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Kilroy Realty Corporation Reports Third Quarter Financial Results

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LOS ANGELES, October 27, 2021--(BUSINESS WIRE)--Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its third quarter ended September 30, 2021.

Third Quarter Highlights

Financial Results

  • Net income available to common stockholders per share of $0.40

  • Funds from operations available to common stockholders and unitholders ("FFO") per share of $0.98

  • Revenues of $232.3 million

  • Increased the regular quarterly cash dividend to common stockholders by 4% to $0.52 per share; an annualized rate of $2.08 per share

Stabilized Portfolio

  • Stabilized portfolio was 91.5% occupied and 93.9% leased at September 30, 2021

  • Signed approximately 459,000 square feet of new and renewing leases

    • GAAP and cash rents increased approximately 24.4% and 8.3%, respectively, from prior levels

  • In September, the Company received a $17.0 million cash lease termination payment from a tenant at 12400 High Bluff Drive in San Diego, CA, which is committed for redevelopment. Net of lease-related write-offs, $7.0 million will be recognized in GAAP revenues through 2024, of which $0.7 million was recognized in the third quarter. A new lease was executed with Tandem Diabetes, a life science tenant, to occupy the space

  • Limited lease expiration exposure with an average of approximately 7.2% of total rentable square feet expiring per year through 2025

Acquisitions

  • In September, completed the acquisition of 2001 West 8th Avenue, an approximately 539,000 square foot office project in the Denny Regrade submarket of Seattle for $490.0 million. The building is 100% leased; Amazon occupies approximately 70% of the project

Development

  • In August, added One Paseo - Office Building 2, comprised of approximately 196,000 square feet at the company’s One Paseo mixed-use project in the Del Mar submarket of San Diego to the stabilized portfolio. The One Paseo office project is now 100% leased and 87% occupied

  • In August, commenced construction on 9514 Towne Centre Drive, a 71,000 square foot office property located in the University Towne Center submarket of San Diego. The building is 100% leased

  • In September, added the first of three life science buildings located at Kilroy Oyster Point - Phase 1 in South San Francisco to the stabilized portfolio. The approximately 235,000 square foot building is 100% leased to Cytokinetics and revenue recognition commenced on October 1, 2021

  • In September, in connection with the execution of three new life science leases totaling 330,000 square feet, committed three buildings in San Diego to our redevelopment program: 12340 El Camino Real and 12400 High Bluff Drive in the Del Mar submarket and 4690 Executive Drive in the University Towne Center submarket, which will be converted in phases from office to life science use

Balance Sheet / Liquidity Highlights

  • As of the date of this release, the company had approximately $1.5 billion of total liquidity comprised of approximately $390.0 million of cash and cash equivalents and full availability under the $1.1 billion unsecured revolving credit facility

  • No significant debt maturities until December 2024

Recent Development

  • In October, completed a public offering of $450.0 million of 12-year senior unsecured green bonds at 2.650% due November 2033

  • In October, completed the early redemption of all $300.0 million of 3.800% unsecured senior notes due January 2023 for a price of approximately $313.4 million, including make whole redemption fees and other related costs

Results for the Quarter Ended September 30, 2021

For the third quarter ended September 30, 2021, the company reported net income available to common stockholders of $47.0 million, or $0.40 per share, compared to $49.0 million, or $0.42 per share, in the third quarter of 2020. FFO in the third quarter of 2021 was $116.0 million, or $0.98 per share, compared to $117.4 million, or $0.99 per share, in the third quarter of 2020. Prior period net income available to common stockholders and FFO per share included a reversal of revenue of $0.02 per share charge against rental income due to tenant creditworthiness considerations 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

The company is providing an updated guidance range of NAREIT-defined FFO per diluted share for the full year 2021 of $3.74 to $3.80 per share, with a midpoint of $3.77 per share.

Full Year 2021 Range

Low End

High End

Net income available to common stockholders per share - diluted

$

5.30

$

5.36

Weighted average common shares outstanding - diluted (1)

117,650

117,650

Net income available to common stockholders

$

624,000

$

631,000

Adjustments:

Net income attributable to noncontrolling common units of the Operating Partnership

6,200

6,400

Net income attributable to noncontrolling interests in consolidated property partnerships

23,500

24,500

Depreciation and amortization of real estate assets

285,000

285,000

Gains on sales of depreciable real estate

(458,000

)

(458,000

)

Funds From Operations attributable to noncontrolling interests in consolidated property partnerships

(36,000

)

(37,000

)

Funds From Operations (2)

$

444,700

$

451,900

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

118,850

118,850

Funds From Operations per common share/unit – diluted (3)

$

3.74

$

3.80

Key 2021 assumptions:

  • Guidance range includes approximately $13.4 million of costs related to the early redemption of the $300.0 million of $3.800% senior notes

  • Same Store Cash NOI growth of 5.0% to 5.5% (4)

  • Year-end occupancy of approximately 91.5%

  • Total remaining development spending of approximately $100 million to $150 million

________________________

(1)

Calculated based on estimated weighted average shares outstanding including non-participating share-based awards.

