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Section 1: 8-K (8-K)

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false0001025996 0001025996 2020-02-03 2020-02-03


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 3, 2020
 
KILROY REALTY CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
 
 
Maryland
001-12675
95-4598246
(State or other jurisdiction of
incorporation or organization)
(Commission File No.)
(I.R.S. Employer
Identification No.)

12200 W. Olympic Boulevard, Suite 200, Los Angeles, California, 90064
(Address of principal executive offices) (Zip Code)

(310) 481-8400
(Registrant's telephone number, including area code)
 
 
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Registrant
Title of each class
Name of each exchange on which registered
Ticker Symbol
Kilroy Realty Corporation
Common Stock, $.01 par value
New York Stock Exchange
KRC
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2.):
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.













Item 2.02    Results of Operations and Financial Condition.

On February 3, 2020, Kilroy Realty Corporation issued a press release announcing its earnings for the quarter and full year ended December 31, 2019 and distributed certain supplemental financial information. On February 3, 2020, Kilroy Realty Corporation also posted the supplemental information on its website located at www.kilroyrealty.com. The text of the supplemental information and the related press release are furnished herewith as Exhibits 99.1 and 99.2, respectively, and are incorporated by reference herein.

Exhibits 99.1 and 99.2 are being furnished pursuant to Item 2.02 and shall not be deemed “filed” for any purpose, including for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section. The information in this Current Report on Form 8-K shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act regardless of any general incorporation language in such filing.

Item 7.01    Regulation FD Disclosure.

As discussed in Item 2.02 above, Kilroy Realty Corporation issued a press release announcing its earnings for the quarter and full year ended December 31, 2019 and distributed certain supplemental information. On February 3, 2020, Kilroy Realty Corporation also posted the supplemental information on its website located at www.kilroyrealty.com.

The information being furnished pursuant to Item 7.01 shall not be deemed “filed” for any purpose, including for the purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section. The information in this Current Report on Form 8-K shall not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act regardless of any general incorporation language in such filing.

Item 9.01    Financial Statements and Exhibits.

(a)
 
Financial statements of businesses acquired: None.

 
 
 
(b)
 
Pro forma financial information: None.

 
 
 
(c)
 
Shell company transactions: None.

 
 
 
(d)
 
Exhibits:


The following exhibits are furnished with this Current Report on Form 8-K:
Exhibit No.
 
Description
99.1**
 
 
 
 
99.2**
 
 
 
 
104
 
Cover Page Interactive Data File (embedded within the Inline XBRL document)
_______________
**    Furnished herewith.






SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



 
 
 
Kilroy Realty Corporation
 
 
Date: February 3, 2020
 
 
 
 
 
 
 
 
 
 
 
By:
 
/s/ Merryl E. Werber
 
 
 
 
 
 
Merryl E. Werber
Senior Vice President,
Chief Accounting Officer and Controller
 
 
 
 
 
 
 
 





(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
Exhibit 99.1

402627058_q42019supplementalcoverpage.jpg


Kilroy Realty Corporation
Fourth Quarter 2019 Supplemental Financial Report


Table of Contents
 
Page
Corporate Data and Financial Highlights
 
1
2
3
4
5
6
7
8-9
10
Portfolio Data
 
11
12-16
17
18
19-21
22
23
24
25
Development
 
26
27
28
Debt and Capitalization Data
 
29
30-31
32-34
35-38
This Supplemental Financial Report 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. These statements include, among other things, information concerning lease expirations, debt maturities, potential investments, development and redevelopment activity, projected construction costs, dispositions and other forward-looking financial data. In some instances, forward-looking statements can be identified by the use of forward-looking terminology such as “expect,” “future,” “will,” “would,” “pursue,” or “project” and variations of such words and similar expressions that do not relate to historical matters. Forward-looking statements are based on Kilroy Realty Corporation’s 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 Kilroy Realty Corporation’s 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 Kilroy Realty Corporation’s business and financial performance, see the factors included under the caption “Risk Factors” in Kilroy Realty Corporation’s annual report on Form 10-K for the year ended December 31, 2018, and its 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. Kilroy Realty Corporation assumes no obligation to update any forward-looking statement made in this Supplemental Financial Report 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
Fourth Quarter 2019 Supplemental Financial Report


Company Background

Kilroy Realty Corporation (NYSE: 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. At December 31, 2019, the Company’s stabilized portfolio totaled approximately 13.5 million square feet of office space located in the coastal regions of Los Angeles, San Diego, the San Francisco Bay Area and Greater Seattle that was 94.6% occupied and 200 residential units located in the Hollywood submarket of Los Angeles. 
Board of Directors
 
Executive Management Team
 
Investor Relations
John Kilroy
Chairman
 
John Kilroy
President and CEO
 
12200 W. Olympic Blvd., Suite 200
Los Angeles, CA 90064
(310) 481-8400
Web: www.kilroyrealty.com
Edward F. Brennan, PhD
Lead Independent
 
Jeffrey C. Hawken
Executive VP and COO
 
Jolie Hunt
 
 
Robert Paratte
Executive VP, Leasing and Business Development
 
Scott S. Ingraham
 
 
Tyler H. Rose
Executive VP and CFO
 
Gary R. Stevenson
 
 
Heidi R. Roth
Executive VP and Chief Administrative Officer
 
Peter B. Stoneberg
 
 
Justin W. Smart
Executive VP, Development and Construction Services
 
Equity Research Coverage
 
 
 
 
 
Bank of America Merrill Lynch
 
 
J.P. Morgan
 
James Feldman
(646) 855-5808
 
Anthony Paolone
(212) 622-6682
BMO Capital Markets Corp.
 
