Exhibit 99.1
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
| Page | |
| Corporate Data and Financial Highlights | |
| 1 | |
| Executive Summary | 2 |
| Financial Highlights | 3 |
| 4 | |
| 5 | |
| 6 | |
| 7 | |
| Portfolio Data | |
| 8 | |
Stabilized Portfolio Occupancy Overview by Region | 9-13 |
| Information on Leases Commenced & Leases Executed | 14 |
Stabilized Portfolio Capital Expenditures | 15 |
Stabilized Portfolio Lease Expirations | 16-18 |
| Top Fifteen Tenants | 19 |
| 2013 Operating Property Acquisitions | 20 |
| 2013 Dispositions | 21 |
| Development | |
| In-Process Redevelopment Projects and Other Land Holdings | 22 |
| In-Process and Future Development Pipeline | 23 |
| Debt and Capitalization Data | |
| 24 | |
| 25-26 | |
| 27-28 | |
| Definitions | 29-30 |
| Reconciliations | 31-33 |
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 maturity, 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 in forward-looking statements, and you should not rely on forward-looking statements as predictions of future performance, results or events. Numerous factors could cause actual future performance, results and events to differ materially from those indicated in forward-looking statements, including, among others, risks associated with: investment in real estate assets, which are illiquid; trends in the real estate industry; significant competition, which may decrease the occupancy and rental rates of properties; the ability to successfully complete acquisitions and dispositions on announced terms; the ability to successfully operate acquired properties; the availability of cash for distribution and debt service and exposure of risk of default under debt obligations; adverse changes to, or implementations of, applicable laws, regulations or legislation; and the ability to successfully complete development and redevelopment projects on schedule and within budgeted amounts. These factors are not exhaustive. For a discussion of additional factors that could materially adversely affect 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, 2012, and it's other filings with the Securities and Exchange Commission. All forward-looking statements are based on information that was available and speak only as of the date on which they are made. 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 required in connection with ongoing requirements under U.S. securities laws.
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Company Background
Kilroy Realty Corporation (NYSE: KRC), a member of the S&P MidCap 400 Index, is a real estate investment trust active in premier office submarkets along the West Coast. The Company owns, develops, acquires and manages real estate assets primarily in the coastal regions of Los Angeles, Orange County, San Diego County, the San Francisco Bay Area and greater Seattle. As of June 30, 2013, the Company's stabilized portfolio consisted of 115 office buildings, which encompassed an aggregate of 13.5 million rentable square feet and was 90.7% occupied.
| Board of Directors | Senior Management | Investor Relations | |||
| John Kilroy, Jr. | Chairman | John Kilroy, Jr. | President and CEO | 12200 W. Olympic Blvd., Suite 200 Los Angeles, CA 90064 (310) 481-8400 Web: www.kilroyrealty.com E-mail: investorrelations@kilroyrealty.com | |
| Edward F. Brennan, Ph.D. | Jeffrey C. Hawken | Executive VP and COO | |||
| William P. Dickey | Eli Khouri | Executive VP and CIO | |||
| Scott S. Ingraham | Tyler H. Rose | Executive VP and CFO | |||
| Dale F. Kinsella | David Simon | Executive VP | |||
| Justin W. Smart | Executive VP, Development and Construction Services | ||||
| John T. Fucci | Sr. VP, Asset Management | ||||
| Heidi R. Roth | Sr. VP, CAO and Controller | ||||
| Steve Scott | Sr. VP, San Diego | ||||
| Equity Research Coverage | ||||
| Bank of America Merrill Lynch | J.P. Morgan | |||
| James Feldman | (646) 855-5808 | Anthony Paolone | (212) 622-6682 | |
| Cantor Fitzgerald & Company | KeyBanc Capital Markets | |||
| Evan Smith | (212) 915-1220 | Craig Mailman | (917) 368-2316 | |
| Citigroup Investment Research | Morgan Stanley | |||
| Michael Bilerman | (212) 816-1383 | Vance Edelson | (212) 761-0078 | |
| Cowen and Company | RBC Capital Markets | |||
| James Sullivan | (646) 562-1380 | Richard Moore | (440) 715-2646 | |
| Deutsche Bank Securities, Inc. | Robert W. Baird & Co. | |||
| Vincent Chao | (212) 250-6799 | David B. Rodgers | (216) 737-7341 | |
| Green Street Advisors | Stifel, Nicolaus & Company | |||
| Michael Knott | (949) 640-8780 | John W. Guinee III | (443) 224-1307 | |
| ISI Group | UBS Investment Research | |||
| George Auerbach | (212) 446-9462 | Ross T. Nussbaum | (212) 713-2484 | |
| JMP Securities | Wells Fargo | |||
| Mitch Germain | (212) 906-3546 | Brendan Maiorana | (443) 263-6516 | |
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
Second Quarter 2013 Supplemental Financial Report
Executive Summary
| Quarterly Financial Highlights | Quarterly Operating Highlights | |
| • FFO per share of $0.69, which includes the receipt of a $0.07 per | • Quarter-end occupancy of 90.7% | |
| share cash payment related to a property damage settlement | • 673,265 square feet of leases commenced during the quarter | |
| • Net income available to common stockholders per share of $0.08 | • 557,674 square feet of leases executed during the quarter | |
| • Revenues from continuing operations of $124.5 million | • Executed early renewal of lease with Delta Dental of California at | |
| • Same-store GAAP net operating income ("NOI") increased 6.8%; | 100 First Street in San Francisco for approximately 188,000 | |
| adjusted for one-time items GAAP NOI decreased 1.3% | square feet | |
| • Same-store cash NOI increased 12.8%; adjusted for | • Executed early renewal of lease with Microsoft Corporation at | |
| one-time items cash NOI increased 3.7% | 320 Westlake Avenue North in Seattle for approximately | |
| 94,000 square feet | ||
| Capital Markets Highlights | Strategic Highlights | |
| • Raised $19.4 million of equity through the at-the-market stock | • Entered into a joint venture as the first phase of the planned | |
| offering program | Redwood Towers office development in Redwood City, CA; | |
| Received unanimous approval from the city council of Redwood | ||
| • Ended the quarter with no outstanding balance on the line of credit | City for the office project development and the sale of the | |
| and $107.8 million of unrestricted cash on hand | remainder of the land to the joint venture | |
| • Completed the sale of 26541 Agoura Road in the 101 | ||
| Corridor submarket of Los Angeles for gross proceeds of $14.7 | ||
| million, resulting in a $0.4 million gain on sale | ||
Note: Definitions for commonly used terms in this Supplemental Financial Report are on pages 29 through 30 'Definitions Included in Supplemental'.
2
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Financial Highlights
(unaudited, $ in thousands, except per share amounts)
| Three Months Ended | ||||||||||||||||||||||
6/30/2013 (1)(2) | 3/31/2013 | 12/31/2012 (2)(3) | 9/30/2012 (4) | 6/30/2012 | ||||||||||||||||||
| INCOME ITEMS (Including Discontinued Operations): | ||||||||||||||||||||||
| Revenues | $ | 124,478 | $ | 117,497 | $ | 115,763 | $ | 111,375 | $ | 103,922 | ||||||||||||
| Lease Termination Fees | 23 | 15 | 350 | 261 | 401 | |||||||||||||||||
| Net Operating Income | 88,418 | 82,445 | 82,725 | 77,603 | 73,230 | |||||||||||||||||
| Acquisition-related Costs | 164 | 655 | 1,040 | 556 | 1,813 | |||||||||||||||||
| Capitalized Interest and Debt Costs | 8,480 | 7,732 | 6,638 | 4,989 | 4,334 | |||||||||||||||||
| Net Income (Loss) Available to Common Stockholders | 6,633 | (903 | ) | 185,838 | (2,753 | ) | (800 | ) | ||||||||||||||
| EBITDA | 78,418 | 72,513 | 72,387 | 68,650 | 62,056 | |||||||||||||||||
Funds From Operations (5)(6) | 55,154 | 49,086 | 49,816 | 43,142 | 39,508 | |||||||||||||||||
Funds Available for Distribution (5)(6) | 29,465 | 28,103 | 29,523 | 32,366 | 21,099 | |||||||||||||||||
| Net Income (Loss) Available to Common Stockholders per common share - diluted | $ | 0.08 | $ | (0.02 | ) | $ | 2.45 | $ | (0.04 | ) | $ | (0.02 | ) | |||||||||
| Funds From Operations per common share - diluted | $ | 0.69 | $ | 0.62 | $ | 0.63 | $ | 0.57 | $ | 0.55 | ||||||||||||
| Dividends per common share | $ | 0.35 | $ | 0.35 | $ | 0.35 | $ | 0.35 | $ | 0.35 | ||||||||||||
| RATIOS (Including Discontinued Operations): | ||||||||||||||||||||||
| Operating Margins | 71.0 | % | 70.2 | % | 71.5 | % | 69.7 | % | 70.5 | % | ||||||||||||
| Interest Coverage Ratio | 3.0x | 2.8x | 3.0x | 3.0x | 3.0x | |||||||||||||||||
| Fixed Charge Coverage Ratio | 2.7x | 2.5x | 2.7x | 2.6x | 2.6x | |||||||||||||||||
| FFO Payout Ratio | 49.2 | % | 55.0 | % | 53.9 | % | 62.1 | % | 62.6 | % | ||||||||||||
| FAD Payout Ratio | 92.1 | % | 96.1 | % | 91.0 | % | 82.7 | % | 117.2 | % | ||||||||||||
| 6/30/2013 | 3/31/2013 | 12/31/2012 | 9/30/2012 | 6/30/2012 | ||||||||||||||||||
| ASSETS: | ||||||||||||||||||||||
| Real Estate Held for Investment before Depreciation | $ | 5,096,910 | $ | 5,016,590 | $ | 4,757,394 | $ | 4,399,353 | $ | 4,271,755 | ||||||||||||
| Total Assets | 4,775,522 | 4,755,287 | 4,616,084 | 4,215,841 | 3,847,522 | |||||||||||||||||
| CAPITALIZATION: | ||||||||||||||||||||||
| Total Debt | $ | 2,157,828 | $ | 2,158,386 | $ | 2,044,419 | $ | 1,847,439 | $ | 1,786,276 | ||||||||||||
| Total Preferred Equity and Noncontrolling Interests | 200,000 | 200,000 | 200,000 | 200,000 | 175,000 | |||||||||||||||||
| Total Common Equity and Noncontrolling Interests | 4,109,993 | 4,044,034 | 3,635,812 | 3,426,541 | 3,419,966 | |||||||||||||||||
| Total Market Capitalization | 6,467,821 | 6,402,420 | 5,880,231 | 5,473,980 | 5,381,242 | |||||||||||||||||
| Total Debt / Total Market Capitalization | 33.3 | % | 33.7 | % | 34.7 | % | 33.7 | % | 33.0 | % | ||||||||||||
| Total Debt and Preferred / Total Market Capitalization | 36.3 | % | 36.9 | % | 38.1 | % | 37.3 | % | 36.3 | % | ||||||||||||
Note: Definitions for commonly used terms in this Supplemental Financial Report are on pages 29 through 30 'Definitions Included in Supplemental'.
