EX-99.2 3 exhibit992.htm EX-99.2 Document
Exhibit 99.2
 kilroylogoa02a.jpg


Contact:FOR RELEASE:
Eliott TrencherOctober 25, 2023
Executive Vice President,
Chief Financial Officer
and Chief Investment Officer
(310) 481-8587
Or
Bill Hutcheson
Senior Vice President,
Investor Relations & Capital Markets
(415) 778-5678
 

KILROY REALTY CORPORATION REPORTS
THIRD QUARTER FINANCIAL RESULTS
---------------

LOS ANGELES, October 25, 2023 - Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its third quarter ended September 30, 2023.

Third Quarter Highlights

Financial Results
•Revenues grew 2.8% to $283.6 million for the quarter ended September 30, 2023, as compared to $276.0 million for the quarter ended September 30, 2022
•Net income available to common stockholders of $0.45 per diluted share for the quarter ended September 30, 2023, as compared to $0.68 per diluted share for the quarter ended September 30, 2022, which included a $0.15 per diluted share gain on sale of an operating property
•Funds from operations available to common stockholders and unitholders (“FFO”) of $134.0 million, or $1.12 per diluted share for the quarter ended September 30, 2023, as compared to $139.7 million, or $1.17 per diluted share for the quarter ended September 30, 2022

Leasing and Occupancy
•Stabilized portfolio was 86.2% occupied and 87.5% leased at September 30, 2023
•Signed approximately 188,000 square feet of new and renewing leases
◦GAAP rents increased 16.1% and cash rents remained approximately flat from prior levels in the stabilized portfolio
•In October, signed approximately 117,000 square feet of new and renewing leases, including extensions of in-place leases


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Development and Redevelopment
•In July, commenced GAAP revenue recognition at 9514 Towne Centre Drive, an approximately 71,000 square foot office building in the University Towne Center submarket of San Diego, and added the building to the stabilized portfolio. The building is 100% leased to a global technology company

Balance Sheet / Liquidity
•In July, entered into an eleven-year, non-recourse mortgage note for $375.0 million. The mortgage note bears interest at a fixed rate of 5.90% and matures on August 10, 2034
•In September, drew the remaining $170.0 million available on the unsecured term loan facility in accordance with the terms of the agreement
•As of the date of this release, the company had approximately $1.9 billion of total liquidity comprised of approximately $790.0 million of cash and short term investments and approximately $1.1 billion available under the unsecured revolving credit facility

Dividend
•The company’s Board of Directors declared and paid a regular quarterly cash dividend on its common stock of $0.54 per share, equivalent to an annual rate of $2.16

Recent Awards / Recognition
•In October, the company received a 5-star ESG rating from GRESB for the ninth consecutive year and was named the 2023 regional leader for diversified development in the Americas. Kilroy has received a number one ranking from GRESB for seven consecutive years, which reflects the company’s extensive integration of ESG initiatives

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 2023 of $4.55 to $4.60 per share, with a midpoint of $4.58 per share.
Full Year 2023 Range
Low EndHigh End
Net income available to common stockholders per share - diluted$1.75 $1.80 
Weighted average common shares outstanding - diluted (1)
117,500 117,500 
Net income available to common stockholders$206,000 $212,000 
Adjustments:
Net income attributable to noncontrolling common units of the Operating Partnership2,200 2,400 
Net income attributable to noncontrolling interests in consolidated property partnerships24,500 25,500 
Depreciation and amortization of real estate assets345,000 345,000 
Gains on sales of depreciable real estate— — 
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships(35,000)(36,000)
Funds From Operations (2)
$542,700 $548,900 
Weighted average common shares/units outstanding – diluted (3)
119,200 119,200 
Funds From Operations per common share/unit – diluted (3)
$4.55 $4.60 

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Key AssumptionsJuly 2023 AssumptionsUpdated 2023 Assumptions
Same Store Cash NOI growth (4)
1.50% to 2.50%2.75% to 3.25%
Average occupancy86.75% to 87.75%87.00% to 87.50%
Total development spending (5)
$425 million to $475 million$400 million to $450 million
Dispositions$0 to $200 million$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, common unitholders and restricted stock unitholders.
(4)See management statement for Same Store Cash Net Operating Income on page 32 of our Supplemental Financial Report furnished on Form 8-K with this press release.
(5)Remaining 2023 development spending is $100 million to $150 million.

The company’s guidance estimates for the full year 2023, 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 third quarter results and the current business environment during the company’s October 26, 2023 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/556184498. 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 383102 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://www.netroadshow.com/events/login?show=7038fe96&confId=45368. A replay of the conference call will be available via telephone on October 26, 2023 through November 2, 2023 by dialing (866) 813-9403 and entering passcode 902548. International callers should dial (929) 458-6194 and enter the same passcode. The replay will also be available on our website at https://investors.kilroyrealty.com/shareholders/investor-events/default.aspx.



