Kilroy Realty Corporation Reports Second Quarter Financial Results

Rhea-AI Summary

Kilroy Realty Corporation (NYSE: KRC) reported strong financial results for Q2 2022, with revenues increasing by 20% to $271.2 million compared to $226.0 million in Q2 2021. Net income rose 32% to $47.1 million, or $0.40 per share, while Funds from Operations (FFO) climbed 33% to $139.4 million, or $1.17 per share. The stabilized portfolio maintained a 91.4% occupancy rate, with significant lease activities reported. The company holds $1.2 billion in liquidity and declared a quarterly dividend of $0.52 per share. Guidance for FFO per diluted share for 2022 is updated to a range of $4.53 to $4.63.

Positive

• Revenues increased by 20% to $271.2 million compared to Q2 2021.
• Net income available to common stockholders rose 32% to $47.1 million.
• FFO grew 33% to $139.4 million, reflecting strong operational performance.
• Stabilized portfolio achieved a 91.4% occupancy rate.
• The company has approximately $1.2 billion in total liquidity.

Negative

• None.

LOS ANGELES--(BUSINESS WIRE)-- Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its second quarter ended June 30, 2022.

Second Quarter Highlights

Financial Results

• Revenues grew approximately 20% to $271.2 million for the quarter ended June 30, 2022, as compared to $226.0 million for the quarter ended June 30, 2021
• Net income available to common stockholders of $47.1 million, or $0.40 per diluted share, an increase of approximately 32% as compared to $35.8 million, or $0.30 per diluted share for the quarter ended June 30, 2021
• Funds from operations available to common stockholders and unitholders (“FFO”) of $139.4 million, or $1.17 per diluted share, an increase of approximately 33% as compared to $104.6 million, or $0.88 per diluted share for the quarter ended June 30, 2021

Stabilized Portfolio

• Stabilized portfolio was 91.4% occupied and 93.7% leased at June 30, 2022
• Signed approximately 249,000 square feet of new and renewing leases, including approximately 26,000 square feet in the development portfolio
  • GAAP and cash rents increased approximately 35.3% and 20.7%, respectively, from prior levels
• In April, commenced GAAP revenue recognition on the remaining phases of the approximately 619,000 square foot 333 Dexter office development project located in Seattle’s Lake Union submarket and added the building to the stabilized portfolio
• In July, signed approximately 73,000 square feet of new and renewing leases

Balance Sheet / Liquidity Highlights

• As of the date of this release, the company had approximately $1.2 billion of total liquidity comprised of approximately $120.0 million of cash and cash equivalents and full availability under the $1.1 billion unsecured revolving credit facility
• Investment grade credit rated with approximately 95% unsecured debt and no significant debt maturities until December 2024

Dividend

• Company’s Board of Directors declared and paid a regular quarterly cash dividend on its common stock of $0.52 per share, equivalent to an annual rate of $2.08 per share

Net Income Available to Common Stockholders / FFO Guidance and Outlook

The company is providing an updated guidance range of NAREIT-defined FFO per diluted share for the full year 2022 of $4.53 to $4.63 per share, with a midpoint of $4.58 per share.

		Full Year 2022 Range
		Low End				High End
	Net income available to common stockholders per share - diluted	$	1.68			$	1.78
	Weighted average common shares outstanding - diluted (1)		117,150				117,150
	Net income available to common stockholders	$	197,000			$	209,000
	Adjustments:
	Net income attributable to noncontrolling common units of the Operating Partnership		2,850				3,250
	Net income attributable to noncontrolling interests in consolidated property partnerships		24,000				25,000
	Depreciation and amortization of real estate assets		350,000				350,000
	Funds From Operations attributable to noncontrolling interests in consolidated property partnerships		(35,250	)			(36,250	)
	Funds From Operations (2)	$	538,600			$	551,000
	Weighted average common shares/units outstanding – diluted (3)		119,000				119,000
	Funds From Operations per common share/unit – diluted (3)	$	4.53			$	4.63

