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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 1-12675
KILROY REALTY CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 95-4598246
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
2250 East Imperial Highway, Suite 1200, El Segundo, California 90245
(Address of principal executive offices)
(310) 563-5500
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
As of May 14, 2001, 27,190,206 shares of common stock, par value $.01 per
share, were outstanding.
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KILROY REALTY CORPORATION
QUARTERLY REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2001
TABLE OF CONTENTS
Page
----
PART I--FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (unaudited)
Consolidated Balance Sheets as of March 31, 2001 and December
31, 2000....................................................... 3
Consolidated Statements of Operations for the Three Months
Ended March 31, 2001 and 2000.................................. 4
Consolidated Statement of Stockholders' Equity for the Three
Months Ended March 31, 2001.................................... 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2001 and 2000.................................. 6
Notes to Consolidated Financial Statements..................... 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.......................................... 13
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..... 24
PART II--OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.............................................. 28
Item 2. CHANGES IN SECURITIES.......................................... 28
Item 3. DEFAULTS UPON SENIOR SECURITIES................................ 28
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 28
Item 5. OTHER INFORMATION.............................................. 28
Item 6. EXHIBITS AND REPORTS ON FORM 8-K............................... 28
SIGNATURES.............................................................. 29
2
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KILROY REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share data)
March 31, December 31,
2001 2000
---------- ------------
ASSETS
------
INVESTMENT IN REAL ESTATE (Note 2):
Land and improvements................................ $ 272,013 $ 266,444
Buildings and improvements........................... 1,106,079 1,054,995
Undeveloped land and construction in progress, net... 181,674 162,633
Investment in unconsolidated real estate............. 12,405
---------- ----------
Total investment in real estate.................... 1,559,766 1,496,477
Accumulated depreciation and amortization............ (215,176) (205,332)
---------- ----------
Investment in real estate, net..................... 1,344,590 1,291,145
CASH AND CASH EQUIVALENTS............................. 19,669 17,600
RESTRICTED CASH (Note 2).............................. 6,662 35,014
TENANT RECEIVABLES, NET............................... 28,695 32,521
NOTE RECEIVABLE FROM RELATED PARTY (Note 2)........... 33,274
DEFERRED FINANCING AND LEASING COSTS, NET............. 35,633 39,674
PREPAID EXPENSES AND OTHER ASSETS..................... 9,226 7,941
---------- ----------
TOTAL ASSETS....................................... $1,444,475 $1,457,169
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Secured debt......................................... $ 440,541 $ 432,688
Unsecured line of credit (Note 3).................... 162,000 191,000
Unsecured term facility.............................. 100,000 100,000
Accounts payable and accrued expenses (Note 4)....... 39,752 33,911
Accrued distributions (Note 9)....................... 14,523 13,601
Rents received in advance, tenant security deposits
and deferred revenue (Note 5)....................... 30,909 17,810
---------- ----------
Total liabilities.................................. $ 787,725 $ 789,010
---------- ----------
COMMITMENTS AND CONTINGENCIES
MINORITY INTERESTS (Note 6):
8.075% Series A Cumulative Redeemable Preferred
unitholders......................................... 73,716 73,716
9.375% Series C Cumulative Redeemable Preferred
unitholders......................................... 34,464 34,464
9.250% Series D Cumulative Redeemable Preferred
unitholders......................................... 44,321 44,321
Common unitholders of the Operating Partnership...... 53,440 62,485
Minority interests in Development LLCs............... 11,707 11,748
---------- ----------
Total minority interests........................... 217,648 226,734
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 26,200,000 shares
authorized, none issued and outstanding.............
8.075% Series A Cumulative Redeemable Preferred
stock, $.01 par value,
1,700,000 shares authorized, none issued and
outstanding.........................................
Series B Junior Participating Preferred stock, $.01
par value,
400,000 shares authorized, none issued and
outstanding.........................................
9.375% Series C Cumulative Redeemable Preferred
stock, $.01 par value,
700,000 shares authorized, none issued and
outstanding.........................................
9.250% Series D Cumulative Redeemable Preferred
stock, $.01 par value,
1,000,000 shares authorized, none issued and
outstanding.........................................
Common stock, $.01 par value, 150,000,000 shares
authorized,
26,974,526 and 26,475,470 shares issued and
outstanding, respectively........................... 270 265
Additional paid-in capital........................... 470,077 460,390
Distributions in excess of earnings.................. (25,751) (19,230)
Accumulated other comprehensive loss................. (5,494)
---------- ----------
Total stockholders' equity......................... 439,102 441,425
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $1,444,475 $1,457,169
========== ==========
See accompanying notes to consolidated financial statements.
3
KILROY REALTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share data)
Three Months Ended
March 31,
----------------------
2001 2000
---------- ----------
REVENUES (Note 7):
Rental income........................................ $ 44,379 $ 37,702
Tenant reimbursements................................ 5,520 4,694
Interest income...................................... 436 294
Other income......................................... 32 1,081
---------- ----------
Total revenues..................................... 50,367 43,771
---------- ----------
EXPENSES:
Property expenses.................................... 6,895 5,458
Real estate taxes.................................... 3,635 3,387
General and administrative expenses.................. 3,354 2,632
Ground leases........................................ 392 389
Interest expense..................................... 10,791 7,828
Depreciation and amortization........................ 13,433 9,323
---------- ----------
Total expenses..................................... 38,500 29,017
---------- ----------
INCOME FROM OPERATIONS BEFORE NET GAINS (LOSSES) ON
DISPOSITIONS OF OPERATING PROPERTIES, MINORITY
INTERESTS AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE.................................. 11,867 14,754
NET GAINS (LOSSES) ON DISPOSITIONS OF OPERATING
PROPERTIES............................................ 305 (305)
---------- ----------
INCOME BEFORE MINORITY INTERESTS AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE..................... 12,172 14,449
---------- ----------
MINORITY INTERESTS:
Distributions on Cumulative Redeemable Preferred
units............................................... (3,375) (3,375)
Minority interest in earnings of Operating
Partnership......................................... (845) (1,372)
Minority interest in earnings of Development LLCs.... (134) (124)
---------- ----------
Total minority interests........................... (4,354) (4,871)
---------- ----------
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE.................................. 7,818 9,578
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
(Note 1).............................................. (1,392)
---------- ----------
NET INCOME............................................. $ 6,426 $ 9,578
========== ==========
Net income per common share--basic (Note 8)............ $ 0.24 $ 0.35
========== ==========
Net income per common share--diluted (Note 8).......... $ 0.24 $ 0.35
========== ==========
Weighted average shares outstanding--basic (Note 8).... 26,713,078 27,228,497
========== ==========
Weighted average shares outstanding--diluted (Note 8).. 26,971,289 27,228,887
========== ==========
See accompanying notes to consolidated financial statements.
4
KILROY REALTY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited in thousands, except share and per share data)
Additional Distributions Accumulated
Number of Common Paid-in in Excess of Other Comp.
Shares Stock Capital Earnings Loss Total
---------- ------ ---------- ------------- ----------- --------
BALANCE AT DECEMBER 31,
2000................... 26,475,470 $265 $460,390 $(19,230) $ $441,425
Conversion of common
units of the
Operating Partnership
(Note 6)............. 466,236 5 11,451 11,456
Exercise of stock
options.............. 40,000 907 907
Non-cash amortization
of restricted stock
grants............... 548 548
Repurchase of common
stock................ (7,180) (202) (202)
Adjustment for
minority interest.... (3,017) (3,017)
Dividends declared
($1.92 per share).... (12,947) (12,947)
Net income............ 6,426 6,426
Other comprehensive
loss (Notes 1 and
4)................... (5,494) (5,494)
---------- ---- -------- -------- ------- --------
BALANCE AT MARCH 31,
2001................... 26,974,526 $270 $470,077 $(25,751) $(5,494) $439,102
========== ==== ======== ======== ======= ========
See accompanying notes to consolidated financial statements.
