-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IskIth93rKoIyutB8HD22PUXnBIS0hxmaNpw2x2cJFP2zF+UETV5LerGeQiXkQWd M6QiS9RpRhs5M6GZ2cmOvQ== 0000898430-98-001903.txt : 19980515 0000898430-98-001903.hdr.sgml : 19980515 ACCESSION NUMBER: 0000898430-98-001903 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KILROY REALTY CORP CENTRAL INDEX KEY: 0001025996 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 954598246 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12675 FILM NUMBER: 98619321 BUSINESS ADDRESS: STREET 1: 2250 E IMPERIAL HWY STREET 2: C/O KILROY INDUSTRIES CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3105635500 MAIL ADDRESS: STREET 1: C/O KILROY INDUSTRIES STREET 2: 2250 E IMPERIAL HIGHWAY #1200 CITY: EL SEGUNDO STATE: CA ZIP: 90245 10-Q 1 FORM 10-Q FOR THE PERIOD ENDED 3/31/98 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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, 1998 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 (I.R.S. EMPLOYER IDENTIFICATION NUMBER) OF INCORPORATION OR ORGANIZATION)
2250 EAST IMPERIAL HIGHWAY, SUITE 1200, EL SEGUNDO, CALIFORNIA 90245 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ---------------- (310) 563-5500 (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 [_] As of May 13, 1998, 27,597,551 shares of common stock, par value $.01 per share, were outstanding. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- PART I--FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Consolidated balance sheet of Kilroy Realty Corporation as of March 31, 1998 (unaudited) and Combined Balance Sheet of the Kilroy Group (predecessor to Kilroy Realty Corporation) as of December 31, 1997.............................................. 3 Consolidated Statements of Operations of Kilroy Realty Corporation for the three months ended March 31, 1998 (unaudited) and for the period from February 1, 1997 to March 31, 1997 (unaudited) and the Combined Statement of Operations of the Kilroy Group for the period from January 1, 1997 to January 31, 1997............................................... 4 Consolidated Statements of Cash Flows of Kilroy Realty Corporation for the three months ended March 31, 1998 and 1997 (unaudited).................................................... 5 Notes to the Kilroy Realty Corporation Consolidated and Kilroy Group Combined Financial Statements............................ 6 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................... 10 PART II--OTHER INFORMATION Item 1. LEGAL PROCEEDINGS.............................................. 16 Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...................... 16 Item 3. DEFAULTS UPON SENIOR SECURITIES................................ 16 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 16 Item 5. OTHER INFORMATION.............................................. 16 Item 6. EXHIBITS AND REPORTS ON FORM 8-K............................... 16
2 PART I--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS KILROY REALTY CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, 1998 DECEMBER 31, (UNAUDITED) 1997 ----------- ------------ ASSETS INVESTMENT IN REAL ESTATE (Note 2): Land and improvements............................... $ 216,650 $ 177,118 Buildings and improvements.......................... 721,513 622,901 Land and construction in progress................... 40,828 34,671 --------- --------- Total investment in real estate................... 978,991 834,690 Accumulated depreciation............................ (127,075) (121,780) --------- --------- Investment in real estate, net.................... 851,916 712,910 CASH AND CASH EQUIVALENTS............................. 13,526 8,929 RESTRICTED CASH....................................... 4,914 5,680 TENANT RECEIVABLES, NET............................... 6,887 7,367 ESCROW DEPOSITS....................................... 16,439 5,114 DEFERRED FINANCING AND LEASING COSTS, NET............. 14,389 13,052 PREPAID EXPENSES AND OTHER ASSETS, NET................ 4,638 4,602 --------- --------- TOTAL ASSETS...................................... $ 912,709 $ 757,654 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Mortgage debt (Note 3).............................. $ 134,959 $ 131,363 Line of credit (Note 4)............................. 162,000 142,000 Accounts payable and accrued expenses............... 9,378 9,711 Accrued distributions............................... 12,413 10,804 Rents received in advance and tenant security deposits........................................... 12,538 11,441 --------- --------- Total liabilities................................. 331,288 305,319 --------- --------- MINORITY INTERESTS (Note 5): 8.075% Series A Cumulative Redeemable Preferred Units.............................................. 59,077 Common units........................................ 66,338 55,185 --------- --------- Total minority interest........................... 125,415 55,185 --------- --------- STOCKHOLDERS' EQUITY (Note 6): Preferred stock, $.01 par value, 28,300,000 shares authorized, none issued and outstanding............ 8.075% Series A Cumulative Redeemable Preferred Stock, $.01 par value, 1,700,000 shares authorized, none issued and outstanding........................ Common stock, $.01 par value, 150,000,000 shares authorized: 26,746,585 and 24,475,000 shares issued and outstanding, respectively...................... 267 245 Additional paid-in capital.......................... 463,951 403,163 Distributions in excess of earnings................. (8,212) (6,258) --------- --------- Total stockholder's equity........................ 456,006 397,150 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 912,709 $ 757,654 ========= =========
See accompanying notes to consolidated and combined financial statements. 3 KILROY REALTY CORPORATION (THE "COMPANY") CONSOLIDATED AND KILROY GROUP (PREDECESSOR TO THE COMPANY) COMBINED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE DATA)
KILROY REALTY CORPORATION ------------------------ KILROY THREE MONTHS FEBRUARY 1, GROUP ENDED 1997 TO JANUARY 1, MARCH 31, MARCH 31, 1997 TO 1998 1997 JANUARY 31, (UNAUDITED) (UNAUDITED) 1997 ------------ ----------- ----------- REVENUES: Rental income......................... $ 25,460 $ 7,110 $2,760 Tenant reimbursements................. 2,823 706 275 Interest income....................... 474 971 Development services.................. 14 Other income.......................... 194 185 4 ---------- ---------- ------ Total revenues...................... 28,951 8,972 3,053 ---------- ---------- ------ EXPENSES: Property expenses..................... 3,971 1,239 579 Real estate taxes..................... 1,686 353 106 General and administrative............ 1,559 725 78 Ground lease.......................... 305 185 64 Development expense................... 46 Interest expense...................... 4,786 1,531 1,895 Depreciation and amortization......... 5,854 1,744 787 ---------- ---------- ------ Total expenses...................... 18,161 5,777 3,555 ---------- ---------- ------ INCOME (LOSS) BEFORE EXTRAORDINARY GAIN, EQUITY IN LOSS OF UNCONSOLIDATED SUBSIDIARY AND MINORITY INTERESTS...... 10,790 3,195 (502) EQUITY IN LOSS OF UNCONSOLIDATED SUBSIDIARY............................. (1) (57) ---------- ---------- ------ INCOME (LOSS) BEFORE EXTRAORDINARY GAIN AND MINORITY INTERESTS................. 10,789 3,138 (502) ---------- ---------- ------ MINORITY INTERESTS: Distributions on 8.075% Series A Cumulative Redeemable Preferred Units (Note 5)............................. (700) Minority interest in earnings......... (1,210) (486) ---------- ---------- ------ Total minority interests............ (1,910) (486) ---------- ---------- ------ INCOME (LOSS) BEFORE EXTRAORDINARY GAINS.................................. 8,879 2,652 (502) EXTRAORDINARY GAIN...................... 3,204 ---------- ---------- ------ NET INCOME.............................. $ 8,879 $ 2,652 $2,702 ========== ========== ====== Net income per common share basic....... $ .35 $ .18 ========== ========== Net income per common share diluted..... $ .35 $ .18 ========== ========== Weighted average shares outstanding basic.................................. 25,230,467 14,475,000 ========== ========== Weighted average shares outstanding diluted................................ 25,400,890 14,585,633 ========== ==========
