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, 2004
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 of incorporation or organization) |
(I.R.S. Employer Identification Number) |
12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064
(Address of principal executive offices)
(310) 481-8400
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No ¨
As of May 5, 2004, 28,392,148 shares of common stock, par value $.01 per share, were outstanding.
QUARTERLY REPORT FOR THE THREE MONTHS ENDED MARCH 31, 2004
TABLE OF CONTENTS
| Page | ||||
| Item 1. |
3 | |||
| Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003 |
3 | |||
|
Consolidated Statements of Operations for the Three Months Ended March 31, 2004 |
4 | |||
|
Consolidated Statement of Stockholders’ Equity for the Three Months Ended |
5 | |||
|
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 |
6 | |||
| 7 | ||||
| Item 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
16 | ||
| Item 3. |
33 | |||
| Item 4. |
34 | |||
| Item 1. |
35 | |||
| Item 2. |
35 | |||
| Item 3. |
35 | |||
| Item 4. |
35 | |||
| Item 5. |
35 | |||
| Item 6. |
35 | |||
| 37 | ||||
2
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share data)
| March 31, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| REAL ESTATE ASSETS (Note 2): |
||||||||
| Land and improvements |
$ | 289,317 | $ | 289,730 | ||||
| Buildings and improvements, net |
1,297,624 | 1,305,145 | ||||||
| Undeveloped land and construction in progress, net |
124,911 | 131,411 | ||||||
| Total real estate held for investment |
1,711,852 | 1,726,286 | ||||||
| Accumulated depreciation and amortization |
(329,409 | ) | (321,372 | ) | ||||
| Real estate held for investment, net |
1,382,443 | 1,404,914 | ||||||
| Property held for sale, net (Note 9) |
18,303 | |||||||
| Total real estate assets, net |
1,400,746 | 1,404,914 | ||||||
| CASH AND CASH EQUIVALENTS |
6,730 | 9,892 | ||||||
| RESTRICTED CASH |
9,785 | 8,558 | ||||||
| CURRENT RECEIVABLES, NET |
5,988 | 4,919 | ||||||
| DEFERRED RENT RECEIVABLES, NET |
39,288 | 36,804 | ||||||
| DEFERRED LEASING COSTS, NET |
36,094 | 36,651 | ||||||
| DEFERRED FINANCING COSTS, NET (Note 4) |
3,318 | 3,657 | ||||||
| PREPAID EXPENSES AND OTHER ASSETS |
7,416 | 7,240 | ||||||
| TOTAL ASSETS |
$ | 1,509,365 | $ | 1,512,635 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| LIABILITIES: |
||||||||
| Secured debt (Note 3) |
$ | 617,294 | $ | 526,048 | ||||
| Unsecured line of credit (Note 3) |
150,000 | 235,000 | ||||||
| Accounts payable, accrued expenses and other liabilities (Note 4) |
40,908 | 41,147 | ||||||
| Accrued distributions (Note 11) |
16,477 | 16,369 | ||||||
| Rents received in advance, tenant security deposits and deferred revenue |
19,332 | 20,904 | ||||||
| Total liabilities |
844,011 | 839,468 | ||||||
| COMMITMENTS AND CONTINGENCIES |
||||||||
| MINORITY INTERESTS (Note 5): |
||||||||
| 7.45% (8.075% as of December 31, 2003) Series A Cumulative Redeemable |
73,653 | 73,716 | ||||||
| 9.25% Series D Cumulative Redeemable Preferred unitholders |
44,321 | 44,321 | ||||||
| Common unitholders of the Operating Partnership |
65,094 | 66,502 | ||||||
| Total minority interests |
183,068 | 184,539 | ||||||
| STOCKHOLDERS’ EQUITY (Note 6): |
||||||||
| Preferred stock, $.01 par value, 25,290,000 shares authorized, none issued and outstanding |
||||||||
| 7.45% Series A Cumulative Redeemable Preferred stock, $.01 par value, |
||||||||
| Series B Junior Participating Preferred stock, $.01 par value, |
||||||||
| 9.25% Series D Cumulative Redeemable Preferred stock, $.01 par value, |
||||||||
| 7.80% Series E Cumulative Redeemable Preferred stock, |
38,437 | 38,437 | ||||||
| Common stock, $.01 par value, 150,000,000 shares authorized, |
283 | 282 | ||||||
| Additional paid-in capital |
512,359 | 508,568 | ||||||
| Deferred compensation |
(2,839 | ) | (852 | ) | ||||