5
KILROY REALTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Three Months Ended
March 31,
--------------------
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 6,426 $ 9,578
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 13,433 9,323
Cumulative effect of change in accounting principle..... 1,392
Provision for uncollectable tenant receivables and
deferred rent.......................................... 1,336 482
Minority interest in earnings of Operating Partnership
and Development LLCs................................... 979 1,496
Non-cash amortization of restricted stock grants........ 548 102
Net (gains) losses on dispositions of operating
properties............................................. (305) 305
Other................................................... (77) (192)
Changes in assets and liabilities:
Tenant receivables..................................... 1,372 (3,164)
Deferred leasing costs................................. (106) (1,716)
Prepaid expenses and other assets...................... (4,316) (1,638)
Accounts payable and accrued expenses.................. 289 687
Rents received in advance, tenant security deposits
and deferred revenue (Note 5)......................... 14,217 (1,204)
Accrued distributions to Cumulative Redeemable
Preferred unitholders................................. 300
--------- ---------
Net cash provided by operating activities............. 35,188 14,359
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for operating properties................... (4,778) (1,484)
Expenditures for undeveloped land and construction in
progress............................................... (25,819) (39,218)
Net proceeds received from dispositions of operating
properties............................................. 3,220 3,350
Net advances to unconsolidated subsidiary............... (1,154)
--------- ---------
Net cash used in investing activities................. (27,377) (38,506)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings on unsecured line of
credit................................................. (29,000) 64,500
Proceeds from secured debt.............................. 9,282
Principal payments on secured debt...................... (1,429) (1,174)
Financing costs......................................... (78) (2,088)
Share repurchase program................................ (41,267)
Proceeds from exercise of stock options................. 907
Decrease in restricted cash (Note 2).................... 28,352 1,275
Distribution paid to minority interests in Development
LLCs................................................... (175) (457)
Distributions paid to common stockholders and common
unitholders............................................ (13,601) (13,457)
--------- ---------
Net cash (used in) provided by financing activities... (5,742) 7,332
--------- ---------
Net increase (decrease) in cash and cash equivalents..... 2,069 (16,815)
Cash and cash equivalents, beginning of period........... 17,600 26,116
--------- ---------
Cash and cash equivalents, end of period................. $ 19,669 $ 9,301
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest, net of capitalized interest..... $ 8,810 $ 7,218
========= =========
Distributions paid to Cumulative Redeemable Preferred
unitholders............................................ $ 3,375 $ 3,077
========= =========
NON-CASH TRANSACTIONS:
Accrual of distributions payable (Note 9)............... $ 14,523 $ 13,513
========= =========
Note receivable repaid in connection with property
acquisition (Note 2)................................... $ 33,274
=========
Issuance of secured note payable in connection with
undeveloped land acquisition........................... $ 8,500
=========
See accompanying notes to consolidated financial statements.
6
KILROY REALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 31, 2001 and 2000
(Unaudited)
1. Organization and Basis of Presentation
Organization
Kilroy Realty Corporation (the "Company") develops, owns, and operates
office and industrial real estate, primarily in Southern California. The
Company operates as a self-administered real estate investment trust ("REIT").
As of March 31, 2001, the Company's stabilized portfolio of operating
properties consisted of 85 office buildings (the "Office Properties") and 77
industrial buildings (the "Industrial Properties"), which encompassed an
aggregate of approximately 7.1 million and 5.8 million rentable square feet,
respectively, and was approximately 96.6% occupied. The Company's stabilized
portfolio of operating properties consists of all of the Company's Office and
Industrial Properties excluding properties recently developed by the Company
that have not yet reached 95.0% occupancy ("lease-up" properties) and projects
currently under construction or in pre-development. As of March 31, 2001, the
Company had two office properties encompassing an aggregate of approximately
110,500 rentable square feet which were in the lease-up phase. Lease-up
properties are included in land and improvements and building and improvements
on the consolidated balance sheets upon building shell completion. In
addition, as of March 31, 2001, the Company had ten office properties under
construction or committed for construction which when completed are expected
to encompass an aggregate of approximately 920,900 rentable square feet.
The Company owns its interests in all of its properties through Kilroy
Realty, L.P. (the "Operating Partnership") and Kilroy Realty Finance
Partnership, L.P. (the "Finance Partnership") and conducts substantially all
of its operations through the Operating Partnership. The Company owned an
89.2% general partnership interest in the Operating Partnership as of March
31, 2001. The Operating Partnership owns a 50% interest in two limited
liability companies (the "Development LLCs") which were formed to develop two
multi-phased office projects in San Diego, California. The Allen Group, a
group of affiliated real estate development and investment companies based in
San Diego, California, is the other 50% joint venture partner. The Development
LLCs are consolidated for financial reporting purposes since the Company
controls all significant development and operating decisions.
On January 1, 2001, Kilroy Services, Inc. ("KSI") was merged into a newly
formed entity, Kilroy Services, LLC ("KSLLC"). The Company historically
accounted for the operating results of the development services business
conducted by KSI under the equity method of accounting. Prior to the merger,
John B. Kilroy, Sr., the Chairman of the Company's Board of Directors, and
John B. Kilroy, Jr., the Company's President and Chief Executive Officer,
owned 100% of the voting interest of KSI and the Operating Partnership owned
100% of the non-voting preferred stock and a 95% economic interest in KSI. In
connection with the merger, Messers Kilroy received $8,000 in cash for their
economic interest and KSLLC became a wholly-owned subsidiary of the Company.
As a result, KSLLC was consolidated for financial reporting purposes beginning
January 1, 2001. Unless otherwise indicated, all references to the Company
include the Operating Partnership, the Finance Partnership, KSLLC, the
Development LLC's, and all wholly-owned subsidiaries and controlled entities.
Basis of Presentation
The accompanying interim financial statements have been prepared by the
Company's management in accordance with generally accepted accounting
principles ("GAAP") and in conjunction with the rules and regulations of the
Securities and Exchange Commission ("SEC"). Certain information and footnote
disclosures required for annual financial statements have been condensed or
excluded pursuant to SEC rules and regulations. Accordingly, the interim
financial statements do not include all of the information and footnotes
required by GAAP in the United States of America for complete financial
statements. In the opinion of management, the
7
KILROY REALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
interim financial statements presented herein reflect all adjustments of a
normal and recurring nature which are considered necessary for a fair
presentation of the results for the interim periods presented. The results of
operations for the interim period are not necessarily indicative of the
results that may be expected for the year ended December 31, 2001. These
financial statements should be read in conjunction with the audited
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.
Certain prior year amounts have been reclassified to conform to the current
period's presentation.
New Accounting Pronouncement
As part of the Company's overall interest rate risk management strategy,
the Company uses derivative instruments, including interest rate swaps and
caps, to hedge exposures to interest rate risk on its variable-rate debt. The
Company does not enter into any derivative instruments for speculative
purposes. On January 1, 2001, the Company adopted SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities"
(collectively, "SFAS 133"). SFAS 133 establishes accounting and reporting
standards for derivative instruments. Specifically, SFAS 133 requires an
entity to recognize all derivatives as either assets or liabilities on the
balance sheet at fair value. Additionally, any of the adjustments to fair
value will affect either shareholders' equity or net income depending on
whether the derivative instrument qualifies as a hedge for accounting
purposes. The Company determines fair value based upon available market
information at each balance sheet date using standard valuation techniques
such as discounted cash flow analysis and option pricing models.
Prior to the adoption of SFAS 133, the Company applied deferral accounting
for all derivative financial instruments that were designated as hedges.
Amounts paid or received under these agreements were recognized as adjustments
to interest expense. The initial premiums on cap agreements were amortized
over the life of the agreement using the straight-line method.
On January 1, 2001, in connection with the adoption of SFAS 133, the
Company recorded a $1.4 million cumulative effect of change in accounting
principle to record an existing cap agreement at fair market value. The
Company also recorded a $2.0 million non-cash charge to other comprehensive
loss to record the Company's swap on the balance sheet at fair market value.
2. Acquisitions, Dispositions and Completed Development Projects
Acquisition of Land
In January 2001, the Company acquired the fee interest in a parcel of land
at 9455 Town Center Drive, San Diego for $3.1 million. The Company had
previously leased this land from the city of San Diego. This land is the site
of one of the Company's Office Properties.
Related Party Acquisition
In January 2001, the Operating Partnership purchased a 75% tenancy-in-
common interest in a three building office complex located in El Segundo,
California for $33.4 million in cash. The complex, which encompasses an
aggregate of approximately 366,000 rentable square feet, is comprised of two
office buildings and a parking structure. One of the office buildings is 100%
leased by Hughes Space & Communications Company. The Company is currently
redeveloping the second office building.
The Company partially funded the acquisition with $28.4 million in proceeds
from property dispositions that were held as restricted cash for the use in
tax-deferred property exchanges and included in
8
KILROY REALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
restricted cash at December 31, 2000. The remaining $5.0 million was funded
with borrowings under the Company's unsecured line of credit. The interests
were purchased from entities owned by John B. Kilroy, Sr., the Company's
Chairman of the Board of Directors, John B. Kilroy, Jr. the Company's
President and Chief Executive Officer, and certain other Kilroy family
members. Concurrent with the purchase of the 75% interest, the outstanding
note receivable from related party and accrued interest balances were paid to
the Company.
As a result of the acquisition, the Company owned a 100% interest in the
complex at March 31, 2001. The initial 25% tenancy-in-common interest was
acquired by a wholly owned subsidiary of the Company in October 2000 and was
recorded as an investment in unconsolidated real estate on the consolidated
balance sheet as of December 31, 2000.
Dispositions
In February 2001, the Company sold one industrial building to an
unaffiliated third party for an aggregate sales price of approximately $3.3
million in cash. The building, which encompasses approximately 39,700 rentable
square feet, is located in San Diego, California. The Company recorded a gain
of approximately $0.3 million in connection with the sale. The Company used
the sales proceeds to fund development expenditures.
