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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: (DATE OF EARLIEST EVENT REPORTED) OCTOBER 29, 1997
KILROY REALTY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND COMMISSION FILE: 1-12675 95-4598246
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION NO.)
ORGANIZATION)
2250 EAST IMPERIAL HIGHWAY, SUITE 1200,
EL SEGUNDO, CALIFORNIA, 90245
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 563-5500
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The Company hereby amends Item 7 of its current reports on Form 8-K filed
with the Securities and Exchange Commission on November 13 and 21, 1997 (the
"Initial Form 8-K's") to file the (i) audited combined historical summaries of
certain revenues and certain expenses of the Four Acquired Properties, and the
Eight Acquired Properties, respectively, for the year ended December 31, 1996,
(ii) unaudited pro forma condensed financial information and (iii) the consent
of its independent auditors. Capitalized terms used but not defined herein
have the meaning given to each such term in the Initial Form 8-K's.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of properties acquired.
2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Kilroy Realty Corporation:
We have audited the accompanying combined historical summary of certain
revenues and certain expenses (the "Historical Summary") of the Four Acquired
Properties (as described in Note 1) for the year ended December 31, 1996. This
Historical Summary is the responsibility of the Four Acquiried Properties'
management. Our responsibility is to express an opinion on the Historical
Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the Historical Summary is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Historical Summary. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the Historical Summary. We believe that our audit provides a reasonable
basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in Form 8-K of Kilroy Realty Corporation as described
in Note 1 to the Historical Summary and is not intended to be a complete
presentation of the Four Acquired Properties revenues and expenses.
In our opinion, such Historical Summary presents fairly, in all material
respects, the combined certain revenues and certain expenses described in Note
1 to the Historical Summary of the Four Acquired Properties for the year ended
December 31, 1996 in conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
Historical Summary taken as a whole. The additional combining information is
presented for the purpose of additional analysis of the basic Historical
Summary rather than to present certain revenues and certain expenses of the
individual properties and is not a required part of the basic Historical
Summary. This additional combining information is the responsibility of the
Four Acquired Properties' management. Such information has been subjected to
auditing procedures applied in our audit of the basic Historical Summary for
the year ended December 31, 1996 and, in our opinion, is fairly stated in all
material respects when considered in relation to the basic Historical Summary
taken as a whole.
Deloitte & Touche llp
Los Angeles, California
November 26, 1997
3
FOUR ACQUIRED PROPERTIES
COMBINED HISTORICAL SUMMARY OF CERTAIN REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
CERTAIN REVENUES:
Rental revenues (Note 2).............................................. $4,972
Tenant reimbursements................................................. 549
------
Total certain revenues.............................................. 5,521
------
CERTAIN EXPENSES:
Property expenses..................................................... 1,483
Real estate taxes..................................................... 309
------
Total certain expenses.............................................. 1,792
------
CERTAIN REVENUES IN EXCESS OF CERTAIN EXPENSES.......................... $3,729
======
See notes to combined historical summary of certain revenues and certain
expenses.
4
FOUR ACQUIRED PROPERTIES
NOTES TO COMBINED HISTORICAL SUMMARY OF CERTAIN REVENUES
AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
1. BASIS OF PRESENTATION
The combined historical summary of certain revenues and certain expenses
relates to the operations of the following properties which were acquired by
Kilroy Realty Corporation (the "Company") from an unaffiliated party as
follows:
DATE OF
PROPERTY ADDRESS LOCATION ACQUISITION
---------------- --------------------- -----------
4351 Latham Street........................ Riverside, California 9/18/97
4361 Latham Street........................ Riverside, California 9/18/97
601 Valencia Avenue....................... Brea, California 9/29/97
3750 University Avenue.................... Riverside, California 10/29/97
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying historical summary of certain
revenues and certain expenses are not representative of the actual operations
for the year presented as certain revenues and expenses which may not be
comparable to the revenues and expenses expected to be incurred by the Company
in the proposed future operations of the properties have been excluded.
Revenues and expenses excluded consist of certain other income, interest,
depreciation and amortization and professional fees not directly related to
the future operations of the properties.