 
KeyBanc Capital Markets
 
John P. Kim
(212) 885-4115
 
Craig Mailman
(917) 368-2316
BTIG
 
 
RBC Capital Markets
 
Thomas Catherwood
(212) 738-6140
 
Mike Carroll
(440) 715-2649
Citigroup Investment Research
 
 
Robert W. Baird & Co.
 
Michael Bilerman
(212) 816-1383
 
David B. Rodgers
(216) 737-7341
Deutsche Bank Securities, Inc.
 
 
Scotiabank
 
Derek Johnston
(210) 250-5683
 
Nicholas Yulico
(212) 225-6904
Evercore ISI
 
 
Stifel, Nicolaus & Company
 
Steve Sakwa
(212) 446-9462
 
John W. Guinee III
(443) 224-1307
Goldman Sachs & Co. LLC
 
 
Wells Fargo
 
Richard Skidmore
(801) 741-5459
 
Blaine Heck
(443) 263-6529
Green Street Advisors
 
 
 
 
Daniel Ismail
(949) 640-8780
 
 
 
 
Kilroy Realty Corporation is followed by the analysts listed above. Please note that any opinions, estimates or forecasts regarding Kilroy Realty Corporation’s performance made by these analysts are theirs alone and do not represent opinions, forecasts or predictions of Kilroy Realty Corporation or its management. Kilroy Realty Corporation does not by its reference above or distribution imply its endorsement of or concurrence with such information, conclusions or recommendations.

1

Kilroy Realty Corporation
Fourth Quarter 2019 Supplemental Financial Report


Executive Summary
 
 
 
Quarterly Financial Highlights
 
Quarterly Operating Highlights
 
 
 
• Net income available to common stockholders per share of $0.67
 
• Stabilized portfolio was 94.6% occupied and 97.0% leased at quarter-end
 
 
 
• FFO per share of $1.00
 
• 636,257 square feet of leases commenced in the stabilized portfolio
 
 
 
• Revenues of $220.2 million
 
• 244,217 square feet of leases executed in the stabilized portfolio
 
 
 
• Same Store GAAP NOI increased 4.8% compared to the prior year
 
- GAAP rents increased approximately 35.9% from prior levels
 
 
 
• Same Store Cash NOI increased 4.5% compared to the prior year
 
- Cash rents increased approximately 17.4% from prior levels
 
 
 
 
 
 
 
 
 
 
 
 
Capital Markets Highlights
 
Strategic Highlights
 
 
 
• Executed 12-month forward equity sale agreements under the ATM program for
 
• In October, acquired an office campus totaling approximately 152,000 square feet
   1,945,906 shares at a weighted average sale price of $82.64. As of the date of this
 
   that is 100% leased to creative tenants in the Culver City submarket of Los Angeles
   report, the Company had not drawn down any portion of the shares sold under these
 
   for $186.0 million. The Company plans to significantly increase the square footage
   forward equity sale agreements
 
   of the campus through redevelopment over time
 
 
 
• As of the date of this report, $315.0 million was outstanding on our unsecured
 
• In October, executed a 12-year lease with Stripe, Inc. for approximately 421,000
   revolving credit facility, and we had approximately $60.0 million of restricted and
 
   square feet of space at Kilroy Oyster Point - Phase I, which is now 100% leased
   unrestricted cash on hand
 
 
 
 
• In October, completed the sale of a 272,000 square foot operating property, the
 
 
   Company’s last remaining Orange County property, for gross proceeds of $115.5
 
 
   and a gain on sale of operating properties of $29.6 million
 
 
 
 
 
• During the quarter, completed construction and commenced GAAP revenue
 
 
   recognition on the second phase of The Exchange on 16th, which represents
 
 
   approximately 30% of the 750,000 square foot development project located in San
 
 
   Francisco’s Mission Bay district. As a result of the completion of the first two
 
 
   phases of the project in 2019, the Company was recognizing GAAP revenue on 82%
 
 
   of the project at year-end. The office component of the project, approximately
 
 
   738,000 square feet, is 100% leased to Dropbox
 
 
 
 
 
• In December, executed a long-term lease with a major technology company for
 
 
   100% of 9455 Towne Centre Drive, a 160,000 square foot development project in the
 
 
   University Towne Center submarket of San Diego
 
 
 
 
 
• In December, completed the acquisition of a 1.4-acre land site in the central business
 
 
   district of Seattle for a cash purchase price of $133.0 million. The Company plans to
 
 
   seek entitlements to develop a mixed-use project over time
 
 
 
 
 
 
________________________
Note: Definitions for commonly used terms in this Supplemental Financial Report are on pages 35-36 “Definitions Included in Supplemental.”