Completed Development Projects
At March 31, 2001, the Company had the following two office properties in
lease-up:
Percentage Leased
or Under Letter of Estimated
Rentable Square Intent at Stabilization
Property Type Location Completion Date # of Buildings Feet March 31, 2001 Date(1)
- ------------- ------------- --------------- -------------- --------------- ------------------ -------------
Office.................. Calabasas, CA Q1 2001 1 98,700 49% Q1 2002
Office.................. Calabasas, CA Q1 2001 1 11,800 100% Q3 2001
--- -------
Total .................. 2 110,500 54%
=== =======
- --------
(1) Based on Management's estimation of the earlier of the stabilized
occupancy (95%) or one year from the date of substantial completion.
3. Unsecured Line of Credit
As of March 31, 2001, the Company had borrowings of $162 million
outstanding under its revolving unsecured line of credit (the "Credit
Facility") and availability of approximately $154 million. The Credit Facility
bears interest at an annual rate between LIBOR plus 1.13% and LIBOR plus 1.75%
(6.69% at March 31, 2001), depending upon the Company's leverage ratio at the
time of borrowing. The Company expects to use the Credit Facility to finance
development expenditures, to fund potential undeveloped land acquisitions and
for general corporate purposes.
Total interest capitalized for the three months ended March 31, 2001 and
2000 was $3.3 million and $4.0 million, respectively.
4. Derivative Financial Instruments and Interest Rate Risk Management
The Company is exposed to the effect of interest rate changes in the normal
course of business. The Company mitigates these risks by following established
risk management policies and procedures which includes the periodic use of
derivatives. The Company's primary strategy in entering into derivative
contracts is to
9
KILROY REALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
minimize the variability that changes in interest rates could have on its
future cash flows. The Company generally employs derivative instruments that
are designated as cash flow hedges, typically interest rate swaps and caps, to
effectively convert a portion of its variable rate debt to fixed rate debt.
The Company does not enter into derivative instruments for speculative
purposes.
Interest Rate Swaps and Caps
For interest rate swap agreements, the Company receives variable interest
rate payments and pays fixed interest rate payments, thereby creating the
equivalent of fixed rate debt. For interest rate cap agreements the Company
effectively limits its interest expense to a certain specified rate on a
portion of its variable rate debt. These agreements are reflected at fair
value in the Company's consolidated balance sheet and the related gains or
losses on these contracts are deferred in stockholders' equity as a component
of accumulated other comprehensive income or loss. To the extent that any of
these contracts are not considered to be perfectly effective in offsetting the
change in the value of the interest payments being hedged, any changes in fair
value relating to the ineffective portion of these contracts would be
recognized in earnings. For the three months ended March 31, 2001, the Company
did not record any gains or losses attributable to cash flow hedge
ineffectiveness since the terms of the Company's swap contracts and debt
obligations are effectively matched.
As of March 31, 2001, the Company had two interest rate swap agreements to
receive variable-rates of interest (LIBOR) and pay fixed-rates of interest
(weighted average rate of 6.21%) on an aggregate notional amount of $300
million, $150 million which expires in February 2002 and $150 million which
expires in November 2002. The Company, through one of the Development LLC's,
also had one interest rate cap agreement with a LIBOR based cap rate of 8.50%
and a notional amount of $48.1 million at March 31, 2001. The agreement had an
initial notional amount of $21.1 million that increases to $57.0 million
through August 2001, and then remains at $57.0 million until expiration in
April 2002. Each of these instruments have been designated as cash flow
hedges. As of March 31, 2001, the Company has a derivative liability of $5.5
million, which is included in accounts payable and accrued expenses in the
consolidated balance sheet. During the next twelve months, the Company
estimates that it will record approximately $4.7 million of interest expense
related to these instruments.
In January 2001, the Company terminated an interest rate cap agreement
which had a LIBOR based cap rate of 6.50% and a notional amount of $150
million.
5. Deferred Revenue
In January 2001, one of the Company's tenants, eToys, Inc., defaulted on
its lease and as a result, the Company drew $15.0 million under two letters of
credit which were held as credit support under the terms of the lease and as
security for the related tenant improvements and leasing commissions.
6. Minority Interests
Minority interests represent the preferred limited partnership interests in
the Operating Partnership, the common limited partnership interests in the
Operating Partnership not owned by the Company, and interests held by The
Allen Group in the Development LLCs. The Company owned an 89.2% general
partnership interest in the Operating Partnership as of March 31, 2001.
During the three months ended March 31, 2001, 466,236 common units of the
Operating Partnership were exchanged into shares of the Company's common stock
on a one-for-one basis. Of these 466,236 common limited partnership units,
242,669 common limited partnership units were owned by a partnership
affiliated with The Allen Group. Neither the Company nor the Operating
Partnership received any proceeds from the issuance of the common stock to the
identified common unitholders.
10
KILROY REALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Segment Disclosure
The Company's reportable segments consist of the two types of commercial
real estate properties for which management internally evaluates operating
performance and financial results: Office Properties and Industrial
Properties. The Company also has certain corporate level activities including
legal, accounting, finance, and management information systems which are not
considered separate operating segments.
The Company evaluates the performance of its segments based upon net
operating income. Net operating income is defined as operating revenues
(rental income, tenant reimbursements and other income) less property and
related expenses (property expenses, real estate taxes and ground leases) and
does not include interest income and expense, depreciation and amortization
and corporate general and administrative expenses. All operating revenues are
comprised of amounts received from third-party tenants.
Three Months Ended
March 31,
--------------------
2001 2000
--------- ---------
(in thousands)
Revenues and Expenses:
Office Properties:
Operating revenues..................................... $ 38,356 $ 29,874
Property and related expenses.......................... 9,086 7,117
--------- ---------
Net operating income, as defined....................... 29,270 22,757
--------- ---------
Industrial Properties:
Operating revenues..................................... 11,575 13,603
Property and related expenses.......................... 1,836 2,117
--------- ---------
Net operating income, as defined....................... 9,739 11,486
--------- ---------
Total Reportable Segments:
Operating revenues..................................... 49,931 43,477
Property and related expenses.......................... 10,922 9,234
--------- ---------
Net operating income, as defined....................... 39,009 34,243
--------- ---------
Reconciliation to Consolidated Net Income:
Total net operating income, as defined, for reportable
segments.............................................. 39,009 34,243
Other unallocated revenues:
Interest income...................................... 436 294
Other unallocated expenses:
General and administrative expenses.................. 3,354 2,632
Interest expense..................................... 10,791 7,828
Depreciation and amortization........................ 13,433 9,323
--------- ---------
Income from operations................................. 11,867 14,754
Net gains (losses) on dispositions of operating
properties............................................ 305 (305)
Minority interests..................................... (4,354) (4,871)
Cumulative effect of change in accounting principle.... (1,392)
--------- ---------
Net income............................................. $ 6,426 $ 9,578
========= =========
11
KILROY REALTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Earnings Per Share
Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share is computed by dividing net income by the sum of the
weighted-average number of common shares outstanding for the period plus the
number of common shares issuable assuming the exercise of all dilutive
securities. The Company does not consider common units of the Operating
Partnership to be dilutive since the exchange of common units into common
stock is on a one-for-one basis and would not have any effect on diluted
earnings per share. The following table reconciles the numerator and
denominator of the basic and diluted per-share computations for net income.
Three Months Ended
March 31,
------------------------
2001 2000
----------- -----------
Numerator:
Net income before cumulative effect of change in
accounting principle............................... $ 7,818 $ 9,578
Cumulative effect of change in accounting
principle.......................................... (1,392)
----------- -----------
Net income--numerator for basic and diluted earnings
per share.......................................... $ 6,426 $ 9,578
=========== ===========
Denominator:
Basic weighted average shares outstanding........... 26,713,078 27,228,497
Effect of dilutive securities--stock options........ 258,211 390
----------- -----------
Diluted weighted average shares and common share
equivalents outstanding............................ 26,971,289 27,228,887
=========== ===========
Basic and diluted earnings per share:
Net income before cumulative effect of change in
accounting principle............................... $ 0.29 $ 0.35
Cumulative effect of change in accounting
principle.......................................... (0.05)
----------- -----------
Net income.......................................... $ 0.24 $ 0.35
=========== ===========
At March 31, 2001, Company employees and directors held options to purchase
88,000 shares of the Company's common stock that were antidilutive to the
diluted earnings per share computation. These options could become dilutive in
future periods if the average market price of the Company's common stock
exceeds the exercise price of the outstanding options.
9. Subsequent Events
On April 16, 2001, aggregate distributions of $14.5 million were paid to
common stockholders and common unitholders of record on March 31, 2001.
On April 24, 2001, the Company sold two industrial buildings encompassing
an aggregate of approximately 162,200 rentable square feet to an unaffiliated
third party. The buildings, which are located in Roseville, CA, were sold for
an aggregate sales price of $15.4 million in cash.
