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 June 30, 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 July 27, 2004, 28,417,685 shares of common stock, par value $.01 per share, were outstanding.
KILROY REALTY CORPORATION
QUARTERLY REPORT FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004
| Page | ||||
| PART I—FINANCIAL INFORMATION | ||||
| Item 1. |
3 | |||
| Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003 |
3 | |||
| Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004 and 2003 |
4 | |||
| Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2004 |
5 | |||
| Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 |
6 | |||
| 7 | ||||
| Item 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
16 | ||
| Item 3. |
38 | |||
| Item 4. |
39 | |||
| PART II—OTHER INFORMATION | ||||
| Item 1. |
40 | |||
| Item 2. |
40 | |||
| Item 3. |
40 | |||
| Item 4. |
40 | |||
| Item 5. |
40 | |||
| Item 6. |
40 | |||
| 41 | ||||
2
CONSOLIDATED BALANCE SHEETS
(unaudited, in thousands, except share data)
| June 30, 2004 |
December 31, 2003 |
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| ASSETS | ||||||||
| REAL ESTATE ASSETS (Notes 2 and 3): |
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| Land and improvements |
$ | 289,258 | $ | 289,730 | ||||
| Buildings and improvements, net |
1,306,576 | 1,305,145 | ||||||
| Undeveloped land and construction in progress, net |
128,160 | 131,411 | ||||||
| Total real estate held for investment |
1,723,994 | 1,726,286 | ||||||
| Accumulated depreciation and amortization |
(341,874 | ) | (321,372 | ) | ||||
| Total real estate assets, net |
1,382,120 | 1,404,914 | ||||||
| CASH AND CASH EQUIVALENTS |
7,444 | 9,892 | ||||||
| RESTRICTED CASH |
7,352 | 8,558 | ||||||
| CURRENT RECEIVABLES, NET |
4,043 | 4,919 | ||||||
| DEFERRED RENT RECEIVABLES, NET |
41,134 | 36,804 | ||||||
| DEFERRED LEASING COSTS, NET |
37,824 | 36,651 | ||||||
| DEFERRED FINANCING COSTS, NET |
2,889 | 3,657 | ||||||
| PREPAID EXPENSES AND OTHER ASSETS |
6,672 | 7,240 | ||||||
| TOTAL ASSETS |
$ | 1,489,478 | $ | 1,512,635 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| LIABILITIES: |
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| Secured debt (Note 4) |
$ | 614,806 | $ | 526,048 | ||||
| Unsecured line of credit (Note 4) |
140,000 | 235,000 | ||||||
| Accounts payable, accrued expenses and other liabilities (Note 5) |
35,976 | 41,147 | ||||||
| Accrued distributions (Note 12) |
16,478 | 16,369 | ||||||
| Rents received in advance, tenant security deposits and deferred revenue |
20,361 | 20,904 | ||||||
| Total liabilities |
827,621 | 839,468 | ||||||
| COMMITMENTS AND CONTINGENCIES |
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| MINORITY INTERESTS (Note 6): |
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| 7.45% (8.075% as of December 31, 2003) Series A Cumulative Redeemable Preferred unitholders |
73,638 | 73,716 | ||||||
| 9.25% Series D Cumulative Redeemable Preferred unitholders |
44,321 | 44,321 | ||||||
| Common unitholders of the Operating Partnership |
63,640 | 66,502 | ||||||
| Total minority interests |
181,599 | 184,539 | ||||||
| STOCKHOLDERS’ EQUITY (Note 7): |
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| 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, |
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| Series B Junior Participating Preferred stock, $.01 par value, |
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| 9.25% Series D Cumulative Redeemable Preferred stock, $.01 par value, |
||||||||
| 7.80% Series E Cumulative Redeemable Preferred stock, |
38,425 | 38,437 | ||||||