2

Kilroy Realty Corporation
Fourth Quarter 2019 Supplemental Financial Report


Financial Highlights
(unaudited, $ in thousands, except per share amounts)
 
 
Three Months Ended
 
 
 
12/31/2019 (1)
 
9/30/2019 (1)
 
6/30/2019 (1) (2)
 
3/31/2019 (1)
 
12/31/2018 (2)
 
INCOME ITEMS:
 
 
 
 
 
 
 
 
 
 
 
Revenues
$
220,235

 
$
215,525

 
$
200,492

 
$
201,202

 
$
190,842

 
 
Lease Termination Fees, net

 

 
1,824

 
1,888

 
1,293

 
 
Net Operating Income (3)
154,679

 
152,170

 
141,916

 
142,442

 
137,636

 
 
Capitalized Interest and Debt Costs
20,339

 
20,585

 
20,880

 
19,437

 
19,519

 
 
Net Income Available to Common Stockholders
72,500

 
43,846

 
42,194

 
36,903

 
160,220

 
 
EBITDA, as adjusted (3) (4)
131,734

 
129,163

 
120,025

 
119,172

 
113,883

 
 
Funds From Operations (4) (5) (6) (7)
109,518

 
109,243

 
99,905

 
99,812

 
81,330

 
 
Net Income Available to Common Stockholders per common share – diluted (6)
$
0.67

 
$
0.41

 
$
0.41

 
$
0.36

 
$
1.58

 
 
Funds From Operations per common share – diluted (4) (6) (7)
$
1.00

 
$
1.01

 
$
0.95

 
$
0.95

 
$
0.78

 
LIQUIDITY ITEMS:
 
 
 
 
 
 
 
 
 
 
 
Funds Available for Distribution (5) (6) (8)
$
65,443

 
$
65,078

 
$
52,369

 
$
65,934

 
$
51,792

 
 
Dividends per common share (6)
$
0.485

 
$
0.485

 
$
0.485

 
$
0.455

 
$
0.455

 
RATIOS:
 
 
 
 
 
 
 
 
 
 
 
Net Operating Income Margins
70.2
%
 
70.6
%
 
70.8
%
 
70.8
%
 
72.1
%
 
 
Fixed Charge Coverage Ratio
4.0x

 
4.2x

 
3.9x

 
4.0x

 
3.7x

 
 
FFO Payout Ratio (4) (7)
47.8
%
 
48.0
%
 
50.0
%
 
46.9
%
 
57.5
%
 
 
FAD Payout Ratio (8)
80.1
%
 
80.5
%
 
95.4
%
 
71.1
%
 
90.3
%
 
ASSETS:
 
 
 
 
 
 
 
 
 
 
 
Real Estate Held for Investment before Depreciation
$
9,628,773

 
$
8,977,843

 
$
8,824,558

 
$
8,616,167

 
$
8,426,632

 
 
Total Assets
8,900,094

 
8,623,815

 
8,094,721

 
7,883,987

 
7,765,707

 
CAPITALIZATION: (9)
 
 
 
 
 
 
 
 
 
 
 
Total Debt
$
3,579,502

 
$
3,334,967

 
$
3,210,427

 
$
3,020,882

 
$
2,955,811

 
 
Total Common Equity and Noncontrolling Interests in the Operating Partnership
9,064,520

 
8,414,862

 
7,602,085

 
7,823,144

 
6,462,321

 
 
Total Market Capitalization
12,644,022

 
11,749,829

 
10,812,512

 
10,844,026

 
9,418,132

 
 
Total Debt / Total Market Capitalization
28.3
%
 
28.4
%
 
29.7
%
 
27.9
%
 
31.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
______________________________________________________
Note: Definitions for commonly used terms in this Supplemental Financial Report are on pages 35-36 “Definitions Included in Supplemental.”
(1)
The Company adopted ASC 842 “Leases” effective January 1, 2019. Please refer to page 10 for a description of the impact of the adoption on our consolidated statements of operations.
(2)
Net Income Available to Common Stockholders includes $29.6 million and $7.2 million of gains on sale of depreciable operating properties for the three months ended December 31, 2019 and June 30, 2019, respectively, and $142.9 million of gains on sales of depreciable operating properties, an $11.8 million gain on sale of land and a $12.6 million loss on early extinguishment of debt for the three months ended December 31, 2018.
(3)
Please refer to page 10 for the calculation of Net Operating Income and pages 37-38 for reconciliations of GAAP Net Income Available to Common Stockholders to Net Operating Income and EBITDA, as adjusted.
(4)
EBITDA, as adjusted, and Funds From Operations include a $11.8 million gain on sale of land for the three months ended December 31, 2018. The Company’s calculation of EBITDA, as adjusted, is the same as EBITDAre, as defined by NAREIT, as the Company does not have any unconsolidated joint ventures.
(5)
Please refer to page 8 for reconciliations of GAAP Net Income Available to Common Stockholders to Funds From Operations available to common stockholders and unitholders and Funds Available for Distribution to common stockholders and unitholders and page 9 for a reconciliation of GAAP Net Cash Provided by Operating Activities to Funds Available for Distribution to common stockholders and unitholders.
(6)
Reported amounts are attributable to common stockholders, common unitholders and restricted stock unit holders.
(7)
Funds From Operations for the three months ended December 31, 2018 includes a $12.6 million loss on early extinguishment of debt.
(8)
Funds Available for Distribution for the three months ended December 31, 2018 includes a $11.8 million cash loss on early extinguishment of debt.
(9)
Please refer to page 29 for additional information regarding our capital structure.