In January 2001, one of the Company's tenants, eToys, defaulted on its
lease and declared bankruptcy. Subsequently, the Company drew $15.0 million
under two letters of credit which were held as credit support under the terms
of the lease and as security for the related tenant improvements and leasing
commissions. On May 2, 2001, the United States Bankruptcy Court for the
District of Delaware approved a stipulation under which the eToys lease was
terminated. Upon the execution of the stipulation, the Company obtained
possession of approximately 128,000 of the total 151,000 rentable square feet
leased to eToys and will have the right to obtain possession of the remaining
23,000 rentable square feet by May 31, 2001.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion relates to the consolidated financial statements
of the Company and should be read in conjunction with the financial statements
and notes thereto appearing elsewhere in this report. Statements contained in
this "Management's Discussion and Analysis of Financial Condition and Results
of Operations" that are not historical facts may be forward-looking
statements. Such statements are subject to certain risks and uncertainties,
which could cause actual results to differ materially from those projected.
Some of the enclosed information presented is forward-looking in nature,
including information concerning development timing and investment amounts.
Although the information is based on the Company's current expectations,
actual results could vary from expectations stated here. Numerous factors will
affect the Company's actual results, some of which are beyond its control.
These include the timing and strength of regional economic growth, the
strength of commercial and industrial real estate markets, competitive market
conditions, future interest rate levels and capital market conditions. You are
cautioned not to place undue reliance on this information, which speaks only
as of the date of this report. The Company assumes no obligation to update
publicly any forward-looking information, whether as a result of new
information, future events or otherwise. For a discussion of important risks
related to the Company's business, and an investment in its securities,
including risks that could cause actual results and events to differ
materially from results and events referred to in the forward-looking
information, see the discussion under the caption "Business Risks" in the
Company's annual report on Form 10-K for the year ended December 31, 2000. In
light of these risks, uncertainties and assumptions, the forward-looking
events contained herein might not occur.
Overview and Background
Kilroy Realty Corporation (the "Company") develops, owns, and operates
office and industrial real estate, primarily in Southern California. The
Company operates as a self-administered real estate investment trust ("REIT").
The Company owns its interests in all of its properties through Kilroy Realty,
L.P. (the "Operating Partnership") and Kilroy Realty Finance Partnership, L.P.
and conducts substantially all of its operations through the Operating
Partnership. The Company owned an 89.2% general partnership interest in the
Operating Partnership as of March 31, 2001.
Results of Operations
The Company continues to capitalize on its development program which at
March 31, 2001 consisted of an aggregate of approximately 1.0 million rentable
square feet of in-process and committed office development projects and an
aggregate of approximately 1.2 million rentable square feet of future office
development projects. The Company's stabilized portfolio of operating
properties consists of all of the Company's office and industrial properties
excluding properties recently developed by the Company that have not yet
reached 95.0% occupancy ("lease-up" properties) and projects currently under
construction or in pre-development. During the year ended December 31, 2000
the Company completed the development of nine office buildings encompassing an
aggregate of approximately 1.0 million rentable square feet. All of these
completed development properties were included in the Company's portfolio of
stabilized operating properties at March 31, 2001. At March 31, 2001, the
Company had two office buildings encompassing an aggregate of approximately
110,500 rentable square feet in the lease-up phase and seven office projects
under construction which when completed are expected to encompass an aggregate
of approximately 702,700 rentable square feet.
During the three months ended March 31, 2001, the Company acquired a 75%
tenancy-in-common interest in a three building office complex encompassing an
aggregate of approximately 366,000 rentable square feet. As a result of the
acquisition, the Company owned a 100% interest in the complex at March 31,
2001. The initial 25% tenancy-in-common interest was acquired by a wholly-
owned subsidiary of the Company in October 2000 and was recorded as an
investment in unconsolidated real estate on the consolidated balance sheet as
of December 31, 2000. The Company did not acquire any other operating
properties during the year ended December 31, 2000. During the three months
ended March 31, 2001, the Company disposed of one
13
industrial building encompassing an aggregate of approximately 39,700 rentable
square feet, for an aggregate sales price of $3.3 million. During the year
ended December 31, 2000, the Company disposed of nine office and nine
industrial buildings encompassing an aggregate of approximately 286,700 and
669,800 rentable square feet, respectively, for an aggregate sales price of
$113.6 million.
As a result of the property acquired and the projects developed by the
Company subsequent to March 31, 2000, net of the effect of properties disposed
of subsequent to March 31, 2000, rentable square footage in the Company's
portfolio of stabilized properties increased by an aggregate of approximately
175,000 rentable square feet, or 1.4%, to 12.8 million rentable square feet at
March 31, 2001 compared to 12.6 million rentable square feet at March 31,
2000. As of March 31, 2001, the Company's stabilized portfolio was comprised
of 85 office properties (the "Office Properties") encompassing an aggregate of
approximately 7.1 million rentable square feet and 77 industrial properties
(the "Industrial Properties") encompassing an aggregate of approximately
5.8 million rentable square feet. The stabilized portfolio occupancy rate at
March 31, 2001 was 96.6%, with the Office and Industrial Properties 95.7% and
97.7% occupied, respectively.
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31,
2000
Three Months
Ended
March 31,
--------------- Dollar Percentage
2001 2000 Change Change
------- ------- ------- ----------
(unaudited, dollars in thousands)
Revenues:
Rental income............................. $44,379 $37,702 $ 6,677 17.7%
Tenant reimbursements..................... 5,520 4,694 826 17.6
Interest income........................... 436 294 142 48.3
Other income.............................. 32 1,081 (1,049) (97.0)
------- ------- -------
Total revenues.......................... 50,367 43,771 6,596 15.1
------- ------- -------
Expenses:
Property expenses......................... 6,895 5,458 1,437 26.3
Real estate taxes......................... 3,635 3,387 248 7.3
General and administrative expenses....... 3,354 2,632 722 27.4
Ground leases............................. 392 389 3 0.8
Interest expense.......................... 10,791 7,828 2,963 37.9
Depreciation and amortization............. 13,433 9,323 4,110 44.1
------- ------- -------
Total expenses.......................... 38,500 29,017 9,483 32.7
------- ------- -------
Income from operations...................... $11,867 $14,754 $(2,887) (19.6)%
======= ======= =======
14
Rental Operations
Management evaluates the operations of its portfolio based on operating
property type. The following tables compare the net operating income, defined
as operating revenues (rental income, tenant reimbursements and other income)
less property and related expenses (property expenses, real estate taxes and
ground leases) before depreciation, for the Office and Industrial Properties
for the three months ended March 31, 2001 and 2000.
Office Properties
Total Office Portfolio Core Office Portfolio(1)
---------------------------------- ---------------------------------
Dollar Percentage Dollar Percentage
2001 2000 Change Change 2001 2000 Change Change
------- ------- ------ ---------- ------- ------- ------ ----------
Operating revenues:
Rental income......... $34,096 $26,578 $7,518 28.3% $26,017 $25,655 $362 1.4%
Tenant reimbursement.. 4,234 3,162 1,072 33.9 3,334 3,071 263 8.6
Other income.......... 26 134 (108) (80.6) 48 127 (79) (62.2)
------- ------- ------ ------- ------- ----
Total............... 38,356 29,874 8,482 28.4 29,399 28,853 546 1.9
------- ------- ------ ------- ------- ----
Property and related
expenses:
Property expenses..... 6,075 4,499 1,576 35.0 4,490 4,245 245 5.8
Real estate taxes..... 2,619 2,229 390 17.5 2,038 2,114 (76) (3.6)
Ground leases......... 392 389 3 0.8 332 380 (48) (12.6)
------- ------- ------ ------- ------- ----
Total............... 9,086 7,117 1,969 27.7 6,860 6,739 121 1.8
------- ------- ------ ------- ------- ----
Net operating income, as
defined................ $29,270 $22,757 $6,513 28.6% $22,539 $22,114 $425 1.9%
======= ======= ====== ======= ======= ====
- --------
(1) Stabilized office properties owned at January 1, 2000 and still owned at
March 31, 2001.
Total revenues from Office Properties increased $8.5 million, or 28.4% to
$38.4 million for the three months ended March 31, 2001 compared to $29.9
million for the three months ended March 31, 2000. Rental income from Office
Properties increased $7.5 million, or 28.3% to $34.1 million for the three
months ended March 31, 2001 compared to $26.6 million for the three months
ended March 31, 2000. Rental income generated by the Core Office Portfolio
increased $0.4 million, or 1.4% for the three months ended March 31, 2001 as
compared to the three months ended March 31, 2000. This increase was primarily
attributable to growth provided by increases in rental rates on renewed and
released space in this portfolio. Average occupancy in the Core Office
Portfolio decreased 1.5% to 95.1% for the three months ended March 31, 2001
compared to 96.6% for the three months ended March 31, 2000. Of the remaining
increase of $7.1 million in rental income from Office Properties, an increase
of $8.0 million was generated by the office properties developed by the
Company in 2000 (the "Office Development Properties"), offset by a decrease of
$0.9 million in rental income attributed to the nine office buildings sold
during 2000, (the "Office Dispositions").