2. OPERATING LEASES
The properties are leased to tenants under operating leases with expiration
dates extending to the year 2007. Future minimum rentals under noncancelable
operating leases, excluding tenant reimbursements of operating expenses, as of
December 31, 1996 are as follows:
PERIOD ENDING
DECEMBER 31, (IN THOUSANDS)
------------- --------------
1997......................................................... $ 3,949
1998......................................................... 3,777
1999......................................................... 3,321
2000......................................................... 2,753
2001......................................................... 2,459
Thereafter................................................... 13,131
-------
Total...................................................... $29,390
=======
5
FOUR ACQUIRED PROPERTIES
ADDITIONAL COMBINING INFORMATION OF CERTAIN REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
4351 4361 601 3750
LATHAM ST. LATHAM ST. VALENCIA AVE. UNIVERSITY AVE. TOTAL
---------- ---------- ------------- --------------- ------
CERTAIN REVENUES:
Rental revenues....... $295 $559 $ 756 $3,362 $4,972
Tenant reimbursements. 2 51 303 193 549
---- ---- ------ ------ ------
Total certain
revenues........... 297 610 1,059 3,555 5,521
---- ---- ------ ------ ------
CERTAIN EXPENSES:
Property expenses..... 106 111 323 943 1,483
Real estate taxes..... 18 6 45 240 309
---- ---- ------ ------ ------
Total certain
expenses........... 124 117 368 1,183 1,792
---- ---- ------ ------ ------
CERTAIN REVENUES IN
EXCESS OF CERTAIN
EXPENSES............... $173 $493 $ 691 $2,372 $3,729
==== ==== ====== ====== ======
See notes to combined historical summary of certain revenues and certain
expenses.
6
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Kilroy Realty Corporation:
We have audited the accompanying combined historical summary of certain
revenues and certain expenses (the "Historical Summary") of the Eight Acquired
Properties (as described in Note 1) for the year ended December 31, 1996. This
Historical Summary is the responsibility of the Eight Acquired Properties'
management. Our responsibility is to express an opinion on the Historical
Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the Historical Summary is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Historical Summary. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the Historical Summary. We believe that our audit provides a reasonable
basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in Form 8-K of Kilroy Realty Corporation as described
in Note 1 to the Historical Summary and is not intended to be a complete
presentation of the Eight Acquired Properties revenues and expenses.
In our opinion, such Historical Summary presents fairly, in all material
respects, the combined certain revenues and certain expenses described in Note
1 to the Historical Summary of Eight Acquired Properties for the year ended
December 31, 1996 in conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
Historical Summary taken as a whole. The additional combining information is
presented for the purpose of additional analysis of the basic Historical
Summary rather than to present certain revenues and certain expenses of the
individual properties and is not a required part of the basic Historical
Summary. This additional combining information is the responsibility of the
Eight Acquired Properties' management. Such information has been subjected to
auditing procedures applied in our audit of the basic Historical Summary for
the year ended December 31, 1996 and, in our opinion, is fairly stated in all
material respects when considered in relation to the basic Historical Summary
taken as a whole.
Deloitte & Touche llp
Los Angeles, California
September 12, 1997
7
EIGHT ACQUIRED PROPERTIES
COMBINED HISTORICAL SUMMARY OF CERTAIN REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
CERTAIN REVENUES:
Rental revenues (Note 2)........................................... $3,131
Other income....................................................... 5
------
Total certain revenues........................................... 3,136
------
CERTAIN EXPENSES:
Property expenses.................................................. 8
General and administrative......................................... 36
------
Total certain expenses........................................... 44
------
CERTAIN REVENUES IN EXCESS OF CERTAIN EXPENSES....................... $3,092
======
See notes to combined historical summary of certain revenues and certain
expenses.
8
EIGHT ACQUIRED PROPERTIES
NOTES TO COMBINED HISTORICAL SUMMARY OF CERTAIN REVENUES
AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
1. BASIS OF PRESENTATION
The combined historical summary of certain revenues and certain expenses
relates to the operations of the following properties, which were acquired by
Kilroy Realty Corporation (the "Company") from an unaffiliated party effective
November 1, 1997 as follows:
PROPERTY LOCATION
-------- --------
6220 Greenwich Drive*.................................. San Diego, California
6055 Lusk Boulevard**.................................. San Diego, California
3735 Imperial Way*..................................... Stockton, California
1840 Aerojet Way*...................................... Las Vegas, Nevada
1900 Aerojet Way*...................................... Las Vegas, Nevada
41093 County Center Drive**............................ Temecula, California
6260 Sequence Drive**.................................. San Diego, California
6290 Sequence Drive**.................................. San Diego, California
- --------
* Development of the property was completed during 1996 and therefore the
financial statements represent the period from completion of development
through December 31, 1996.