See accompanying notes to consolidated and combined financial statements. 4 KILROY REALTY CORPORATION CONSOLIDATED AND KILROY GROUP COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, -------------------- 1998 1997 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................. $ 8,879 $ 5,354 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization........................ 5,854 2,531 Provision for bad debts.............................. 190 150 Restricted stock compensation........................ 115 77 Extraordinary gain................................... (3,204) Minority interest in earnings........................ 1,210 486 Distributions on 8.075% Series A Cumulative Redeemable Preferred Units.......................... 700 Equity in loss of unconsolidated subsidiary.......... 1 57 Changes in assets and liabilities: Tenant receivables................................. 290 (645) Deferred financing and leasing costs, net.......... (1,318) 801 Prepaid expenses and other assets, net............. (258) Accounts payable and accrued expenses.............. (333) (2,652) Accrued cost of option buy-out and tenant improvements...................................... (1,390) Rents received in advance and tenant security deposits.......................................... 1,097 (1,261) --------- --------- Net cash provided by operating activities........ 16,427 304 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for rental properties..................... (124,716) (59,555) Expenditures for land and construction in progress..... (6,157) Escrow deposits, net................................... (11,325) Net investment in and advances to unconsolidated subsidiary............................................ 19 (51) --------- --------- Net cash used in investing activities............ (142,179) (59,606) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuances of common stock............ 58,992 302,703 Net proceeds from issuance of 8.075% Series A Cumulative Redeemable Preferred Units................. 58,377 Proceeds from issuance of mortgage debt................ 5,000 96,000 Principal payments on mortgage debt.................... (1,404) (218,893) Net borrowings on line of credit....................... 20,000 Finance costs.......................................... (578) (2,323) Restricted cash........................................ 766 (4,244) Due from affiliates.................................... (1,261) Distributions paid..................................... (10,804) Deemed and actual contributions from partners, net..... 3,483 --------- --------- Net cash provided by financing activities........ 130,349 175,465 --------- --------- Net increase in cash and cash equivalents................ 4,597 116,163 Cash and cash equivalents, beginning of period........... 8,929 --------- --------- Cash and cash equivalents, end of period................. $ 13,526 $ 116,163 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest................................. $ 4,926 $ 3,872 ========= ========= NON-CASH TRANSACTIONS: Accrual of distributions payable....................... $ 12,413 ========= Issuance of common units of Kilroy Realty, L.P. to acquire properties.................................... $ 13,511 =========
See accompanying notes to consolidated and combined financial statements. 5 KILROY REALTY CORPORATION CONSOLIDATED AND KILROY GROUP COMBINED NOTES TO FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 1998 AND 1997 1. ORGANIZATION Kilroy Realty Corporation (the "Company") owns, operates and develops commercial and industrial real estate, primarily in Southern California. The Company commenced operations in January 1997 and has operated as a self- administered real estate investment trust ("REIT"). The Company succeeded to the real estate business of the Kilroy Group, the Company's predecessor, which had been engaged in the acquisition, management, financing, construction and leasing of commercial and industrial properties. The combined financial statements of the Kilroy Group comprise the operations, assets and liabilities of the properties contributed to the Company in connection with its formation, the formation of Kilroy Realty, L.P. (the "Operating Partnership") and completion of the Company's IPO (collectively the "Formation Transactions") on January 31, 1997. As of March 31, 1998, the Company owned 67 office buildings and 80 industrial buildings, which encompassed approximately 4.9 million and 5.5 million rentable square feet, respectively, and were 92.3% leased. The Company owns its interests in all of the properties through the Operating Partnership and Kilroy Realty Finance Partnership, L.P. The majority of the properties are located in Southern California. The ability of the tenants to honor the terms of their respective leases is dependent upon the economic, regulatory and social factors affecting the communities and industries in which the tenants operate. The accompanying interim financial statements have been prepared by the Company's management in accordance with generally accepted accounting principles and in conjunction with the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the interim financial statements presented herein, reflect all adjustments of a normal and recurring nature which are necessary to fairly state the interim financial statements. The results of operations for the interim period are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. These financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 2. PROPERTY ACQUISITIONS For the three months ended March 31, 1998, the Company completed a series of transactions to acquire 12 office buildings and 13 industrial buildings in California and Nevada, as follows:
NUMBER OF ACREAGE/ LOCATION OF PURCHASE PRICE DESCRIPTION BUILDINGS SQUARE FOOTAGE PROPERTY (MILLIONS) -------------------- --------- --------------- ---------------- -------------- Undeveloped land 2 acres San Diego, CA $ 1.6 Office building 1 48,000 sq. ft. Los Angeles, CA 7.6 Office buildings 4 149,000 sq. ft. Fullerton, CA 10.6 Office building 1 70,000 sq. ft. Santa Monica, CA 16.6 Office buildings 2 79,000 sq. ft. Anaheim, CA 7.1 Office building 1 82,000 sq. ft. Carlsbad, CA 10.5 Office buildings 2 200,000 sq. ft. San Diego, CA 29.4 Office building 1 41,000 sq. ft. Camarillo, CA 5.0 Industrial buildings 9 143,000 sq. ft. Irvine, CA 12.5 Industrial buildings 3 234,000 sq. ft. San Jose, CA 27.4 Industrial building 1 75,000 sq. ft. Reno, NV 6.9 ------ Total $135.2 ======