Tenant reimbursements from Office Properties increased $1.1 million, or
33.9% to $4.2 million for the three months ended March 31, 2001 compared to
$3.1 million for the three months ended March 31, 2000. An increase of $0.3
million, or 8.6% in tenant reimbursements was generated by the Core Office
Portfolio and was primarily due to an increase in property expenses which were
reimbursable by tenants. Of the remaining increase of $0.8 million, an
increase of $0.9 million in tenant reimbursements was generated by the Office
Development Properties offset by a decrease of $0.1 million generated by the
Office Dispositions. Other income from Office Properties decreased $0.1
million or 80.6% to $26,000 for the three months ended March 31, 2001 compared
to $0.1 million for the three months ended March 31, 2000. Other income from
Office Properties for both periods consisted primarily of lease termination
fees, management fees and tenant late charges.
Total expenses from Office Properties increased $2.0 million, or 27.7% to
$9.1 million for the three months ended March 31, 2001 compared to $7.1
million for the three months ended March 31, 2000. Property expenses from
Office Properties increased $1.6 million, or 35.0% to $6.1 million for the
three months ended March 31,
15
2001 compared to $4.5 million for the three months ended March 31, 2000. An
increase of $0.2 million in property expenses was attributable to the Core
Office Portfolio. This increase was primarily attributable to $140,000 of
estimated repairs at the SeaTac office center due to damage resulting from the
Seattle earthquake. Of the remaining increase of $1.4 million, an increase of
$1.6 million generated by the Office Development Properties was offset by a
decrease of $0.2 million generated by Office Dispositions. Real estate taxes
increased $0.4 million, or 17.5% to $2.6 million for the three months ended
March 31, 2001 as compared to $2.2 million for the three months ended March
31, 2000. An increase of $0.6 million attributable to the Office Development
Properties was offset by a decrease of $0.1 million from the Office
Dispositions. Real estate taxes for the Core Office Portfolio decreased $0.1
million, or 3.6% for the three months ended March 31, 2001 compared to the
comparable period in 2000. This decrease was primarily due to the effect of
prior year real estate taxes which were successfully appealed by the Company
in 2001. Ground lease expense from Office Properties remained constant for
both periods.
Net operating income, as defined, from Office Properties increased $6.5
million, or 28.6% to $29.3 million for the three months ended March 31, 2001
compared to $22.8 million for the three months ended March 31, 2000. Of this
increase, $0.4 million was generated by the Core Office Portfolio and
represented a 1.9% increase in net operating income for the Core Office
Portfolio. Excluding the effect of the $140,000 one-time repair costs due to
damage resulting from the Seattle earthquake included in the first quarter
2001 results, net operating income for the Core Office Portfolio increased
2.6%. The remaining increase of $6.1 million was generated by an increase of
$6.7 million from the Office Development Properties, offset by a $0.6 million
decrease generated by the Office Dispositions.
Industrial Properties
Total Industrial Portfolio Core Industrial Portfolio(1)
----------------------------------- ----------------------------------
Dollar Percentage Dollar Percentage
2001 2000 Change Change 2001 2000 Change Change
------- ------- ------- ---------- ------- ------- ------ ----------
Operating revenues:
Rental income......... $10,283 $11,124 $ (841) (7.6)% $10,228 $ 9,175 $1,053 11.5%
Tenant
reimbursements....... 1,286 1,532 (246) (16.1) 1,268 1,251 17 1.4
Other income.......... 6 947 (941) (99.4) 5 946 (941) (99.5)
------- ------- ------- ------- ------- ------
Total............... 11,575 13,603 (2,028) (14.9) 11,501 11,372 129 1.1
------- ------- ------- ------- ------- ------
Property and related
expenses:
Property expenses..... 820 959 (139) (14.5) 808 766 42 5.5
Real estate taxes..... 1,016 1,158 (142) (12.3) 1,011 960 51 5.3
------- ------- ------- ------- ------- ------
Total............... 1,836 2,117 (281) (13.3) 1,819 1,726 93 5.4
------- ------- ------- ------- ------- ------
Net operating income, as
defined................ $ 9,739 $11,486 $(1,747) (15.2)% $ 9,682 $9,646 $ 36 0.4%
======= ======= ======= ======= ======= ======
- --------
(1) Stabilized industrial properties owned at January 1, 2000 and still owned
at March 31, 2001.
Total revenues from Industrial Properties decreased $2.0 million, or 14.9%
to $11.6 million for the three months ended March 31, 2001 compared to $13.6
million for the three months ended March 31, 2000. Rental income from
Industrial Properties decreased $0.8 million, or 7.6% to $10.3 million for the
three months ended March 31, 2001 compared to $11.1 million for the three
months ended March 31, 2000. Rental income generated by the Core Industrial
Portfolio increased $1.1 million, or 11.5% for the three months ended March
31, 2001 as compared to the three months ended March 31, 2000. This increase
was primarily attributable to an increase in rental rates on renewed and
released space in this portfolio. In addition, rental income for the three
months ended March 31, 2000 included a $0.4 million write-off of the deferred
rent receivable balance for a tenant that terminated its lease. Average
occupancy in the Core Industrial Portfolio increased 0.3% to 97.9% for the
three months ended March 31, 2001 compared to 97.6% for the three months ended
March 31, 2000. The $1.1 million increase in rental income generated by the
Core Industrial Portfolio was offset by a decrease of $1.9 million in
16
rental income attributable to the ten industrial buildings sold during 2000
and 2001 (the "Industrial Dispositions").
Tenant reimbursements from Industrial Properties decreased $0.2 million, or
16.1% to $1.3 million for the three months ended March 31, 2001 compared to
$1.5 million for three months ended March 31, 2000. This decrease was
attributable to a $0.2 million decrease in tenant reimbursements generated by
the Industrial Dispositions. Tenant reimbursements for the Core Industrial
Portfolio remained consistent for the three months ended March 31, 2001
compared to the comparable period in 2000. Other income from Industrial
Properties decreased $0.9 million, or 99.4% to $6,000 for the three months
ended March 31, 2001 compared to $0.9 million for the three months ended March
31, 2000. Other income from Industrial Properties for the three months ended
March 31, 2000 was comprised primarily of a $0.9 million lease termination fee
from a building in El Segundo, California. Net of the $0.4 million write-off
of the deferred rent receivable balance discussed above, the Company
recognized a net lease termination fee of $0.5 million on this transaction.
Total expenses from Industrial Properties decreased $0.3 million, or 13.3%
to $1.8 million for the three months ended March 31, 2001 compared to $2.1
million for the three months ended March 31, 2000. Property expenses from
Industrial Properties decreased by $0.1 million, or 14.5% to $0.8 million for
the three months ended March 31, 2001 compared to $0.9 million for the three
months ended March 31, 2000. The decrease was attributable to a $0.1 million
decrease in property expenses generated by the Industrial Dispositions.
Property expenses for the Core Industrial Portfolio remained consistent for
the three months ended March 31, 2001 compared to the comparable period in
2000. Real estate taxes decreased by $0.1 million for the three months ended
March 31, 2001 compared to the three months ended March 31, 2000. Real estate
taxes for the Core Industrial Portfolio increased $0.1 million, or 5.3% for
the three months ended March 31, 2001 compared to the same period in 2000.
This $0.1 million increase was offset by a decrease of $0.2 million from the
Industrial Dispositions.
Net operating income, as defined, from Industrial Properties decreased $1.8
million, or 15.2% to $9.7 million for the three months ended March 31, 2001
compared to $11.5 million for the three months ended March 31, 2000. Net
operating income for the Core Industrial Portfolio increased $36,000, or 0.4%
for the three months ended March 31, 2001 compared to the same period in 2000.
Excluding the effect of the $0.5 million net lease termination fee included in
the first quarter 2000 results, net operating income for the Core Industrial
Portfolio increased 5.9%. The decrease of $1.8 million in net operating income
was due to the Industrial Dispositions.
Non-Property Related Income and Expenses
Interest income increased $0.1 million, or 48.3% to $0.4 million for the
three months ended March 31, 2001 compared to $0.3 million for the three
months ended March 31, 2000. The increase was due primarily to interest earned
on restricted cash held for deferred tax property exchanges at the beginning
of 2001.
General and administrative expenses increased $0.7 million, or 27.4% to
$3.3 million for the three months ended March 31, 2001 compared to $2.6
million for the three months ended March 31, 2000. This increase was primarily
due to higher salaries and benefits.
Interest expense increased $3.0 million, or 37.9% to $10.8 million for the
three months ended March 31, 2001 compared to $7.8 million for the three
months ended March 31, 2000, primarily due to a net increase in aggregate
indebtedness. The Company's weighted average annual interest rate decreased
approximately 0.4% to 7.6% at March 31, 2001 as compared to 8.0% at March 31,
2000.
Depreciation and amortization increased $4.1 million, or 44.1% to $13.4
million for the three months ended March 31, 2001 compared to $9.3 million for
the three months ended March 31, 2000. The increase was due primarily to
depreciation on properties developed and stabilized by the Company subsequent
to March 31, 2000 net of the effect of properties disposed of subsequent to
March 31, 2000.