** Development of the property was completed subsequent to December 31, 1996
and therefore financial statements are not available for the period ended
December 31, 1996.
Operating revenues and direct operating expenses are presented on the
accrual basis of accounting. The accompanying historical summary of certain
revenues and certain expenses are not representative of the actual operations
for the periods presented as certain revenues and expenses which may not be
comparable to the revenues and expenses expected to be incurred by the Company
in the proposed future operations of the properties have been excluded.
Revenues and expenses excluded consist of certain other income, interest,
depreciation and amortization and professional fees not directly related to
the future operations of the properties.
2. OPERATING LEASES
The properties are leased to tenants under operating leases with expiration
dates extending to the year 2008. Future minimum rentals under noncancelable
operating leases, excluding tenant reimbursements of operating expenses, as of
December 31, 1996 are as follows:
PERIOD ENDING
DECEMBER 31,
------------- (IN THOUSANDS)
1997......................................................... $ 4,939
1998......................................................... 5,330
1999......................................................... 5,410
2000......................................................... 5,149
2001......................................................... 5,317
Thereafter................................................... 22,288
-------
Total..................................................... $48,433
=======
9
EIGHT ACQUIRED PROPERTIES
ADDITIONAL COMBINING INFORMATION OF CERTAIN REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
6220 3735 1840 1900
GREENWICH DR. IMPERIAL WAY AEROJET WAY AEROJET WAY
------------- ------------ ----------- -----------
JUNE 3, FEBRUARY 19,
1996 TO 1996 TO
DECEMBER 31, DECEMBER 31, YEAR ENDED
1996 1996 DECEMBER 31, 1996 TOTAL
------------- ------------ ----------------------- ------
CERTAIN REVENUES:
Rental revenues....... $1,117 $1,081 $491 $442 $3,131
Other income.......... 5 5
------ ------ ---- ---- ------
Total certain
revenues........... 1,122 1,081 491 442 3,136
------ ------ ---- ---- ------
CERTAIN EXPENSES:
Property expenses..... 8 8
General and
administrative....... 14 11 6 5 36
------ ------ ---- ---- ------
Total certain
expenses........... 14 11 14 5 44
------ ------ ---- ---- ------
CERTAIN REVENUES IN
EXCESS OF CERTAIN
EXPENSES............... $1,108 $1,070 $477 $437 $3,092
====== ====== ==== ==== ======
See notes to combined historical summary of certain revenues and certain
expenses.
10
(b) Pro forma financial information.
KILROY REALTY CORPORATION
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated balance sheet is presented as
if the purchase of the Four Acquired Properties and the Eight Acquired
Properties (collectively, the "Twelve Acquired Properties") had each occurred
on September 30, 1997. Such pro forma information is based upon the balance
sheet of Kilroy Realty Corporation (the "Company") at September 30, 1997.
The accompanying unaudited pro forma condensed consolidated statement of
operations for the nine months ended September 30, 1997, and the year ended
December 31, 1996, were prepared as if each of the following had occurred on
January 1, 1996: (i) the January 1997 initial public offering (the "IPO") and
mortgage loans and use of proceeds therefrom to purchase the properties
acquired in connection with the IPO and repay certain indebtedness; (ii) the
transfer of the business and operations of the Kilroy Group pursuant to
certain formation transactions; (iii) the August 1997 follow-on stock offering
and use of proceeds therefrom to acquire properties and paydown the Company's
$250 million line of credit (the "Credit Facility"); (iv) the purchase of the
Twelve Acquired Properties and the related assumption of mortgage notes; and
(v) the acquisition of certain properties subsequent to the IPO through
September 30, 1997.
These statements should be read in conjunction with the respective
consolidated financial statements and notes thereto included in the Company's
Quarterly Report on form 10-Q for the quarter ended September 30, 1997, and
its Annual Report on Form 10-K for the year ended December 31, 1996. In the
opinion of management, the unaudited, pro forma condensed consolidated
financial information provides for all adjustments necessary to reflect the
effects of the transactions previously noted.
These pro forma statements may not necessarily be indicative of the results
that would have actually occurred if the acquisitions had been in effect on
the date indicated, nor does it purport to present the financial position,
results of operations or cash flows for future periods.