6 KILROY REALTY CORPORATION CONSOLIDATED AND KILROY GROUP COMBINED NOTES TO FINANCIAL STATEMENTS--(CONTINUED) These acquisitions were funded primarily with existing working capital and borrowings on the line of credit. In addition, the Operating Partnership issued 496,220 common limited partnership units valued at approximately $13,511,000 in connection with the acquisition of two office buildings located in San Diego, California and one industrial building located in Reno, Nevada from entities controlled by Richard S. Allen, a member of the Company's board of directors. 3. MORTGAGE DEBT On January 31, 1998 the Company increased the amount of its $14.0 million mortgage loan to $19.0 million and extended the maturity date to January 31, 2000. In January 1998, a $900,000 promissory note was repaid in full. 4. LINE OF CREDIT On February 24, 1998, the Operating Partnership entered into a $350.0 million unsecured revolving line of credit (together with the previous line of credit, the "Credit Facility") replacing the Operating Partnership's previous $250.0 million secured revolving credit facility. The new Credit Facility matures in February 2000, and bears interest at either LIBOR plus 1.00%, LIBOR plus 1.125% or LIBOR plus 1.25%, depending on the Company's leverage ratio at the time of borrowing. Borrowings outstanding at March 31, 1998 were $162.0 million. Availability under the Credit Facility at March 31, 1998 was $125.5 million based on the value of the Company's unencumbered assets. The fee for unused funds is 0.25%. 5. MINORITY INTERESTS On February 6, 1998, the Company issued 1,200,000 8.075% Series A Cumulative Redeemable Preferred Units, representing limited partnership interests in the Operating Partnership (the "1,200,000 Preferred Units"), with a liquidation value of $50.00 per unit, in exchange for a gross cash contribution to the Operating Partnership of $60.0 million. The Company used the contribution proceeds, less applicable transactions costs and expenses of approximately $1.6 million, for the repayment of borrowings outstanding on the Credit Facility. On April 22, 1998 the Company issued an additional 300,000 Preferred Units (together with the 1,200,000 Preferred Units the "Preferred Units") for a gross cash contribution to the Operating Partnership of $15.0 million. The Company used the contribution proceeds, less applicable transaction costs and expenses of approximately $400,000 for the repayment of borrowings outstanding on the Credit Facility. The Preferred Units, which may be called by the Operating Partnership at par on or after February 6, 2003, have no stated maturity or mandatory redemption and are not convertible into any other securities of the Operating Partnership. The Preferred Units are exchangeable at the option of the majority of the holders, for shares of 8.075% Series A Cumulative Preferred Stock issuable by the Company, beginning February 6, 2008 which may be accelerated under certain circumstances. At March 31, 1998, distributions of approximately $700,000 were accrued and payable to holders of Preferred Units. These distributions were paid on April 7, 1998. 6. STOCKHOLDERS EQUITY On February 18, 1998, the Company completed a public offering of 724,888 shares of its $.01 par value per share, common stock (the "Common Stock") which resulted in net offering proceeds to the Company of $18.9 million. On February 23, 1998, the Company completed a public offering of an additional 1,000,000 shares of Common Stock which resulted in net offering proceeds to the Company of $25.9 million. On March 30, 1998, 7 KILROY REALTY CORPORATION CONSOLIDATED AND KILROY GROUP COMBINED NOTES TO FINANCIAL STATEMENTS--(CONTINUED) the Company completed a public offering of an additional 546,697 shares of Common Stock which resulted in net offering proceeds to the Company of $14.2 million. The Company used the net proceeds of each transaction to repay borrowings under the Credit Facility. As a result of the capital transactions referred to above, and the issuance of common limited partnership units of the Operating Partnership in connection with the acquisition of certain properties (Note 2), the Company owned an 87.3% general partnership interest in the Operating Partnership as of March 31, 1998. 7. SUBSEQUENT EVENTS Subsequent to March 31, 1998, the Company acquired the following properties. Except as otherwise indicated, the properties were acquired from unaffiliated third parties and were financed with borrowings on the Credit Facility and available working capital:
NUMBER OF ACREAGE/ LOCATION OF PURCHASE PRICE DESCRIPTION BUILDINGS SQUARE FOOTAGE PROPERTY (MILLIONS) ----------- --------- --------------- ------------- -------------- Undeveloped land(1) 18 acres Calabasas, CA $ 2.9 Office buildings 7 411,000 sq. ft.(2) San Diego, CA $64.3 Office building 1 69,000 sq. ft. San Diego, CA $ 7.4 Industrial building 1 84,000 sq. ft. Anaheim, CA $ 6.3 ----- $80.6 =====
- -------- (1) This property was acquired from a partnership owned by John B. Kilroy, Sr. and John B. Kilroy, Jr., the Company's Chairman and its President and Chief Executive Officer, respectively, in exchange for cash and the issuance of 90,787 common limited partnership units of the Operating Partnership valued at $2.5 million. (2) Includes 12.85 acres of undeveloped land. On April 7, 1998, distributions of $12,413,000 were paid to Stockholders and Unitholders of record on March 31, 1998. On April 20, 1998, the Company completed a direct placement of 110,225 shares of Common Stock to an institutional investor, which resulted in net offering proceeds to the Company of approximately $3.0 million. The net proceeds were used to repay borrowings under the Credit Facility. On April 27, 1998, the Company completed a public offering of 740,741 shares of Common Stock which resulted in net offering proceeds to the Company of approximately $19.0 million. The net proceeds were used to repay borrowings under the Credit Facility. 8 8. EARNINGS PER SHARE Basic earnings per share is computed by dividing net income by the weighted- average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the sum of the weighted- average number of common shares outstanding for the period plus the assumed exercise of all dilutive securities. The following reconciles the numerator and denominator of the basic and diluted per-share computations for net income:
THREE MONTHS ENDED MARCH 31, PERIOD FEBRUARY 1, 1997 THROUGH 1998 MARCH 31, 1997 -------------------------------- -------------------------------- PER PER INCOME SHARES SHARE INCOME SHARES SHARE (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- ------ ----------- ------------- ------ (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS) Basic................... $8,879 25,230,467 $0.35 $2,652 14,475,000 $0.18 Effect of Dilutive Securities: Stock Options granted. 170,423 110,633 ------ ---------- ----- ------ ---------- ----- Diluted................. $8,879 25,400,890 $0.35 $2,652 14,585,633 $0.18 ====== ========== ===== ====== ========== =====
9. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION The accompanying unaudited pro forma information for the three months ended March 31, 1998 and 1997 is presented as if the acquisitions described in Note 3 to the financial statements had occurred on January 1, 1997. Such pro forma information is based upon the consolidated statements of operations of the Company for the three months ended March 31, 1998 and the period from February 1, 1997 to March 31, 1997 and the combined statement of operations of the Kilroy Group for the period January 1, 1997 to January 31, 1997, and should be read in conjunction with the consolidated and combined financial statements and the notes thereto. This unaudited pro forma condensed consolidated information does not purport to represent what the actual results of operations of the Company would have been assuming such property acquisitions had been completed as set forth above, nor do they purport to predict the results of operations for future periods. PRO FORMA INCOME STATEMENT (IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED MARCH 31, ----------------------------- 1998 1997 -------------- -------------- Total revenues.................................... $ 30,873 $ 14,003 ============== ============== Net income before extraordinary items............. $ 9,524 $ 1,916 ============== ============== Net income........................................ $ 9,524 $ 5,120 ============== ============== Net income per common share-basic................. $ 0.38 $ 0.35 ============== ============== Net income per common share-diluted............... $ 0.37 $ 0.35 ============== ============== Weighted average shares outstanding-basic......... 25,230,467 14,475,000 ============== ============== Weighted average shares outstanding-diluted....... 25,400,890 14,585,663 ============== ==============