17
Liquidity and Capital Resources
The Company has a $400 million unsecured revolving credit facility (the
"Credit Facility") which bears interest at an annual rate between LIBOR plus
1.13% and LIBOR plus 1.75% (6.69% at March 31, 2001), depending upon the
Company's leverage ratio at the time of borrowing, and matures in November
2002. As of March 31, 2001, the Company had borrowings of $162 million
outstanding under the Credit Facility and availability of approximately $154
million. The Company uses the Credit Facility to finance development
expenditures, to fund potential undeveloped land acquisitions and for general
corporate purposes.
The Company has a $100.0 million unsecured debt facility, which matures in
September 2002 with two one-year extension options, requires monthly interest-
only payments based upon an annual interest rate between LIBOR plus 1.13% and
LIBOR plus 1.75% (6.69% at March 31, 2001), and prices based upon the same
pricing tiers and leverage ratio as the Credit Facility. The same pool of
unencumbered assets is used to determine availability for the Credit Facility
and the $100.0 million unsecured debt facility.
The following table sets forth the composition of the Company's secured debt
at March 31, 2001 and December 31, 2000:
March 31, December 31,
2001 2000
--------- ------------
(in thousands)
Mortgage note payable, due April 2009, fixed interest
at 7.20%,
monthly principal and interest payments............... $ 92,077 $ 92,465
Mortgage note payable, due October 2003, interest at
LIBOR plus 1.75%,
(7.11% and 8.32% at March 31, 2001 and December 31,
2000, respectively), monthly interest-only
payments(a)........................................... 83,213 83,213
Mortgage note payable, due February 2022, fixed
interest at 8.35%,
monthly principal and interest payments(b)............ 79,149 79,495
Construction loan payable, due April 2002, interest
between LIBOR plus
2.00% and LIBOR plus 2.70%, (7.49% and 8.86% at March
31, 2001 and December 31, 2000,
respectively)(a)(c)(d)................................ 52,887 50,068
Mortgage note payable, due May 2017, fixed interest at
7.15%,
monthly principal and interest payments............... 28,316 28,549
Mortgage note payable, due June 2004, interest at LIBOR
plus 1.75%,
(7.03% and 8.49% at March 31, 2001 and December 31,
2000, respectively), monthly principal and interest
payments(a)........................................... 21,823 21,890
Mortgage loan payable, due November 2014, fixed
interest at 8.13%,
monthly principle and interest payments............... 12,804 12,844
Mortgage note payable, due December 2005, fixed
interest at 8.45%,
monthly principal and interest payments............... 12,405 12,523
Construction loan payable, due November 2002, interest
at LIBOR plus 3.00% (8.26% and 9.73% at March 31, 2001
and December 31, 2000, respectively)(a)(d)............ 11,724 11,367
Mortgage note payable, due November 2014, fixed
interest at 8.43%,
monthly principal and interest payments............... 10,476 10,578
Construction loan payable, due October 2002, interest
at LIBOR plus 1.75% (7.09% and 8.37% at March 31, 2001
and December 31, 2000, respectively)(a)(e)............ 13,697 9,399
Mortgage note payable, due December 2003, fixed
interest at 10.00%,
monthly interest accrued through December 31, 2000, no
interest accrues thereafter........................... 8,410 8,500
Mortgage note payable, due October 2013, fixed interest
at 8.21%,
monthly principal and interest payments............... 6,991 7,070
Construction loan payable, due April 2002, interest at
LIBOR plus 1.75% (6.85% and 9.10% at March 31, 2001
and December 31, 2000, respectively)(a)(d)............ 6,569 4,727
-------- --------
$440,541 $432,688
======== ========
- --------
(a) The variable interest rates stated as of March 31, 2001 and December 31,
2000 are based on the last repricing date during the respective periods.
The repricing rates may not be equal to LIBOR at March 31, 2001 and
December 31, 2000.
18
(b) Beginning February 2005, the mortgage note is subject to increases in the
effective annual interest rate to the greater of 10.35% or the sum of the
interest rate for U.S. Treasury Securities maturing 15 years from the
reset date plus 2.00%.
(c) The Company, through one of the Development LLCs, has an interest rate cap
agreement with a LIBOR based cap rate of 8.50% to effectively limit
interest expense on the this variable rate construction loan during
periods of increasing interest rates. The agreement had an initial
notional amount of $21.1 million that increases to $57.0 million during
the period from May 2000 through August 2001, and then remains at $57.0
million until expiration in April 2002. The notional amount of the
interest rate cap agreement was approximately $48.1 and $42.0 million at
March 31, 2001 and December 31, 2000, respectively.
(d) This loan contains options to extend the maturity for up to two six-month
periods.
(e) This loan contains an option to extend the maturity twelve months.
The following table sets forth certain information with respect to the
maturities and scheduled principal repayments of the Company's secured debt
and unsecured term facility at March 31, 2001, assuming the exercise of
available debt extension options:
Year Ending Dollars
----------- --------------
(in thousands)
Remaining 2001.............................................. $ 4,302
2002........................................................ 6,148
2003........................................................ 183,145
2004........................................................ 127,719
2005........................................................ 16,965
Thereafter.................................................. 202,262
--------
Total..................................................... $540,541
========
The following table sets forth certain information with respect to the
Company's aggregate debt composition at March 31, 2001 and December 31, 2000:
Percentage of Total Weighted Average
Debt Interest Rate
---------------------- ----------------------
March 31, December 31, March 31, December 31,
2001 2000 2001 2000
--------- ------------ --------- ------------
Secured vs. unsecured:
Secured..................... 62.7% 59.8% 7.4% 8.2%
Unsecured................... 37.3% 40.2% 7.8% 8.3%
Fixed rate vs. variable rate:
Fixed rate (1)(2)(5)........ 78.4% 55.6% 7.6% 8.1%
Variable rate (3)(4)........ 21.6% 44.4% 7.2% 8.4%
- --------
(1) At March 31, 2001 and December 31, 2000, the Company had an interest rate
swap agreement to fix LIBOR on $150 million of its floating rate debt at
6.95% that expires in February 2002.
(2) In January 2001, the Company entered into an interest rate swap agreement
to fix LIBOR on $150 million of its floating rate debt starting in January
2001 and expiring in November 2002.
(3) At December 31, 2000, the Company had an interest rate cap agreement to
cap LIBOR on $150 million of its floating rate debt at 6.50%. The Company
terminated this cap agreement in January 2001.
(4) At March 31, 2001, one of the Development LLCs had an interest-rate cap
agreement to cap LIBOR on its floating rate construction debt at 8.50%.
The notional amount of the cap increases over the life of the agreement as
the balance of the related construction loan increases. At March 31, 2001
and December 31, 2000, the notional amount of the interest rate cap was
approximately $48.1 million and $42.0 million, respectively.
(5) The percentage of fixed rate debt to total debt at March 31, 2001 and
December 31, 2000 does not take into consideration the portion of floating
rate debt capped by the Company's interest-rate cap agreements. Including
the effects of the interest-rate cap agreements, the Company had fixed or
capped approximately 85.2% and 82.1% of its total outstanding debt at
March 31, 2001 and December 31, 2000, respectively.
19
As of May 14, 2001, the Company had an aggregate of $313 million of equity
securities available for issuance under a registration statement.
Capital Expenditures
As of March 31, 2001, the Company had an aggregate of approximately 1.0
million rentable square feet of office space that was either in lease-up,
under construction or committed for construction at a total budgeted cost of
approximately $250 million. The Company has spent an aggregate of
approximately $134 million on these projects as of March 31, 2001. The Company
intends to finance $9 million of the remaining $116 million of presently
budgeted development costs, with proceeds from construction loans obtained in
2000. The Company intends to finance the remaining $107 million of budgeted
development costs with additional construction loan financing, proceeds from
the Company's dispositions program, borrowings under the Credit Facility and
from working capital.
In connection with an agreement signed with The Allen Group in October
1997, the Company has agreed to purchase one office property encompassing
approximately 128,000 rentable square feet, subject to the property meeting
certain occupancy thresholds and other tenancy requirements. The purchase
price for this property will be determined at the time of acquisition based on
the net operating income at the time of acquisition. The Company expects that
in the event that this acquisition does occur, it would be financed with
borrowings under the Credit Facility and the issuance of common limited
partnership units of the Operating Partnership.
The Company believes that it will have sufficient capital resources to
satisfy its obligations and planned capital expenditures for the next twelve
months. The Company expects to meet its long-term liquidity requirements
including possible future development and undeveloped land acquisitions,
through retained cash flow, long-term secured and unsecured borrowings,
proceeds from the Company's dispositions program, or the issuance of common or
preferred units of the Operating Partnership.