| (1) | Results for the three months ended June 30, 2013 include the receipt of a $5.2 million cash payment related to a property damage settlement. |
| (2) | Net Income (Loss) Available to Common Stockholders includes a net gain on dispositions of discontinued operations of $0.4 million and $186.4 million for the three months ended June 30, 2013 and December 31, 2012, respectively. |
| (3) | Results for the three months ended December 31, 2012 include the receipt of a $0.9 million cash payment related to a 2009 tenant default. |
| (4) | Results for the three months ended September 30, 2012 include a non-cash charge of $2.1 million related to the original issuance costs of the Series A Preferred Units that were redeemed on August 15, 2012. |
| (5) | Please refer to page 7 for a reconciliation of GAAP Net Income (Loss) Available to Common Stockholders to Funds From Operations and Funds Available for Distribution. |
| (6) | Reported amounts are attributable to common stockholders and common unitholders. |
3
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Common Stock Data (NYSE: KRC)
| Three Months Ended | ||||||||||||||||||||||||||
| 6/30/2013 | 3/31/2013 | 12/31/2012 | 9/30/2012 | 6/30/2012 | 3/31/2012 | |||||||||||||||||||||
| High Price | $ | 59.58 | $ | 53.99 | $ | 47.52 | $ | 49.88 | $ | 48.58 | $ | 46.61 | ||||||||||||||
| Low Price | $ | 50.11 | $ | 47.86 | $ | 42.47 | $ | 44.78 | $ | 44.84 | $ | 37.92 | ||||||||||||||
| Closing Price | $ | 53.01 | $ | 52.40 | $ | 47.37 | $ | 44.78 | $ | 48.41 | $ | 46.61 | ||||||||||||||
| Dividends per share - annualized | $ | 1.40 | $ | 1.40 | $ | 1.40 | $ | 1.40 | $ | 1.40 | $ | 1.40 | ||||||||||||||
Closing common shares (in 000's) (1)(2) | 75,711 | 75,350 | 74,927 | 74,693 | 68,928 | 68,350 | ||||||||||||||||||||
Closing common partnership units (in 000's) (1) | 1,822 | 1,827 | 1,827 | 1,827 | 1,718 | 1,718 | ||||||||||||||||||||
| 77,533 | 77,177 | 76,754 | 76,520 | 70,646 | 70,068 | |||||||||||||||||||||
| (1) | As of the end of the period. |
| (2) | In the second quarter of 2013, the Company issued 360,729 common shares under its at-the-market stock offering program at a weighted average price of $54.93 |
per share before selling commissions.
4
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Consolidated Balance Sheets
(unaudited, $ in thousands)
| 6/30/2013 | 3/31/2013 | 12/31/2012 | 9/30/2012 | 6/30/2012 | |||||||||||||||||
| ASSETS: | |||||||||||||||||||||
| Land and improvements | $ | 635,874 | $ | 637,854 | $ | 612,714 | $ | 562,071 | $ | 576,433 | |||||||||||
| Buildings and improvements | 3,652,102 | 3,631,057 | 3,335,026 | 3,169,224 | 3,137,665 | ||||||||||||||||
| Undeveloped land and construction in progress | 808,934 | 747,679 | 809,654 | 668,058 | 557,657 | ||||||||||||||||
| Total real estate held for investment | 5,096,910 | 5,016,590 | 4,757,394 | 4,399,353 | 4,271,755 | ||||||||||||||||
| Accumulated depreciation and amortization | (815,961 | ) | (790,878 | ) | (756,515 | ) | (725,728 | ) | (801,083 | ) | |||||||||||
| Total real estate held for investment, net | 4,280,949 | 4,225,712 | 4,000,879 | 3,673,625 | 3,470,672 | ||||||||||||||||
| Real estate assets and other assets held for sale, net | — | — | — | 166,019 | — | ||||||||||||||||
| Cash and cash equivalents | 107,823 | 135,676 | 16,700 | 16,113 | 18,111 | ||||||||||||||||
| Restricted cash | 19,241 | 19,465 | 247,544 | 5,884 | 97 | ||||||||||||||||
| Marketable securities | 8,286 | 8,029 | 7,435 | 6,812 | 6,546 | ||||||||||||||||
| Current receivables, net | 10,515 | 10,666 | 9,220 | 7,113 | 7,643 | ||||||||||||||||
| Deferred rent receivables, net | 124,815 | 122,142 | 115,418 | 110,128 | 110,689 | ||||||||||||||||
| Deferred leasing costs and acquisition-related intangible assets, net | 188,702 | 196,525 | 189,968 | 187,307 | 168,488 | ||||||||||||||||
| Deferred financing costs, net | 19,115 | 20,501 | 18,971 | 18,442 | 18,919 | ||||||||||||||||
| Prepaid expenses and other assets, net | 16,076 | 16,571 | 9,949 | 24,398 | 46,357 | ||||||||||||||||
| TOTAL ASSETS | $ | 4,775,522 | $ | 4,755,287 | $ | 4,616,084 | $ | 4,215,841 | $ | 3,847,522 | |||||||||||
| LIABILITIES, NONCONTROLLING INTEREST AND EQUITY: | |||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||
| Secured debt | $ | 569,042 | $ | 570,676 | $ | 561,096 | $ | 520,867 | $ | 381,097 | |||||||||||
| Exchangeable senior notes, net | 166,119 | 165,022 | 163,944 | 162,885 | 161,844 | ||||||||||||||||
| Unsecured debt, net | 1,430,964 | 1,430,880 | 1,130,895 | 1,130,814 | 1,130,732 | ||||||||||||||||
| Unsecured line of credit | — | — | 185,000 | 27,000 | 102,000 | ||||||||||||||||
| Accounts payable, accrued expenses and other liabilities | 184,821 | 171,694 | 154,734 | 127,472 | 98,940 | ||||||||||||||||
| Accrued distributions | 29,236 | 29,106 | 28,924 | 28,845 | 25,975 | ||||||||||||||||
| Deferred revenue and acquisition-related intangible liabilities, net | 117,301 | 118,118 | 117,904 | 120,407 | 108,462 | ||||||||||||||||
| Rents received in advance and tenant security deposits | 39,660 | 37,251 | 37,654 | 31,728 | 31,768 | ||||||||||||||||
| Liabilities and deferred revenue of real estate assets held for sale | — | — | — | 4,455 | — | ||||||||||||||||
| Total liabilities | 2,537,143 | 2,522,747 | 2,380,151 | 2,154,473 | 2,040,818 | ||||||||||||||||
| Noncontrolling Interest: | |||||||||||||||||||||
| 7.45% Series A Cumulative Redeemable Preferred units of the Operating Partnership | — | — | — | — | 73,638 | ||||||||||||||||
| Equity: | |||||||||||||||||||||
| Stockholders' Equity | |||||||||||||||||||||
| 6.875% Series G Cumulative Redeemable Preferred stock | 96,155 | 96,155 | 96,155 | 96,155 | 96,155 | ||||||||||||||||
| 6.375% Series H Cumulative Redeemable Preferred stock | 96,256 | 96,256 | 96,256 | 96,256 | — | ||||||||||||||||
| Common stock | 757 | 753 | 749 | 747 | 689 | ||||||||||||||||
| Additional paid-in capital | 2,170,667 | 2,149,052 | 2,126,005 | 2,114,774 | 1,856,431 | ||||||||||||||||
| Distributions in excess of earnings | (177,484 | ) | (157,211 | ) | (129,535 | ) | (288,765 | ) | (259,495 | ) | |||||||||||
| Total stockholders' equity | 2,186,351 | 2,185,005 | 2,189,630 | 2,019,167 | 1,693,780 | ||||||||||||||||
| Noncontrolling Interests | |||||||||||||||||||||
| Common units of the Operating Partnership | 47,143 | 47,535 | 46,303 | 42,201 | 39,286 | ||||||||||||||||
| Noncontrolling interest in consolidated subsidiary | 4,885 | — | — | — | — | ||||||||||||||||
| Total noncontrolling interests | 52,028 | 47,535 | 46,303 | 42,201 | 39,286 | ||||||||||||||||
| Total equity | 2,238,379 | 2,232,540 | 2,235,933 | 2,061,368 | 1,733,066 | ||||||||||||||||
| TOTAL LIABILITIES, NONCONTROLLING INTEREST AND EQUITY | $ | 4,775,522 | $ | 4,755,287 | $ | 4,616,084 | $ | 4,215,841 | $ | 3,847,522 | |||||||||||
5
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Consolidated Statements of Operations
(unaudited, $ in thousands, except per share amounts)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||||
| REVENUES: | ||||||||||||||||||
| Rental income | $ | 108,342 | $ | 88,474 | $ | 215,722 | $ | 172,823 | ||||||||||
| Tenant reimbursements | 10,399 | 8,102 | 20,286 | 15,282 | ||||||||||||||
| Other property income | 5,737 | 535 | 5,967 | 1,403 | ||||||||||||||
| Total revenues | 124,478 | 97,111 | 241,975 | 189,508 | ||||||||||||||
| EXPENSES: | ||||||||||||||||||
| Property expenses | 24,732 | 19,906 | 48,505 | 36,038 | ||||||||||||||
| Real estate taxes | 10,439 | 8,160 | 20,776 | 15,825 | ||||||||||||||
| Provision for bad debts | — | — | 95 | 2 | ||||||||||||||
| Ground leases | 889 | 615 | 1,736 | 1,422 | ||||||||||||||
| General and administrative expenses | 9,855 | 9,251 | 19,524 | 18,018 | ||||||||||||||
| Acquisition-related expenses | 164 | 1,813 | 819 | 3,341 | ||||||||||||||
| Depreciation and amortization | 49,304 | 38,065 | 99,695 | 72,717 | ||||||||||||||
| Total expenses | 95,383 | 77,810 | 191,150 | 147,363 | ||||||||||||||
| OTHER (EXPENSES) INCOME: | ||||||||||||||||||
| Interest income and other net investment gains (losses) | 19 | (110 | ) | 411 | 374 | |||||||||||||
| Interest expense | (19,434 | ) | (19,155 | ) | (39,168 | ) | (40,318 | ) | ||||||||||
| Total other (expenses) income | (19,415 | ) | (19,265 | ) | (38,757 | ) | (39,944 | ) | ||||||||||
| INCOME FROM CONTINUING OPERATIONS | 9,680 | 36 | 12,068 | 2,201 | ||||||||||||||
| DISCONTINUED OPERATIONS: | ||||||||||||||||||
| Income from discontinued operations | — | 2,241 | — | 5,938 | ||||||||||||||
| Net gain on dispositions of discontinued operations | 423 | — | 423 | 72,809 | ||||||||||||||
| Total income from discontinued operations | 423 | 2,241 | 423 | 78,747 | ||||||||||||||
| NET INCOME | 10,103 | 2,277 | 12,491 | 80,948 | ||||||||||||||
| Net (income) loss attributable to noncontrolling common units of the Operating Partnership | (157 | ) | 20 | (135 | ) | (1,775 | ) | |||||||||||
| NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION | 9,946 | 2,297 | 12,356 | 79,173 | ||||||||||||||