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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 September 30, 2023, Kilroy’s stabilized portfolio totaled approximately 16.3 million square feet of primarily office and life science space that was 86.2% occupied and 87.5% leased. The company also had more than 1,000 residential units in Hollywood and San Diego, which had a quarterly average occupancy of 92.7%. In addition, the company had two in-process life science redevelopment projects with total estimated redevelopment costs of $80.0 million, totaling approximately 100,000 square feet, and two in-process development projects with an estimated total investment of $1.6 billion, totaling approximately 1.6 million square feet of office and life science space. The in-process development and redevelopment office and life science space is 32% leased.

A Leader in Sustainability and Commitment to Corporate Social Responsibility
Kilroy has a longstanding commitment to sustainability and continues to be a recognized leader in our sector. For over a decade, the company and its sustainability initiatives have been recognized with numerous honors, including being listed on the Dow Jones Sustainability World Index, earning the GRESB five star rating and being named a sector and regional leader in the Americas. Other honors have included the Nareit Leader in the Light Award, being named ENERGY STAR Partner of the Year and receiving the ENERGY STAR highest honor of Sustained Excellence.

Kilroy is proud to have achieved carbon neutral operations across our portfolio since 2020. The company’s portfolio was 70% LEED certified and 44% Fitwel certified, and 65% of eligible properties were ENERGY STAR certified as of September 30, 2023.

A significant 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 fourth year in a row, the company has been named to Bloomberg’s Gender Equality Index, which recognizes 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
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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, including bankruptcy, lack of liquidity or lack of funding and the impact labor disruptions or strikes, such as episodic strikes in the entertainment industry, may have on our tenants’ businesses; our ability to re-lease property at or above current market rates; reduced demand for office space, including as a result of remote working and flexible working arrangements that allow work from remote locations other than the employer's office premises; 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; changes in interest rates and 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; and our ability to maintain our status as a REIT. 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 annual report on Form 10-K for the year ended December 31, 2022 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.


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KILROY REALTY CORPORATION
SUMMARY OF QUARTERLY RESULTS
(unaudited; in thousands, except per share data)

Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
Revenues$283,594 $275,958 $860,678$812,643
Net income available to common stockholders$52,762 $79,757 $164,957$179,990
Weighted average common shares outstanding – basic117,185 116,873 117,133116,783
Weighted average common shares outstanding – diluted117,495 117,242 117,411117,163
Net income available to common stockholders per share – basic $0.45 $0.68 $1.40$1.53
Net income available to common stockholders per share – diluted$0.45 $0.68 $1.40$1.53
Funds From Operations (1)(2)
$134,047 $139,657 $421,859$416,776
Weighted average common shares/units outstanding – basic (3)
118,934 118,563 118,894118,591
Weighted average common shares/units outstanding – diluted (4)
119,245 118,933 119,172118,972
Funds From Operations per common share/unit – basic (2)
$1.13 $1.18 $3.55$3.51
Funds From Operations per common share/unit – diluted (2)
$1.12 $1.17 $3.54$3.50
Common shares outstanding at end of period117,240116,877
Common partnership units outstanding at end of period1,1511,151
Total common shares and units outstanding at end of period118,391118,028
 September 30, 2023September 30, 2022
Stabilized office portfolio occupancy rates: (5)
Greater Los Angeles81.2 %84.5 %
San Diego County86.1 %86.3 %
San Francisco Bay Area91.1 %93.8 %
Greater Seattle83.5 %97.7 %
Weighted average total86.2 %90.8 %
Total square feet of stabilized office properties owned at end of period: (5)
Greater Los Angeles4,3454,328
San Diego County2,7702,709
San Francisco Bay Area6,1706,212
Greater Seattle3,0003,000
Total16,28516,249
________________________
(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 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 September 30, 2022 include the office properties that were sold subsequent to September 30, 2022.
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KILROY REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited; in thousands)
 September 30, 2023December 31, 2022
ASSETS
REAL ESTATE ASSETS:
Land and improvements$1,743,170 $1,738,242 
Buildings and improvements8,431,499 8,302,081 
Undeveloped land and construction in progress1,950,424 1,691,860 
Total real estate assets held for investment12,125,093 11,732,183 
Accumulated depreciation and amortization(2,443,659)(2,218,710)
Total real estate assets held for investment, net9,681,434 9,513,473 
Cash and cash equivalents618,794 347,379 
Marketable securities278,789 23,547 
Current receivables, net11,383 20,583 
Deferred rent receivables, net466,073 452,200 
Deferred leasing costs and acquisition-related intangible assets, net228,742 250,846 
Right of use ground lease assets125,765 126,530 
Prepaid expenses and other assets, net60,141 62,429 
TOTAL ASSETS$11,471,121 $10,796,987 
LIABILITIES AND EQUITY
LIABILITIES:
Secured debt, net$604,480 $242,938 
Unsecured debt, net 4,330,326 4,020,058 
Accounts payable, accrued expenses and other liabilities426,662 392,360 
Ground lease liabilities124,517 124,994 
Accrued dividends and distributions64,423 64,285 
Deferred revenue and acquisition-related intangible liabilities, net178,542 195,959 
Rents received in advance and tenant security deposits74,646 81,432 
Total liabilities5,803,596 5,122,026 
EQUITY:
Stockholders’ Equity
Common stock1,173 1,169 
Additional paid-in capital5,195,106 5,170,760 
Retained earnings237,665 265,118 
Total stockholders’ equity5,433,944 5,437,047 
Noncontrolling Interests
Common units of the Operating Partnership53,328 53,524 
Noncontrolling interests in consolidated property partnerships180,253 184,390 
Total noncontrolling interests233,581 237,914 
Total equity5,667,525 5,674,961 
TOTAL LIABILITIES AND EQUITY$11,471,121 $10,796,987 