(2)

See management statement for Funds From Operations 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 and contingently issuable shares, and assuming the exchange of all common limited partnership units outstanding. Reported amounts are attributable to common stockholders and common unitholders.

(4)

See management statement for Same Store Cash Net Operating Income on page 36 of our Supplemental Financial Report furnished on Form 8-K with this press release.

The company’s guidance estimates for the full year 2021, 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

The company’s management will discuss third quarter results and the current business environment during the company’s October 28, 2021 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/krc211028.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 https://dpregister.com/sreg/10148269/d9abb9d1ff. A replay of the conference call will be available via telephone on October 28, 2021 through November 4, 2021 by dialing (877) 344-7529 and entering passcode 10148269. 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/shareholders/investor-events/default.aspx.

About Kilroy Realty Corporation

Kilroy Realty Corporation (NYSE: KRC, the "company", "Kilroy") is a leading U.S. landlord and developer, with operations in San Diego, Greater Los Angeles, the San Francisco Bay Area, the Pacific Northwest and Austin, Texas. 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 and productivity for some of the world’s leading technology, entertainment, life science and business services companies.

The company 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, life science and mixed-use projects.

As of September 30, 2021, Kilroy’s stabilized portfolio totaled approximately 15.2 million square feet of primarily office and life science space that was 91.5% occupied and 93.9% leased. The company also had more than 1,000 residential units in Hollywood and San Diego, which had a quarterly average occupancy of 79.9%. In addition, the company had six in-process development projects with an estimated total investment of $2.6 billion, totaling approximately 3.0 million square feet of office and life science space. The office and life science space was 52% leased.

A Leader in Sustainability and Commitment to Corporate Social Responsibility

The company is listed on the Dow Jones Sustainability World Index and has been recognized by industry organizations around the world. The company’s stabilized portfolio was 78% LEED certified, 44% Fitwel certified, the highest of any non-government organization, and 72% of eligible properties were ENERGY STAR certified as of September 30, 2021.

The company has been recognized by GRESB, the Global Real Estate Sustainability Benchmark, as the listed sustainability leader in the Americas for eight of the last nine 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 eight years as well as ENERGY STAR’s highest honor of Sustained Excellence, for the past six 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. For the second year in a row, the company has been named to Bloomberg’s 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, Texas 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 annual report on Form 10-K for the year ended December 31, 2020 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 September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Revenues

$

232,326

$

228,314

$

693,955

$

669,065

Net income available to common stockholders

$

47,028

$

49,028

$

580,498

$

108,463

Weighted average common shares outstanding – basic

116,457

115,226

116,418

112,406

Weighted average common shares outstanding – diluted

116,963

115,668

116,894

112,876

Net income available to common stockholders per share – basic

$

0.40

$

0.42

$

4.98

$

0.95

Net income available to common stockholders per share – diluted

$

0.40

$

0.42

$

4.96

$

0.95

Funds From Operations (1)(2)

$

115,998

$

117,391

$

336,837

$

320,653

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

118,357

118,306

118,343

115,529

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

118,862

118,747

118,820

115,999

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

$

0.98

$

0.99

$

2.85

$

2.78

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

$

0.98

$

0.99

$

2.83

$

2.76

Common shares outstanding at end of period

116,462

115,247

Common partnership units outstanding at end of period

1,151

1,932

Total common shares and units outstanding at end of period

117,613

117,179

September 30,
2021

September 30,
2020

Stabilized office portfolio occupancy rates: (5)

Greater Los Angeles

86.4

%

90.8

%

San Diego County

91.8

%

86.7

%

San Francisco Bay Area

93.0

%

94.2

%

Greater Seattle

97.2

%

94.7

%

Weighted average total

91.5

%

92.2

%

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

Greater Los Angeles

4,436

4,031

San Diego County

2,619

2,147

San Francisco Bay Area

5,763

6,350

Greater Seattle

2,381

1,802

Total

15,199

14,330

________________________

(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 September 30, 2020 include the office properties that were sold subsequent to September 30, 2020.

