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 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 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 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 implementations of, applicable laws, regulations or legislation; 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, 2016 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 date on which they are made. We assume no obligation to update any forward-looking statement made in this press release that becomes untrue because of subsequent events, new information or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws.

KILROY REALTY CORPORATION

SUMMARY OF QUARTERLY RESULTS

(unaudited, in thousands, except per share data)
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Revenues $ 181,534 $ 168,348 $ 541,440 $ 473,927
Net income available to common stockholders $ 66,558 $ 50,582 $ 122,720 $ 251,112
Weighted average common shares outstanding - basic 98,352 92,227 98,009 92,221
Weighted average common shares outstanding - diluted 98,912 92,920 98,591 92,832
Net income available to common stockholders per share - basic $ 0.67 $ 0.54 $ 1.24 $ 2.71
Net income available to common stockholders per share - diluted $ 0.67 $ 0.54 $ 1.23 $ 2.69
Funds From Operations $ 89,547 $ 88,535 $ 260,248 $ 249,450
Weighted average common shares/units outstanding - basic 101,618 95,992 101,353 95,760
Weighted average common shares/units outstanding - diluted 102,178 96,686 101,936 96,371
Funds From Operations per common share/unit - basic $ 0.88 $ 0.92 $ 2.57 $ 2.60
Funds From Operations per common share/unit - diluted $ 0.88 $ 0.92 $ 2.55 $ 2.59
Common shares outstanding at end of period 98,382 92,272
Common partnership units outstanding at end of period 2,077 2,631
Total common shares and units outstanding at end of period 100,459 94,903
September 30, 2017 September 30, 2016
Stabilized office portfolio occupancy rates:
Los Angeles and Ventura Counties 91.0 % 94.8 %
Orange County 94.4 % 97.8 %
San Diego County 93.9 % 94.5 %
San Francisco Bay Area 95.9 % 98.3 %
Greater Seattle 95.2 % 98.2 %

Weighted average total

94.0 % 96.6 %
Total square feet of stabilized office properties owned at end of period:
Los Angeles and Ventura Counties 4,182 3,633
Orange County 272 272
San Diego County 2,044 2,643
San Francisco Bay Area 5,157 4,992
Greater Seattle 2,066 2,066
Total 13,721 13,606
________________________
(1) Net income available to common stockholders includes gains on sales of depreciable operating properties of $37.3 million and $39.5 million for the three and nine months ended September 30, 2017, respectively, and $18.3 million and $164.3 million for the three and nine months ended September 30, 2016, respectively. Net income available to common stockholders and Funds From Operations include a gain on sale of land of $0.4 million for the three and nine months ended September 30, 2017 and a loss on sale of land of $0.3 million for the nine months ended September 30, 2016.
(2) 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.
(3) Reported amounts are attributable to common stockholders, common unitholders, and restricted stock unitholders.
(4) 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.
(5) Calculated based on weighted average shares outstanding including participating and non-participating share-based awards (i.e. nonvested stock and time based restricted stock units), dilutive impact of stock options and contingently issuable shares and assuming the exchange of all common limited partnership units outstanding.
(6) 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, 2016 include the office properties that were sold subsequent to September 30, 2016.

KILROY REALTY CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands)
September 30, 2017 December 31, 2016
(unaudited)

ASSETS

REAL ESTATE ASSETS:
Land and improvements $ 1,076,172 $ 1,108,971
Buildings and improvements 4,871,667 4,938,250
Undeveloped land and construction in progress 1,292,017 1,013,533

Total real estate assets held for investment

7,239,856 7,060,754
Accumulated depreciation and amortization (1,216,358 ) (1,139,853 )
Total real estate assets held for investment, net 6,023,498 5,920,901
Real estate assets and other assets held for sale, net - 9,417
Cash and cash equivalents 64,954 193,418
Restricted cash 179,276 56,711
Marketable securities 18,851 14,773
Current receivables, net 18,626 13,460
Deferred rent receivables, net 238,959 218,977
Deferred leasing costs and acquisition-related intangible assets, net 185,420 208,368
Prepaid expenses and other assets, net 108,715 70,608
TOTAL ASSETS $ 6,838,299 $ 6,706,633

LIABILITIES AND EQUITY

LIABILITIES:
Secured debt, net $ 465,828 $ 472,772
Unsecured debt, net 1,909,381 1,847,351
Unsecured line of credit 60,000 -
Accounts payable, accrued expenses and other liabilities 271,405 202,391
Accrued dividends and distributions 43,324 222,306
Deferred revenue and acquisition-related intangible liabilities, net 145,556 150,360
Rents received in advance and tenant security deposits 46,925 52,080
Liabilities and deferred revenue of real estate assets held for sale - 56
Total liabilities 2,942,419 2,947,316
EQUITY:
Stockholders' Equity
6.875% Series G Cumulative Redeemable Preferred stock - 96,155
6.375% Series H Cumulative Redeemable Preferred stock - 96,256
Common stock 984 932
Additional paid-in capital 3,797,546 3,457,649
Distributions in excess of earnings (108,667 ) (107,997 )
Total stockholders' equity 3,689,863 3,542,995
Noncontrolling Interests
Common units of the Operating Partnership 77,911 85,590
Noncontrolling interests in consolidated property partnerships 128,106 130,732
Total noncontrolling interests 206,017 216,322
Total equity 3,895,880 3,759,317
TOTAL LIABILITIES AND EQUITY $ 6,838,299 $ 6,706,633

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except per share data)
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
REVENUES

Rental income

$ 159,954 $ 146,539 $ 475,527 $ 423,947
Tenant reimbursements 19,665 16,406 58,228 43,948
Other property income 1,915 5,403 7,685 6,032