3

Kilroy Realty Corporation
Fourth Quarter 2019 Supplemental Financial Report


Net Income Available to Common Stockholders / FFO Guidance and Outlook
(unaudited, $ and shares/units in thousands, except per share amounts)

The Company is providing an initial guidance range of NAREIT-defined FFO per diluted share for its fiscal year 2020 of $4.01 to $4.21 per share with a midpoint of $4.11 per share.
 
 
 
Full Year 2020 Range
 
 
 
 
Low End
 
High End
 
 
Net income available to common stockholders per share - diluted
 
$
2.01

 
$
2.21

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - diluted (1)
 
109,000

 
109,000

 
 
 
 
 
 
 
 
 
Net income available to common stockholders
 
$
219,000

 
$
241,000

 
 
Adjustments:
 
 
 
 
 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
4,300

 
4,700

 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
20,500

 
23,500

 
 
Depreciation and amortization of real estate assets
 
233,500

 
233,500

 
 
Gains on sales of depreciable real estate
 

 

 
 
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships
 
(32,000
)
 
(35,000
)
 
 
Funds From Operations (2)
 
$
445,300

 
$
467,700

 
 
 
 
 
 
 
 
 
Weighted average common shares and units outstanding - diluted (3)
 
111,000

 
111,000

 
 
 
 
 
 
 
 
 
FFO per common share/unit - diluted (3)
 
$
4.01

 
$
4.21

 
 
 
 
 
 
 
 

Key 2020 assumptions include:
Dispositions of approximately $150.0 million to $300.0 million
Same store cash net operating income growth of 6.5% to 7.5% (2) 
Year-end occupancy of 93.0% to 94.0%
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 pages 33-34 for Management Statements on Funds From Operations and Same Store Cash Net Operating Income.
(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 2020, and the reconciliation of net income available to common stockholders per share - diluted and FFO per share and unit - diluted included within this report, 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 report. 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.

4

Kilroy Realty Corporation
Fourth Quarter 2019 Supplemental Financial Report


Common Stock Data (NYSE: KRC)
 
 
 
Three Months Ended
 
 
 
12/31/2019
 
9/30/2019
 
6/30/2019
 
3/31/2019
 
12/31/2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
High Price
$
84.50

 
$
80.06

 
$
78.36

 
$
76.50

 
$
72.34

 
 
Low Price
$
76.35

 
$
74.25

 
$
72.87

 
$
61.44

 
$
59.46

 
 
Closing Price
$
83.90

 
$
77.89

 
$
73.81

 
$
75.96

 
$
62.88

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends per share – annualized
$
1.94

 
$
1.94

 
$
1.94

 
$
1.82

 
$
1.82

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Closing common shares (in 000’s) (1)
106,016

 
106,012

 
100,972

 
100,967

 
100,747

 
 
Closing common partnership units (in 000’s) (1)
2,023

 
2,023

 
2,023

 
2,023

 
2,025

 
 
 
108,039

 
108,035

 
102,995

 
102,990

 
102,772

 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
As of the end of the period.







5

Kilroy Realty Corporation
Fourth Quarter 2019 Supplemental Financial Report


Consolidated Balance Sheets
(unaudited, $ in thousands)
 
 
12/31/2019
 
9/30/2019
 
6/30/2019
 
3/31/2019
 
12/31/2018
 
 
ASSETS:

 
 
 
 
 
 
 
 
 
 
Land and improvements
$
1,466,166

 
$
1,315,448

 
$
1,284,582

 
$
1,184,496

 
$
1,160,138

 
 
Buildings and improvements
5,866,477

 
5,770,226

 
5,712,448

 
5,300,313

 
5,207,984

 
 
Undeveloped land and construction in progress
2,296,130

 
1,892,169

 
1,827,528

 
2,131,358

 
2,058,510

 
 
Total real estate assets held for investment
9,628,773

 
8,977,843

 
8,824,558

 
8,616,167

 
8,426,632

 
 
Accumulated depreciation and amortization
(1,561,361
)
 
(1,505,785
)
 
(1,480,766
)
 
(1,441,506
)
 
(1,391,368
)
 
 
Total real estate assets held for investment, net
8,067,412

 
7,472,058

 
7,343,792

 
7,174,661

 
7,035,264

 
 