11
KILROY REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
KILROY REALTY
TWELVE CORPORATION
KILROY REALTY ACQUIRED PRO FORMA PRO FORMA
CORPORATION PROPERTIES ADJUSTMENTS CONSOLIDATED
------------- ---------- ----------- -------------
(A)
ASSETS
Rental properties, net
of accumulated
depreciation and
amortization........... $469,626 $114,604 (B) $584,230
Cash and cash
equivalents............ 74,890 (65,768) 9,122
Restricted cash......... 4,634 4,634
Tenant receivables,
net.................... 3,764 3,764
Investment in
subsidiary............. 267 267
Escrow deposits......... 1,179 1,179
Deferred charges and
other assets, net of
accumulated
amortization........... 18,184 18,184
-------- -------- ------- --------
Total................ $572,544 $ 48,836 $ -- $621,380
======== ======== ======= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities:
Debt................... $104,054 33,552 (B) $137,606
Accounts payable and
accrued expenses...... 9,794 9,794
Accrued distributions.. 10,576 10,576
Rent received in
advance and tenant
security deposits..... 10,902 10,902
-------- -------- ------- --------
Total liabilities.... 135,326 33,552 168,878
-------- -------- ------- --------
Minority interest....... 45,120 15,284 (B) (5,198)(D) 55,206
-------- -------- ------- --------
Stockholders' equity:
Common stock........... 245 245
Additional paid-in
capital............... 397,445 5,198 (D) 402,643
Distributions in excess
of earnings........... (5,592) (5,592)
-------- -------- ------- --------
Total stockholders'
equity.............. 392,098 5,198 397,296
-------- -------- ------- --------
Total................ $572,544 $ 48,836 $ -- $621,380
======== ======== ======= ========
The accompanying notes are an integral part of these unaudited,
pro forma condensed consolidated financial statements.
12
KILROY REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PRE-
KILROY ACQUISITION
GROUP KILROY REALTY PERIOD FOR THE
JANUARY 1, CORPORATION PROPERTIES
1997 TO FEBRUARY 1, ACQUIRED
JANUARY 31, 1997 TO THROUGH TWELVE COMPANY PRO
1997 SEPTEMBER 30, SEPTEMBER 30, ACQUIRED PRO FORMA FORMA
HISTORICAL 1997 1997(M) PROPERTIES ADJUSTMENTS CONSOLIDATED
----------- ------------- -------------- ---------- ----------- ------------
(A)
REVENUES:
Rental income........... $2,760 $35,878 $12,178 $6,078 $ 56,894
Tenant reimbursements... 275 3,441 2,169 416 6,301
Development and
management fees........ 14 $ (14)(E)
Interest income......... 2,875 (2,533)(F) 342
Other income............ 4 454 7 465
------ ------- ------- ------ ------- ----------
Total revenues.......... 3,053 42,648 14,354 6,494 (2,547) 64,002
------ ------- ------- ------ ------- ----------
EXPENSES:
Property expenses....... 579 5,999 2,054 1,119 88 (G) 9,839
Real estate taxes....... 106 1,925 906 232 476 (H) 3,645
General and
administrative
expenses............... 78 3,652 97 27 399 (I) 4,253
Ground leases........... 64 670 28 762
Development and
management expenses.... 46 (46)(E)
Option buy-out..........
Interest expense........ 1,895 6,714 116 (J) 8,725
Depreciation and
amortization........... 787 8,404 4,809 (K) 14,000
------ ------- ------- ------ ------- ----------
Total expenses.......... 3,555 27,364 3,085 1,378 5,842 41,224
------ ------- ------- ------ ------- ----------
(Loss) income from
operations before
equity in loss of
subsidiary, minority
interest and
extraordinary gains.... (502) 15,284 11,269 5,116 (8,389) 22,778
Equity in income (loss)
of subsidiary.......... 187 (30)(E) 157
Minority interest....... (2,231) (567)(L) (2,798)
------ ------- ------- ------ ------- ----------
Net (loss) income....... $ (502) $13,240 $11,269 $5,116 $(8,986) $ 20,137
====== ======= ======= ====== ======= ==========
Average number of shares
outstanding............ 24,475,000
----------
Pro forma net income per
common
share.................. $ .82
==========
The accompanying notes are an integral part of these unaudited,
pro forma condensed consolidated financial statements.