| Common stock, $.01 par value, 150,000,000 shares authorized, |
284 | 282 | ||||||
| Additional paid-in capital |
512,994 | 508,568 | ||||||
| Deferred compensation |
(2,445 | ) | (852 | ) | ||||
| Distributions in excess of earnings |
(67,689 | ) | (53,449 | ) | ||||
| Accumulated net other comprehensive loss (Note 5) |
(1,311 | ) | (4,358 | ) | ||||
| Total stockholders’ equity |
480,258 | 488,628 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 1,489,478 | $ | 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 June 30, |
Six Months Ended June 30, |
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| 2004 |
2003 |
2004 |
2003 |
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| REVENUES (Note 9): |
||||||||||||||||
| Rental income |
$ | 49,151 | $ | 43,486 | $ | 97,226 | $ | 86,403 | ||||||||
| Tenant reimbursements |
5,196 | 4,923 | 10,675 | 10,502 | ||||||||||||
| Other property income (Note 8) |
128 | 345 | 1,148 | 4,871 | ||||||||||||
| Total revenues |
54,475 | 48,754 | 109,049 | 101,776 | ||||||||||||
| EXPENSES (Note 9): |
||||||||||||||||
| Property expenses |
8,866 | 7,431 | 18,022 | 15,836 | ||||||||||||
| Real estate taxes |
4,247 | 3,598 | 8,262 | 7,382 | ||||||||||||
| Provision for bad debts |
395 | (1,505 | ) | 653 | (1,084 | ) | ||||||||||
| Ground leases |
332 | 324 | 662 | 644 | ||||||||||||
| General and administrative expenses |
5,026 | 4,011 | 12,275 | 7,869 | ||||||||||||
| Interest expense |
9,148 | 7,585 | 18,358 | 15,274 | ||||||||||||
| Depreciation and amortization |
14,558 | 12,993 | 28,601 | 26,501 | ||||||||||||
| Total expenses |
42,572 | 34,437 | 86,833 | 72,422 | ||||||||||||
| OTHER INCOME |
||||||||||||||||
| Interest and other income (Note 8) |
78 | 48 | 385 | 94 | ||||||||||||
| Total other income |
78 | 48 | 385 | 94 | ||||||||||||
| INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTERESTS |
11,981 | 14,365 | 22,601 | 29,448 | ||||||||||||
| MINORITY INTERESTS: |
||||||||||||||||
| Distributions on Cumulative Redeemable Preferred units (Note 6) |
(2,437 | ) | (3,375 | ) | (4,958 | ) | (6,750 | ) | ||||||||
| Minority interest in earnings of Operating Partnership attributable to continuing operations |
(1,108 | ) | (1,465 | ) | (2,138 | ) | (3,030 | ) | ||||||||
| Total minority interests |
(3,545 | ) | (4,840 | ) | (7,096 | ) | (9,780 | ) | ||||||||
| INCOME FROM CONTINUING OPERATIONS |
8,436 | 9,525 | 15,505 | 19,668 | ||||||||||||
| DISCONTINUED OPERATIONS (Notes 2 and 10) |
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| Revenues from discontinued operations |
450 | 1,686 | 1,298 | 3,678 | ||||||||||||
| Expenses from discontinued operations |
(153 | ) | (950 | ) | (619 | ) | (2,038 | ) | ||||||||
| Impairment loss on property held for sale |
(726 | ) | ||||||||||||||
| Net (loss) gain on disposition of discontinued operations |
(64 | ) | 3,690 | (64 | ) | 3,690 | ||||||||||
| Minority interest in (earnings) loss of Operating Partnership attributable to discontinued operations |
(30 | ) | (591 | ) | 14 | (712 | ) | |||||||||
| Total income (loss) from discontinued operations |
203 | 3,835 | (97 | ) | 4,618 | |||||||||||
| NET INCOME |
8,639 | 13,360 | 15,408 | 24,286 | ||||||||||||
| PREFERRED DIVIDENDS |
(785 | ) | (1,570 | ) | ||||||||||||
| NET INCOME AVAILABLE FOR COMMON SHAREHOLDERS |
$ | 7,854 | $ | 13,360 | $ | 13,838 | $ | 24,286 | ||||||||
| Income from continuing operations per common share—basic (Note 11) |
$ | 0.30 | $ | 0.35 | $ | 0.55 | $ | 0.72 | ||||||||
| Income from continuing operations per common share—diluted (Note 11) |
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