Kilroy Realty Corporation Reports Fourth Quarter Financial Results

Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its fourth quarter and full year ended December 31, 2022.

Fourth Quarter and Full Year Highlights

Financial Results

• Achieved annual revenues in excess of $1.0 billion for the first time
• Revenues grew approximately 8.9% to $284.3 million for the quarter ended December 31, 2022, as compared to $261.1 million for the quarter ended December 31, 2021
• Net income available to common stockholders of $0.45 per diluted share, an increase of approximately 12.5% as compared to $0.40 per diluted share for the quarter ended December 31, 2021
• Funds from operations available to common stockholders and unitholders (“FFO”) of $139.9 million, or $1.17 per diluted share, an increase of approximately 11.4% as compared to $125.5 million, or $1.05 per diluted share for the quarter ended December 31, 2021

Leasing and Occupancy

• Stabilized portfolio was 91.6% occupied and 92.9% leased at December 31, 2022
• Concluded 2022 with the highest quarterly leasing volume, signing approximately 328,000 square feet of new and renewing leases, including approximately 102,000 square feet of leases signed in the development portfolio
  • GAAP and cash rents increased approximately 31.1% and 12.3%, respectively, from prior levels in the stabilized portfolio
• In January, signed approximately 131,000 square feet of new and renewing leases

Liquidity

• As previously disclosed in October, the company entered into a term loan agreement that provides for a $400.0 million unsecured delayed draw term loan facility with an additional $100.0 million accordion feature
  • In January, the company amended the term loan agreement to exercise the accordion feature for borrowings of up to $500.0 million, under which $200.0 million has been drawn
• As of the date of this release, the company had approximately $1.7 billion of total liquidity comprised of approximately $290.0 million of cash and cash equivalents, $300.0 million available under the unsecured term loan facility and full availability under the $1.1 billion unsecured revolving credit facility
• Investment grade credit rated with approximately 95% unsecured debt and no significant debt maturities until the fourth quarter of 2024

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

Capital Allocation

• During the first quarter, completed the acquisition of a 2.9-acre land site in the Stadium District of Austin, adjacent to the Domain, for a cash purchase price of $40.0 million. The site is adjacent to Austin’s MLS Q2 Stadium and is fully-entitled for approximately 493,000 square feet of new Class A office
• During the third quarter, generated gross proceeds of $48.0 million and a gain on sale of $17.3 million from the company’s capital recycling program through the disposition of 3130 Wilshire in Santa Monica

Development and Redevelopment

• During the quarter, commenced GAAP revenue recognition on the entirety of the approximately 308,000 square foot space leased by Indeed, Inc. at our Indeed Tower development project in Austin
• During the quarter, commenced construction on the life science redevelopment of 4400 Bohannon Drive in the San Francisco Bay Area’s Menlo Park submarket. Additionally, in the first quarter, the company commenced construction on the life science redevelopment of 4690 Executive Drive in San Diego’s University Towne Center submarket
• Added approximately $615.0 million of new development and redevelopment properties to the stabilized portfolio during the year
  • 333 Dexter, a $385.0 million, approximately 619,000 square foot office project located in Seattle’s Lake Union submarket, of which phase one was completed in 2020; the project is 100% leased to a global technology company
  • 2100 Kettner, a $140.0 million, approximately 205,000 square foot office project located in the Little Italy submarket of San Diego; the project is 15% leased as of the date of this release
  • 12340 El Camino Real, a $40.0 million, approximately 110,000 square foot life science redevelopment project located in the Del Mar submarket of San Diego, which is 100% leased
  • 12400 High Bluff Drive, a $50.0 million, approximately 182,000 square foot life science redevelopment project located in the Del Mar submarket of San Diego, which is 100% leased

Sustainability and Corporate Social Responsibility

• For the fourth consecutive year, included in Bloomberg’s Gender Equality Index
• Named the GRESB Regional Sector Leader in the Americas for Development (Diversified), earning the highly competitive GRESB 5 Star designation
• For the seventh consecutive year, awarded the ENERGY STAR Partner of the Year Sustained Excellence Award
• Included as a member of the Dow Jones Sustainability World Index since 2017
• Listed on U.S. EPA’s National Top 100 List of largest green power users
• Received the Fitwel Best in Building Health Excellence Award for Most Certifications of All Time
• On-site solar at Kilroy properties has the capacity to generate over 6 megawatts of clean electricity, which is equivalent to over 1,200 homes’ electricity use for one year

Net Income Available to Common Stockholders / FFO Guidance and Outlook

The company is providing a guidance range of Nareit-defined FFO per diluted share for the full year 2023 of $4.40 to $4.60 per share, with a midpoint of $4.50 per share.

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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 fourth quarter results and the current business environment during the company’s February 2, 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/252527669. 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 029719 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=897e4b95&confId=44832. A replay of the conference call will be available via telephone on February 2, 2023 through February 9, 2023 by dialing (866) 813-9403 and entering passcode 044544. 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.

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 December 31, 2022, Kilroy’s stabilized portfolio totaled approximately 16.2 million square feet of primarily office and life science space that was 91.6% occupied and 92.9% leased. The company also had more than 1,000 residential units in Hollywood and San Diego, which had a quarterly average occupancy of 93.3%. 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 three in-process development projects with an estimated total investment of $1.7 billion, totaling approximately 1.7 million square feet of office and life science space. The in-process development and redevelopment office and life science space is 36% 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 office portfolio was 71% LEED certified and 46% Fitwel certified, and 67% of eligible properties were ENERGY STAR certified as of December 31, 2022.

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

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