Key 2022 assumptions:

• Dispositions of $200.0 million to $500.0 million
• Same Store Cash NOI growth of 5.0% to 6.0% ⁽⁴⁾
• Year-end occupancy of approximately 91.0% to 92.0%
• Total remaining development spending of approximately $300.0 million to $350.0 million

________________________

(1)		Calculated based on estimated weighted average shares outstanding including non-participating share-based awards.
(2)		See management statement for Funds From Operations at end of release.
(3)		Calculated based on weighted average shares outstanding including participating and non-participating share-based awards, dilutive impact of contingently issuable shares, and assuming the exchange of all common limited partnership units outstanding. Reported amounts are attributable to common stockholders and common unitholders.
(4)		See management statement for Same Store Cash Net Operating Income on page 33 of our Supplemental Financial Report furnished on Form 8-K with this press release.

The company’s guidance estimates for the full year 2022, and the reconciliation of net income available to common stockholders per share - diluted and FFO per share and unit - diluted included within this press release, reflect management’s views on current and future market conditions, including assumptions with respect to rental rates, occupancy levels, and the earnings impact of the events referenced in this press release. Although these guidance estimates reflect the impact on the company’s operating results of an assumed range of future disposition activity, these guidance estimates do not include any estimates of possible future gains or losses from possible future dispositions because the magnitude of gains or losses on sales of depreciable operating properties, if any, will depend on the sales price and depreciated cost basis of the disposed assets at the time of disposition, information that is not known at the time the company provides guidance, and the timing of any gain recognition will depend on the closing of the dispositions, information that is also not known at the time the company provides guidance and may occur after the relevant guidance period. We caution you not to place undue reliance on our assumed range of future disposition activity because any potential future disposition transactions will ultimately depend on the market conditions and other factors, including but not limited to the company’s capital needs, the particular assets being sold and the company’s ability to defer some or all of the taxable gain on the sales. These guidance estimates also do not include the impact on operating results from potential future acquisitions, possible capital markets activity, possible future impairment charges or any events outside of the company’s control. There can be no assurance that the company’s actual results will not differ materially from these estimates.

Conference Call and Audio Webcast

The company’s management will discuss second quarter results and the current business environment during the company’s July 28, 2022 earnings conference call. The call will begin at 10:00 a.m. Pacific Time and last approximately one hour. Those interested in listening via the Internet can access the conference call at https://events.q4inc.com/attendee/405051510. It may be necessary to download audio software to hear the conference call. Those interested in listening via telephone can access the conference call at (844) 200-6205 and enter access code 296795 five to 10 minutes prior to the start time to allow time for registration. International callers should dial (929) 526-1599 and enter the same passcode. In order to bypass speaking to the operator on the day of the call, please pre-register anytime at https://ige.netroadshow.com/registration/q4inc/9127/q2-2022-kilroy-realty-corporation-earnings-conference-call/. A replay of the conference call will be available via telephone on July 28, 2022 through August 4, 2022 by dialing (866) 813-9403 and entering passcode 873673. International callers should dial (929) 458-6194 and enter the same passcode. The replay will also be available on our website at http://investors.kilroyrealty.com/shareholders/investor-events/default.aspx.

About Kilroy Realty Corporation

Kilroy Realty Corporation (NYSE: KRC, the “company”, “Kilroy”) is a leading U.S. landlord and developer, with operations in San Diego, Greater Los Angeles, the San Francisco Bay Area, the Pacific Northwest and Austin, Texas. The company has earned global recognition for sustainability, building operations, innovation and design. As pioneers and innovators in the creation of a more sustainable real estate industry, the company’s approach to modern business environments helps drive creativity and productivity for some of the world’s leading technology, entertainment, life science and business services companies.

The company is a publicly traded real estate investment trust (“REIT”) and member of the S&P MidCap 400 Index with more than seven decades of experience developing, acquiring and managing office, life science and mixed-use projects.