Total revenues

181,534 168,348 541,440 473,927
EXPENSES
Property expenses 33,070 30,050 97,615 85,236
Real estate taxes 16,371 14,501 50,878 39,378
Provision for bad debts 1,036 - 2,743 -
Ground leases 1,562 909 4,751 2,506
General and administrative expenses 14,514 13,533 43,750 40,949
Acquisition-related expenses - 188 - 964
Depreciation and amortization 62,567 56,666 185,737 160,452
Total expenses 129,120 115,847 385,474 329,485
OTHER (EXPENSES) INCOME
Interest income and other net investment gains 1,526 538 3,629 1,120
Interest expense (16,151 ) (14,976 ) (51,476 ) (41,189 )
Total other (expenses) income (14,625 ) (14,438 ) (47,847 ) (40,069 )
INCOME FROM OPERATIONS BEFORE GAINS (LOSS) ON SALES OF REAL ESTATE 37,789 38,063 108,119 104,373
Net gain (loss) on sale of land 449 - 449 (295 )
Gains on sale of depreciable operating properties 37,250 18,312 39,507 164,302
NET INCOME 75,488 56,375 148,075 268,380
Net income attributable to noncontrolling common units of the Operating Partnership (1,394 ) (1,453 ) (2,633 ) (5,892 )
Net income attributable to noncontrolling interests in consolidated property partnerships (2,984 ) (1,027 ) (9,359 ) (1,438 )
Total income attributable to noncontrolling interests (4,378 ) (2,480 ) (11,992 ) (7,330 )
NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION 71,110 53,895 136,083 261,050
Preferred dividends (808 ) (3,313 ) (5,774 ) (9,938 )
Original issuance costs of redeemed preferred stock (3,744 ) - (7,589 ) -

Total preferred dividends

(4,552 ) (3,313 ) (13,363 ) (9,938 )
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 66,558 $ 50,582 $ 122,720 $ 251,112
Weighted average common shares outstanding - basic 98,352 92,227 98,009 92,221
Weighted average common shares outstanding - diluted 98,912 92,920 98,591 92,832
Net income available to common stockholders per share - basic $ 0.67 $ 0.54 $ 1.24 $ 2.71
Net income available to common stockholders per share - diluted $ 0.67 $ 0.54 $ 1.23 $ 2.69

KILROY REALTY CORPORATION

FUNDS FROM OPERATIONS

(unaudited, in thousands, except per share data)
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income available to common stockholders $ 66,558 $ 50,582 $ 122,720 $ 251,112
Adjustments:
Net income attributable to noncontrolling common units of the Operating Partnership 1,394 1,453 2,633 5,892
Net income attributable to noncontrolling interests in consolidated property partnerships 2,984 1,027 9,359 1,438
Depreciation and amortization of real estate assets 61,141 55,460 181,875 157,587
Gains on sales of depreciable real estate (37,250 ) (18,312 ) (39,507 ) (164,302 )
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships (5,280 ) (1,675 ) (16,832 ) (2,277 )
Funds From Operations $ 89,547 $ 88,535 $ 260,248 $ 249,450
Weighted average common shares/units outstanding - basic 101,618 95,992 101,353 95,760
Weighted average common shares/units outstanding - diluted 102,178 96,686 101,936 96,371
Funds From Operations per common share/unit - basic $ 0.88 $ 0.92 $ 2.57 $ 2.60
Funds From Operations per common share/unit - diluted $ 0.88 $ 0.92 $ 2.55 $ 2.59
________________________
(1) We calculate Funds From Operations available to common stockholders and common unitholders ('FFO') in accordance with the 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 $4.2 million and $3.6 million for the three months ended September 30, 2017 and 2016, respectively, and $12.4 million and $9.7 million for the nine months ended September 30, 2017 and 2016, respectively.
(4) 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.
(5) Calculated based on weighted average shares outstanding including participating and non-participating share-based awards (i.e. nonvested stock and time based restricted stock units), dilutive impact of stock options and contingently issuable shares and assuming the exchange of all common limited partnership units outstanding.

KILROY REALTY CORPORATION

NET INCOME AVAILABLE TO COMMON STOCKHOLDERS / FFO GUIDANCE AND OUTLOOK

(unaudited, in thousands, except per share data)
Full Year Range at

September 30, 2017

Low End High End
Net income available to common stockholders per share - diluted $ 1.55 $ 1.59
Weighted average common shares outstanding - diluted 100,000 100,000
Net income available to common stockholders $ 155,000 $ 159,000
Adjustments:
Net income attributable to noncontrolling common units of the Operating Partnership 3,100 3,700
Net income attributable to noncontrolling interests in consolidated property partnerships 11,500 13,500
Depreciation and amortization of real estate assets 238,500 238,500
Gains on sales of depreciable real estate (39,500 ) (39,500 )
Funds From Operations attributable to noncontrolling interests in consolidated property partnerships (22,000 ) (24,000 )
Funds From Operations $ 346,600 $ 351,200
Weighted average common shares/units outstanding - diluted 102,000 102,000
Funds From Operations per common share/unit - diluted $ 3.40 $ 3.44
________________________
(1) Calculated based on estimated weighted average shares outstanding including participating share-based awards (i.e. nonvested stock and certain time based restricted stock units).
(2) See management statement for FFO on previous page.
(3) Calculated based on estimated 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 estimated common limited partnership units outstanding.

View source version on businesswire.com:http://www.businesswire.com/news/home/20171025006480/en/

Source: Kilroy Realty Corporation

Kilroy Realty Corporation
Tyler H. Rose
Executive Vice President
and Chief Financial Officer
(310) 481-8484
or
Michelle Ngo
Senior Vice President
and Treasurer
(310) 481-8581

Kilroy Realty Corporation published this content on 25 October 2017 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 25 October 2017 22:28:05 UTC.

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