| PREFERRED DISTRIBUTIONS AND DIVIDENDS: | ||||||||||||||||||
| Distributions on noncontrolling cumulative redeemable preferred units of the Operating Partnership | — | (1,397 | ) | — | (2,794 | ) | ||||||||||||
| Preferred dividends | (3,313 | ) | (1,700 | ) | (6,626 | ) | (4,721 | ) | ||||||||||
| Original issuance costs of redeemed preferred stock | — | — | — | (4,918 | ) | |||||||||||||
| Total preferred distributions and dividends | (3,313 | ) | (3,097 | ) | (6,626 | ) | (12,433 | ) | ||||||||||
| NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS | $ | 6,633 | $ | (800 | ) | $ | 5,730 | $ | 66,740 | |||||||||
| Weighted average common shares outstanding - basic | 75,486 | 68,345 | 75,233 | 65,997 | ||||||||||||||
| Weighted average common shares outstanding - diluted | 77,454 | 68,345 | 77,059 | 65,997 | ||||||||||||||
| NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS PER SHARE | ||||||||||||||||||
| Net income (loss) available to common stockholders per share - basic | $ | 0.08 | $ | (0.02 | ) | $ | 0.06 | $ | 1.00 | |||||||||
| Net income (loss) available to common stockholders per share - diluted | $ | 0.08 | $ | (0.02 | ) | $ | 0.06 | $ | 1.00 | |||||||||
6
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Funds From Operations and Funds Available for Distribution
(unaudited, $ in thousands, except per share amounts)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||||
FUNDS FROM OPERATIONS: (1) | ||||||||||||||||||
| Net income (loss) available to common stockholders | $ | 6,633 | $ | (800 | ) | $ | 5,730 | $ | 66,740 | |||||||||
| Adjustments: | ||||||||||||||||||
| Net income (loss) attributable to noncontrolling common units of the Operating Partnership | 157 | (20 | ) | 135 | 1,775 | |||||||||||||
| Depreciation and amortization of real estate assets | 48,787 | 40,328 | 98,798 | 76,792 | ||||||||||||||
| Net gain on dispositions of discontinued operations | (423 | ) | — | (423 | ) | (72,809 | ) | |||||||||||
Funds From Operations (2)(3) | $ | 55,154 | $ | 39,508 | $ | 104,240 | $ | 72,498 | ||||||||||
Weighted average common shares/units outstanding - basic (4) | 78,518 | 71,226 | 78,282 | 68,799 | ||||||||||||||
Weighted average common shares/units outstanding - diluted (4) | 80,485 | 72,473 | 80,107 | 69,815 | ||||||||||||||
FFO per common share/unit - basic (2) | $ | 0.70 | $ | 0.55 | $ | 1.33 | $ | 1.05 | ||||||||||
FFO per common share/unit - diluted (2) | $ | 0.69 | $ | 0.55 | $ | 1.30 | $ | 1.04 | ||||||||||
FUNDS AVAILABLE FOR DISTRIBUTION: (1) | ||||||||||||||||||
Funds From Operations (2) | $ | 55,154 | $ | 39,508 | $ | 104,240 | $ | 72,498 | ||||||||||
| Adjustments: | ||||||||||||||||||
| Tenant improvements, leasing commissions and recurring capital expenditures | (19,029 | ) | (13,179 | ) | (33,479 | ) | (20,187 | ) | ||||||||||
Amortization of deferred revenue related to tenant-funded tenant improvements (3)(5) | (2,517 | ) | (2,204 | ) | (4,959 | ) | (4,465 | ) | ||||||||||
| Net effect of straight-line rents | (5,361 | ) | (5,088 | ) | (12,085 | ) | (10,575 | ) | ||||||||||
Amortization of other deferred revenue, net (6) | 354 | 137 | 1,787 | 544 | ||||||||||||||
Amortization of net below market rents (7) | (2,030 | ) | (2,064 | ) | (4,077 | ) | (2,589 | ) | ||||||||||
Noncash amortization of exchangeable debt discount, net (8) | 711 | 883 | 1,434 | 2,288 | ||||||||||||||
| Amortization of deferred financing costs and net debt discounts/(premiums) | 138 | 974 | 429 | 2,066 | ||||||||||||||
| Noncash amortization of share-based compensation awards | 2,045 | 2,132 | 4,280 | 3,419 | ||||||||||||||
| Original issuance costs of redeemed preferred stock | — | — | — | 4,918 | ||||||||||||||
Funds Available for Distribution (1) | $ | 29,465 | $ | 21,099 | $ | 57,570 | $ | 47,917 | ||||||||||
| (1) | See page 27 for Management Statements on Funds From Operation and Funds Available for Distribution. |
| (2) | Reported amounts are attributable to common shareholders and unitholders. |
| (3) | FFO includes amortization of deferred revenue related to tenant-funded tenant improvements of $2.5 million and $2.2 million for the three months ended June 30, 2013 and 2012 respectively, and $5.0 million and $4.5 million for the six months ended June 30, 2013 and 2012 respectively. These amounts are adjusted out of FFO in our calculation of FAD. |
| (4) | Calculated based on weighted average shares outstanding including participating share-based awards (i.e. nonvested stock and time based restricted stock units), dilutive impact of stock options and contingently issuable shares 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 amortization of deferred revenue related to cash received prior to or during the revenue recognition period in connection with tenants' contractual lease obligations, net of such amounts received. |
| (7) | Represents the non-cash adjustment related to the acquisition of buildings with above and/or below market rents. |
| (8) | Represents the amortization of the noncash debt discounts on the Company's exchangeable senior notes, net of amounts capitalized. |
7
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
(unaudited, $ in thousands)
Same Store Analysis (GAAP Basis) (1) | ||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||
| 2013 | 2012 | % Change | 2013 | 2012 | % Change | |||||||||||||||||||
| Total Same Store Portfolio | ||||||||||||||||||||||||
| Number of properties | 97 | 97 | 97 | 97 | ||||||||||||||||||||
| Square Feet | 10,988,744 | 10,988,744 | 10,988,744 | 10,988,744 | ||||||||||||||||||||
| Percent of Stabilized Portfolio | 81.5 | % | 92.5 | % | 81.5 | % | 92.5 | % | ||||||||||||||||
| Average Occupancy | 89.8 | % | 91.5 | % | 90.2 | % | 92.0 | % | ||||||||||||||||
| Operating Revenues: | ||||||||||||||||||||||||
| Rental income | $ | 83,311 | $ | 83,370 | (0.1 | )% | $ | 166,994 | $ | 165,568 | 0.9 | % | ||||||||||||
| Tenant reimbursements | 7,578 | 7,219 | 5.0 | % | 14,797 | 14,076 | 5.1 | % | ||||||||||||||||
Other property income (2) | 5,558 | 302 | 1,740.4 | % | 5,648 | 1,168 | 383.6 | % | ||||||||||||||||
| Total operating revenues | 96,447 | 90,891 | 6.1 | % | 187,439 | 180,812 | 3.7 | % | ||||||||||||||||
| Operating Expenses: | ||||||||||||||||||||||||
| Property expenses | 19,308 | 18,488 | 4.4 | % | 37,853 | 34,130 | 10.9 | % | ||||||||||||||||
| Real estate taxes | 7,758 | 7,435 | 4.3 | % | 15,714 | 14,654 | 7.2 | % | ||||||||||||||||
| Provision for bad debts | — | — | — | % | 95 | 2 | 4,650.0 | % | ||||||||||||||||
| Ground leases | 418 | 417 | 0.2 | % | 835 | 835 | 0.0 | % | ||||||||||||||||
| Total operating expenses | 27,484 | 26,340 | 4.3 | % | 54,497 | 49,621 | 9.8 | % | ||||||||||||||||
| GAAP Net Operating Income | $ | 68,963 | $ | 64,551 | 6.8 | % | $ | 132,942 | $ | 131,191 | 1.3 | % | ||||||||||||
Same Store Analysis (Cash Basis) (1) | ||||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||
| 2013 | 2012 | % Change | 2013 | 2012 | % Change | |||||||||||||||||||
| Total operating revenues | $ | 92,019 | $ | 83,501 | 10.2 | % | $ | 177,888 | $ | 166,617 | 6.8 | % | ||||||||||||
| Total operating expenses | 27,516 | 26,340 | 4.5 | % | 54,434 | 49,619 | 9.7 | % | ||||||||||||||||
| Cash Net Operating Income | $ | 64,503 | $ | 57,161 | 12.8 | % | $ | 123,454 | $ | 116,998 | 5.5 | % | ||||||||||||
| (1) | Please refer to page 31 for a reconciliation of the Same Store measures on this page to Net Income (Loss) Available to Common Stockholders. |
| (2) | Other property income for the three and six months ended June 30, 2013 includes a $5.2 million cash receipt related to a property damage settlement. Other property income for the six months ended June 30, 2012 includes a $0.7 million cash receipt related to a property damage settlement. |
8
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Stabilized Portfolio Occupancy Overview by Region
| Portfolio Breakdown | Occupied at | Leased at | |||||||||||||||||||
| Buildings | YTD NOI % | SF % | Total SF | 6/30/2013 | 12/31/2012 | 6/30/2013 | |||||||||||||||
| Los Angeles and Ventura Counties | |||||||||||||||||||||
| 101 Corridor | 4 | 1.6 | % | 2.2 | % | 295,712 | 90.7 | % | 89.6 | % | 92.1 | % | |||||||||
| El Segundo | 5 | 7.8 | % | 8.1 | % | 1,090,525 | 97.8 | % | 97.1 | % | 98.1 | % | |||||||||
| Hollywood | 1 | 1.9 | % | 2.4 | % | 321,883 | 79.9 | % | 85.2 | % | 81.9 | % | |||||||||
| Long Beach | 6 | 4.6 | % | 6.3 | % | 850,822 | 96.0 | % | 95.1 | % | 96.0 | % | |||||||||
| West Los Angeles | 10 | 6.3 | % | 6.2 | % | 838,731 | 85.0 | % | 94.2 | % | 85.2 | % | |||||||||
| Total Los Angeles and Ventura Counties | 26 | 22.2 | % | 25.2 | % | 3,397,673 | 91.9 | % | 94.0 | % | 92.3 | % | |||||||||
| Total Orange County | 4 | 3.0 | % | 3.7 | % | 497,393 | 89.3 | % | 92.0 | % | 89.3 | % | |||||||||
| San Diego County | |||||||||||||||||||||
| Del Mar | 15 | 16.8 | % | 11.2 | % | 1,523,912 | 88.7 | % | 94.6 | % | 94.8 | % | |||||||||
| I-15 Corridor | 13 | 6.1 | % | 7.5 | % | 1,010,447 | 75.6 | % | 73.1 | % | 78.0 | % | |||||||||