Real estate assets and other assets held for sale, net

 
77,751

 

 

 

 
 
Cash and cash equivalents
60,044

 
297,620

 
52,415

 
49,693

 
51,604

 
 
Restricted cash
16,300

 
6,300

 
6,300

 
6,300

 
119,430

 
 
Marketable securities
27,098

 
26,188

 
25,203

 
24,098

 
21,779

 
 
Current receivables, net
26,489

 
34,116

 
27,563

 
28,016

 
20,176

 
 
Deferred rent receivables, net
337,937

 
314,812

 
297,358

 
280,756

 
267,007

 
 
Deferred leasing costs and acquisition-related intangible assets, net
212,805

 
202,063

 
203,451

 
187,309

 
197,574

 
 
Right of use ground lease assets
96,348

 
83,200

 
82,647

 
82,794

 

 
 
Prepaid expenses and other assets, net
55,661

 
109,707

 
55,992

 
50,360

 
52,873

 
 
TOTAL ASSETS
$
8,900,094

 
$
8,623,815

 
$
8,094,721

 
$
7,883,987

 
$
7,765,707

 
 
LIABILITIES AND EQUITY:
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Secured debt, net
$
258,593

 
$
259,027

 
$
259,455

 
$
259,878

 
$
335,531

 
 
Unsecured debt, net
3,049,185

 
3,048,209

 
2,553,651

 
2,552,883

 
2,552,070

 
 
Unsecured line of credit
245,000

 

 
375,000

 
185,000

 
45,000

 
 
Accounts payable, accrued expenses and other liabilities
418,848

 
439,081

 
385,567

 
373,691

 
374,415

 
 
Ground lease liabilities
98,400

 
87,617

 
87,082

 
87,247

 

 
 
Accrued dividends and distributions
53,219

 
53,205

 
50,800

 
47,676

 
47,559

 
 
Deferred revenue and acquisition-related intangible liabilities, net
139,488

 
134,828

 
136,266

 
138,973

 
149,646

 
 
Rents received in advance and tenant security deposits
66,503

 
57,428

 
59,997

 
55,457

 
60,225

 
 
Liabilities and deferred revenue of real estate assets held for sale

 
4,911

 

 

 

 
 
Total liabilities
4,329,236

 
4,084,306

 
3,907,818


3,700,805


3,564,446

 
 
Equity:
 
 
 
 
 
 
 
 
 
 
 
Stockholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
Common stock
1,060

 
1,060

 
1,010

 
1,010

 
1,007

 
 
Additional paid-in capital
4,350,917

 
4,342,296

 
3,984,867

 
3,976,204

 
3,976,953

 
 
Distributions in excess of earnings
(58,467
)
 
(78,707
)
 
(70,345
)
 
(62,690
)
 
(48,053
)
 
 
Total stockholders’ equity
4,293,510

 
4,264,649

 
3,915,532

 
3,914,524

 
3,929,907

 
 
Noncontrolling Interests
 
 
 
 
 
 
 
 
 
 
 
Common units of the Operating Partnership
81,917

 
81,393

 
78,463

 
78,413

 
78,991

 
 
Noncontrolling interests in consolidated property partnerships
195,431

 
193,467

 
192,908

 
190,245

 
192,363

 
 
Total noncontrolling interests
277,348

 
274,860

 
271,371

 
268,658

 
271,354

 
 
Total equity
4,570,858

 
4,539,509

 
4,186,903

 
4,183,182

 
4,201,261

 
 
TOTAL LIABILITIES AND EQUITY
$
8,900,094

 
$
8,623,815

 
$
8,094,721

 
$
7,883,987

 
$
7,765,707

 
 
 
 
 
 
 
 
 
 
 
 
 


6

Kilroy Realty Corporation
Fourth Quarter 2019 Supplemental Financial Report


Consolidated Statements of Operations
(unaudited, $ and shares in thousands, except per share amounts)
 
 
 
Three Months Ended December 31,
 
Year Ended December 31,
 
 
 
 
2019
 
2018
 
2019
 
2018
 
 
REVENUES
 
 
 
 
 
 
 
 
 
 
Rental income (1)
 
$
217,140

 
$
166,957

 
$
826,472

 
$
656,631

 
 
Tenant reimbursements (1)
 

 
20,511

 

 
80,982

 
 
Other property income (1)
 
3,095

 
3,374

 
10,982

 
9,685

 
 
Total revenues
 
220,235

 
190,842

 
837,454

 
747,298

 
 
EXPENSES
 
 
 
 
 
 
 
 
 
 
Property expenses (1)
 
42,044

 
34,386

 
160,037

 
133,787

 
 
Real estate taxes (1)
 
21,534

 
18,399

 
78,097

 
70,820

 
 
Provision for bad debts (1)
 

 
(1,029
)
 

 
5,685

 
 
Ground leases (1)
 
1,978

 
1,450

 
8,113

 
6,176

 
 
General and administrative expenses
 
22,365

 
33,872

 
88,139

 
90,471

 
 