| Distributions in excess of earnings |
(61,487 | ) | (53,449 | ) | ||||
| Accumulated net other comprehensive loss (Note 4) |
(4,467 | ) | (4,358 | ) | ||||
| Total stockholders’ equity |
482,286 | 488,628 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 1,509,365 | $ | 1,512,635 | ||||
See accompanying notes to consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except share and per share data)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| REVENUES (Note 8): |
||||||||
| Rental income |
$ | 48,075 | $ | 42,917 | ||||
| Tenant reimbursements |
5,479 | 5,579 | ||||||
| Other property income (Note 7) |
1,020 | 4,524 | ||||||
| Total revenues |
54,574 | 53,020 | ||||||
| EXPENSES (Note 8): |
||||||||
| Property expenses |
9,156 | 8,405 | ||||||
| Real estate taxes |
4,015 | 3,784 | ||||||
| Provision for bad debts |
258 | 421 | ||||||
| Ground leases |
330 | 319 | ||||||
| General and administrative expenses |
7,249 | 3,858 | ||||||
| Interest expense |
9,210 | 7,688 | ||||||
| Depreciation and amortization |
14,043 | 13,508 | ||||||
| Total expenses |
44,261 | 37,983 | ||||||
| OTHER INCOME |
||||||||
| Interest and other income (Note 7) |
307 | 46 | ||||||
| Total other income |
307 | 46 | ||||||
| INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTERESTS |
10,620 | 15,083 | ||||||
| MINORITY INTERESTS: |
||||||||
| Distributions on Cumulative Redeemable Preferred units (Note 5) |
(2,521 | ) | (3,375 | ) | ||||
| Minority interest in earnings of Operating Partnership attributable to continuing operations |
(877 | ) | (1,565 | ) | ||||
| Total minority interests |
(3,398 | ) | (4,940 | ) | ||||
| INCOME FROM CONTINUING OPERATIONS |
7,222 | 10,143 | ||||||
| DISCONTINUED OPERATIONS (Note 9) |
||||||||
| Revenues from discontinued operations |
848 | 1,996 | ||||||
| Expenses from discontinued operations |
(466 | ) | (1,089 | ) | ||||
| Impairment loss on property held for sale |
(726 | ) | ||||||
| Minority interest in earnings of Operating Partnership attributable to discontinued operations |
(109 | ) | (121 | ) | ||||
| Total (loss) income from discontinued operations |
(453 | ) | 786 | |||||
| NET INCOME |
6,769 | 10,929 | ||||||
| PREFERRED DIVIDENDS |
(785 | ) | ||||||
| NET INCOME AVAILABLE FOR COMMON SHAREHOLDERS |
$ | 5,984 | $ | 10,929 | ||||
| Income from continuing operations per common share—basic (Note 10) |
$ | 0.26 | $ | 0.37 | ||||
| Income from continuing operations per common share—diluted (Note 10) |
$ | 0.26 | $ | 0.37 | ||||
| Net income per common share—basic (Note 10) |
$ | 0.21 | $ | 0.40 | ||||
| Net income per common share—diluted (Note 10) |
$ | 0.21 | $ | 0.40 | ||||
| Weighted average shares outstanding—basic (Note 10) |
28,116,679 | 27,221,060 | ||||||
| Weighted average shares outstanding—diluted (Note 10) |
28,303,236 | 27,430,042 | ||||||
| Dividends declared per common share |
$ | 0.495 | $ | 0.495 | ||||
See accompanying notes to consolidated financial statements.
4
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(unaudited in thousands, except share and per share data)
| Common Stock |
|||||||||||||||||||||||||||||
| Preferred Stock |
Number of Shares |
Common Stock |
Additional Paid-in Capital |
Deferred Compensation |
Distributions in Excess of Earnings |
Accumulated Net Other Comp. Loss |
Total |
||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2003 |
$ | 38,437 | 28,209,213 | $ | 282 | $ | 508,568 | $ | (852 | ) | $ | (53,449 | ) | $ | (4,358 | ) | $ | 488,628 | |||||||||||
| Net income |
6,769 | 6,769 | |||||||||||||||||||||||||||
| Net other comprehensive loss |
(109 | ) | (109 | ) | |||||||||||||||||||||||||
| Comprehensive income |
6,660 | ||||||||||||||||||||||||||||
| Issuance of restricted stock (Note 6) |
111,159 | 1 | 3,874 | (2,631 | ) | 1,244 | |||||||||||||||||||||||
| Exercise of stock options |
37,858 | 793 | 793 | ||||||||||||||||||||||||||