13
KILROY REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PRE-
ACQUISITION
PERIOD FOR
THE
PROPERTIES
ACQUIRED
KILROY THROUGH TWELVE COMPANY PRO
GROUP SEPTEMBER 30, ACQUIRED PRO FORMA FORMA
HISTORICAL 1997(M) PROPERTIES ADJUSTMENTS CONSOLIDATED
---------- ------------- ---------- ----------- ------------
REVENUES:
Rental income........... $35,022 $33,218 $8,103 $ (524)(C) $ 75,819
Tenant reimbursements... 3,380 4,578 554 8,512
Development and
management fees........ 698 (698)(E)
Interest income.........
Other income............ 76 637 713
------- ------- ------ -------- ----------
Total revenues.......... 39,176 38,433 8,657 (1,222) 85,044
------- ------- ------ -------- ----------
EXPENSES:
Property expenses....... 6,788 6,216 1,491 117 (G) 14,612
Real estate taxes....... 1,301 2,225 309 685 (H) 4,520
General and
administrative
expenses............... 2,383 361 36 2,892 (I) 5,672
Ground leases........... 768 338 1,106
Development and
management expenses.... 650 (650)(E)
Option buy-out.......... 3,150 3,150
Interest expense........ 21,853 (10,219)(J) 11,634
Depreciation and
amortization........... 9,111 9,255 (K) 18,366
------- ------- ------ -------- ----------
Total expenses.......... 46,004 9,140 1,836 2,080 59,060
------- ------- ------ -------- ----------
(Loss) income from
operations before
equity in loss of
subsidiary, minority
interest and
extraordinary gains.... (6,828) 29,293 6,821 (3,302) 25,984
Equity in (loss) of
subsidiary............. (6)(E) (6)
Minority interest....... (3,169)(L) (3,169)
------- ------- ------ -------- ----------
Net (loss) income ...... $(6,828) $29,293 $6,821 $ (6,477) $ 22,809
======= ======= ====== ======== ==========
Average number of shares
outstanding............ 24,475,000
----------
Pro forma net income per
common share (K)....... $ .93
==========
The accompanying notes are an integral part of these unaudited,
pro forma condensed consolidated financial statements.
14
KILROY REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
PRO FORMA ADJUSTMENTS
These pro forma adjustments are to reflect the acquisition of the Twelve
Acquired Properties.
(A) Reflects Kilroy Realty Corporation unaudited condensed consolidated
financial statements as of and for the eight months ended September 30,
1997.
(B) Reflects the purchase price and actual and estimated additional closing
costs of the Twelve Acquired Properties, all of which will be acquired
from unaffiliated third parties, are as follows:
PURCHASE
PROPERTY PRICE SELLER
-------- -------- ------
4351 Latham Street................... $ 1,843 Betty L. Hutton
Title Holding Company
4361 Latham Street................... 4,303 Latham Street Partners
601 Valencia Avenue.................. 6,355 Brea Partners
3750 University Avenue............... 21,977 Mission Square Partnership
6220 Greenwich Drive................. 20,500 UTC Greenwich Partners, L.P.
3735 Imperial Way.................... 11,425 KOM Partners, L.P.
1840 Aerojet Way..................... 4,500 Whisperwood, L.L.C.
1900 Aerojet Way..................... 4,725 Allen Aerojet, L.L.C.
6055 Lusk Boulevard.................. 11,900 ADI Arrow Partners, L.P.
41093 County Center Drive............ 4,525 ADI-FFF Partners, L.P.
6260 Sequence Drive.................. 12,900 ADI Mesa Partners-ICS, L.P.
6290 Sequence Drive.................. 9,651 ADI Mesa Partners-AMCC, L.P.
--------
Total............................ $114,604
========
The Twelve Acquired Properties will be accounted for as purchase
transactions. The acquisitions were financed with approximately $65,678 of
working capital, the assumption of approximately $33,552 of mortgage debt and
the issuance of 588,736 limited partnership units of Kilroy Realty, L.P., a
limited partnership, (the "Partnership") valued at approximately $15,284 based
on a unit price predetermined by the parties involved. The mortgage debt
consists of a $13,855 mortgage loan that bears interest at 8.45%, an $11,728
mortgage loan that bears interest at 8.43% and a $7,969 mortgage loan that
bears interest at 8.21%. The mortgage loans require monthly payments of
principal and interest and mature at various dates between December 2005 and
November 2014. The cost of the properties is allocated as follows:
Land........................... $ 27,529
Buildings...................... 87,075
--------
$114,604
========
(C) Represents the elimination of rental income received from Kilroy
Industries.