As of June 30, 2022, Kilroy’s stabilized portfolio totaled approximately 15.8 million square feet of primarily office and life science space that was 91.4% occupied and 93.7% leased. The company also had more than 1,000 residential units in Hollywood and San Diego, which had a quarterly average occupancy of 93.7%. In addition, the company had three in-process life science redevelopment projects with total estimated redevelopment costs of $115.0 million, totaling approximately 344,000 square feet, and four in-process development projects with an estimated total investment of $1.8 billion, totaling approximately 1.9 million square feet of office and life science space. The in-process development and redevelopment office and life science space was 38% leased.

A Leader in Sustainability and Commitment to Corporate Social Responsibility

The company is listed on the Dow Jones Sustainability World Index and has been recognized by industry organizations around the world. The company’s office portfolio was 72% LEED certified and 42% Fitwel certified, and 77% of eligible properties were ENERGY STAR certified as of June 30, 2022.

The company has been recognized by GRESB as the listed sustainability leader in the Americas for eight of the last nine years. Other honors have included the National Association of Real Estate Investment Trust’s (NAREIT) Leader in the Light award for eight consecutive years and ENERGY STAR Partner of the Year for nine years as well as ENERGY STAR’s highest honor of Sustained Excellence, for the past seven years.

A big part of the company’s foundation is its commitment to enhancing employee growth, satisfaction and wellness while maintaining a diverse and thriving culture. For the third year in a row, the company has been named to Bloomberg’s Gender Equality Index—recognizing companies committed to supporting gender equality through policy development, representation, and transparency.

More information is available at http://www.kilroyrealty.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on our current expectations, beliefs and assumptions, and are not guarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult to predict, many of which are outside of our control. Accordingly, actual performance, results and events may vary materially from those indicated or implied in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results or events. Numerous factors could cause actual future performance, results and events to differ materially from those indicated in the forward-looking statements, including, among others: global market and general economic conditions, including periods of heightened inflation, and their effect on our liquidity and financial conditions and those of our tenants; adverse economic or real estate conditions generally, and specifically, in the States of California, Texas and Washington; risks associated with our investment in real estate assets, which are illiquid, and with trends in the real estate industry; defaults on or non-renewal of leases by tenants; any significant downturn in tenants’ businesses; our ability to re-lease property at or above current market rates; costs to comply with government regulations, including environmental remediation; the availability of cash for distribution and debt service and exposure to risk of default under debt obligations; increases in interest rates and our ability to manage interest rate exposure; the availability of financing on attractive terms or at all, which may adversely impact our future interest expense and our ability to pursue development, redevelopment and acquisition opportunities and refinance existing debt; a decline in real estate asset valuations, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing, and which may result in write-offs or impairment charges; significant competition, which may decrease the occupancy and rental rates of properties; potential losses that may not be covered by insurance; the ability to successfully complete acquisitions and dispositions on announced terms; the ability to successfully operate acquired, developed and redeveloped properties; the ability to successfully complete development and redevelopment projects on schedule and within budgeted amounts; delays or refusals in obtaining all necessary zoning, land use and other required entitlements, governmental permits and authorizations for our development and redevelopment properties; increases in anticipated capital expenditures, tenant improvement and/or leasing costs; defaults on leases for land on which some of our properties are located; adverse changes to, or enactment or implementations of, tax laws or other applicable laws, regulations or legislation, as well as business and consumer reactions to such changes; risks associated with joint venture investments, including our lack of sole decision-making authority, our reliance on co-venturers’ financial condition and disputes between us and our co-venturers; environmental uncertainties and risks related to natural disasters; our ability to maintain our status as a REIT; and uncertainties regarding the impact of the COVID-19 pandemic, and restrictions intended to prevent its spread, on our business and the economy generally. These factors are not exhaustive and additional factors could adversely affect our business and financial performance. For a discussion of additional factors that could materially adversely affect our business and financial performance, see the factors included under the caption “Risk Factors” in our quarterly report on Form 10-Q for the period ending June 30, 2022 to be filed on July 28, 2022 and in our annual report on Form 10-K for the year ended December 31, 2021 and our other filings with the Securities and Exchange Commission. All forward-looking statements are based on currently available information and speak only as of the dates on which they are made. We assume no obligation to update any forward-looking statement made in this press release that becomes untrue because of subsequent events, new information or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws.

