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Kilroy Realty Corporation Reports First Quarter Financial Results

April 29, 2020 5:08 PM

LOS ANGELES--(BUSINESS WIRE)-- Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its first quarter ended March 31, 2020.

COVID-19 Pandemic Key Business Update

Balance Sheet / Liquidity Highlights

Operations

Development

First Quarter Highlights

Financial Results

Stabilized Portfolio

Development

Results for the Quarter Ended March 31, 2020

For the first quarter ended March 31, 2020, KRC reported net income available to common stockholders of $39.8 million, or $0.37 per share, compared to $36.9 million, or $0.36 per share, in the first quarter of 2019. FFO in the first quarter of 2020 was $110.2 million, or $1.00 per share, compared to $99.8 million, or $0.95 per share, in the first quarter of 2019. Current period net income available to common stockholders and FFO per share included a reduction in revenue of $0.06 per share primarily related to the cumulative impact of transitioning one co-working tenant and two retail tenants to a cash basis of reporting as a result of the COVID-19 pandemic.

All per share amounts in this report are presented on a diluted basis.

Net Income Available to Common Stockholders / FFO Guidance and Outlook

Due to the uncertainty resulting from the COVID-19 pandemic, the company is withdrawing its previous full year 2020 guidance.

Conference Call and Audio Webcast

KRC management will discuss first quarter results and the current business environment during the company’s April 30, 2020 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/krc200430.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/10136122. A replay of the conference call will be available via telephone on April 30, 2020 through May 7, 2020 by dialing (877) 344-7529 and entering passcode 10136122. 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 (NYSE: KRC, the “company”, “KRC”) is a leading West Coast landlord and developer, with a major presence in San Diego, Greater Los Angeles, the San Francisco Bay Area, and the Pacific Northwest. The company has earned global recognition for sustainability, building operations, innovation and design. As pioneers and innovators in the creation of a more sustainable real estate industry, the company’s approach to modern business environments helps drive creativity, productivity and employee retention for some of the world’s leading technology, entertainment, life science and business services companies.

KRC is a publicly traded real estate investment trust (“REIT”) and member of the S&P MidCap 400 Index with more than seven decades of experience developing, acquiring and managing office and mixed-use projects.

As of March 31, 2020, KRC’s stabilized portfolio totaled approximately 14.3 million square feet of primarily office and life science space that was 93.5% occupied and 97.3% leased. The company also had 200 residential units in Hollywood that had a quarterly average occupancy of 93.5% and another 462 residential units in San Diego that were in lease-up. In addition, KRC had eight in-process development projects with an estimated total investment of $2.0 billion, totaling approximately 2.3 million square feet of office and life science space, and 339 residential units. The office and life science space was 90% leased.

A Leader in Sustainability and Commitment to Corporate Social Responsibility

KRC is listed on the Dow Jones Sustainability World Index and has been recognized by industry organizations around the world. KRC’s stabilized portfolio was 65% LEED-certified with 70% of eligible properties ENERGY STAR-certified as of March 31, 2020.

The company has been recognized by GRESB, the Global Real Estate Sustainability Benchmark, as the sustainability leader in the Americas for six consecutive years. Other honors have included the National Association of Real Estate Investment Trust’s (NAREIT) Leader in the Light award for six consecutive years and ENERGY STAR Partner of the Year for seven years as well as ENERGY STAR’s highest honor of Sustained Excellence, for the past five years.

A big part of the company’s foundation is its commitment to enhancing employee growth, satisfaction and wellness while maintaining a diverse and thriving culture. The company was recently named to Bloomberg’s 2020 Gender Equality Index—recognizing companies committed to supporting gender equality through policy development, representation, and transparency.

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; our ability to maintain our status as a REIT; and uncertainties regarding the impact of the COVID-19 pandemic, and restrictions intended to prevent its spread, on our business and the economy generally. 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 quarterly report on Form 10-Q for the period ending March 31, 2020 to be filed on April 30, 2020 and in our annual report on Form 10-K for the year ended December 31, 2019 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 dates 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 March 31,

2020

2019

Revenues

$

221,328

$

201,202

Net income available to common stockholders

$

39,817

$

36,903

Weighted average common shares outstanding – basic

106,875

100,901

Weighted average common shares outstanding – diluted

107,390

101,443

Net income available to common stockholders per share – basic

$

0.37

$

0.36

Net income available to common stockholders per share – diluted

$

0.37

$

0.36

Funds From Operations (1)(2)

$

110,173

$

99,812

Weighted average common shares/units outstanding – basic (3)

110,031

104,062

Weighted average common shares/units outstanding – diluted (4)

110,546

104,603

Funds From Operations per common share/unit – basic (2)

$

1.00

$

0.96

Funds From Operations per common share/unit – diluted (2)

$

1.00

$

0.95

Common shares outstanding at end of period

115,068

100,967

Common partnership units outstanding at end of period

2,021

2,023

Total common shares and units outstanding at end of period

117,089

102,990

March 31, 2020

March 31, 2019

Stabilized office portfolio occupancy rates: (5)

Greater Los Angeles

94.0

%

95.6

%

Orange County

N/A

90.3

%

San Diego County

88.3

%

90.2

%

San Francisco Bay Area

94.3

%

92.5

%

Greater Seattle

95.5

%

88.8

%

Weighted average total

93.5

%

92.5

%

Total square feet of stabilized office properties owned at end of period: (5)

Greater Los Angeles

4,027

3,956

Orange County

N/A

272

San Diego County

2,145

2,046

San Francisco Bay Area

6,350

5,160

Greater Seattle

1,802

1,802

Total

14,324

13,236

________________________

(1)

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.