KILROY REALTY CORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited; in thousands)

September 30, 2021

December 31, 2020

ASSETS

REAL ESTATE ASSETS:

Land and improvements

$

1,702,423

$

1,628,848

Buildings and improvements

7,282,341

6,783,092

Undeveloped land and construction in progress

2,237,742

1,778,106

Total real estate assets held for investment

11,222,506

10,190,046

Accumulated depreciation and amortization

(1,962,730

)

(1,798,646

)

Total real estate assets held for investment, net

9,259,776

8,391,400

Cash and cash equivalents

348,417

731,991

Restricted cash

13,042

91,139

Marketable securities

27,285

27,481

Current receivables, net

11,646

12,007

Deferred rent receivables, net

394,297

386,658

Deferred leasing costs and acquisition-related intangible assets, net

229,334

210,949

Right of use ground lease assets

127,657

95,523

Prepaid expenses and other assets, net

60,063

53,560

TOTAL ASSETS

$

10,471,517

$

10,000,708

LIABILITIES AND EQUITY

LIABILITIES:

Secured debt, net

$

249,690

$

253,582

Unsecured debt, net

3,673,183

3,670,099

Accounts payable, accrued expenses and other liabilities

441,357

445,100

Ground lease liabilities

125,676

97,778

Accrued dividends and distributions

61,845

59,431

Deferred revenue and acquisition-related intangible liabilities, net

160,687

128,523

Rents received in advance and tenant security deposits

68,441

68,874

Total liabilities

4,780,879

4,723,387

EQUITY:

Stockholders’ Equity

Common stock

1,165

1,160

Additional paid-in capital

5,146,049

5,131,916

Retained earnings (distributions in excess of earnings)

297,250

(103,133

)

Total stockholders’ equity

5,444,464

5,029,943

Noncontrolling Interests

Common units of the Operating Partnership

53,788

49,875

Noncontrolling interests in consolidated property partnerships

192,386

197,503

Total noncontrolling interests

246,174

247,378

Total equity

5,690,638

5,277,321

TOTAL LIABILITIES AND EQUITY

$

10,471,517

$

10,000,708

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited; in thousands, except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

REVENUES

Rental income

$

230,720

$

227,122

$

689,849

$

664,111

Other property income

1,606

1,192

4,106

4,954

Total revenues

232,326

228,314

693,955

669,065

EXPENSES

Property expenses

40,842

39,236

120,183

116,048

Real estate taxes

24,153

23,868

71,528

67,924

Ground leases

1,708

2,119

5,559

6,766

General and administrative expenses

22,990

18,572

69,482

76,179

Leasing costs

798

986

2,373

3,772

Depreciation and amortization

73,213

71,863

222,734

226,318

Total expenses

163,704

156,644

491,859

497,007

OTHER INCOME (EXPENSES)

Interest income and other net investment gain

976

1,869

3,686

1,579

Interest expense

(16,105

)

(19,468

)

(59,829

)

(49,796

)

Gain on sale of depreciable operating property

457,831

Total other (expenses) income

(15,129

)

(17,599

)

401,688

(48,217

)

NET INCOME

53,493

54,071

603,784

123,841

Net income attributable to noncontrolling common units of the Operating Partnership

(460

)

(785

)

(5,700

)

(1,857

)

Net income attributable to noncontrolling interests in consolidated property partnerships

(6,005

)

(4,258

)

(17,586

)

(13,521

)

Total income attributable to noncontrolling interests

(6,465

)

(5,043

)

(23,286

)

(15,378

)

NET INCOME AVAILABLE TO COMMON STOCKHOLDERS

$

47,028

$

49,028

$

580,498

$

108,463

Weighted average common shares outstanding – basic

116,457

115,226

116,418

112,406

Weighted average common shares outstanding – diluted

116,963

115,668

116,894

112,876

Net income available to common stockholders per share – basic

$

0.40

$

0.42

$

4.98

$

0.95

Net income available to common stockholders per share – diluted

$

0.40

$

0.42

$

4.96

$

0.95

KILROY REALTY CORPORATION

FUNDS FROM OPERATIONS

(unaudited; in thousands, except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020

Net income available to common stockholders

$

47,028

$

49,028

$

580,498

$

108,463

Adjustments:

Net income attributable to noncontrolling common units of the Operating Partnership

460

785

5,700

1,857

Net income attributable to noncontrolling interests in consolidated property partnerships

6,005

4,258

17,586

13,521

Depreciation and amortization of real estate assets

71,703

70,422

218,171

218,841

Gain on sale of depreciable real estate

(457,831

)

Funds From Operations attributable to noncontrolling interests in consolidated property partnerships

(9,198

)

(7,102

)

(27,287

)

(22,029

)

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

$

115,998

$

117,391

$

336,837

$

320,653

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

118,357

118,306

118,343

115,529

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

118,862

118,747

118,820

115,999

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

$

0.98

$

0.99

$

2.85

$

2.78

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

$

0.98

$

0.99

$

2.83

$

2.76

________________________

(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 and common unitholders.

(3)

FFO available to common stockholders and unitholders includes amortization of deferred revenue related to tenant-funded tenant improvements of $4.1 million and $4.4 million for the three months ended September 30, 2021 and 2020, respectively, and $13.0 million and $17.4 million for the nine months ended September 30, 2021 and 2020, respectively.

(4)

Calculated based on weighted average shares outstanding including participating share-based awards (i.e. 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20211027006144/en/

Contacts

Tyler H. Rose
President
(310) 481-8484
or
Michelle Ngo
Senior Vice President,
Chief Financial Officer and Treasurer
(310) 481-8581

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