KILROY REALTY CORPORATION SUMMARY OF QUARTERLY RESULTS (unaudited; in thousands, except per share data)
	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022				2021
Revenues	$	271,184		$	225,983		$	536,685			$	461,629
Net income available to common stockholders	$	47,105		$	35,839		$	100,233			$	533,470
Weighted average common shares outstanding – basic		116,822			116,452			116,737				116,398
Weighted average common shares outstanding – diluted		117,185			116,917			117,123				116,860
Net income available to common stockholders per share – basic	$	0.40		$	0.30		$	0.85			$	4.58
Net income available to common stockholders per share – diluted	$	0.40		$	0.30		$	0.85			$	4.56
Funds From Operations (1)(2)	$	139,353		$	104,595		$	277,119			$	220,839
Weighted average common shares/units outstanding – basic (3)		118,584			118,340			118,606				118,337
Weighted average common shares/units outstanding – diluted (4)		118,946			118,806			118,992				118,798
Funds From Operations per common share/unit – basic (2)	$	1.18		$	0.88		$	2.34			$	1.87
Funds From Operations per common share/unit – diluted (2)	$	1.17		$	0.88		$	2.33			$	1.86
Common shares outstanding at end of period								116,871				116,454
Common partnership units outstanding at end of period								1,151				1,151
Total common shares and units outstanding at end of period								118,022				117,605
							June 30, 2022				June 30, 2021
Stabilized office portfolio occupancy rates: (5)
Greater Los Angeles								84.9	%			86.7	%
San Diego County								90.9	%			91.0	%
San Francisco Bay Area								93.1	%			94.7	%
Greater Seattle								97.8	%			96.5	%
Weighted average total								91.4	%			91.8	%
Total square feet of stabilized office properties owned at end of period: (5)
Greater Los Angeles								4,422				4,410
San Diego County								2,174				2,410
San Francisco Bay Area								6,212				5,528
Greater Seattle								3,000				1,804
Total								15,808				14,152

________________________

(1)		Reconciliation of Net income available to common stockholders to Funds From Operations available to common stockholders and unitholders and management statement on Funds From Operations are included after the Consolidated Statements of Operations.
(2)		Reported amounts are attributable to common stockholders, common unitholders and restricted stock unitholders.
(3)		Calculated based on weighted average shares outstanding including participating share-based awards (i.e. nonvested stock and certain time based restricted stock units) and assuming the exchange of all common limited partnership units outstanding.
(4)		Calculated based on weighted average shares outstanding including participating and non-participating share-based awards, dilutive impact of stock options and contingently issuable shares, and assuming the exchange of all common limited partnership units outstanding.
(5)		Occupancy percentages and total square feet reported are based on the company’s stabilized office portfolio for the periods presented. Occupancy percentages and total square feet shown for June 30, 2021 include the office properties that were sold subsequent to June 30, 2021.