9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion relates to the consolidated financial statements of the Company, and the combined financial statements of the Company's predecessor, the Kilroy Group, and should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. OVERVIEW AND BACKGROUND The Company owns, operates and develops commercial and industrial real estate, primarily in Southern California. The Company commenced operations in January 1997 and has operated as a self-administered REIT. The Company succeeded to the real estate business of the Kilroy Group, the Company's predecessor, which had been engaged in the acquisition, management, financing, construction and leasing of commercial and industrial properties. The combined financial statements of the Kilroy Group comprise the operations, assets and liabilities of the properties contributed to the Company in connection with the Formation Transactions. As of March 31, 1998, the Company owned 67 office buildings and 80 industrial buildings, which encompassed approximately 4.9 million and 5.5 million rentable square feet, respectively, and were 92.3% leased. The Company owns its interests in all of the properties through the Operating Partnership and the Finance Partnership. RESULTS OF OPERATIONS The Company's management believes that in order to provide meaningful historical analysis of the financial statements, certain adjustments must be made to the historical Kilroy Group financial statements to make accounting periods comparable. Accordingly the results of operations for the period January 1, 1997 to January 31, 1997 have been adjusted to reflect interest income, general and administrative expenses, interest expense and extraordinary items as if the Formation Transactions had been consummated on January 1, 1997. The following sections discuss the results of operations as adjusted. Three Months Ended March 31, 1998 compared to Adjusted Three Months Ended March 31, 1997
THREE MONTHS ENDED MARCH 31, (IN THOUSANDS) ------------------- 1998 1997 ------- ----------- AS ADJUSTED REVENUES: Rental income......................................... $25,460 $9,870 Tenant reimbursements................................. 2,823 981 Interest income....................................... 474 1,457 Development services.................................. 14 Other income.......................................... 194 189 ------- ------ Total revenues...................................... 28,951 12,511 ======= ====== EXPENSES: Property expenses..................................... 3,971 1,818 Real estate taxes..................................... 1,686 459 General and administrative............................ 1,559 1,088 Ground leases......................................... 305 249 Development expense................................... 46 Interest expense...................................... 4,786 2,297 Depreciation and amortization......................... 5,854 2,531 ------- ------ Total expenses...................................... 18,161 8,488 ------- ------ INCOME BEFORE EQUITY IN LOSS OF SUBSIDIARY, MINORITY INTERESTS AND EXTRAORDINARY GAIN.............. $10,790 $4,023 ======= ======
10 Total revenues increased $16.5 million, or 131.4% to $29.0 million for the three months ended March 31, 1998 compared to $12.5 million for the three months ended March 31, 1997. Rental income increased $15.6 million, or 158.0% to $25.5 million for the three months ended March 31, 1998 compared to $9.9 million for the three months ended March 31, 1997. Of this increase, $12.8 million was generated by properties acquired during 1997 subsequent to the IPO (the "1997 Acquisitions") and $1.4 million was generated from properties acquired during the three months ended March 31, 1998 (the "1998 Acquisitions"). During 1997, subsequent to completion of the Formation Transactions, the Company acquired 96 Office and Industrial properties totaling 2.2 million and 3.7 million rentable square feet, respectively, for an aggregate acquisition cost of $507.4 million. During the three months ended March 31, 1998, the Company acquired 25 Office and Industrial properties totaling 667,000 and 453,000 rentable square feet, respectively, for a total investment of $133.6 million. The properties acquired during the three months ended March 31, 1998 were acquired on various dates throughout the quarter and, as such, a full quarter's revenue and expenses were not recognized during the quarter. A $0.9 million increase in rental income was generated by seven properties acquired in connection with the IPO (the "IPO Properties"). These properties were purchased for $58.0 million and encompass 770,000 rentable square feet. The $0.9 increase in rental income is attributable to owning the seven properties for a full quarter in 1998. The remaining $0.5 million increase in rental income was generated by properties owned at the IPO and still owned at March 31, 1998 (the "Existing Properties"). The increase is primarily the result of leasing activity at the SeaTac Office Center, including a lease for 211,000 rentable square feet with The Boeing Company, which was effective January 1, 1998 (the "Boeing lease"). Excluding the Boeing lease, occupancy and average rent per square foot remained consistent for the Existing Properties for the three months ended March 31, 1998 compared to the three months ended March 31, 1997. As a result of the properties acquired subsequent to March 31, 1997, the Company's rentable square footage increased 7.0 million, or 206.9% to 10.4 million rentable square feet at March 31, 1998 compared to 3.4 million rentable square feet at March 31, 1997. As of March 31, 1998, the Company's portfolio was comprised of 67 office properties encompassing 4.9 million rentable square feet and 80 industrial properties encompassing 5.5 million rentable square feet. The overall portfolio occupancy rate at March 31, 1998 was 92.3%, with the Office and Industrial properties 94.0% and 90.8% leased, respectively, as of such date. Tenant reimbursements increased $1.8 million, or 187.8% to $2.8 million for the three months ended March 31, 1998 compared to $1.0 million for the three months ended March 31, 1997. The increase was primarily due to tenant reimbursements from the office and industrial buildings purchased subsequent to March 31, 1997. In addition, $0.3 million of the increase represents tenant reimbursements under the Boeing lease. Interest income decreased $1.0 million or 67.5% to $0.5 million for the three months ended March 31, 1998, compared to $1.5 million for the three months ended March 31, 1997, due to interest earned on $116.2 million of net IPO proceeds during the three months ended March 31, 1997. Other income for the three months ended March 31, 1998 primarily consists of lease termination fees and property management fees. Total expenses increased $9.7 million, or 114.0%, to $18.2 million for the three months ended March 31, 1998 compared to $8.5 million for the three months ended March 31, 1997. Property expenses increased $2.2 million, or 118.4% to $4.0 million and real estate taxes increased $1.2 million, or 267.3% to $1.7 million for the three months ended March 31, 1998 compared to $1.8 million and $0.5 million, respectively, for the three months ended