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KILROY REALTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited; in thousands, except per share data)

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
REVENUES
Rental income$280,681 $272,546 $852,094 $804,330 
Other property income2,913 3,412 8,584 8,313 
Total revenues283,594 275,958 860,678 812,643 
EXPENSES
Property expenses59,445 52,075 168,233 147,421 
Real estate taxes28,363 27,415 84,868 78,718 
Ground leases2,390 1,771 7,172 5,473 
General and administrative expenses (1)
24,761 23,524 71,356 68,425 
Leasing costs1,852 1,015 4,550 3,475 
Depreciation and amortization85,224 81,140 269,262 266,215 
Total expenses202,035 186,940 605,441 569,727 
OTHER INCOME (EXPENSES)
Interest and other income, net7,015 295 11,896 501 
Interest expense(29,837)(19,982)(81,891)(60,728)
Gain on sale of depreciable operating property— 17,329 — 17,329 
Total other expenses(22,822)(2,358)(69,995)(42,898)
NET INCOME58,737 86,660 185,242 200,018 
Net income attributable to noncontrolling common units of the Operating Partnership(515)(664)(1,612)(1,695)
Net income attributable to noncontrolling interests in consolidated property partnerships(5,460)(6,239)(18,673)(18,333)
Total income attributable to noncontrolling interests(5,975)(6,903)(20,285)(20,028)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS$52,762 $79,757 $164,957 $179,990 
Weighted average common shares outstanding – basic117,185 116,873 117,133 116,783 
Weighted average common shares outstanding – diluted117,495 117,242 117,411 117,163 
Net income available to common stockholders per share – basic$0.45 $0.68 $1.40 $1.53 
Net income available to common stockholders per share – diluted$0.45 $0.68 $1.40 $1.53 
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(1)The three and nine months ended September 30, 2023 includes $5.8 million and $12.0 million, respectively, of retirement costs for our CEO and former President, primarily comprised of accelerated stock compensation expense.
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KILROY REALTY CORPORATION
FUNDS FROM OPERATIONS
(unaudited; in thousands, except per share data)
 
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net income available to common stockholders$52,762 $79,757 $164,957 $179,990 
Adjustments:
Net income attributable to noncontrolling common units of the Operating Partnership515 664 1,612 1,695 
Net income attributable to noncontrolling interests in consolidated property partnerships5,460 6,239 18,673 18,333 
Depreciation and amortization of real estate assets83,518 79,410 263,662 261,129 
Gain on sale of depreciable real estate— (17,329)— (17,329)
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships(8,208)(9,084)(27,045)(27,042)
Funds From Operations(1)(2)(3)
$134,047 $139,657 $421,859 $416,776 
Weighted average common shares/units outstanding – basic (4)
118,934 118,563 118,894 118,591 
Weighted average common shares/units outstanding – diluted (5)
119,245 118,933 119,172 118,972 
Funds From Operations per common share/unit – basic (2)
$1.13 $1.18 $3.55 $3.51 
Funds From Operations per common share/unit – diluted (2)
$1.12 $1.17 $3.54 $3.50 
 ________________________
(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, common unitholders and restricted stock 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 $5.0 million for the three months ended September 30, 2023 and 2022, respectively, and $15.0 million and $14.2 million for the nine months ended September 30, 2023 and 2022, 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 contingently issuable shares, and assuming the exchange of all common limited partnership units outstanding.


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