Leasing costs (1)
 
2,016

 

 
7,615

 

 
 
Depreciation and amortization
 
69,513

 
64,860

 
273,130

 
254,281

 
 
Total expenses
 
159,450

 
151,938

 
615,131

 
561,220

 
 
OTHER INCOME (EXPENSES)
 
 
 
 
 
 
 
 
 
 
Interest income and other net investment gain (loss)
 
1,436

 
(1,706
)
 
4,641

 
(559
)
 
 
Interest expense
 
(13,932
)
 
(12,436
)
 
(48,537
)
 
(49,721
)
 
 
Loss on early extinguishment of debt
 

 
(12,623
)
 

 
(12,623
)
 
 
Gain on sales of land
 

 
11,825

 

 
11,825

 
 
Gains on sales of depreciable operating properties
 
29,633

 
142,926

 
36,802

 
142,926

 
 
Total other income (expenses)
 
17,137

 
127,986

 
(7,094
)
 
91,848

 
 
NET INCOME
 
77,922

 
166,890

 
215,229

 
277,926

 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
(1,343
)
 
(3,185
)
 
(3,766
)
 
(5,193
)
 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
(4,079
)
 
(3,485
)
 
(16,020
)
 
(14,318
)
 
 
Total income attributable to noncontrolling interests
 
(5,422
)
 
(6,670
)
 
(19,786
)
 
(19,511
)
 
 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS
 
$
72,500

 
$
160,220

 
$
195,443

 
$
258,415

 
 
Weighted average common shares outstanding – basic
 
106,013

 
100,747

 
103,201

 
99,972

 
 
Weighted average common shares outstanding – diluted
 
106,748

 
101,380

 
103,849

 
100,482

 
 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS PER SHARE
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders per share – basic
 
$
0.68

 
$
1.59

 
$
1.87

 
$
2.56

 
 
Net income available to common stockholders per share – diluted
 
$
0.67

 
$
1.58

 
$
1.86

 
$
2.55

 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Effective January 1, 2019, the Company adopted ASC 842 “Leases.” Please refer to page 10 for a description of the changes made to our 2019 consolidated statement of operations upon adoption of ASC 842 “Leases.” In accordance with the adoption of the new standard under the modified retrospective method, previously reported periods are not restated for the impact of the standard.

7

Kilroy Realty Corporation
Fourth Quarter 2019 Supplemental Financial Report


Funds From Operations and Funds Available for Distribution
(unaudited, $ in thousands, except per share amounts)
 
 
 
Three Months Ended December 31,
 
Year Ended December 31,
 
 
 
 
2019
 
2018
 
2019
 
2018
 
 
FUNDS FROM OPERATIONS: (1)
 
 
 
 
 
 
 
 
 
 
Net income available to common stockholders
 
$
72,500

 
$
160,220

 
$
195,443

 
$
258,415

 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
Net income attributable to noncontrolling common units of the Operating Partnership
 
1,343

 
3,185

 
3,766

 
5,193

 
 
Net income attributable to noncontrolling interests in consolidated property partnerships
 
4,079

 
3,485

 
16,020

 
14,318

 
 
Depreciation and amortization of real estate assets
 
68,078

 
63,640

 
268,045

 
249,882

 
 
Gains on sales of depreciable real estate
 
(29,633
)
 
(142,926
)
 
(36,802
)
 
(142,926
)
 
 
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships
 
(6,849
)
 
(6,274
)
 
(27,994
)
 
(24,391
)
 
 
Funds From Operations (1)(2)
 
$
109,518

 
$
81,330

 
$
418,478

 
$
360,491

 
 
Weighted average common shares/units outstanding – basic (3)
 
109,138

 
103,892

 
106,342

 
103,167

 
 
Weighted average common shares/units outstanding – diluted (4)
 
109,872

 
104,524

 
106,991

 
103,677

 
 
FFO per common share/unit – basic (1)
 
$
1.00

 
$
0.78

 
$
3.94

 
$
3.49

 
 
FFO per common share/unit – diluted (1)
 
$
1.00

 
$
0.78

 
$
3.91

 
$
3.48

 
 
FUNDS AVAILABLE FOR DISTRIBUTION: (1)
 
 
 
 
 
 
 
 
 
 
Funds From Operations (1)(2)
 
$
109,518

 
$
81,330

 
$
418,478

 
$
360,491

 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
Recurring tenant improvements, leasing commissions and capital expenditures
 
(36,941
)
 
(35,474
)
 
(123,395
)
 
(110,540
)
 
 
Amortization of deferred revenue related to tenant-funded tenant improvements (2)(5)
 
(4,243
)
 
(4,749
)
 
(19,190
)
 
(18,429
)
 
 
Net effect of straight-line rents
 
(23,122
)
 
(12,199
)
 
(75,323
)
 
(26,811
)
 
 
Amortization of net below market rents (6)
 
(2,965
)
 
(2,101
)
 
(9,206
)
 
(9,748
)
 