(2)

Reported amounts are attributable to common stockholders, common unitholders, and restricted stock unitholders.

(3)

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.

(4)

Calculated based on weighted average shares outstanding including participating and non-participating share-based awards, dilutive impact of stock options, and contingently issuable shares and assuming the exchange of all common limited partnership units outstanding.

(5)

Occupancy percentages and total square feet reported are based on the company’s stabilized office portfolio for the periods presented. Occupancy percentages and total square feet shown for March 31, 2019 include the office properties that were sold subsequent to March 31, 2019.

KILROY REALTY CORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited; in thousands)

March 31, 2020

December 31, 2019

ASSETS

REAL ESTATE ASSETS:

Land and improvements

$

1,506,357

$

1,466,166

Buildings and improvements

5,997,523

5,866,477

Undeveloped land and construction in progress

2,318,236

2,296,130

Total real estate assets held for investment

9,822,116

9,628,773

Accumulated depreciation and amortization

(1,622,369

)

(1,561,361

)

Total real estate assets held for investment, net

8,199,747

8,067,412

Cash and cash equivalents

762,134

60,044

Restricted cash

16,300

16,300

Marketable securities

19,984

27,098

Current receivables, net

16,534

26,489

Deferred rent receivables, net

352,352

337,937

Deferred leasing costs and acquisition-related intangible assets, net

204,392

212,805

Right of use ground lease assets

96,145

96,348

Prepaid expenses and other assets, net

67,559

55,661

TOTAL ASSETS

$

9,735,147

$

8,900,094

LIABILITIES AND EQUITY

LIABILITIES:

Secured debt, net

$

257,359

$

258,593

Unsecured debt, net

3,050,103

3,049,185

Unsecured line of credit

380,000

245,000

Accounts payable, accrued expenses and other liabilities

417,547

418,848

Ground lease liabilities

98,247

98,400

Accrued dividends and distributions

57,620

53,219

Deferred revenue and acquisition-related intangible liabilities, net

130,843

139,488

Rents received in advance and tenant security deposits

65,913

66,503

Total liabilities

4,457,632

4,329,236

EQUITY:

Stockholders’ Equity

Common stock

1,151

1,060

Additional paid-in capital

5,067,181

4,350,917

Distributions in excess of earnings

(76,182

)

(58,467

)

Total stockholders’ equity

4,992,150

4,293,510

Noncontrolling Interests

Common units of the Operating Partnership

87,655

81,917

Noncontrolling interests in consolidated property partnerships

197,710

195,431

Total noncontrolling interests

285,365

277,348

Total equity

5,277,515

4,570,858

TOTAL LIABILITIES AND EQUITY

$

9,735,147

$

8,900,094

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited; in thousands, except per share data)

Three Months Ended March 31,

2020

2019

REVENUES

Rental income

$

218,633

$

199,382

Other property income

2,695

1,820

Total revenues

221,328

201,202

EXPENSES

Property expenses

38,983

38,149

Real estate taxes

22,202

18,639

Ground leases

2,317

1,972

General and administrative expenses

19,010

23,341

Leasing costs

1,456

1,757

Depreciation and amortization

74,370

66,135

Total expenses

158,338

149,993

OTHER (EXPENSES) INCOME

Interest income and other net investment (loss) gain

(3,128

)

1,828

Interest expense

(14,444

)

(11,243

)

Total other (expenses) income

(17,572

)

(9,415

)

NET INCOME

45,418

41,794

Net income attributable to noncontrolling common units of the Operating Partnership

(705

)

(700

)

Net income attributable to noncontrolling interests in consolidated property partnerships

(4,896

)

(4,191

)

Total income attributable to noncontrolling interests

(5,601

)

(4,891

)

NET INCOME AVAILABLE TO COMMON STOCKHOLDERS

$

39,817

$

36,903

Weighted average common shares outstanding – basic

106,875

100,901

Weighted average common shares outstanding – diluted

107,390

101,443

Net income available to common stockholders per share – basic

$

0.37

$

0.36

Net income available to common stockholders per share – diluted

$

0.37

$

0.36

KILROY REALTY CORPORATION

FUNDS FROM OPERATIONS

(unaudited; in thousands, except per share data)

Three Months Ended March 31,

2020

2019

Net income available to common stockholders

$

39,817

$

36,903

Adjustments:

Net income attributable to noncontrolling common units of the Operating Partnership

705

700

Net income attributable to noncontrolling interests in consolidated property partnerships

4,896

4,191

Depreciation and amortization of real estate assets

72,438

64,971

Funds From Operations attributable to noncontrolling interests in consolidated property partnerships

(7,683

)

(6,953

)

Funds From Operations(1)(2)(3)

$

110,173

$

99,812

Weighted average common shares/units outstanding – basic (4)

110,031

104,062

Weighted average common shares/units outstanding – diluted (5)

110,546

104,603

Funds From Operations per common share/unit – basic (2)

$

1.00

$

0.96

Funds From Operations per common share/unit – diluted (2)

$

1.00

$

0.95

________________________

(1)

We calculate Funds From Operations available to common stockholders and common unitholders (“FFO”) in accordance with the 2018 Restated 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 $5.0 million and $3.8 million for the three months ended March 31, 2020 and 2019, 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, and contingently issuable shares and assuming the exchange of all common limited partnership units outstanding.

Tyler H. Rose

Executive Vice President

and Chief Financial Officer

(310) 481-8484

or

Michelle Ngo

Senior Vice President

and Treasurer

(310) 481-8581

Source: Kilroy Realty Corporation

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