Building and Lease Information
The following tables set forth certain information regarding the Company's
Office and Industrial Properties at March 31, 2001:
Occupancy by Segment Type
Square Feet
Number of -----------------------------------------
Region Buildings Total Leased Available Occupancy
------ --------- ---------- ---------- --------- ---------
Office Properties:
Los Angeles.............. 31 3,199,985 3,091,586 108,399 96.6%
Orange County............ 13 624,866 444,856 180,010 71.2
San Diego................ 35 2,529,613 2,529,613 100.0
Other.................... 6 709,575 696,550 13,025 98.2
--- ---------- ---------- -------
85 7,064,039 6,762,605 301,434 95.7
--- ---------- ---------- -------
Industrial Properties:
Los Angeles.............. 7 554,490 553,904 586 99.9
Orange County............ 62 4,393,537 4,263,032 130,505 97.0
Other.................... 8 820,124 820,124 100.0
--- ---------- ---------- -------
77 5,768,151 5,637,060 131,091 97.7
--- ---------- ---------- -------
Total Portfolio.......... 162 12,832,190 12,399,665 432,525 96.6%
=== ========== ========== =======
20
Lease Expirations by Segment Type
Percentage
Total of Total
Square Leased Annual Base
Footage Square Feet Rent Under
Number of of Represented Expiring
Expiring Expiring by Expiring Leases
Year of Lease Expiration Leases(1) Leases Leases(2) (in 000's)(3)
------------------------ --------- --------- ----------- -------------
Office Properties:
Remaining 2001............... 50 654,785 10.6% $ 9,318
2002......................... 59 472,594 7.6 8,756
2003......................... 53 365,557 5.9 7,463
2004......................... 50 771,081 12.4 17,313
2005......................... 52 919,251 14.8 16,890
2006......................... 29 573,446 9.3 13,604
--- --------- ---- --------
293 3,756,714 60.6 73,344
--- --------- ---- --------
Industrial Properties:
Remaining 2001............... 59 576,754 10.3 4,084
2002......................... 54 323,788 5.8 3,019
2003......................... 48 760,939 13.6 5,455
2004......................... 17 542,795 9.7 3,917
2005......................... 15 746,635 13.3 5,676
2006......................... 8 621,390 11.1 4,930
--- --------- ---- --------
201 3,572,301 63.8 27,081
--- --------- ---- --------
Total Portfolio.............. 494 7,329,015 57.1% $100,425
=== ========= ========
- --------
(1) Represents the total number of tenants. Some tenants have multiple leases.
Excludes leases for amenity, retail, parking and month-to-month tenants.
(2) Based on total leased square footage for the respective portfolios as of
March 31, 2001.
(3) Determined based upon aggregate base rent to be received over the term,
divided by the term in months, multiplied by 12, including all leases
executed on or before April 1, 2001.
Leasing Activity by Segment Type
For the Three Months Ended March 31, 2001
Weighted
Number of Average
Leases(1) Square Feet(1) Change in Lease Term
----------- ----------------- Change In Cash Retention (in
New Renewal New Renewal(2) Rents(2) Rents(3) Rate(4) months)
--- ------- ------ ---------- --------- --------- --------- ----------
Office Properties....... 6 8 36,318 86,555 23.0% 16.8% 36.1% 34
Industrial Properties... 7 8 23,930 169,268 63.8% 40.2% 88.5% 55
--- --- ------ ------- ---- ---- ---- ---
Total Portfolio......... 13 16 60,248 255,823 47.2% 30.7% 59.3% 47
=== === ====== ======= ==== ==== ==== ===
- --------
(1) Includes first and second generation space, net of month-to-month leases.
Excludes leasing on new construction. First generation space is defined as
the space first leased by the Company.
(2) Calculated as the change between GAAP rents for new/renewed leases and the
expiring GAAP rents for the same space.
(3) Calculated as the change between stated rents for new/renewed leases and
the expiring stated rents for the same space.
(4) Calculated as the percentage of space either renewed or expanded into by
existing tenants at lease expiration.
21
Historical Cash Flows
The principal sources of funding for development, acquisitions, and capital
expenditures are the Credit Facility, cash flow from operating activities,
secured and unsecured debt financing and proceeds from the Company's
dispositions. The Company's net cash provided by operating activities
increased $20.8 million, or 144.4% to $35.2 million for the three months ended
March 31, 2001 compared to $14.4 million for the three months ended March 31,
2000. This increase was primarily attributable to $15.0 million the Company
drew under letters of credit that the Company held as credit support under the
terms of the lease and as security for the related tenant improvements and
leasing commissions after one of its tenants defaulted on its lease in
January 2001. The increase is also due to timing differences in payments of
accounts payable at the end of each comparable period.
Net cash used in investing activities decreased $11.1 million, or 28.8% to
$27.4 million for the three months ended March 31, 2000 compared to $38.5
million for the three months ended March 31, 2000. Cash used in investing
activities for the three months ended March 31, 2001 consisted primarily of
the acquisition of the fee interest in the land at the site of one of it
Office Properties for $3.1 million, expenditures for construction in progress
of $25.7 million, and $1.1 million in additional tenant improvements and
capital expenditures offset by $3.2 million in net proceeds received from the
sale of one industrial building. Cash used in investing activities for the
three months ended March 31, 2000 consisted primarily of the purchase of 17
acres of undeveloped land for $11.3 million (net of an $8.5 million mortgage
note payable issued in connection with the acquisition), expenditures for
construction in progress of $36.4 million, and $1.5 million in additional
tenant improvements and capital expenditures offset by $3.4 million in net
proceeds received from the sale of two office buildings.
Net cash used in financing activities decreased $13.0 million, or 178.3% to
$5.7 million net cash used by financing activities for the three months ended
March 31, 2001 compared to $7.3 million net cash provided by financing
activities for the three months ended March 31, 2000. Cash used by financing
activities for the three months ended March 31, 2001 consisted primarily of
$29.0 million in repayments to the Credit Facility and $13.6 million in
distributions paid to common stockholders and common unitholders, partially
offset by a $28.3 decrease in restricted cash used in a tax deferred property
exchange and $9.3 million of additional funding drawn under the Company's
existing construction loans. Cash provided by financing activities for the
three months ended March 31, 2000 consisted primarily of $64.5 million in
borrowings under the Credit Facility, partially offset by $13.5 million in
distributions paid to common stockholders and common unitholders, $0.5 million
in distributions paid to the minority interests in the Development LLCs, and
$41.3 million paid for the Company's stock repurchase program.
Funds from Operations
Industry analysts generally consider Funds From Operations, as defined by
NAREIT, an alternative measure of performance for an equity REIT. Funds From
Operations is defined by NAREIT to mean net income (loss) before minority
interests of common unitholders (computed in accordance with GAAP), excluding
gains (or losses) from debt restructuring and sales of property, 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. The
Company considers Funds From Operations an appropriate measure of performance
of an equity REIT because it is predicated on cash flow analyses. The Company
believes that in order to facilitate a clear understanding of the historical
operating results of the Company, Funds From Operations should be examined in
conjunction with net income as presented in the financial statements included
elsewhere in this report. The Company computes Funds From Operations in
accordance with standards established by the Board of Governors of NAREIT in
its March 1995 White Paper as clarified by the November 2000 NAREIT National
Policy Bulletin which became effective on January 1, 2000 which may differ
from the methodologies used by other equity REITs and, accordingly, may not be
comparable to Funds From Operations published by such other REITs. Funds From
Operations should not be considered as an alternative to net income (loss)
(computed in accordance with GAAP) as an indicator of the properties'
financial performance or to cash flow from operating activities (computed in
accordance with GAAP) as an indicator of the properties' liquidity, nor is it
indicative of funds available to fund the properties' cash needs, including
the Company's ability to pay dividends or make distributions.
22
The following table presents the Company's Funds From Operations for the
three months ended March 31, 2001 and 2000.
Three Months
Ended March 31,
----------------
2001 2000
------- -------
(in thousands)
Net income................................................ $ 6,426 $ 9,578
Adjustments:
Minority interest in earnings of Operating
Partnership.......................................... 845 1,372
Depreciation and amortization......................... 12,970 9,323
Net (gains) losses on dispositions of operating
properties........................................... (305) 305
Cumulative effect of change in accounting principle... 1,392
Non-cash amortization of restricted stock grants...... 548 102
------- -------
Funds From Operations..................................... $21,876 $20,680
======= =======
Inflation
The majority of the Company's tenant leases require tenants to pay most
operating expenses, including real estate taxes, utilities, insurance, and
increases in common area maintenance expenses, which reduce the Company's
exposure to increases in costs and operating expenses resulting from
inflation.
23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Changes in Primary Risk Exposures
Information about the Company's changes in primary risk exposures from
December 31, 2000 to March 31, 2001, is incorporated herein by reference from
"Item 2: Management Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
Tabular Presentation of Market Risk
The tabular presentations below provide information about the Company's
interest rate sensitive financial and derivative instruments as of March 31,
2001 and 2000. All of the Company's interest rate sensitive financial and
derivative instruments are designated as held for purposes other than trading.