 
Amortization of deferred financing costs and net debt discount/premium
 
516

 
1,068

 
1,427

 
1,884

 
 
Non-cash executive compensation expense (7)
 
7,180

 
21,133

 
28,503

 
40,034

 
 
Other lease related adjustments, net and leasing costs (8)
 
9,300

 
(1,494
)
 
11,448

 
2,507

 
 
Adjustments attributable to noncontrolling interests in consolidated property partnerships
 
6,200

 
4,278

 
16,082

 
8,652

 
 
Funds Available for Distribution (1)
 
$
65,443

 
$
51,792

 
$
248,824

 
$
248,040

 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
See page 34 for Management Statements on Funds From Operations and Funds Available for Distribution. Reported per common share/unit amounts are attributable to common stockholders, common unitholders and restricted stock unit holders.
(2)
FFO available to common stockholders and unitholders includes amortization of deferred revenue related to tenant-funded tenant improvements of $4.2 million and $4.7 million for the three months ended December 31, 2019 and 2018, respectively, and $19.2 million and $18.4 million for the year ended December 31, 2019 and 2018, respectively. These amounts are adjusted out of FFO in our calculation of FAD.
(3)
Calculated based on weighted average shares outstanding including participating share-based awards 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, contingently issuable shares, and shares issuable under forward equity sale agreements and assuming the exchange of all common limited partnership units outstanding.
(5)
Represents revenue recognized during the period as a result of the amortization of deferred revenue recorded for tenant-funded tenant improvements.
(6)
Represents the non-cash adjustment related to the acquisition of buildings with above and/or below market rents.
(7)
Includes non-cash amortization of share-based compensation and accrued potential future executive retirement benefits.
(8)
Includes other cash and non-cash adjustments attributable to lease-related matters including GAAP revenue recognition timing differences and leasing costs.


8

Kilroy Realty Corporation
Fourth Quarter 2019 Supplemental Financial Report


Reconciliation of GAAP Net Cash Provided by Operating Activities to Funds Available for Distribution
(unaudited, $ in thousands)
 
 
 
Three Months Ended December 31,
 
Year Ended December 31,
 
 
 
 
2019
 
2018
 
2019
 
2018
 
 
GAAP Net Cash Provided by Operating Activities 
 
$
85,131

 
$
104,930

 
$
386,521

 
$
422,145

 
 
Adjustments:
 
 
 
 
 
 
 
 
 
 
Recurring tenant improvements, leasing commissions and capital expenditures
 
(36,941
)
 
(35,474
)
 
(123,395
)
 
(110,540
)
 
 
Loss on early extinguishment of debt
 

 
(11,823
)
 

 
(11,823
)
 
 
Preferred dividends
 

 

 

 

 
 
Depreciation of non-real estate furniture, fixtures and equipment
 
(1,435
)
 
(1,221
)
 
(5,085
)
 
(4,400
)
 
 
Provision for uncollectible tenant receivables
 

 
(487
)
 

 
(5,520
)
 
 
Net changes in operating assets and liabilities (1)
 
19,678

 
(14,356
)
 
4,427

 
(29,412
)
 
 
Noncontrolling interests in consolidated property partnerships share of FFO and FAD
 
(649
)
 
(1,996
)
 
(11,912
)
 
(15,739
)
 
 
Cash adjustments related to investing and financing activities
 
(341
)
 
394

 
(1,732
)
 
(8,496
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Funds Available for Distribution(2)
 
$
65,443

 
$
51,792

 
$
248,824

 
$
248,040

 
 
 
 
 
 
 
 
 
 
 
 
_______________________
(1)
Primarily includes changes in the following assets and liabilities: marketable securities; current receivables; prepaid expenses and other assets; accounts payable, accrued expenses and other liabilities; and rents received in advance and tenant security deposits. 
(2)
Please refer to page 34 for a Management Statement on Funds Available for Distribution.


9

Kilroy Realty Corporation
Fourth Quarter 2019 Supplemental Financial Report


Net Operating Income (1) 
(unaudited, $ in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended December 31,
 
Year Ended December 31,
 
 
 
 
2019 (2)
 
2018 As Reported
 
2018 As Adjusted (3)
 
% Change
2019 vs. 2018
As Adjusted
 
2019 (2)
 
2018 As Reported
 
2018 As Adjusted (3)
 
% Change
2019 vs. 2018
As Adjusted
 
 
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental income
 
$
184,011

 
$
166,957

 
$
169,441

 
8.6
%
 
$
710,917

 
$
656,631

 
$
651,465

 
9.1
%
 
 
Tenant reimbursements
 
33,129

 
20,511

 
24,548

 
35.0
%
 
115,555

 
80,982

 
96,692

 
19.5
%
 
 
Other property income
 
3,095

 
3,374

 
1,919

 
61.3
%
 
10,982

 
9,685

 
9,166

 
19.8
%
 
 
Total operating revenues
 
220,235

 
190,842

 
195,908

 
12.4
%
 
837,454

 
747,298

 
757,323

 
10.6
%
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
Property expenses
 
42,044

 
34,386

 
38,423

 
9.4
%
 
160,037

 
133,787

 
149,497

 
7.1
%
 
 
Real estate taxes
 
21,534

 
18,399

 
17,952

 
20.0
%
 
78,097

 
70,820

 
68,980

 
13.2
%
 
 
Provision for bad debts
 

 
(1,029
)
 