| Mission Valley | 4 | 1.2 | % | 2.1 | % | 285,181 | 77.0 | % | 85.5 | % | 95.1 | % | |||||||||
| Point Loma | 1 | 0.9 | % | 0.8 | % | 103,900 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
| Sorrento Mesa | 21 | 12.5 | % | 14.4 | % | 1,937,721 | 95.3 | % | 95.3 | % | 99.6 | % | |||||||||
| University Towne Center | 5 | 1.7 | % | 2.9 | % | 387,933 | 81.1 | % | 100.0 | % | 81.1 | % | |||||||||
| Total San Diego County | 59 | 39.2 | % | 38.9 | % | 5,249,094 | 87.6 | % | 90.7 | % | 92.4 | % | |||||||||
| San Francisco Bay Area | |||||||||||||||||||||
| Menlo Park | 7 | 3.2 | % | 2.8 | % | 374,139 | 83.4 | % | 84.7 | % | 84.6 | % | |||||||||
| San Francisco | 5 | 14.8 | % | 12.6 | % | 1,706,808 | 92.8 | % | 97.5 | % | 95.6 | % | |||||||||
| San Rafael | 1 | 0.7 | % | 1.0 | % | 130,237 | 98.1 | % | 98.1 | % | 98.1 | % | |||||||||
| Sunnyvale | 1 | 0.4 | % | 0.6 | % | 75,810 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
| Total San Francisco Bay Area | 14 | 19.1 | % | 17.0 | % | 2,286,994 | 91.8 | % | 95.5 | % | 94.1 | % | |||||||||
| Greater Seattle | |||||||||||||||||||||
| Bellevue | 2 | 6.5 | % | 6.7 | % | 905,225 | 90.8 | % | 90.4 | % | 92.1 | % | |||||||||
| Kirkland | 4 | 2.2 | % | 2.1 | % | 279,924 | 99.3 | % | 90.0 | % | 99.3 | % | |||||||||
| Lake Union | 5 | 6.8 | % | 5.5 | % | 740,385 | 99.7 | % | 99.6 | % | 99.7 | % | |||||||||
| Redmond | 1 | 1.0 | % | 0.9 | % | 122,103 | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
| Total Greater Seattle | 12 | 16.5 | % | 15.2 | % | 2,047,637 | 95.7 | % | 93.3 | % | 96.3 | % | |||||||||
| TOTAL STABILIZED PORTFOLIO | 115 | 100.0 | % | 100.0 | % | 13,478,791 | 90.7 | % | 92.8 | % | 93.2 | % | |||||||||
| Average Occupancy | ||
| Quarter-to-Date | Year-to-Date | |
| 90.3% | 90.7% | |
9
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
| Submarket | Square Feet | Occupied | |||||
| Los Angeles and Ventura, California | |||||||
| 23925 Park Sorrento | 101 Corridor | 11,789 | 100.0 | % | |||
| 23975 Park Sorrento | 101 Corridor | 100,592 | 93.5 | % | |||
| 24025 Park Sorrento | 101 Corridor | 102,264 | 85.9 | % | |||
| 2829 Townsgate Road | 101 Corridor | 81,067 | 92.0 | % | |||
| 2240 E. Imperial Highway | El Segundo | 122,870 | 100.0 | % | |||
| 2250 E. Imperial Highway | El Segundo | 298,728 | 100.0 | % | |||
| 2260 E. Imperial Highway | El Segundo | 298,728 | 100.0 | % | |||
| 909 N. Sepulveda Boulevard | El Segundo | 241,607 | 92.5 | % | |||
| 999 N. Sepulveda Boulevard | El Segundo | 128,592 | 95.8 | % | |||
| 6255 W. Sunset Blvd. | Hollywood | 321,883 | 79.9 | % | |||
| 3750 Kilroy Airport Way | Long Beach | 10,457 | 86.1 | % | |||
| 3760 Kilroy Airport Way | Long Beach | 165,278 | 98.2 | % | |||
| 3780 Kilroy Airport Way | Long Beach | 219,745 | 92.2 | % | |||
| 3800 Kilroy Airport Way | Long Beach | 192,476 | 100.0 | % | |||
| 3840 Kilroy Airport Way | Long Beach | 136,026 | 100.0 | % | |||
| 3900 Kilroy Airport Way | Long Beach | 126,840 | 90.3 | % | |||
| 12100 W. Olympic Boulevard | West Los Angeles | 150,167 | 94.4 | % | |||
| 12200 W. Olympic Boulevard | West Los Angeles | 150,302 | 87.8 | % | |||
| 12233 W. Olympic Boulevard | West Los Angeles | 151,029 | 97.3 | % | |||
| 12312 W. Olympic Boulevard | West Los Angeles | 78,000 | 0.0 | % | |||
| 1633 26th Street | West Los Angeles | 44,915 | 100.0 | % | |||
| 2100/2110 Colorado Avenue | West Los Angeles | 102,864 | 100.0 | % | |||
| 3130 Wilshire Boulevard | West Los Angeles | 88,339 | 93.8 | % | |||
| 501 Santa Monica Boulevard | West Los Angeles | 73,115 | 84.9 | % | |||
| Total Los Angeles and Ventura Counties | 3,397,673 | 91.9 | % | ||||
| Orange County, California | |||||||
| 8101 Kaiser Boulevard | Anaheim | 59,790 | 55.1 | % | |||
| 2211 Michelson Drive | Irvine | 271,556 | 93.2 | % | |||
| 111 Pacifica | Irvine Spectrum | 67,496 | 88.4 | % | |||
| 999 Town & Country | Orange | 98,551 | 100.0 | % | |||
| Total Orange County | 497,393 | 89.3 | % | ||||
10
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
| Submarket | Square Feet | Occupied | |||||
| San Diego, California | |||||||
| 12225 El Camino Real | Del Mar | 58,401 | 100.0 | % | |||
| 12235 El Camino Real | Del Mar | 54,673 | 81.0 | % | |||
| 12340 El Camino Real | Del Mar | 87,405 | 86.9 | % | |||
| 12390 El Camino Real | Del Mar | 72,332 | 100.0 | % | |||
| 12348 High Bluff Drive | Del Mar | 38,710 | 68.5 | % | |||
| 12400 High Bluff Drive | Del Mar | 208,464 | 100.0 | % | |||
| 3579 Valley Center Drive | Del Mar | 51,167 | 92.7 | % | |||
| 3611 Valley Center Drive | Del Mar | 130,349 | 85.5 | % | |||
| 3661 Valley Center Drive | Del Mar | 129,752 | 99.4 | % | |||
| 3721 Valley Center Drive | Del Mar | 114,780 | 0.0 | % | |||
| 3811 Valley Center Drive | Del Mar | 112,067 | 100.0 | % | |||
| 7525 Torrey Santa Fe | Del Mar | 103,979 | 100.0 | % | |||
| 7535 Torrey Santa Fe | Del Mar | 130,243 | 100.0 | % | |||
| 7545 Torrey Santa Fe | Del Mar | 130,354 | 100.0 | % | |||
| 7555 Torrey Santa Fe | Del Mar | 101,236 | 100.0 | % | |||
| 15051 Avenue of Science | I-15 Corridor | 70,617 | 0.0 | % | |||
| 15073 Avenue of Science | I-15 Corridor | 46,759 | 0.0 | % | |||
| 15231 Avenue of Science | I-15 Corridor | 65,638 | 100.0 | % | |||
| 15253 Avenue of Science | I-15 Corridor | 37,437 | 100.0 | % | |||
| 15333 Avenue of Science | I-15 Corridor | 78,880 | 84.5 | % | |||
| 15378 Avenue of Science | I-15 Corridor | 68,791 | 62.3 | % | |||
| 15435 Innovation Drive | I-15 Corridor | 49,863 | 100.0 | % | |||
| 15445 Innovation Drive | I-15 Corridor | 51,500 | 100.0 | % | |||
| 13280 Evening Creek Drive South | I-15 Corridor | 41,197 | 36.7 | % | |||
| 13290 Evening Creek Drive South | I-15 Corridor | 61,176 | 0.0 | % | |||
| 13480 Evening Creek Drive North | I-15 Corridor | 149,817 | 100.0 | % | |||
| 13500 Evening Creek Drive North | I-15 Corridor | 147,533 | 100.0 | % | |||
| 13520 Evening Creek Drive North | I-15 Corridor | 141,239 | 97.6 | % | |||
| 2355 Northside Drive | Mission Valley | 53,610 | 87.4 | % | |||
| 2365 Northside Drive | Mission Valley | 91,260 | 86.8 | % | |||
| 2375 Northside Drive | Mission Valley | 51,516 | 49.6 | % | |||
| 2385 Northside Drive | Mission Valley | 88,795 | 76.5 | % | |||
11
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
| Submarket | Square Feet | Occupied | |||||
| San Diego, California (Continued) | |||||||
| 2305 Historic Decatur Road | Point Loma | 103,900 | 100.0 | % | |||
| 10020 Pacific Mesa Boulevard | Sorrento Mesa | 318,000 | 100.0 | % | |||
| 4910 Directors Place | Sorrento Mesa | 50,360 | 50.5 | % | |||
| 4921 Directors Place | Sorrento Mesa | 56,136 | 100.0 | % | |||
| 4939 Directors Place | Sorrento Mesa | 60,662 | 100.0 | % | |||
| 4955 Directors Place | Sorrento Mesa | 76,246 | 100.0 | % | |||
| 5010 Wateridge Vista Drive | Sorrento Mesa | 111,318 | 100.0 | % | |||
| 5005 Wateridge Vista Drive | Sorrento Mesa | 61,460 | 0.0 | % | |||
| 10770 Wateridge Circle | Sorrento Mesa | 174,310 | 97.5 | % | |||
| 6055 Lusk Avenue | Sorrento Mesa | 93,000 | 100.0 | % | |||
| 6260 Sequence Drive | Sorrento Mesa | 130,536 | 100.0 | % | |||
| 6290 Sequence Drive | Sorrento Mesa | 90,000 | 100.0 | % | |||
| 6310 Sequence Drive | Sorrento Mesa | 62,415 | 100.0 | % | |||
| 6340 Sequence Drive | Sorrento Mesa | 66,400 | 100.0 | % | |||
| 6350 Sequence Drive | Sorrento Mesa | 132,600 | 100.0 | % | |||
| 10390 Pacific Center Court | Sorrento Mesa | 68,400 | 100.0 | % | |||
| 10394 Pacific Center Court | Sorrento Mesa | 59,630 | 100.0 | % | |||
| 10398 Pacific Center Court | Sorrento Mesa | 43,645 | 100.0 | % | |||
| 10421 Pacific Center Court | Sorrento Mesa | 75,899 | 100.0 | % | |||
| 10445 Pacific Center Court | Sorrento Mesa | 48,709 | 100.0 | % | |||
| 10455 Pacific Center Court | Sorrento Mesa | 90,000 | 100.0 | % | |||
| 5717 Pacific Center Boulevard | Sorrento Mesa | 67,995 | 100.0 | % | |||
| 4690 Executive Drive | University Towne Center | 47,212 | 100.0 | % | |||
| 6200 Greenwich Drive | University Towne Center | 73,507 | 0.0 | % | |||
| 6220 Greenwich Drive | University Towne Center | 141,214 | 100.0 | % | |||
| 9785 Towne Center Drive | University Towne Center | 75,534 | 100.0 | % | |||
| 9791 Towne Center Drive | University Towne Center | 50,466 | 100.0 | % | |||
| Total San Diego County | 5,249,094 | 87.6 | % | ||||
12
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
| Submarket | Square Feet | Occupancy | |||||
| San Francisco Bay Area, California | |||||||
| 4100 Bohannon Drive | Menlo Park | 46,614 | 100.0 | % | |||
| 4200 Bohannon Drive | Menlo Park | 46,255 | 85.5 | % | |||
| 4300 Bohannon Drive | Menlo Park | 62,920 | 48.4 | % | |||
| 4400 Bohannon Drive | Menlo Park | 46,255 | 79.0 | % | |||
| 4500 Bohannon Drive | Menlo Park | 62,920 | 100.0 | % | |||
| 4600 Bohannon Drive | Menlo Park | 46,255 | 71.2 | % | |||
| 4700 Bohannon Drive | Menlo Park | 62,920 | 100.0 | % | |||
| 303 Second Street | San Francisco | 740,047 | 91.8 | % | |||
| 100 First Street | San Francisco | 466,490 | 96.7 | % | |||
| 250 Brannan Street | San Francisco | 92,948 | 61.9 | % | |||
| 201 Third Street | San Francisco | 332,893 | 96.6 | % | |||