KILROY REALTY CORPORATION CONSOLIDATED BALANCE SHEETS (unaudited; in thousands)
	June 30, 2022				December 31, 2021
ASSETS
REAL ESTATE ASSETS:
Land and improvements	$	1,713,152			$	1,731,982
Buildings and improvements		7,530,547				7,543,585
Undeveloped land and construction in progress		2,272,508				2,017,126
Total real estate assets held for investment		11,516,207				11,292,693
Accumulated depreciation and amortization		(2,104,990	)			(2,003,656	)
Total real estate assets held for investment, net		9,411,217				9,289,037
Cash and cash equivalents		210,044				414,077
Restricted cash		13,008				13,006
Marketable securities		22,988				27,475
Current receivables, net		13,268				14,386
Deferred rent receivables, net		435,549				405,665
Deferred leasing costs and acquisition-related intangible assets, net		217,026				234,458
Right of use ground lease assets		126,587				127,302
Prepaid expenses and other assets, net		65,554				57,991
TOTAL ASSETS	$	10,515,241			$	10,583,397
LIABILITIES AND EQUITY
LIABILITIES:
Secured debt, net	$	245,680			$	248,367
Unsecured debt, net		3,822,482				3,820,383
Accounts payable, accrued expenses and other liabilities		357,253				391,264
Ground lease liabilities		125,277				125,550
Accrued dividends and distributions		61,880				61,850
Deferred revenue and acquisition-related intangible liabilities, net		176,845				171,151
Rents received in advance and tenant security deposits		73,273				74,962
Total liabilities		4,862,690				4,893,527
EQUITY:
Stockholders’ Equity
Common stock		1,169				1,165
Additional paid-in capital		5,151,705				5,155,232
Retained earnings		260,020				283,663
Total stockholders’ equity		5,412,894				5,440,060
Noncontrolling Interests
Common units of the Operating Partnership		53,289				53,746
Noncontrolling interests in consolidated property partnerships		186,368				196,064
Total noncontrolling interests		239,657				249,810
Total equity		5,652,551				5,689,870
TOTAL LIABILITIES AND EQUITY	$	10,515,241			$	10,583,397

KILROY REALTY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited; in thousands, except per share data)
	Three Months Ended June 30,								Six Months Ended June 30,
		2022				2021				2022				2021
REVENUES
Rental income	$	268,576			$	224,473			$	531,784			$	459,129
Other property income		2,608				1,510				4,901				2,500
Total revenues		271,184				225,983				536,685				461,629
EXPENSES
Property expenses		49,922				40,482				95,346				79,341
Real estate taxes		25,433				22,109				51,303				47,375
Ground leases		1,876				2,023				3,702				3,851
General and administrative expenses		22,120				24,507				44,901				46,492
Leasing costs		1,447				883				2,460				1,575
Depreciation and amortization		96,415				73,589				185,075				149,521
Total expenses		197,213				163,593				382,787				328,155
OTHER INCOME (EXPENSES)
Interest and other income, net		125				1,337				206				2,710
Interest expense		(20,121	)			(21,390	)			(40,746	)			(43,724	)
Gains on sales of depreciable operating properties		—				543				—				457,831
Total other (expenses) income		(19,996	)			(19,510	)			(40,540	)			416,817
NET INCOME		53,975				42,880				113,358				550,291
Net income attributable to noncontrolling common units of the Operating Partnership		(515	)			(354	)			(1,031	)			(5,240	)
Net income attributable to noncontrolling interests in consolidated property partnerships		(6,355	)			(6,687	)			(12,094	)			(11,581	)
Total income attributable to noncontrolling interests		(6,870	)			(7,041	)			(13,125	)			(16,821	)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	47,105			$	35,839			$	100,233			$	533,470
Weighted average common shares outstanding – basic		116,822				116,452				116,737				116,398
Weighted average common shares outstanding – diluted		117,185				116,917				117,123				116,860
Net income available to common stockholders per share – basic	$	0.40			$	0.30			$	0.85			$	4.58
Net income available to common stockholders per share – diluted	$	0.40			$	0.30			$	0.85			$	4.56

KILROY REALTY CORPORATION FUNDS FROM OPERATIONS (unaudited; in thousands, except per share data)
	Three Months Ended June 30,								Six Months Ended June 30,
		2022				2021				2022				2021
Net income available to common stockholders	$	47,105			$	35,839			$	100,233			$	533,470
Adjustments:
Net income attributable to noncontrolling common units of the Operating Partnership		515				354				1,031				5,240
Net income attributable to noncontrolling interests in consolidated property partnerships		6,355				6,687				12,094				11,581
Depreciation and amortization of real estate assets		94,718				72,037				181,719				146,468
Gains on sales of depreciable real estate		—				(543	)			—				(457,831	)
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships		(9,340	)			(9,779	)			(17,958	)			(18,089	)
Funds From Operations(1)(2)(3)	$	139,353			$	104,595			$	277,119			$	220,839
Weighted average common shares/units outstanding – basic (4)		118,584				118,340				118,606				118,337
Weighted average common shares/units outstanding – diluted (5)		118,946				118,806				118,992				118,798
Funds From Operations per common share/unit – basic (2)	$	1.18			$	0.88			$	2.34			$	1.87
Funds From Operations per common share/unit – diluted (2)	$	1.17			$	0.88			$	2.33			$	1.86