March 31, 1997. Of the collective increase of $ 3.4 million in property expenses and real estate taxes, $2.6 million was generated by the 1997 Acquisitions and $.4 million was generated from the 1998 Acquisitions. An increase of $0.2 was generated by the IPO Properties, due to these properties being owned for a full quarter in 1998. The remaining increase of $0.2 million is attributable to the Existing Properties. This $0.2 million increase from the Existing Properties is due primarily to increased property expenses at the SeaTac Office Center resulting from lease-up, and an increase in property taxes due to the reassessment of property values at the date of the IPO, offset partially by a decrease in repairs and maintenance expense. General and administrative expenses increased $0.5 million, or 43.3%, for the three months ended March 31, 1998 compared 11 to the three months ended March 31, 1997, due to increased management and administrative costs associated with the increased portfolio size and the operations of the Company as a public REIT. Ground lease expense increased $56,000 during the three months ended March 31, 1998 over the same period in 1997 primarily as a result of a ground lease on two of the IPO Properties. Interest expense increased $2.5 million, or 108.4%, to $4.8 million for the three months ended March 31, 1998 compared to $2.3 million for the three months ended March 31, 1997, primarily due to borrowings on the Credit Facility. The Company's weighted average interest rate decreased .9% to 7.5% at March 31, 1998 compared to 8.4% at March 31, 1997. Net income before extraordinary gains increased $6.8 million, or 168.2% to $10.8 million for the three months ended March 31, 1998 compared to $4.0 million for the three months ended March 31, 1997. The increase is due primarily to an increase in rental income and tenant reimbursements of $15.6 million and $1.8 million, respectively, offset by an increase in property expenses of $2.2 million, an increase in real estate taxes of $1.2 million, an increase in interest expense of $2.5 million and an increase in depreciation and amortization of $3.3 million. LIQUIDITY AND CAPITAL RESOURCES In February 1998, the Company entered into its $350.0 million Credit Facility, which bears interest at a rate of either LIBOR plus 1.00%, LIBOR plus 1.125% or LIBOR plus 1.25% depending on the Company's leverage ratios, and matures in February 2000. Availability under the Credit Facility is dependent upon the value of the Company's pool of unencumbered assets and was $130.8 million at May 13, 1998. There were borrowings of $207.0 million outstanding at May 13, 1998. On January 31, 1998 the Company increased the amount of its $14.0 million mortgage loan to $19.0 million and extended the maturity date to January 31, 2000. In addition, the Company repaid a $0.9 million promissory note in January 1998 at scheduled maturity. As of March 31, 1998 the Company's mortgage loans have a weighted average interest rate of 8.19%. In January 1998, the Company filed a "shelf" registration statement on Form S-3 with the Securities and Exchange Commission (the "SEC") which registered $400.0 million of equity securities of the Company. The statement was declared effective by the SEC on February 11, 1998. Through May 15, 1998 the Company has completed 4 public offerings of an aggregate 3,012,326 shares of Common Stock and a direct placement of 110,225 shares of Common Stock, with aggregate proceeds of $81.0 million used to paydown borrowings on the Credit Facility. As of May 13, 1998, an aggregate of $314.5 million of equity securities were issuable under the registration statement. The Company, as general partner of the Operating Partnership and as required by the terms and conditions of the Agreement of Limited Partnership of the Operating Partnership, as amended (the "Partnership Agreement"), invested the net proceeds of such offerings in the Operating Partnership, which used such net proceeds to repay borrowings under the Credit Facility. In February 1998, the Company issued 1,200,000 8.075% Series A Cumulative Redeemable Preferred Units, representing limited partnership interests in the Operating Partnership, with a liquidation value of $50.00 per unit, in exchange for a gross contribution to the Operating Partnership of $60.0 million. The Company used the contribution proceeds, less applicable transactions costs and expenses of approximately $1.6 million, for the repayment of borrowings outstanding on the Credit Facility. On April 22, 1998 the Company issued an additional 300,000 Preferred Units for a gross contribution to the Operating Partnership of $15.0 million. The Company used the contribution proceeds, less applicable transaction costs and expenses of approximately $0.4 million for the repayment of borrowings outstanding on the Credit Facility. The Preferred Units, which may be called by the Operating Partnership at par on or after February 6, 2003, have no stated maturity or mandatory redemption and are not convertible into any other securities of the Operating Partnership. The Preferred Units are exchangeable at the option of the majority of the holders, for shares of 8.075% Series A Cumulative Preferred Stock issuable by the Company, beginning February 6, 2008 which may be accelerated under certain circumstances. 12 The Company believes that it will have sufficient capital resources to satisfy its obligations for the next twelve months. The Company expects to meet its long-term liquidity requirements and possible future property acquisitions and development, through long-term secured and unsecured borrowings, including under the Credit Facility, and the issuance of debt securities or additional equity securities of the Company or, possibly in connection with acquisitions of land or improved properties, the issuance of additional common units of the Operating Partnership. CAPITAL EXPENDITURES On October 31, 1997, the Company entered into an agreement with The Allen Group, a group of affiliated real estate development and investment companies based in Visalia, California ("The Allen Group"), to purchase through a series of transactions office and industrial buildings with approximately 1,730,000 aggregate rentable square feet and develop approximately 750,000 rentable square feet of office space for an aggregate purchase price of approximately $300.0 million. The acquisition agreement with The Allen Group was based on arms-length negotiations. Subsequent to the execution of the related documentation, Richard S. Allen, the majority equity owner and Chief Executive Officer of The Allen Group, was elected to serve as a director of the Company. As of December 31, 1997, the Company completed the first phase of the acquisitions from The Allen Group by acquiring four office and four industrial buildings encompassing 907,000 aggregate rentable square feet for an aggregate purchase price of approximately $80.0 million. The second phase of such acquisitions is presently expected to consist of the purchase of five office and three industrial properties located in California and Nevada encompassing approximately 823,000 aggregate rentable square feet and an estimated aggregate purchase price of approximately $120.0 million. As of March 31, 1998 the Company has completed the purchase of two office and one industrial properties encompassing approximately 275,000 aggregate rentable square feet at an aggregate purchase price of $36.3 million. The acquisitions were financed with borrowings under the Credit Facility and the issuance of 496,220 common limited partnership units of the Operating Partnership. The Company presently expects the remaining acquisitions to occur during 1998 and early 1999, pursuant to the completion of construction