| 301 Brannan Street | San Francisco | 74,430 | 100.0 | % | |||
| 4040 Civic Center | San Rafael | 130,237 | 98.1 | % | |||
| 599 Mathilda | Sunnyvale | 75,810 | 100.0 | % | |||
| Total San Francisco Bay Area | 2,286,994 | 91.8 | % | ||||
| Greater Seattle, Washington | |||||||
| 601 108th Avenue NE | Bellevue | 488,470 | 92.6 | % | |||
| 10900 NE 4th Street | Bellevue | 416,755 | 88.6 | % | |||
| 10220 NE Points Drive | Kirkland | 49,851 | 96.3 | % | |||
| 10230 NE Points Drive | Kirkland | 98,982 | 100.0 | % | |||
| 10210 NE Points Drive | Kirkland | 84,641 | 100.0 | % | |||
| 3933 Lake Washington Blvd NE | Kirkland | 46,450 | 100.0 | % | |||
| 837 N. 34th Street | Lake Union | 111,580 | 100.0 | % | |||
| 701 N. 34th Street | Lake Union | 138,995 | 98.6 | % | |||
| 801 N. 34th Street | Lake Union | 169,412 | 100.0 | % | |||
| 320 Westlake Terry Ave. N. | Lake Union | 184,643 | 100.0 | % | |||
| 321 Terry Ave. N. | Lake Union | 135,755 | 100.0 | % | |||
| 15050 NE 36th Street | Redmond | 122,103 | 100.0 | % | |||
| Total Greater Seattle, Washington | 2,047,637 | 95.7 | % | ||||
| TOTAL | 13,478,791 | 90.7 | % | ||||
13
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Information on Leases Commenced
| 1st & 2nd Generation | 2nd Generation | ||||||||||||||||||||||||||||
# of Leases (1) | Square Feet (1) | TI/LC Per Sq.Ft. | Changes in Rents | Changes in Cash Rents | Retention Rates | Weighted Average Lease Term (Mo.) | |||||||||||||||||||||||
| New | Renewal | New | Renewal | ||||||||||||||||||||||||||
| Quarter-to-Date | 23 | 23 | 254,029 | 419,236 | $ | 31.37 | 17.3 | % | 10.9 | % | 76.3 | % | 65 | ||||||||||||||||
| Year-to-Date | 42 | 39 | 378,567 | 586,242 | 28.69 | 16.9 | % | 11.0 | % | 49.1 | % | 64 | |||||||||||||||||
Information on Leases Executed
| 1st & 2nd Generation | 2nd Generation | |||||||||||||||||||||||||
# of Leases (2) | Square Feet (2) | TI/LC Per Sq.Ft. | Changes in Rents | Changes in Cash Rents | Weighted Average Lease Term (Mo.) | |||||||||||||||||||||
| New | Renewal | New | Renewal | |||||||||||||||||||||||
Quarter to Date (3) | 23 | 23 | 138,438 | 419,236 | $ | 24.87 | 16.8 | % | 11.8 | % | 56 | |||||||||||||||
Year to Date (4) | 53 | 33 | 435,256 | 524,548 | 23.92 | 16.4 | % | 11.5 | % | 55 | ||||||||||||||||
| (1) | Represents leasing activity for leases that commenced during the period shown, including first and second generation space, net of month-to-month leases. |
| (2) | Represents leasing activity for leases signed at properties in the stabilized portfolio during the period shown, including first and second generation space, net of month-to-month leases. |
| (3) | During the second quarter, 16 new leases totaling 108,000 square feet were signed but not commenced as of June 30, 2013. |
| (4) | During the six months ended June 30, 2013, 21 new leases totaling 267,000 square feet were signed but not commenced as of June 30, 2013. |
14
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
($ in thousands)
| 1st Generation (Nonrecurring) Capital Expenditures: | ||||||||||||||
| Q1 2013 | Q2 2013 | Total 2013 | ||||||||||||
| Capital Improvements | $ | 6,983 | $ | 12,580 | $ | 19,563 | ||||||||
Tenant Improvements & Leasing Commissions(1) | 1,229 | 2,084 | 3,313 | |||||||||||
| Total | $ | 8,212 | $ | 14,664 | $ | 22,876 | ||||||||
| 2nd Generation (Recurring) Capital Expenditures: | ||||||||||||||
| Q1 2013 | Q2 2013 | Total 2013 | ||||||||||||
| Capital Improvements | $ | 1,773 | $ | 2,169 | $ | 3,942 | ||||||||
Tenant Improvements & Leasing Commissions(1) | 12,677 | 16,860 | 29,537 | |||||||||||
| Total | $ | 14,450 | $ | 19,029 | $ | 33,479 | ||||||||
(1) Represents costs incurred for leasing activity during the periods shown. Amounts exclude tenant-funded tenant improvements.
15
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Stabilized Portfolio Lease Expiration Summary Schedule
($ in thousands, except for annualized rent per sq. ft.)
| Year of Expiration | # of Expiring Leases | Total Square Feet | % of Total Leased Sq. Ft. | Annualized Base Rent | % of Total Annualized Base Rent | Annualized Rent per Sq. Ft. | |||||||||||
| 2013 | 38 | 297,142 | 2.6 | % | $7,079 | 1.8 | % | $23.82 | |||||||||
| 2014 | 107 | 1,239,703 | 10.4 | % | 35,144 | 9.2 | % | 28.35 | |||||||||
| 2015 | 103 | 1,674,497 | 14.1 | % | 48,656 | 12.8 | % | 29.06 | |||||||||
| 2016 | 80 | 929,278 | 7.8 | % | 25,757 | 6.7 | % | 27.72 | |||||||||
| 2017 | 88 | 2,084,102 | 17.5 | % | 63,848 | 16.6 | % | 30.64 | |||||||||
| 2018 | 56 | 1,664,913 | 14.0 | % | 63,943 | 16.7 | % | 38.41 | |||||||||
| 2019 | 33 | 988,120 | 8.3 | % | 36,884 | 9.7 | % | 37.33 | |||||||||
| 2020 | 28 | 1,241,331 | 10.4 | % | 38,856 | 10.2 | % | 31.30 | |||||||||
| 2021 | 13 | 384,557 | 3.2 | % | 14,295 | 3.7 | % | 37.17 | |||||||||
| 2022 | 9 | 235,229 | 2.0 | % | 7,863 | 2.1 | % | 33.43 | |||||||||
| 2023 and beyond | 16 | 1,154,273 | 9.7 | % | 39,428 | 10.5 | % | 34.16 | |||||||||
Total(1) | 571 | 11,893,145 | 100.0 | % | $381,753 | 100.0 | % | $32.10 | |||||||||
| (1) | The information presented for all lease expiration activity reflects leasing activity through June 30, 2013 for our stabilized portfolio. For leases that have been renewed early or space that has been re-leased to a new tenant, the expiration date and annualized base rent information presented takes into consideration the renewed or re-leased lease terms. Excludes space leased under month-to-month leases, vacant space, and lease renewal options not executed as of June 30, 2013. |
16
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Lease Expiration Schedule by Region
($ in thousands, except for annualized rent per sq. ft.)
| Year | Region | # of Expirations | Total Square Feet | % of Total Leased Sq. Ft. | Annualized Base Rent | % of Total Annualized Base Rent | Annualized Rent per Sq. Ft. | |||||||||||||
| Los Angeles | 23 | 66,604 | 0.6 | % | $2,380 | 0.6 | % | $35.73 | ||||||||||||
| Orange County | 5 | 24,836 | 0.2 | % | 709 | 0.2 | % | 28.55 | ||||||||||||
| 2013 | San Diego | 6 | 156,443 | 1.3 | % | 2,085 | 0.5 | % | 13.33 | |||||||||||
| San Francisco Bay Area | 3 | 30,964 | 0.3 | % | 1,386 | 0.4 | % | 44.76 | ||||||||||||
| Greater Seattle | 1 | 18,295 | 0.2 | % | 519 | 0.1 | % | 28.37 | ||||||||||||
| Total | 38 | 297,142 | 2.6 | % | $7,079 | 1.8 | % | $23.82 | ||||||||||||
| Los Angeles | 58 | 384,699 | 3.2 | % | $11,801 | 3.1 | % | $30.68 | ||||||||||||
| Orange County | 9 | 57,242 | 0.5 | % | 1,443 | 0.4 | % | 25.21 | ||||||||||||
| 2014 | San Diego | 13 | 470,403 | 4.0 | % | 10,428 | 2.7 | % | 22.17 | |||||||||||
| San Francisco Bay Area | 16 | 218,521 | 1.8 | % | 7,992 | 2.1 | % | 36.57 | ||||||||||||
| Greater Seattle | 11 | 108,838 | 0.9 | % | 3,480 | 0.9 | % | 31.97 | ||||||||||||
| Total | 107 | 1,239,703 | 10.4 | % | $35,144 | 9.2 | % | $28.35 | ||||||||||||
| Los Angeles | 44 | 419,967 | 3.5 | % | $12,827 | 3.4 | % | $30.54 | ||||||||||||
| Orange County | 6 | 35,128 | 0.3 | % | 976 | 0.3 | % | 27.78 | ||||||||||||
| 2015 | San Diego | 22 | 494,210 | 4.2 | % | 12,406 | 3.2 | % | 25.10 | |||||||||||
| San Francisco Bay Area | 14 | 278,799 | 2.3 | % | 10,419 | 2.7 | % | 37.37 | ||||||||||||
| Greater Seattle | 17 | 446,393 | 3.8 | % | 12,028 | 3.2 | % | 26.94 | ||||||||||||
| Total | 103 | 1,674,497 | 14.1 | % | $48,656 | 12.8 | % | $29.06 | ||||||||||||
| Los Angeles | 41 | 267,643 | 2.3 | % | $8,905 | 2.3 | % | $33.27 | ||||||||||||
| Orange County | 6 | 37,981 | 0.3 | % | 1,181 | 0.3 | % | 31.09 | ||||||||||||
| 2016 | San Diego | 18 | 370,109 | 3.1 | % | 7,605 | 2.0 | % | 20.55 | |||||||||||
| San Francisco Bay Area | 4 | 120,123 | 1.0 | % | 4,889 | 1.3 | % | 40.70 | ||||||||||||
| Greater Seattle | 11 | 133,422 | 1.1 | % | 3,177 | 0.8 | % | 23.81 | ||||||||||||
| Total | 80 | 929,278 | 7.8 | % | $25,757 | 6.7 | % | $27.72 | ||||||||||||
| Los Angeles | 37 | 386,754 | 3.3 | % | $12,392 | 3.2 | % | $32.04 | ||||||||||||
| Orange County | 11 | 83,359 | 0.7 | % | 3,091 | 0.8 | % | 37.08 | ||||||||||||
| 2017 | San Diego | 16 | 1,099,118 | 9.2 | % | 31,027 | 8.1 | % | 28.23 | |||||||||||
| San Francisco Bay Area | 12 | 203,399 | 1.7 | % | 8,399 | 2.2 | % | 41.29 | ||||||||||||
| Greater Seattle | 12 | 311,472 | 2.6 | % | 8,939 | 2.3 | % | 28.70 | ||||||||||||
| Total | 88 | 2,084,102 | 17.5 | % | $63,848 | 16.6 | % | $30.64 | ||||||||||||
| Los Angeles | 43 | 1,415,525 | 11.9 | % | $51,074 | 13.5 | % | $36.08 | ||||||||||||
| 2018 | Orange County | 6 | 195,642 | 1.6 | % | 6,873 | 1.8 | % | 35.13 | |||||||||||
| and | San Diego | 42 | 1,982,869 | 16.7 | % | 71,230 | 18.7 | % | 35.92 | |||||||||||
| Beyond | San Francisco Bay Area | 30 | 1,155,991 | 9.7 | % | 44,613 | 11.7 | % | 38.59 | |||||||||||
| Greater Seattle | 34 | 918,396 | 7.7 | % | 27,479 | 7.2 | % | 29.92 | ||||||||||||
| Total | 155 | 5,668,423 | 47.6 | % | $201,269 | 52.9 | % | $35.51 | ||||||||||||
17
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Quarterly Lease Expirations for 2013 and 2014
($ in thousands, except for annualized rent per sq. ft.)
