100,482
98,727 Net income available to common stockholders per share
– basic $ 1.59 $ 0.28 $ 2.56 $ 1.52 Net
income available to common stockholders per share – diluted $ 1.58
$ 0.28 $ 2.55 $ 1.51
KILROY REALTY
CORPORATION
FUNDS FROM
OPERATIONS
(unaudited, in thousands, except per share
data)
Three Months Ended December 31,
Twelve Months Ended December 31, 2018
2017 2018
2017 Net income available to common
stockholders $ 160,220 $ 28,529 $ 258,415 $ 151,249 Adjustments:
Net income attributable to noncontrolling common units of the
Operating Partnership 3,185 590 5,193 3,223 Net income attributable
to noncontrolling interests in consolidated property partnerships
3,485 3,421 14,318 12,780 Depreciation and amortization of real
estate assets 63,640 59,987 249,882 241,862 Gains on sales of
depreciable real estate (142,926 ) — (142,926 ) (39,507 ) Funds
From Operations attributable to noncontrolling interests in
consolidated property partnerships (6,274 ) (5,988 )
(24,391 ) (22,820 ) Funds From Operations(1)(2)(3) $
81,330 $ 86,539 $ 360,491 $ 346,787
Weighted average common shares/units outstanding – basic (4)
103,892 101,707 103,167 101,443 Weighted average common
shares/units outstanding – diluted (5) 104,524 102,411 103,677
102,056 Funds From Operations per common share/unit – basic
(2) $ 0.78 $ 0.85 $ 3.49 $ 3.42 Funds
From Operations per common share/unit – diluted (2) $ 0.78 $
0.85 $ 3.48 $ 3.40 ________________________
(1) We calculate Funds From Operations available to common
stockholders and common unitholders (“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) Reported
amounts are attributable to common stockholders, common
unitholders, and restricted stock unitholders. (3) FFO
available to common stockholders and unitholders includes
amortization of deferred revenue related to tenant-funded tenant
improvements of $4.7 million and $4.4 million for the three months
ended December 31, 2018 and 2017, respectively, and $18.4 million
and $16.8 million for the twelve months ended December 31, 2018 and
2017, respectively. (4) Calculated based on weighted average
shares outstanding including participating share-based awards (i.e.
nonvested stock and certain time based restricted stock units) and
assuming the exchange of all common limited partnership units
outstanding. (5) Calculated based on weighted average shares
outstanding including participating and non-participating
share-based awards, dilutive impact of stock options, contingently
issuable shares, and shares issuable under forward equity sale
agreements and assuming the exchange of all common limited
partnership units outstanding.
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version on businesswire.com: https://www.businesswire.com/news/home/20190204005815/en/
Tyler H. RoseExecutive Vice Presidentand Chief Financial
Officer(310) 481-8484orMichelle NgoSenior Vice Presidentand
Treasurer(310) 481-8581
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