________________________

(1)	We calculate Funds From Operations available to common stockholders and common unitholders (“FFO”) in accordance with the 2018 Restated White Paper on FFO approved by the Board of Governors of NAREIT. The White Paper defines FFO as net income or loss calculated in accordance with GAAP, excluding extraordinary items, as defined by GAAP, gains and losses from sales of depreciable real estate and impairment write-downs associated with depreciable real estate, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets) and after adjustment for unconsolidated partnerships and joint ventures. Our calculation of FFO includes the amortization of deferred revenue related to tenant-funded tenant improvements and excludes the depreciation of the related tenant improvement assets. We also add back net income attributable to noncontrolling common units of the Operating Partnership because we report FFO attributable to common stockholders and common unitholders.
	We believe that FFO is a useful supplemental measure of our operating performance. The exclusion from FFO of gains and losses from the sale of operating real estate assets allows investors and analysts to readily identify the operating results of the assets that form the core of our activity and assists in comparing those operating results between periods. Also, because FFO is generally recognized as the industry standard for reporting the operations of REITs, it facilitates comparisons of operating performance to other REITs. However, other REITs may use different methodologies to calculate FFO, and accordingly, our FFO may not be comparable to all other REITs.
	Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies using historical cost accounting alone to be insufficient. Because FFO excludes depreciation and amortization of real estate assets, we believe that FFO along with the required GAAP presentations provides a more complete measurement of our performance relative to our competitors and a more appropriate basis on which to make decisions involving operating, financing and investing activities than the required GAAP presentations alone would provide.
	However, FFO should not be viewed as an alternative measure of our operating performance because it does not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, which are significant economic costs and could materially impact our results from operations.
(2)	Reported amounts are attributable to common stockholders and common unitholders.
(3)	FFO available to common stockholders and unitholders includes amortization of deferred revenue related to tenant-funded tenant improvements of $4.9 million and $4.7 million for the three months ended June 30, 2022 and 2021, respectively, and $9.2 million and $8.9 million for the six months ended June 30, 2022 and 2021, respectively..
(4)	Calculated based on weighted average shares outstanding including participating share-based awards (i.e. certain time based restricted stock units) and assuming the exchange of all common limited partnership units outstanding.
(5)	Calculated based on weighted average shares outstanding including participating and non-participating share-based awards, dilutive impact of stock options and contingently issuable shares, and assuming the exchange of all common limited partnership units outstanding.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20220727005852/en/

Tyler H. Rose

President

(310) 481-8484

or

Eliott Trencher

Executive Vice President,

Chief Investment Officer,

Interim Chief Financial Officer

(310) 481-8587

Source: Kilroy Realty Corporation

FAQ

What were Kilroy Realty's Q2 2022 earnings results?

Kilroy Realty reported Q2 2022 revenues of $271.2 million, net income of $47.1 million, and FFO of $139.4 million.

What is Kilroy Realty's guidance for FFO in 2022?

The company updated its guidance for FFO per diluted share in 2022 to a range of $4.53 to $4.63.

What is Kilroy Realty's dividend for Q2 2022?

The company declared a quarterly cash dividend of $0.52 per share.

How occupied is Kilroy Realty's stabilized portfolio?

As of June 30, 2022, Kilroy Realty's stabilized portfolio was 91.4% occupied.

What were Kilroy Realty's lease activities in Q2 2022?

In Q2 2022, Kilroy Realty signed approximately 249,000 square feet of new and renewing leases.