# of Expiring Leases | Total Square Feet | % of Total Leased Sq. Ft. | Annualized Base Rent | % of Total Annualized Base Rent | Annualized Rent per Sq. Ft. | |||||||||||||
| 2013: | ||||||||||||||||||
| Q3 2013 | 23 | 247,090 | 2.1 | % | 5,468 | 1.4 | % | $22.13 | ||||||||||
| Q4 2013 | 15 | 50,052 | 0.4 | % | 1,611 | 0.4 | % | 32.19 | ||||||||||
| Total 2013 | 38 | 297,142 | 2.5 | % | $7,079 | 1.8 | % | $23.82 | ||||||||||
| 2014: | ||||||||||||||||||
| Q1 2014 | 27 | 387,182 | 3.3 | % | $8,909 | 2.3 | % | $23.01 | ||||||||||
| Q2 2014 | 16 | 152,049 | 1.3 | % | 4,233 | 1.1 | % | 27.84 | ||||||||||
| Q3 2014 | 26 | 403,288 | 3.4 | % | 11,729 | 3.1 | % | 29.08 | ||||||||||
| Q4 2014 | 38 | 297,184 | 2.5 | % | 10,273 | 2.7 | % | 34.57 | ||||||||||
| Total 2014 | 107 | 1,239,703 | 10.5 | % | $35,144 | 9.2 | % | $28.35 | ||||||||||
18
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
($ in thousands)
| Tenant Name | Annualized Base Rental Revenue | Rentable Square Feet | Percentage of Total Annualized Base Rental Revenue | Percentage of Total Rentable Square Feet | |||||||||||
| DIRECTV, LLC | $ | 23,290 | 660,579 | 6.1 | % | 4.9 | % | ||||||||
| Bridgepoint Education, Inc | 15,066 | 322,994 | 4.0 | % | 2.4 | % | |||||||||
| Intuit, Inc. | 13,489 | 465,812 | 3.5 | % | 3.5 | % | |||||||||
Delta Dental of California (2) | 10,557 | 227,013 | 2.8 | % | 1.7 | % | |||||||||
CareFusion Corporation (3) | 9,237 | 411,000 | 2.4 | % | 3.0 | % | |||||||||
| AMN Healthcare, Inc. | 8,341 | 175,672 | 2.2 | % | 1.3 | % | |||||||||
| Group Health Cooperative | 6,372 | 183,422 | 1.7 | % | 1.4 | % | |||||||||
| Microsoft Corporation | 6,280 | 215,997 | 1.7 | % | 1.6 | % | |||||||||
| Fish & Richardson P.C. | 6,071 | 139,538 | 1.6 | % | 1.0 | % | |||||||||
Wells Fargo (3) | 5,647 | 144,360 | 1.5 | % | 1.1 | % | |||||||||
| Scripps Health | 5,199 | 112,067 | 1.4 | % | 0.8 | % | |||||||||
| BP Biofuels | 5,158 | 136,908 | 1.4 | % | 1.0 | % | |||||||||
| Lucile Salter Packard Children's Hospital at Stanford | 5,111 | 137,807 | 1.3 | % | 1.0 | % | |||||||||
| Adobe Systems, Inc. | 4,989 | 189,131 | 1.3 | % | 1.4 | % | |||||||||
| Epson America, Inc. | 4,915 | 136,026 | 1.3 | % | 1.0 | % | |||||||||
| Total Top Fifteen Tenants | $ | 129,722 | 3,658,326 | 34.2 | % | 27.1 | % | ||||||||
| (1) | The information presented is as of the date of this filing. |
| (2) | In the second quarter of 2013, Delta Dental of California amended and extended its lease with the Company. The amended lease provides for a reduction of rentable square feet by approximately 10,000 square feet in the third quarter of 2013 and approximately 29,000 square feet in the second quarter of 2015. |
| (3) | The Company has entered into leases with various affiliates of the tenant. |
19
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
2013 Operating Property Acquisitions
($ in millions)
| City/Submarket | Month of Acquisition | No. of Buildings | Rentable Square Feet | Purchase Price | ||||||||||||
| Property | ||||||||||||||||
| 1st Quarter: | ||||||||||||||||
| 320 Westlake Ave. N. and 321 Terry Ave. N. Seattle, WA | Lake Union | January | 2 | 320,398 | $ | 170.0 | ||||||||||
| 2nd Quarter: | ||||||||||||||||
| NONE | ||||||||||||||||
| TOTAL | 2 | 320,398 | $ | 170.0 | ||||||||||||
20
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
2013 Dispositions
($ in millions)
| Property | City / Submarket | Type | Month of Disposition | No. of Buildings | Rentable Square Feet | Sales Price (1) | |||||||||||
| 1st Quarter | |||||||||||||||||
| NONE | |||||||||||||||||
| 2nd Quarter | |||||||||||||||||
| 26541 Agoura Road, Calabasas, CA | 101 Corridor | Office | June | 1 | 90,156 | $ | 14.7 | ||||||||||
| TOTAL DISPOSITIONS | 1 | 90,156 | $ | 14.7 | |||||||||||||
(1) Represents gross sales price before the impact of commissions and closing costs.
21
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
In-Process Redevelopment Projects and Other Land Holdings
($ in millions)
| Estimated Construction Period | |||||||||||||||||||||
| In-Process Redevelopment Projects | Location | Start Date | Compl. Date | Estimated Stabilization Date | Estimated Rentable Square Feet | Existing Investment (1) | Estimated Redevelopment Costs | Total Estimated Investment | Total Costs as of 6/30/2013 (2) | % Leased | |||||||||||
| PROJECTS IN LEASE-UP: | |||||||||||||||||||||
3880 Kilroy Airport Way (3) | Long Beach | 3Q 2011 | 4Q 2012 | 4Q 2013 | 98,000 | $6.3 | $13.6 | $19.9 | $16.6 | 50% | |||||||||||
360 Third Street (4,5) | San Francisco | 4Q 2011 | 1Q 2013 | 1Q 2014 | 410,000 | 88.5 | 96.5 | 185.0 | 138.0 | 85% | |||||||||||
| TOTAL IN-PROCESS REDEVELOPMENT PROJECTS: | 508,000 | $94.8 | $110.1 | $204.9 | $154.6 | 78% | |||||||||||||||
| Other Land Holdings | Gross Site | Estimated Rentable | Total Costs as of | ||||||||||||||||||
| Project | Acreage | Square Feet | 6/30/2013 (2) | ||||||||||||||||||
| IRVINE, CALIFORNIA | |||||||||||||||||||||
| 17150 Von Karman | 8.5 | N/A | $7.7 | ||||||||||||||||||
| (1) | Represents the depreciated carrying value at the commencement of redevelopment for the space being redeveloped. |
| (2) | Represents cash paid and costs incurred as of June 30, 2013. Includes existing investment at the commencement of redevelopment. |
| (3) | This property was 50% leased prior to any redevelopment activity, which occurred in two phases. Redevelopment on the first half was completed during the second quarter of 2012 and the tenant has taken occupancy of this space. Redevelopment on the second half was completed in the fourth quarter of 2012. |
| (4) | As of March 31, 2013, the building improvements were substantially complete. As of June 30, 2013, the building occupancy was 55%. |
| (5) | During the fourth quarter of 2012, the Company exercised its option to acquire the land underlying the current ground lease for $27.5 million. The transaction is expected to close in 2013. |
22
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
In-Process and Future Development Pipeline
($ in millions)
| Estimated Construction Period | |||||||||||||||||||||
| Location | Start Date | Compl. Date | Estimated Stabilization Date | Estimated Rentable Square Feet | Total Estimated Investment | Total Costs as of 6/30/2013 (1) | % Leased | ||||||||||||||
| UNDER CONSTRUCTION: | |||||||||||||||||||||
| San Francisco Bay Area | |||||||||||||||||||||
| 690 E. Middlefield Road | Mountain View | 2Q 2012 | 1Q 2015 | 1Q 2015 | 341,000 | $ | 196.9 | $ | 127.9 | 100% | |||||||||||
| 331 Fairchild Drive | Mountain View | 4Q 2012 | 4Q 2013 | 4Q 2013 | 88,000 | 45.1 | 33.9 | 100% | |||||||||||||
350 Mission Street(2) | San Francisco | 4Q 2012 | 1Q 2015 | 4Q 2015 | 400,000 | 254.7 | 72.1 | 100% | |||||||||||||
| 555 N. Mathilda Avenue | Sunnyvale | 4Q 2012 | 3Q 2014 | 3Q 2014 | 587,000 | 312.9 | 151.0 | 100% | |||||||||||||
| Los Angeles | |||||||||||||||||||||
Columbia Square - Historical Buildings(3) | Hollywood | 2Q 2013 | 2Q 2014 | 2Q 2015 | 100,000 | 46.9 | 25.6 | —% | |||||||||||||
| SUBTOTAL: | 1,516,000 | $ | 856.5 | $ | 410.5 | 93% | |||||||||||||||
| FUTURE DEVELOPMENT PIPELINE: | |||||||||||||||||||||
| Los Angeles | |||||||||||||||||||||
Columbia Square Phase II(3) | Hollywood | TBD | TBD | TBD | 575,000 | $ 330 - 340 | $ | 49.8 | N/A | ||||||||||||
| San Diego | |||||||||||||||||||||
9455 Towne Centre Drive(4) | San Diego | TBD | TBD | TBD | 150,000 | TBD | $ | 3.6 | N/A | ||||||||||||
| Carlsbad Oaks - Lots 4, 5, 7 & 8 | Carlsbad | TBD | TBD | TBD | 288,000 | TBD | 18.3 | N/A | |||||||||||||
| Pacific Corporate Center - Lot 8 | Sorrento Mesa | TBD | TBD | TBD | 170,000 | TBD | 11.4 | N/A | |||||||||||||
| Rancho Bernardo Corporate Center | I-15 Corridor | TBD | TBD | TBD | 320,000 - 1,000,000 | TBD | 27.2 | N/A | |||||||||||||
One Paseo (5) | Del Mar | TBD | TBD | TBD | 500,000 | TBD | 140.9 | N/A | |||||||||||||
| Santa Fe Summit - Phase II and III | 56 Corridor | TBD | TBD | TBD | 600,000 | TBD | 77.5 | N/A | |||||||||||||
| Sorrento Gateway - Lot 2 | Sorrento Mesa | TBD | TBD | TBD | 80,000 | TBD | 12.1 | N/A | |||||||||||||
| SUBTOTAL: | 2,108,000 - 2,788,000 | TBD | $ | 291.0 | N/A | ||||||||||||||||
| San Francisco Bay Area | |||||||||||||||||||||
| 333 Brannan Street | San Francisco | 4Q 2013 | 1Q 2015 | 1Q 2016 | 170,000 | $ 95 - 100 | $ | 20.9 | N/A | ||||||||||||
| Redwood Towers | Redwood City | TBD | TBD | TBD | 300,000 | 175 - 180 | 12.0 | N/A | |||||||||||||
| SUBTOTAL: | 470,000 | $ 270 - 280 | $ | 32.9 | N/A | ||||||||||||||||
| (1) | Represents cash paid and costs incurred as of June 30, 2013. |
| (2) | Estimated rentable square feet and total estimated investment reflects existing entitlements for 27-story office tower. The Company is currently pursuing entitlements to increase this project to a 30-story office tower, which would increase the estimated rentable square feet and total estimated investment. |
| (3) | The Company has commenced redevelopment of the historical buildings encompassing approximately 100,000 rentable square feet and is planning to develop a mixed-use project on the undeveloped land encompassing approximately 575,000 rentable square feet, which will include office, multi-family and retail components. |
| (4) | The Company is planning to demolish the existing 2-story 45,195 rentable square foot office building and is currently pursuing entitlements to build a new 5-story 150,000 rentable square foot building. |
| (5) | Estimated rentable square feet reflects existing office entitlements. The Company is currently pursuing mixed-use entitlements for this project, which would increase the estimated rentable square feet. |
23
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Capital Structure
As of June 30, 2013
($ in thousands)
Shares/Units As of June 30, 2013 | Aggregate Principal Amount or $ Value Equivalent | % of Total Market Capitalization | ||||||||||||