15
KILROY REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
PRO FORMA ADJUSTMENTS
(D) Reflects the estimated minority interest of the continuing investors in
the Partnership, computed as follows:
Pro forma total assets............................................ $ 621,380
Pro forma total liabilities....................................... (168,878)
---------
Pro forma net book value of the Partnership....................... $ 452,502
=========
Minority interest at 12.2%........................................ $ 55,206
=========
(E) Represents the elimination of the Kilroy Services, Inc.'s (the "Service
Company") gross revenues and expenses and the recording of the equity in
income of the Services Company net of income taxes.
NINE MONTHS YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
1997 1996
------------------- ------------
Development and management fees........... $ 14 $ 698
Development and management expenses....... (46) (650)
Elimination of nonrecurring Services
Company expenses......................... 132
Elimination of management fees earned on
one of the IPO acquisition properties.... (186)
---- -----
Estimated service company net loss........ (32) (6)
==== =====
At 95% economic interest.................. $(30) $ (6)
==== =====
(F) Represents the elimination of interest earned on excess proceeds from the
IPO and the follow-on offering.
(G) Represents the elimination of management fees charged to the Kilroy Group
by Kilroy Industries and the reclassification of expenses which previously
had not been allocated to individual properties.
(H) Represents incremental property taxes on the properties acquired at the
IPO and the office properties acquired subsequent to the IPO due to change
of ownership.
(I) Represents the estimated incremental increases in other general and
administrative expenses, including, without limitation, the incremental
general and administrative expenses to be incurred as a public company,
increases in other general and administrative expenses, less the effect of
the reclassification of property expenses which previously had not been
allocated to individual properties.
(J) Reflects reduction of interest expenses associated with the mortgage debts
and Credit Facility assumed to be repaid using net proceeds from the IPO
and the follow-on offering:
16
KILROY REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
NINE MONTHS YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
1997 1996
------------------- ------------
. Interest expense on the Mortgage Loans
(fixed interest rate of 8.35% on
$84,000 with 25-year amortization;
variable interest rate of LIBOR plus
1.5% on $14,000)....................... $6,090 $ 8,120
. Interest expense on the assumed
mortgage notes of the Twelve Acquired
Properties (fixed interest rates of
8.45%, 8.43% and 8.21% on $13,855,
$11,728 and $7,969, respectively; loans
amortize between 17 and 19 years)...... 2,110 2,814
. Amortization of Mortgage Loan issuance
costs (8 years for $84,000 note and 18
months for $14,000 note)............... 525 700
------ --------
Total pro forma interest expense....... $8,725 $ 11,634
Historical interest expense............ 8,609 21,853
------ --------
Net interest expense adjustment........ $ 116 $(10,219)
====== ========
(K) Represents depreciation expense calculated based on the cost of the
properties acquired at the IPO, the post IPO acquisitions through
September 30, 1997 and the Twelve Acquired Properties depreciated on the
straight-line method over a 35 year life.
(L) Represents the income allocated to the 12.2% minority interest in the
Operating Partnership owned by the holders of units in the Operating
Partnership.
(M) Reflects January 1997 operating activities of the properties acquired at
the IPO, the pre-acquisition period activities for the post IPO
acquisitions through September 30, 1997 during the period beginning
February 1, 1997 through September 30, 1997.
17
(c) Exhibits.
EXHIBIT
NO.
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*2.1 Contribution Agreement, dated October 21, 1997, by and between Kilroy
Realty, L.P. and Kilroy Realty Corporation and The Allen Group and the
Allens.
*4.1 First Amendment to the Amended and Restated Agreement of Limited
Partnership of Kilroy Realty, L.P., dated October 31, 1997.
**4.2 Registration Rights Agreement dated as of October 31, 1997.
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* Previously filed as Exhibit 10.70 and 10.71, respectively, to the Current
Report on Form 8-K (No. 1-12675) as filed on November 21, 1997, and
incorporated herein by reference.
** Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized,
KILROY REALTY CORPORATION
Date: December 19, 1997 /s/ Ann Marie Whitney
By: _________________________________
ANN MARIE WHITNEY
Vice-President and Controller
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