and/or stabilized occupancy of the properties. The third phase of the transaction with The Allen Group is presently expected to consist of the development of two office projects in San Diego, California with approximately 750,000 aggregate rentable square feet for an estimated aggregate development cost of approximately $100.0 million. The Company has agreed to purchase a 50% managing interest in the two projects upon completion of all necessary entitlements and infrastructure and is expected to manage the development of both projects. The Company has an option to purchase The Allen Group's remaining interest in both projects for a purchase price to be determined upon completion of the projects. The Company presently expects development of the two office projects to commence during the fourth quarter of 1998. As of March 31, 1998, the Company commenced development of approximately 1.3 million rentable square feet of space at a total budgeted cost of approximately $82.8 million. The Company has spent an aggregate of $30.4 million on these projects as of March 31, 1998. The Company intends to finance all development with borrowings under the Credit Facility and working capital. At March 31, 1998, the Company had escrow deposits of $16.4 million for contemplated acquisitions of 951,000 aggregate rentable square feet of office and industrial buildings and 139 acres of undeveloped land. The aggregate acquisition cost of the land and buildings is estimated to be approximately $235.0 million. Subsequent to March 31, 1998 the Company acquired eight office buildings, one industrial building and 30.85 acres of undeveloped land for an aggregate purchase price of $80.6 million. The properties were acquired from unaffiliated third parties with borrowings on the Credit Facility, except for 18 acres of undeveloped land acquired from a partnership owned by John B. Kilroy, Sr. and John B. Kilroy, Jr., the Chairman and the President and Chief Executive Officer, respectively, in exchange for cash and the issuance of 90,787 common limited partnership units of the Operating Partnerships valued at $2.5 million. 13 HISTORICAL CASH FLOWS The Company's net cash from operating activities increased $16.1 million for the three months ended March 31, 1998 compared to the three months ended March 31, 1997, from $0.3 million in 1997 to $16.4 million in 1998. The increase was primarily due to an increase in income before depreciation and amortization, extraordinary gain, minority interests in earnings and distributions on 8.075% Series A Cumulative Redeemable Preferred Units of $11.5 million, an increase in rents received in advance and tenant security deposits of $2.4 million and a decrease in accounts payable and accrued expenses of $2.3 million. In addition, a $1.4 million payment for the accrued cost of option buy-out and tenant improvements was made during the three months ended March 31, 1997. These increases in cash provided were offset primarily by an increase in deferred leasing costs of $2.1 million. Net cash used in investing activities increased $82.6 million to $142.2 million for the three months ended March 31, 1998 from $59.6 million for the three months ended March 31, 1997. The increase was due primarily to the purchase of 25 buildings and 2 acres of undeveloped land for an aggregate cost of $135.2 million, of which $13.5 million was acquired with common units of the Operating Partnership, and additional tenant improvements of $3.0 million during the three months ended March 31, 1998. During the three months ended March 31, 1997, the Company purchased 7 buildings for an aggregate cost of $58.0 million and had additional tenant improvements of $1.6 million. Also, during the three months ended March 31, 1998, there were payments for escrow deposits of $11.3 million and expenditures for undeveloped land and construction in progress of $6.2 million. Cash flows provided by financing activities decreased $45.2 million from $175.5 million for the three months ended March 31, 1997 to $130.3 million for the three months ended March 31, 1998. The decrease was due to a decrease in net proceeds from equity offerings of $243.7 million and an increase in distributions paid of $14.3 million. These decreases were offset by and increase in proceeds received from debt (net of repayments) of $146.5 million, an increase in proceeds from the issuance of 8.075% Series A Cumulative Redeemable Preferred Units of $58.4 million, a decrease in cash paid for finance costs of $1.7 million and an increase in restricted cash and due from affiliates of $6.3 million. FUNDS FROM OPERATIONS Industry analysts generally consider Funds from Operations, as defined by the National Association of Real Estate Investment Trusts ("NAREIT"), an alternative measure of performance for an equity REIT. Funds from Operations is defined by NAREIT to mean net income (loss) determined in accordance with GAAP, excluding gains (or losses) from debt restructuring and sales of property, plus depreciation and amortization (other than amortization of deferred financing costs and depreciation of non-real estate assets), and after adjustment for unconsolidated partnerships and joint ventures. The Company believes that in order to facilitate a clear understanding of the combined historical operating results of the Company, Funds from Operations should be examined in conjunction with net income as presented in the financial statements included elsewhere in this report. The Company computes Funds from Operations in accordance with standards established by the Board of Governors of NAREIT in its March 1995 White Paper, which may differ from the methodologies used by other equity REITs and, accordingly, may not be comparable to that published by such other REITs. Funds from Operations should not be considered as an alternative to net income (loss), as an indication of the Company's performance or to cash flows as a measure of liquidity or the ability to pay dividends or make distributions. 14 The following table presents the Company's Funds from Operations for the quarter ended March 31, 1998 and the period from February 1, 1997 to March 31, 1997.
THREE MONTHS FEBRUARY 1, ENDED 1997 TO MARCH 31, MARCH 31, 1998 1997 ------------ ----------- (IN THOUSANDS) Net income........................................ $ 8,879 $2,652 Add Minority interest in earnings................. 1,210 486 Depreciation and amortization................. 5,854 1,744 Other......................................... 118 77 ------- ------ Funds from Operations............................. $16,061 $4,959 ======= ======
The following table presents the Company's Funds Available for Distribution for the quarter ended March 31, 1998 and the period from February 1, 1997 to March 31, 1997.
THREE MONTHS FEBRUARY 1, ENDED 1997 TO MARCH 31, MARCH 31, 1998 1997 ------------ ----------- (IN THOUSANDS) Funds from Operations............................ $16,061 $4,959 Adjustments Amortization of deferred financing costs..... 206 161 Tenant improvements, leasing commissions and recurring capital expenditures.............. (485) (212) Net effect of straight-line rents............ (657) 5 ------- ------ Funds Available for Distribution................. $15,125 $4,913 ======= ======