| DEBT: | ||||||||||||||
| Unsecured Line of Credit | $ | — | — | % | ||||||||||
| Unsecured Term Loan Facility | 150,000 | 2.3 | % | |||||||||||
Unsecured Exchangeable Senior Notes due 2014 (1) | 172,500 | 2.7 | % | |||||||||||
| Unsecured Senior Notes due 2014 | 83,000 | 1.3 | % | |||||||||||
Unsecured Senior Notes due 2015 (1) | 325,000 | 5.0 | % | |||||||||||
Unsecured Senior Notes due 2018 (1) | 325,000 | 5.0 | % | |||||||||||
Unsecured Senior Notes due 2020 (1) | 250,000 | 3.9 | % | |||||||||||
Unsecured Senior Notes due 2023 (1) | 300,000 | 4.6 | % | |||||||||||
Secured Debt (1) | 552,328 | 8.5 | % | |||||||||||
| Total Debt | $ | 2,157,828 | 33.3 | % | ||||||||||
| EQUITY AND NONCONTROLLING INTERESTS: | ||||||||||||||
6.875% Series G Cumulative Redeemable Preferred stock (2) | 4,000,000 | 100,000 | 1.5 | % | ||||||||||
6.375% Series H Cumulative Redeemable Preferred stock (2) | 4,000,000 | 100,000 | 1.5 | % | ||||||||||
Common limited partnership units outstanding (3) | 1,821,503 | 96,558 | 1.5 | % | ||||||||||
Common shares outstanding (3) | 75,710,907 | 4,013,435 | 62.2 | % | ||||||||||
| Total Equity and Noncontrolling Interests | $ | 4,309,993 | 66.7 | % | ||||||||||
| TOTAL MARKET CAPITALIZATION | $ | 6,467,821 | 100.0 | % | ||||||||||
| (1) | Represents gross aggregate principal amount due at maturity before the effect of net unamortized premiums as of June 30, 2013. |
| (2) | Value based on $25.00 per share liquidation preference. |
| (3) | Value based on closing share price of $53.01 as of June 30, 2013. |
24
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Debt Analysis
As of June 30, 2013 ($ in millions)
| TOTAL DEBT COMPOSITION | |||||||||
| % of | Weighted Average | ||||||||
| Total Debt | Interest Rate | Maturity | |||||||
| Secured vs. Unsecured Debt: | |||||||||
| Unsecured Debt | 74.4 | % | 4.7 | % | 4.8 | ||||
| Secured Debt | 25.6 | % | 5.2 | % | 5.8 | ||||
| Floating vs. Fixed-Rate Debt: | |||||||||
| Floating-Rate Debt | 7.0 | % | 2.0 | % | 2.7 | ||||
| Fixed-Rate Debt | 93.0 | % | 5.0 | % | 5.2 | ||||
| Stated Rate | 4.8 | % | 5.1 | ||||||
| GAAP Effective Rate | 4.8 | % | |||||||
| GAAP Effective Rate Including Debt Issuance Costs | 5.1 | % | |||||||
| KEY DEBT COVENANTS | |||||
| Unsecured Credit Facility and Term Loan Facility (as defined in the Credit Agreements): | Covenant | Actual Performance as of June 30, 2013 | |||
| Total debt to total asset value | less than 60% | 37% | |||
| Fixed charge coverage ratio | greater than 1.5x | 2.3x | |||
| Unsecured debt ratio | greater than 1.67x | 2.40x | |||
| Unencumbered asset pool debt service coverage | greater than 2.0x | 3.4x | |||
| Unsecured Senior Notes due 2015, 2018, 2020 and 2023 (as defined in the Indentures): | |||||
| Total debt to total asset value | less than 60% | 42% | |||
| Interest coverage | greater than 1.5x | 3.9x | |||
| Secured debt to total asset value | less than 40% | 11% | |||
| Unencumbered asset pool value to unsecured debt | greater than 150% | 251% | |||
25
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Debt Analysis
As of June 30, 2013
($ in thousands)
| DEBT MATURITY SCHEDULE | |||||||||||||||||||||||||||||||||||
Floating/ Fixed Rate | Stated Rate | GAAP Effective Rate | Maturity Date | 2013 | 2014 | 2015 | 2016 | 2017 | After 2017 | Total (1) | |||||||||||||||||||||||||
| Unsecured Debt: | |||||||||||||||||||||||||||||||||||
Floating (2) | 1.95% | 1.95% | 3/29/2016 | $ | 150,000 | $ | 150,000 | ||||||||||||||||||||||||||||
| Fixed | 4.25% | 7.13% | 11/15/2014 | 172,500 | 172,500 | ||||||||||||||||||||||||||||||
| Fixed | 6.45% | 6.45% | 8/4/2014 | 83,000 | 83,000 | ||||||||||||||||||||||||||||||
| Fixed | 5.00% | 5.01% | 11/3/2015 | 325,000 | 325,000 | ||||||||||||||||||||||||||||||
| Fixed | 4.80% | 4.83% | 7/15/2018 | 325,000 | 325,000 | ||||||||||||||||||||||||||||||
| Fixed | 6.63% | 6.74% | 6/1/2020 | 250,000 | 250,000 | ||||||||||||||||||||||||||||||
| Fixed | 3.80% | 3.80% | 1/15/2023 | 300,000 | 300,000 | ||||||||||||||||||||||||||||||
| — | 255,500 | 325,000 | 150,000 | — | 875,000 | 1,605,500 | |||||||||||||||||||||||||||||
| Secured Debt: | |||||||||||||||||||||||||||||||||||
Fixed (3) | 4.94% | 4.00% | 4/15/2015 | 537 | 1,116 | 26,206 | 27,859 | ||||||||||||||||||||||||||||
Fixed (3) | 5.09% | 3.50% | 8/7/2015 | 34,000 | 34,000 | ||||||||||||||||||||||||||||||
Fixed (3) | 5.23% | 3.50% | 1/1/2016 | 409 | 861 | 908 | 50,969 | 53,147 | |||||||||||||||||||||||||||
Fixed (3) | 5.57% | 3.25% | 2/11/2016 | 289 | 609 | 645 | 38,694 | 40,237 | |||||||||||||||||||||||||||
| Fixed | 6.51% | 6.51% | 2/1/2017 | 484 | 1,016 | 1,084 | 1,157 | 64,406 | 68,147 | ||||||||||||||||||||||||||
| Fixed | 7.15% | 7.15% | 5/1/2017 | 1,139 | 2,404 | 2,581 | 2,772 | 1,215 | 10,111 | ||||||||||||||||||||||||||
| Fixed | 4.27% | 4.27% | 2/1/2018 | 1,138 | 2,350 | 2,452 | 2,559 | 2,671 | 123,085 | 134,255 | |||||||||||||||||||||||||
Fixed (3) | 6.05% | 3.50% | 6/1/2019 | 689 | 1,441 | 1,531 | 1,626 | 1,727 | 76,314 | 83,328 | |||||||||||||||||||||||||
| Fixed | 4.48% | 4.48% | 7/1/2027 | 646 | 1,600 | 1,673 | 93,081 | 97,000 | |||||||||||||||||||||||||||
| Fixed | Various | Various | Various | 1,773 | 49 | 51 | 54 | 56 | 2,261 | 4,244 | |||||||||||||||||||||||||
| 6,458 | 9,846 | 70,104 | 99,431 | 71,748 | 294,741 | 552,328 | |||||||||||||||||||||||||||||
| Total | 4.82% | 4.83% | $ | 6,458 | $ | 265,346 | $ | 395,104 | $ | 249,431 | $ | 71,748 | $ | 1,169,741 | $ | 2,157,828 | |||||||||||||||||||
| (1) | Amounts presented reflect the gross principal balances before the effect of any unamortized discounts/premiums. As of June 30, 2013, the aggregate net unamortized premiums totaled approximately $8.3 million. |
| (2) | Interest for this loan is calculated at an annual rate of LIBOR plus 1.750% at June 30, 2013. |
| (3) | Represents secured debt assumed in connection with an operating property acquisition. |
26
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Management Statements on Non-GAAP Supplemental Measures
Included in this section are management's statements regarding certain non-GAAP financial measures provided in this supplemental financial report and, with respect to Funds From Operations (“FFO”), in the Company's earnings release on July 29, 2013 and the reasons why management believes that these measures provide useful information to investors about the Company's financial condition and results of operations.
Net Operating Income:
Management believes that Net Operating Income (“NOI”) is a useful supplemental measure of the Company's operating performance. The Company defines NOI as operating revenues (rental income, tenant reimbursements and other property income) less property and related expenses (property expenses, real estate taxes, provision for bad debts and ground leases). Other real estate investment trusts (“REITs”) may use different methodologies for calculating NOI, and accordingly, the Company's NOI may not be comparable to other REITs.
Because NOI excludes general and administrative expenses, interest expense, depreciation and amortization, acquisition-related expenses, other nonproperty income and losses, and gains and losses from property dispositions, it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating commercial real estate and the impact to operations from trends in occupancy rates, rental rates, and operating costs, providing a perspective on operations not immediately apparent from net income. The Company uses NOI to evaluate its operating performance on a segment basis since NOI allows the Company to evaluate the impact that factors such as occupancy levels, lease structure, rental rates, and tenant base, which vary by segment type, have on the Company's results, margins and returns. In addition, management believes that NOI provides useful information to the investment community about the Company's financial and operating performance when compared to other REITs since NOI is generally recognized as a standard measure of performance in the real estate industry.
However, NOI should not be viewed as an alternative measure of the Company's financial performance since it does not reflect general and administrative expenses, acquisition-related expenses, interest expense, depreciation and amortization costs, other nonproperty income and losses, the level of capital expenditures and leasing costs necessary to maintain the operating performance of the Company's properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact the Company's results from operations.
Same Store Net Operating Income:
Management believes that Same Store NOI is a useful supplemental measure of the Company's operating performance. Same Store NOI represents the NOI for all of the properties that were owned and included in our stabilized portfolio for two comparable reporting periods. Because Same Store NOI excludes the change in NOI from developed, redeveloped, acquired and disposed of and held for sale properties that were operational for two comparable periods, it highlights operating trends such as occupancy levels, rental rates and operating costs on properties. Other REITs may use different methodologies for calculating Same Store NOI, and accordingly, the Company's Same Store NOI may not be comparable to other REITs.
However, Same Store NOI should not be viewed as an alternative measure of the Company's financial performance since it does not reflect the operations of the Company's entire portfolio, nor does it reflect the impact of general and administrative expenses, acquisition-related expenses, interest expense, depreciation and amortization costs, other nonproperty income and losses, the level of capital expenditures and leasing costs necessary to maintain the operating performance of the Company's properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact the Company's results from operations.