 
%
 

 
5,685

 

 
%
 
 
Ground leases
 
1,978

 
1,450

 
1,897

 
4.3
%
 
8,113

 
6,176

 
8,016

 
1.2
%
 
 
Total operating expenses
 
65,556

 
53,206

 
58,272

 
12.5
%
 
246,247

 
216,468

 
226,493

 
8.7
%
 
 
Net Operating Income
 
$
154,679

 
$
137,636

 
$
137,636

 
12.4
%
 
$
591,207

 
$
530,830

 
$
530,830

 
11.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
________________________
(1)
Please refer to page 32 for Management Statements on Net Operating Income and page 37 for a reconciliation of GAAP Net Income Available to Common Stockholders to Net Operating Income.
(2)
Effective January 1, 2019, the Company adopted ASC 842 “Leases,” which required the following changes for all periods beginning and subsequent to January 1, 2019. In accordance with the adoption of the new standard under the modified retrospective method, previously reported periods are not restated for the impact of the standard.
- All lease related revenue required to be reported as a single component within rental income. For the three months ended December 31, 2019, rental income includes $33.1 million of tenant reimbursements and $0.4 million of gross lease termination fees. For the year ended December 31, 2019, rental income includes $115.6 million of tenant reimbursements and $10.9 million of gross lease termination fees. For this analysis, tenant reimbursements have been broken out from rental income for comparison purposes.
- Rental income to be presented net of provision for bad debts. For the three months and year ended December 31, 2019, rental income includes provision for bad debts of $0.3 million and a recovery of provision for bad debts of $2.9 million, respectively.
- All property expenses paid directly by the Company and reimbursed by the tenant to be presented on a gross basis. For the three months and year ended December 31, 2019, rental income and property expenses both include $3.8 million and $13.9 million, respectively, of additional tenant reimbursements and the related property expenses, which were previously shown net in property expenses in prior periods. This change has no impact to net income, Net Operating Income or Funds From Operations.
- Non-tenant parking income to be presented in other property income instead of rental income since recognized under ASC 606 “Revenue from Contracts with Customers” and outside the scope of ASC 842 “Leases.”
- Real estate taxes for properties where the Company is a lessee under ground leases to be presented in ground leases instead of real estate taxes. For the three months and year ended December 31, 2019, ground leases includes $0.5 million and $1.9 million, respectively, of property taxes for properties where the Company is a lessee.
(3)
The components of Net Operating Income for the three months and year ended December 31, 2018 have been presented as if we adopted ASC 842 “Leases” effective January 1, 2018 for comparison purposes. For this analysis, tenant reimbursements have been broken out from rental income for comparison purposes. For the three months and year ended December 31, 2018 as adjusted, rental income includes $3.0 million and $7.3 million, respectively, of lease termination fees.


10

Kilroy Realty Corporation
Fourth Quarter 2019 Supplemental Financial Report


Same Store Analysis (1) 
(unaudited, $ in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended December 31,
 
Year Ended December 31,
 
 
 
 
2019
 
2018
 
2018 As Adjusted (2)
 
% Change
2019 vs. 2018
As Adjusted
 
2019
 
2018
 
2018 As Adjusted (2)
 
% Change
2019 vs. 2018
As Adjusted
 
 
Total Same Store Portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Office Portfolio
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of properties
 
88

 
88

 
88

 
 
 
88

 
88

 
88

 
 
 
 
Square Feet
 
12,673,967

 
12,673,967

 
12,673,967

 
 
 
12,673,967

 
12,673,967

 
12,673,967

 
 
 
 
Percent of Stabilized Portfolio
 
94.0
%
 
95.8
%
 
95.8
%
 
 
 
94.0
%
 
95.8
%
 
95.8
%
 
 
 
 
Average Occupancy
 
93.6
%
 
94.5
%
 
94.5
%
 
 
 
93.7
%
 
94.3
%
 
94.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Revenues: (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Rental income 
 
$
159,873

 
$
152,350

 
$
154,531

 
3.5
 %
 
$
633,758

 
$
610,363

 
$
605,057

 
4.7
 %
 
 
Tenant reimbursements
 
23,398

 
18,332

 
22,025

 
6.2
 %
 
93,814

 
73,083

 
87,411

 
7.3
 %
 
 
Other property income
 
2,345

 
3,163

 
1,870

 
25.4
 %
 
9,051

 
9,241

 
8,886

 
1.9
 %
 
 
Total operating revenues
 
185,616

 
173,845

 
178,426

 
4.0
 %
 
736,623

 
692,687

 
701,354

 
5.0
 %
 
 
Operating Expenses: (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property expenses
 
36,653

 
31,428

 
35,121

 
4.4
 %