INFLATION The majority of the Company's tenant leases require tenants to pay most operating expenses, including real estate taxes and insurance, and increases in common area maintenance expenses, which reduce the Company's exposure to increases in costs and operating expenses resulting from inflation. 15 PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As of March 31, 1998, there were no pending legal proceedings were initiated against or on behalf of the Company, the adverse determination of which would have a material adverse effect upon the financial condition and results of operations of the Company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS During the three months ended March 31, 1998, the Operating Partnership issued 496,220 common limited partnership units (the "Units") with an aggregate value of approximately $13.5 million to entities controlled by Richard S. Allen, a member of the board of directors of the Company in exchange for the contribution of two properties. The Units were issued in reliance on an exemption registration requirement pursuant to regulation D under the Securities Act of 1933 as amended. ITEM 3. DEFAULTS UPON SENIOR SECURITIES--NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS--NONE ITEM 5. OTHER INFORMATION--NONE ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
EXHIBIT NUMBER DESCRIPTION ------- --------------------------------------------------------------------- 3.1 Articles of Amendment and Restatement of the Registrant.(1) 3.2 Amended and Restated Bylaws of the Registrant.(1) 3.3 Form of Certificate for Common Stock of the Registrant.(1) 3.4 Articles Supplementary of the Registrant(10) 3.5 Registration Rights Agreement dated February 6, 1998 (10) 4.1 First Amendment to the Amended and Restated Agreement of the Limited Partnership of Kilroy Realty, L.P., dated October 31, 1997.(8) 4.2 Registration Rights Agreement dated as of October 31, 1997.(7) 10.1 Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P.(1) 10.2 Form of Registration Rights Agreement among the Registrant and the persons named therein.(1) 10.3 Omnibus Agreement, dated as of October 30, 1996, by and among Kilroy Realty, L.P. and the parties named therein.(1) 10.4 Supplemental Representations, Warranties and Indemnity Agreement by and among Kilroy Realty, L.P. and the parties named therein.(1) 10.5 Pledge Agreement by and among Kilroy Realty, L.P., John B. Kilroy, Sr., John B. Kilroy, Jr. and Kilroy Industries.(1) 10.6 1997 Stock Option and Incentive Plan of the Registrant and Kilroy Realty, L.P.(1) 10.7 Form of Indemnity Agreement of the Registrant and Kilroy Realty, L.P. with certain officers and directors.(1) 10.8 Lease Agreement, dated January 24, 1989, by and between Kilroy Long Beach Associates and the City of Long Beach for Kilroy Long Beach Phase I.(1) 10.9 First Amendment to Lease Agreement, dated December 28, 1990, by and between Kilroy Long Beach Associates and the City of Long Beach for Kilroy Long Beach Phase I.(1)
16
EXHIBIT NUMBER DESCRIPTION ------- ---------------------------------------------------------------------- 10.10 Lease Agreement, dated July 17, 1985, by and between Kilroy Long Beach Associates and the City of Long Beach for Kilroy Long Beach Phase III.(1) 10.11 Lease Agreement, dated April 21, 1988, by and between Kilroy Long Beach Associates and the Board of Water Commissioners of the City of Long Beach, acting for and on behalf of the City of Long Beach, for Long Beach Phase IV.(1) 10.12 Lease Agreement, dated December 30, 1988, by and between Kilroy Long Beach Associates and City of Long Beach for Kilroy Long Beach Phase II.(1) 10.13 First Amendment to Lease, dated January 24, 1989, by and between Kilroy Long Beach Associates and the City of Long Beach for Kilroy Long Beach Phase III.(1) 10.14 Second Amendment to Lease Agreement, dated December 28, 1990, by and between Kilroy Long Beach Associates and the City of Long Beach for Kilroy Long Beach Phase III.(1) 10.15 First Amendment to Lease Agreement, dated December 28, 1990, by and between Kilroy Long Beach Associates and the City of Long Beach for Kilroy Long Beach Phase II.(1) 10.16 Third Amendment to Lease Agreement, dated October 10, 1994, by and between Kilroy Long Beach Associates and the City of Long Beach for Kilroy Long Beach Phase III.(1) 10.17 Development Agreement by and between Kilroy Long Beach Associates and the City of Long Beach.(1) 10.18 Amendment No. 1 to Development Agreement by and between Kilroy Long Beach Associates and the City of Long Beach.(1) 10.19 Ground Lease by and between Frederick Boysen and Ted Boysen and Kilroy Industries, dated May 15, 1969, for SeaTac Office Center.(1) 10.20 Amendment No. 1 to Ground Lease and Grant of Easement, dated April 27, 1973, among Frederick Boysen and Dorothy Boysen, Ted Boysen and Rose Boysen and Sea/Tac Properties.(1) 10.21 Amendment No. 2 to Ground Lease and Grant of Easement, dated May 17, 1977, among Frederick Boysen and Dorothy Boysen, Ted Boysen and Rose Boysen and Sea/Tac Properties.(1) 10.22 Airspace Lease, dated July 10, 1980, by and among the Washington State Department of Transportation, as lessor, and Sea Tac Properties, Ltd. and Kilroy Industries, as lessee.(1) 10.23 Lease, dated April 1, 1980, by and among Bow Lake, Inc., as lessor, and Kilroy Industries and SeaTac Properties, Ltd., as lessees for Sea/Tac Office Center.(1) 10.24 Amendment No. 1 to Ground Lease, dated September 17, 1990, between Bow Lake, Inc., as lessor, and Kilroy Industries and Sea/Tac Properties, Ltd., as lessee.(1) 10.25 Amendment No. 2 to Ground Lease, dated March 21, 1991, between Bow Lake, Inc., as lessor, and Kilroy Industries and Sea/Tac Properties, Ltd., as lessee.(1) 10.26 Property Management Agreement between Kilroy Realty Finance Partnership, L.P. and Kilroy Realty, L.P.(1) 10.27 Form of Environmental Indemnity Agreement.(1) 10.28 Option Agreement by and between Kilroy Realty, L.P. and Kilroy Airport Imperial Co.(1) 10.29 Option Agreement by and between Kilroy Realty, L.P. and Kilroy Calabasas Associates.(1) 10.30 Employment Agreement between the Registrant and John B. Kilroy, Jr.(1) 10.31 Employment Agreement between the Registrant and Richard E. Moran Jr.(1) 10.32 Employment Agreement between the Registrant and Jeffrey C. Hawken.(1) 10.33 Employment Agreement between the Registrant and C. Hugh Greenup.(1) 10.34 Noncompetition Agreement by and between the Registrant and John B. Kilroy, Sr.(1) 10.35 Noncompetition Agreement by and between the Registrant and John B. Kilroy, Jr.(1)
17
EXHIBIT NUMBER DESCRIPTION ------- ---------------------------------------------------------------------- 10.36 License Agreement by and among the Registrant and the other persons named therein.(1) 10.37 Form of Indenture of Mortgage, Deed of Trust, Security Agreement, Financing Statement, Fixture Filing and Assignment of Leases, Rents and Security Deposits.(1) 10.38 Form of Mortgage Note.(1) 10.39 Form of Indemnity Agreement.(1) 10.40 Form of Assignment of Leases, Rents and Security Deposits.(1) 10.41 Form of Credit Agreement.(1) 10.42 Form of Variable Interest Rate Indenture of Mortgage, Deed of Trust, Security Agreement, Financing Statement, Fixture Filing and Assignment of Leases and Rents.(1) 10.43 Form of Environmental Indemnity Agreement.(1) 10.44 Form of Assignment, Rents and Security Deposits.(1) 10.45 Revolving Credit Agreement, dated as of May 21, 1997, among Kilroy Realty, L.P., Morgan Guaranty Trust Company of New York and the Banks listed herein.(5) 10.46 Form of Mortgage, Deed of Trust, Security Agreement, Financing Statement, Fixture Filing and Assignment of Leases and Rents.(1) 10.47 Assignment of Leases, Rents and Security Deposits.(1) 10.48 Purchase and Sale Agreement and Joint Escrow Instructions, dated April 30, 1997, by and between Mission Land Company, Mission-Vacaville, L.P. and Kilroy Realty, L.P.(2) 10.49 Agreement of Purchase and Sale and Joint Escrow Instructions, dated April 30, 1997, by and between Camarillo Partners and Kilroy Realty, L.P.(2) 10.50 Purchase and Sale Agreement and Escrow Instructions, dated May 5, 1997, by and between Kilroy Realty, L.P. and Pullman Carnegie Associates.(4) 10.51 Amendment to Purchase and Sale Agreement and Escrow Instructions, dated June 27, 1997, by and between Pullman Carnegie Associates and Kilroy Realty, L.P.