27
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Management Statements on Non-GAAP Supplemental Measures
EBITDA:
Management believes that earnings before interest expense, depreciation and amortization, gain/loss on early extinguishment of debt, net gains and losses on disposition of discontinued operations, net income attributable to noncontrolling interests, preferred dividends and distributions, original issuance costs of redeemed preferred stock and preferred units, and impairment losses (“EBITDA”) is a useful supplemental measure of the Company's operating performance. When considered with other GAAP measures and FFO, management believes EBITDA gives the investment community a more complete understanding of the Company's operating results, including the impact of general and administrative expenses and acquisition-related expenses, before the impact of investing and financing transactions and facilitates comparisons with competitors. Management also believes it is appropriate to present EBITDA as it is used in several of the Company's financial covenants for both its secured and unsecured debt. However, EBITDA should not be viewed as an alternative measure of the Company's operating performance since it excludes financing costs as well as depreciation and amortization costs which are significant economic costs that could materially impact the Company's results of operations and liquidity. Other REITs may use different methodologies for calculating EBITDA and, accordingly, the Company's EBITDA may not be comparable to other REITs.
Funds From Operations:
The Company calculates FFO in accordance with the White Paper on FFO approved by the Board of Governors of NAREIT. The White Paper defines FFO as net income or loss calculated in accordance with GAAP, excluding extraordinary items, as defined by GAAP, gains and losses from sales of depreciable real estate and impairment write-downs associated with depreciable real estate, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships and joint ventures. Our calculation of FFO includes the amortization of deferred revenue related to tenant-funded tenant improvements and excludes the depreciation of the related tenant improvement assets.
Management believes that FFO is a useful supplemental measure of the Company's 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 the Company's 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, the Company's 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, management believes that FFO along with the required GAAP presentations provides a more complete measurement of the Company's performance relative to its 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 the Company's operating performance since 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 the Company's properties, which are significant economic costs and could materially impact the Company's results from operations.
Funds Available for Distribution:
Management believes that Funds Available for Distribution (“FAD”) is a useful supplemental measure of the Company's liquidity. The Company computes FAD by adding to FFO the noncash amortization of deferred financing costs, debt discounts and premiums, share-based compensation awards and original issuance costs on redeemed preferred stock and preferred units, amortization of above (below) market rents for acquisition properties and contractual cash rents received in advance of revenue recognition, then subtracting recurring tenant improvements, leasing commissions and capital expenditures, and eliminating the net effect of straight-line rents, amortization of deferred revenue related to tenant improvements and cash received prior to revenue recognition. FAD provides an additional perspective on the Company's ability to fund cash needs and make distributions to stockholders by adjusting FFO for the impact of certain cash and noncash items, as well as adjusting FFO for recurring capital expenditures and leasing costs. Management also believes that FAD provides useful information to the investment community about the Company's financial position as compared to other REITs since FAD is a liquidity measure used by other REITs. However, other REITs may use different methodologies for calculating FAD and, accordingly, the Company's FAD may not be comparable to other REITs.
28
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Definitions Included in Supplemental
Annualized Base Rent:
Includes the impact of straight-lining rent escalations and the amortization of free rent periods and excludes the impact of the following: amortization of deferred
revenue related tenant-funded tenant improvements, amortization of above/below market rents, amortization for lease incentives due under existing leases, and expense reimbursement revenue. Additionally, the underlying leases contain various expense structures including full service gross, modified gross and triple net. Amounts represent percentage of total portfolio annualized contractual base rental revenue.
Change in GAAP/ Cash Rents (Leases Commenced):
Calculated as the change between GAAP/cash rents for new/renewed leases and the expiring GAAP/cash rents for the same space. Excludes leases for which the space was vacant longer than one year, or vacant when the property was acquired by the Company.
Change in GAAP/Cash Rents (Leases Executed):
Calculated as the change between GAAP/cash rents for signed leases and the expiring GAAP/cash rents for the same space. Excludes leases for which the space was vacant longer than one year, or vacant when the property was acquired by the Company.
Estimated Stabilization Date (Development):
Management's estimation of the earlier of stabilized occupancy (95%) or one year from the date of substantial completion.
FAD Payout Ratio:
Calculated as current-quarter dividends accrued to common stockholders and common unitholders (excluding dividend equivalents accrued to restricted stock unitholders) divided by Funds Available for Distribution.
First Generation Capital Expenditures:
Capital expenditures for newly acquired space, newly developed or redeveloped space, or change in use. These costs are not subtracted in our calculation of Funds Available for Distribution.
Fixed Charge Coverage Ratio:
Calculated as EBITDA divided by interest expense (excluding amortization of deferred debt costs and debt discounts/premiums), current year accrued preferred dividends and distributions on Cumulative Redeemable Preferred units.
29
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Definitions Included in Supplemental
FFO Payout Ratio:
Calculated as current-quarter dividends accrued to common stockholders and common unitholders (excluding dividend equivalents accrued to restricted stock unitholders) divided by Funds From Operations.
GAAP Effective Rate:
The rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of any discounts/premiums, excluding debt issuance costs.
Interest Coverage Ratio:
Calculated as EBITDA divided by interest expense (excluding amortization of deferred debt costs and debt discounts/premiums).
Lease-up Properties:
Properties recently redeveloped that have not reached 95% occupancy and are within one year following cessation of major construction activities.
Net Effect of Straight-Line Rents:
Represents the straight-line rent income recognized during the period offset by cash received during the period that was applied to deferred rents receivable balances for terminated leases and the provision for bad debts recorded for deferred rent receivable balances.
Operating Margins:
Calculated as Net Operating Income divided by total revenues, including discontinued operations.
Retention Rates (Leases Commenced):
Calculated as the percentage of space either renewed or expanded into by existing tenants or subtenants at lease expiration.
Same Store Portfolio:
Defined as all of the properties owned and included in our stabilized portfolio as of January 1, 2012 and still owned and included in the stabilized portfolio as of June 30, 2013.
Stated Interest Rate:
The rate at which interest expense is recorded per the respective loan documents, excluding the impact of the amortization of any debt discounts/premiums.
30
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Reconciliation of Same Store Net Operating Income to Net Income (Loss) Available to Common Stockholders
(unaudited, $ in thousands)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | ||||||||||||||
| Adjusted Same Store Cash Net Operating Income | $ | 59,278 | $ | 57,161 | $ | 118,229 | $ | 116,323 | |||||||||
| Adjustments to 2013 and 2012: | |||||||||||||||||
| Adjustments - other income related to property damage settlement | 5,225 | — | 5,225 | 675 | |||||||||||||
| Same Store Cash Net Operating Income | $ | 64,503 | $ | 57,161 | $ | 123,454 | $ | 116,998 | |||||||||
| Cash to GAAP Adjustments: | |||||||||||||||||
| GAAP Operating Revenues Adjustments, net | 4,428 | 7,390 | 9,551 | 14,195 | |||||||||||||
| GAAP Operating Expenses Adjustments, net | 32 | — | (63 | ) | (2 | ) | |||||||||||
Same Store GAAP Net Operating Income(1) | 68,963 | 64,551 | 132,942 | 131,191 | |||||||||||||
| Non-Same Store GAAP Net Operating Income | 19,455 | 3,879 | 37,921 | 5,030 | |||||||||||||
| Net Operating Income excluding discontinued operations | 88,418 | 68,430 | 170,863 | 136,221 | |||||||||||||
| Net Operating Income from discontinued operations | — | 4,800 | — | 10,597 | |||||||||||||
Net Operating Income, as defined(2) | 88,418 | 73,230 | 170,863 | 146,818 | |||||||||||||
| Adjustments: | |||||||||||||||||
| General and administrative expenses | (9,855 | ) | (9,251 | ) | (19,524 | ) | (18,018 | ) | |||||||||
| Acquisition-related expenses | (164 | ) | (1,813 | ) | (819 | ) | (3,341 | ) | |||||||||
| Depreciation and amortization (including discontinued operations) | (49,304 | ) | (40,624 | ) | (99,695 | ) | (77,376 | ) | |||||||||
| Interest income and other net investment gains (losses) | 19 | (110 | ) | 411 | 374 | ||||||||||||
| Interest expense | (19,434 | ) | (19,155 | ) | (39,168 | ) | (40,318 | ) | |||||||||
| Net gain on dispositions of discontinued operations | 423 | — | 423 | 72,809 | |||||||||||||
| Net Income | 10,103 | 2,277 | 12,491 | 80,948 | |||||||||||||
| Net (income) loss attributable to noncontrolling common units of the Operating Partnership | (157 | ) | 20 | (135 | ) | (1,775 | ) | ||||||||||
| Preferred distributions and dividends | (3,313 | ) | (3,097 | ) | (6,626 | ) | (12,433 | ) | |||||||||
| Net Income (Loss) Available to Common Stockholders | $ | 6,633 | $ | (800 | ) | $ | 5,730 | $ | 66,740 | ||||||||
| (1) | Adjusted Same Store GAAP Net Operating Income for the three months ended June 30, 2013 was $63,738 after the impact of the adjustments above. |
| (2) | Please refer to page 27 for Management Statements on Net Operating Income and Same Store Net Operating Income. |
31
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Reconciliation of Net Income (Loss) Available to Common Stockholders to EBITDA
(unaudited, $ in thousands)
| Three Months Ended June 30, | ||||||||||
| 2013 | 2012 | |||||||||
| Net Income (Loss) Available to Common Stockholders | $ | 6,633 | $ | (800 | ) | |||||
| Interest expense | 19,434 | 19,155 | ||||||||
| Depreciation and amortization (including discontinued operations) | 49,304 | 40,624 | ||||||||
| Net income (loss) attributable to noncontrolling common units of the Operating Partnership | 157 | (20 | ) | |||||||
| Net gain on dispositions of discontinued operations | (423 | ) | — | |||||||
| Preferred distributions and dividends | 3,313 | 3,097 | ||||||||
EBITDA (1) | $ | 78,418 | $ | 62,056 | ||||||
| (1) | Please refer to page 28 for a Management Statement on EBITDA. |
32
Kilroy Realty Corporation
Second Quarter 2013 Supplemental Financial Report
Reconciliation of Funds Available for Distribution to GAAP Net Cash Provided by Operating Activities
(unaudited, $ in thousands)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | ||||||||||||||
Funds Available for Distribution (1) | $ | 29,465 | $ | 21,099 | $ | 57,570 | $ | 47,917 | |||||||||
| Adjustments: | |||||||||||||||||
| Tenant improvements, leasing commissions and recurring capital expenditures | 19,029 | 13,179 | 33,479 | 20,187 | |||||||||||||
| Depreciation for furniture, fixtures and equipment | 517 | 296 | 897 | 584 | |||||||||||||
| Preferred distributions and dividends | 3,313 | 3,097 | 6,626 | 7,515 | |||||||||||||
| Provision for uncollectible tenant receivables | — | — | 95 | 2 | |||||||||||||
Net changes in operating assets and liabilities and other adjustments (2) | (868 | ) | (7,780 | ) | 9,288 | 2,428 | |||||||||||
| GAAP Net Cash Provided by Operating Activities | $ | 51,456 | $ | 29,891 | $ | 107,955 | $ | 78,633 | |||||||||
| (1) | Please refer to page 28 for a Management Statement on Funds Available for Distribution. |
| (2) | Primarily includes changes in the following assets and liabilities: marketable securities; current receivables; other deferred leasing costs; prepaid expenses and other assets; accounts payable, accrued expenses and other liabilities; rents received in advance and tenant security deposits and insurance proceeds received for property damage. |
33