Presentation at March 31, 2001
For the Credit Facility, the table presents the assumption that the
outstanding principal balance at March 31, 2001 will be paid upon the Credit
Facility's maturity in November 2002. The table also presents the expected
maximum contractual weighted average interest rate index for outstanding
Credit Facility borrowings through 2002.
For variable rate secured debt and unsecured term debt, the table presents
the assumption that all available debt extension options will either be
exercised or extended and that the outstanding principal balance at March 31,
2001 will be paid upon the extended debt maturities. The table also presents
the contractual weighted average interest rate index for outstanding variable
rate mortgage debt borrowings through 2004.
For fixed rate secured debt, the table presents the assumption that the
outstanding principal balance at March 31, 2001 will be paid according to
scheduled principal payments and that the Company will not prepay any of the
outstanding principal balance. The table also presents the related contractual
weighted-average interest rate at March 31, 2001 for outstanding fixed rate
mortgage debt borrowings through 2005 and thereafter.
For the Series A, Series C, and Series D Cumulative Redeemable Preferred
units (the "Series A, Series C and Series D Preferred units") the table
reflects the assumption that the Company is not contractually obligated to
repay the outstanding balance of the Series A, Series C, and Series D
Preferred units since the Series A, Series C and Series D Preferred units will
either remain outstanding or be converted into shares of the Company's 8.075%
Series A, 9.375% Series C, and 9.25% Series D Cumulative Redeemable Preferred
stock, respectively, in 2008, 2008, and 2009, respectively when the Series A,
Series C and Series D Preferred units become exchangeable at the option of the
majority of the holders. The table also presents the related weighted-average
interest rate at March 31, 2001 for outstanding Series A, C and D Preferred
units through the exchange date. The same interest rates will apply when the
Series A, C and D Preferred units are exchanged into the respective Cumulative
Redeemable Preferred stock.
24
For the interest rate cap agreement, the table presents the notional
amount, cap rate and the related interest rate index upon which the cap rate
is based, by contractual maturity date. For the interest rate swap agreements,
the table presents the aggregate notional amount, average contractual fixed
pay rate, and related interest rate index upon which the floating receive rate
is based, by contractual maturity date. Notional amounts are used solely to
calculate the contractual cash flow to be received under the contract and do
not reflect outstanding principal balances at March 31, 2001.
Interest Rate Risk Analysis--Tabular Presentation
Financial Assets and Liabilities
Outstanding Principal by Expected Maturity Date
March 31, 2001
(dollars in millions)
Maturity Date Fair Value at
------------------------------------------------ March 31,
2001 2002 2003 2004 2005 Thereafter Total 2001
----- ------ ------ ------ ----- ---------- ------ ------
Liabilities:
Unsecured line of
credit:
Variable rate......... $162.0 $162.0 $162.0
Average interest rate LIBOR LIBOR
index................ +1.50% +1.50%
Secured debt and
unsecured term debt:
Variable rate......... $ 0.2 $ 0.3 $168.5 $120.9 $289.9 $289.9
Average interest rate LIBOR LIBOR LIBOR LIBOR
index................ +1.79% +1.79% +1.79% +1.79%
Fixed rate............ $ 4.1 $ 5.8 $ 14.7 $ 6.8 $17.0 $202.2 $250.6 $257.8
Average interest
rate................. 7.50% 7.50% 7.50% 7.50% 7.50% 7.50%
Series A, C and D
Preferred units:
Fixed rate............ $142.1
Average interest
rate................. 8.71% 8.71% 8.71% 8.71% 8.71% 8.71%
Interest Rate Risk Analysis--Tabular Presentation
Financial Derivative Instruments
Notional Amounts by Contractual Maturity
March 31, 2001
(dollars in millions)
Maturity Date Fair Value at
---------------------------------------- March 31,
2001 2002 2003 2004 2005 Thereafter Total 2001
----- ------ ---- ---- ---- ---------- ------ ------
Interest Rate Derivatives
Used to Hedge Variable
Rate Debt:
Interest rate swap
agreements:
Notional amount......... $300.0 $300.0 $ (5.5)
Fixed pay interest
rate................... 6.21%
Floating receive
interest rate index.... LIBOR
Interest rate cap
agreement:
Notional amount......... $ 57.0 $ 57.0 $ --
Cap rate ............... 8.50% 8.50%
Forward rate index...... LIBOR LIBOR
25
Presentation at March 31, 2000
For the unsecured line of credit, the table presents that the outstanding
principal balance at March 31, 2000 will be paid upon the Credit Facility's
maturity in November 2002. The table also presents the maximum interest rate
index for outstanding Credit Facility borrowings from 2000 through 2002.
For variable rate secured debt, the table presents the assumption that the
outstanding principal balance at March 31, 2000 will be paid according to
scheduled principal payments. The table also presents the contractual weighted
average interest rate index for outstanding variable rate mortgage debt
borrowings from 2000 through 2003.
For fixed rate secured debt, the table presents the assumption that the
outstanding principal balance at March 31, 2000 will be paid according to
scheduled principal payments and that the Company will not prepay any of the
outstanding principal balance. The table also presents the related weighted-
average interest rate at March 31, 2000 for outstanding fixed rate mortgage
debt borrowings from 2000 through 2004 and thereafter.
For the Series A, C and D Preferred units the table presents the same
assumptions as discussed for the presentation at March 31, 2001.
For interest rate cap agreements, the table presents notional amounts, cap
rates and the related interest rate index upon which cap rates are based, by
contractual maturity date. For the interest rate swap agreements, the table
presents the notional amount, maximum contractual fixed pay rate, and related
interest rate index upon which the floating receive rate is based, by
contractual maturity date. Notional amounts are used solely to calculate the
contractual cash flow to be received under the contract and do not reflect
outstanding principal balances at March 31, 2000.
Interest Rate Sensitivity Analysis
Financial Assets and Liabilities
Outstanding Principal by Expected Maturity Date
March 31, 2000
(dollars in millions)
Maturity Date Fair Value at
--------------------------------------------- March 31,
2000 2001 2002 2003 2004 Thereafter Total 2000
----- ----- ------ ----- ---- ---------- ------ ------
Liabilities:
Line of credit:
Variable rate......... $292.5 $292.5 $292.5
Average interest rate LIBOR LIBOR LIBOR
index................ +1.50% +1.50% +1.50%
Secured debt:
Variable rate......... $90.0 $ 90.0 $ 90.0
Average interest rate LIBOR LIBOR LIBOR LIBOR
index................ +1.75% +1.75% +1.75% +1.75%
Fixed rate............ $ 3.7 $ 5.2 $ 5.6 $14.6 $6.6 $207.1 $242.8 $240.5
Average interest
rate................. 7.82% 7.82% 7.82% 7.82% 7.82% 7.82%
Series A and C Preferred
units:
Fixed rate............ $142.1
Average interest
rate................. 8.71% 8.71% 8.71% 8.71% 8.71% 8.71%
26
Interest Rate Sensitivity Analysis
Financial Derivative Instruments
Notional Amounts by Contractual Maturity
March 31, 2000
(dollars in millions)
Maturity Date Fair Value at
----------------------------------------- March 31,
2000 2001 2002 2003 2004 Thereafter Total 2000
------ ---- ------ ---- ---- ---------- ------ -------------
Interest Rate
Derivatives Used to
Hedge the Line of
Credit:
Interest rate cap
agreement:
Notional amount....... $150.0 $150.0 $300.0 $ 1.5
Cap rate.............. 6.50% 6.50%
Forward rate index.... LIBOR LIBOR
Interest rate swap
agreement:
Notional amount....... $150.0 $150.0 $(0.1)
Fixed pay rate........ 8.45%
Floating receive
interest rate index.. LIBOR
27
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the three months ended March 31, 2001, no legal proceedings were
initiated against or on behalf of the Company, which if determined adversely
to the Company, would have a material adverse effect upon the financial
condition, results of operations and cash flows of the Company.
ITEM 2. CHANGES IN SECURITIES
During the three months ended March 31, 2001, common unitholders of the
Operating Partnership exchanged 466,236 common limited partnership units for
shares of the Company's common stock on a one-for-one basis. The 466,236
common shares issued in connection with the exchange were registered on four
registration statements declared effective by the SEC during 1999 and 2000.
The common units that were redeemed in connection with the exchange were
previously issued in reliance upon an exemption from registration provided by
Regulation D under the Securities Act as a transaction by an issuer not
involving a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES--None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS--None
ITEM 5. OTHER INFORMATION--None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
None
- --------
(b) Reports on Form 8-K
The Company filed the Current Report on Form 8-K (No. 1-12673), dated
February 1, 2001 in connection with its fourth quarter 2000 earnings release.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on May 14, 2001.
Kilroy Realty Corporation
/s/ John B. Kilroy, Jr.
By: _________________________________
John B. Kilroy, Jr.
President and Chief Executive
Officer
(Principal Executive Officer)
/s/ Richard E. Moran Jr.
By: _________________________________
Richard E. Moran Jr.
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ Ann Marie Whitney
By: _________________________________
Ann Marie Whitney
Senior Vice President and
Controller
(Principal Accounting Officer)
29