(4) 10.52 Purchase and Sale Agreement, Contribution Agreement and Joint Escrow Instructions, dated May 12, 1997, by and between Shidler West Acquisition Company, LLC and Kilroy Realty, L.P.(3) 10.53 First Amendment to Purchase and Sale Agreement, Contribution Agreement and Joint Escrow Instructions, dated June 6, 1997, between Kilroy Realty, L.P. and Shidler West Acquisition Company, L.L.C. and Kilroy Realty, L.P.(3) 10.54 Second Amendment to Purchase and Sale Agreement, Contribution Agreement and Joint Escrow Instructions, dated June 12, 1997, by and between Shidler West Acquisition Company, LLC and Kilroy Realty, L.P.(3) 10.55 Agreement of Purchase and Sale and Joint Escrow Instructions, dated June 12, 1997, by and between Mazda Motor of America, Inc. and Kilroy Realty, L.P.(4) 10.56 Amendment to Agreement of Purchase and Sale and Joint Escrow Instructions, dated June 30, 1997, by and between Mazda Motor of America, Inc. and Kilroy Realty, L.P.(4) 10.57 Agreement for Purchase and Sale of 2100 Colorado Avenue, Santa Monica, California, dated June 16, 1997, by and between Santa Monica Number Seven Associates L.P. and Kilroy Realty L.P.(4) 10.58 First Amendment to Credit Agreement dated July 1, 1997.(5) 10.59 Second Amendment to Credit Agreement and First Amendment to Variable Interest Rate Indenture of Mortgage, Deed of Trust, Security Agreement, Financing Statement, Fixture Filing and Assignment of Leases and Rent dated August 13, 1997.(5) 10.60 Purchase and Sale Agreement and Joint Escrow Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P. and Mission Square Partners.(6) 10.61 First Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P. and Mission Square Partners, dated August 22, 1997.(6)
18
EXHIBIT NUMBER DESCRIPTION ------- ---------------------------------------------------------------------- 10.62 Second Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P. and Mission Square Partners, dated September 5, 1997.(6) 10.63 Third Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P. and Mission Square Partners, dated September 19, 1997.(6) 10.64 Fourth Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P. and Mission Square Partners, dated September 22, 1997.(6) 10.65 Fifth Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P. and Mission Square Partners, dated September 23, 1997.(6) 10.66 Sixth Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P. and Mission Square Partners, dated September 25, 1997(6) 10.67 Seventh Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P. and Mission Square Partners, dated September 29, 1997.(6) 10.68 Eighth Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P. and Mission Square Partners, dated October 2, 1997.(6) 10.69 Ninth Amendment to the Purchase and Sale Agreement and Joint Escrow Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P. and Mission Square Partners, dated October 24, 1997.(6) 10.70 Contribution Agreement, dated October 21, 1997, by and between Kilroy Realty, L.P. and Kilroy Realty Corporation and The Allen Group and the Allens. (Previously filed as exhibit 2.1 to the Registrant's Current Report on Form 8-K dated October 29, 1997 and incorporated herein by reference) 10.71 Purchase and Sale Agreement and Escrow Instructions, dated December 11, 1997, by and between Kilroy Realty, L.P. and Swede-Cal Properties, Inc., Viking Investors of Southern California, L.P. and Viking Investors of Southern California II, L.P.(9) 10.72 Second Amended and Restated Agreement of Limited Partnership of Kilroy Realty, L.P.(10) 10.73 Revolving Credit Agreement dated as of February 24, 1998, among Kilroy Realty, L.P., Morgan Guaranty Trust Company of New York, as Lead Agent for the Banks and the Banks listed therein (previously filed as exhibit 10.71 to the Registrant's Current Report on Form 8-K dated March 30, 1998 and incorporated herein by reference). 21.1 List of Subsidiaries of the Registrant.(1) 24.1 Power of Attorney. 27.1* Financial Data Schedule.
- -------- *Filed herewith. (1) Previously filed as an exhibit to the Registration Statement on Form S-11 (No. 333-15553) as declared effective on January 28, 1997 and incorporated herein by reference. (2) Previously filed as Exhibit 10.11 and 10.12, respectively, to the Current Report on Form 8-K, dated May 22, 1997, and incorporated herein by reference. (3) Previously filed as Exhibit 10.57, 10.58 and 10.59, respectively, to the Current Report on Form 8-K, dated June 30, 1997, and incorporated herein by reference. 19 (4) Previously filed as Exhibit 10.54, 10.59, 10.60, 10.61 and 10.62, respectively, to the Current Report on Form 8-K, dated June 30, 1997, and incorporated herein by reference. (5) Previously filed as an exhibit to the Registration Statement on Form S-11 (No. 333-32261), and incorporated herein by reference. (6) Previously filed as an exhibit on Form 10-Q, for the quarterly period ended September 30, 1997, and incorporated herein by reference. (7) Previously filed as an exhibit to the Current Report on Form 8-K/A, dated October 29, 1997, and incorporated herein by reference. (8) Previously filed as Exhibit 10.70 and 10.71, respectively, to the Current Report on Form 8-K, dated November 7, 1997, and incorporated herein by reference. (9) Previously filed as Exhibit 10.70 to the Current Report on Form 8-K, dated December 17, 1997, and incorporated herein by reference. (10) Previously filed as an exhibit to the Registrant's Current Report on Form 8-K dated February 6, 1998 and incorporated herein by reference. (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K (No. 1-12675), dated January 7, 1998, in connection with the acquisition of an industrial building. The Company filed a Current Report on Form 8-K, dated January 13, 1998, in connection with the acquisition of six office buildings and four industrial buildings. The Company filed a Current Report on Form 8-K/A, dated January 13, 1997, in connection with the acquisition of six office buildings and four industrial buildings. The Company filed a Current Report on Form 8-K, dated February 6, 1998, in connection with the private placement of 1,200,000 8.075% Series A Cumulative Redeemable Preferred Units of Kilroy Realty, L.P. The Company filed a Current Report on Form 8-K, dated February 18, 1998, in connection with the issuance of 724,888 shares of its $.01 par value per share common stock. The Company filed a Current Report on Form 8-K, dated February 23, 1998, in connection with the issuance of 1,000,000 shares of its $.01 par value per share common stock. The Company filed a Current Report on Form 8-K, dated March 30, 1998, in connection with the issuance of 546,697 shares of its $.01 par value per share common stock. 20 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on May , 1998. Kilroy Realty Corporation /s/ John B. Kilroy, Jr. By: _________________________________ JOHN B. KILROY, JR. PRESIDENT AND CHIEF EXECUTIVE OFFICER /s/ Richard E. Moran Jr. By: _________________________________ RICHARD E. MORAN JR. EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER /s/ Ann Marie Whitney By: _________________________________ ANN MARIE WHITNEY VICE PRESIDENT AND CONTROLLER 21 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 3-MOS DEC-31-1998 DEC-31-1997 JAN-01-1998 JAN-01-1997 MAR-31-1998 MAR-31-1997 13,526 8,929 0 0 7,323 7,875 (436) (508) 0 0 0 0 978,991 834,690 (127,075) (121,780) 912,709 757,654 0 0 0 0 0 0 0 0 267 245 455,739 396,905 912,709 757,654 0 0 28,951 12,025 0 0 13,375 5,906 0 0 0 0 4,786 3,426 10,790 2,693 0 0 10,790 2,693 0 0 0 3,204 0 0 8,879 5,856 0.35 0.18 0.35 0.18 NET INCOME IS AFTER EQUITY IN LOSS OF UNCONSOLIDATED SUBSIDIARY OF ($1) AND MINORITY INTERESTS OF ($1,910).
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