þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Kilroy Realty Corporation | Maryland | 95-4598246 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
Kilroy Realty, L.P. | Delaware | 95-4612685 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
12200 W. Olympic Boulevard, Suite 200, Los Angeles, California 90064 | ||
(Address of principal executive offices) (Zip Code) | ||
(310) 481-8400 | ||
(Registrant's telephone number, including area code) | ||
N/A | ||
(Former name, former address and former fiscal year, if changed since last report) |
Kilroy Realty Corporation | |||
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company) | |||
Kilroy Realty, L.P. | |||
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o |
(Do not check if a smaller reporting company) |
• | Combined reports better reflect how management and the analyst community view the business as a single operating unit; |
• | Combined reports enhance investors' understanding of the Company and the Operating Partnership by enabling them to view the business as a whole and in the same manner as management; |
• | Combined reports are more efficient for the Company and the Operating Partnership and result in savings in time, effort and expense; and |
• | Combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review. |
• | consolidated financial statements; |
• | the following notes to the consolidated financial statements: |
◦ | Note 5, Secured and Unsecured Debt of the Operating Partnership; |
◦ | Note 6, Noncontrolling Interests on the Company's Consolidated Financial Statements; |
◦ | Note 7, Stockholders' Equity of the Company; |
◦ | Note 8, Partners' Capital of the Operating Partnership; |
◦ | Note 12, Net (Loss) Income Available to Common Stockholders Per Share of the Company; and |
◦ | Note 13, Net (Loss) Income Available to Common Unitholders Per Unit of the Operating Partnership; |
• | "Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources of the Company"; and |
• | "Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources of the Operating Partnership." |
Page | |||
PART I-FINANCIAL INFORMATION | |||
Item 1. | FINANCIAL STATEMENTS OF KILROY REALTY CORPORATION | ||
Item 1. | FINANCIAL STATEMENTS OF KILROY REALTY, L.P. | ||
Item 2. | |||
Item 3. | |||
Item 4. | CONTROLS AND PROCEDURES (KILROY REALTY CORPORATION AND KILROY REALTY, L.P.) | ||
PART II-OTHER INFORMATION | |||
Item 1. | |||
Item 1A. | |||
Item 2. | |||
Item 3. | |||
Item 4. | MINE SAFETY DISCLOSURES | ||
Item 5. | |||
Item 6. | |||
March 31, 2013 | December 31, 2012 | ||||||
(unaudited) | |||||||
ASSETS | |||||||
REAL ESTATE ASSETS: | |||||||
Land and improvements (Note 2) | $ | 637,854 | $ | 612,714 | |||
Buildings and improvements (Note 2) | 3,631,057 | 3,335,026 | |||||
Undeveloped land and construction in progress | 747,679 | 809,654 | |||||
Total real estate held for investment | 5,016,590 | 4,757,394 | |||||
Accumulated depreciation and amortization | (790,878 | ) | (756,515 | ) | |||
Total real estate assets held for investment, net ($0 and $319,770 of VIE, Note 1) | 4,225,712 | 4,000,879 | |||||
CASH AND CASH EQUIVALENTS | 135,676 | 16,700 | |||||
RESTRICTED CASH | 19,465 | 247,544 | |||||
MARKETABLE SECURITIES (Note 11) | 8,029 | 7,435 | |||||
CURRENT RECEIVABLES, NET (Note 4) | 10,666 | 9,220 | |||||
DEFERRED RENT RECEIVABLES, NET (Note 4) | 122,142 | 115,418 | |||||
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 2 and 3) | 196,525 | 189,968 | |||||
DEFERRED FINANCING COSTS, NET | 20,501 | 18,971 | |||||
PREPAID EXPENSES AND OTHER ASSETS, NET | 16,571 | 9,949 | |||||
TOTAL ASSETS | $ | 4,755,287 | $ | 4,616,084 | |||
LIABILITIES AND EQUITY | |||||||
LIABILITIES: | |||||||
Secured debt (Notes 2, 5 and 11) | $ | 570,676 | $ | 561,096 | |||
Exchangeable senior notes, net (Notes 5 and 11) | 165,022 | 163,944 | |||||
Unsecured debt, net (Notes 5 and 11) | 1,430,880 | 1,130,895 | |||||
Unsecured line of credit (Notes 5 and 11) | — | 185,000 | |||||
Accounts payable, accrued expenses and other liabilities | 171,694 | 154,734 | |||||
Accrued distributions (Note 14) | 29,106 | 28,924 | |||||
Deferred revenue and acquisition-related intangible liabilities, net (Notes 2 and 3) | 118,118 | 117,904 | |||||
Rents received in advance and tenant security deposits | 37,251 | 37,654 | |||||
Total liabilities | 2,522,747 | 2,380,151 | |||||
COMMITMENTS AND CONTINGENCIES (Note 10) | |||||||
EQUITY: | |||||||
Stockholders' Equity (Note 7): | |||||||
Preferred stock, $.01 par value, 30,000,000 shares authorized: | |||||||
6.875% Series G Cumulative Redeemable Preferred stock, $.01 par value, 4,600,000 shares authorized, 4,000,000 shares issued and outstanding ($100,000 liquidation preference) | 96,155 | 96,155 | |||||
6.375% Series H Cumulative Redeemable Preferred stock, $.01 par value, 4,000,000 shares authorized, issued and outstanding ($100,000 liquidation preference) | 96,256 | 96,256 | |||||
Common stock, $.01 par value, 150,000,000 shares authorized, 75,349,705 and 74,926,981 shares issued and outstanding, respectively | 753 | 749 | |||||
Additional paid-in capital | 2,149,052 | 2,126,005 | |||||
Distributions in excess of earnings | (157,211 | ) | (129,535 | ) | |||
Total stockholders' equity | 2,185,005 | 2,189,630 | |||||
Noncontrolling interest: | |||||||
Common units of the Operating Partnership (Note 6) | 47,535 | 46,303 | |||||
Total equity | 2,232,540 | 2,235,933 | |||||
TOTAL LIABILITIES AND EQUITY | $ | 4,755,287 | $ | 4,616,084 |
Three Months Ended March 31, | |||||||
2013 | 2012 | ||||||
REVENUES: | |||||||
Rental income | $ | 107,380 | $ | 84,349 | |||
Tenant reimbursements | 9,887 | 7,180 | |||||
Other property income | 230 | 868 | |||||
Total revenues | 117,497 | 92,397 | |||||
EXPENSES: | |||||||
Property expenses | 23,773 | 16,132 | |||||
Real estate taxes | 10,337 | 7,665 | |||||
Provision for bad debts | 95 | 2 | |||||
Ground leases (Note 3) | 847 | 807 | |||||
General and administrative expenses | 9,669 | 8,767 | |||||
Acquisition-related expenses | 655 | 1,528 | |||||
Depreciation and amortization | 50,391 | 34,652 | |||||
Total expenses | 95,767 | 69,553 | |||||
OTHER (EXPENSES) INCOME: | |||||||
Interest income and other net investment gains (Note 11) | 392 | 484 | |||||
Interest expense (Note 5) | (19,734 | ) | (21,163 | ) | |||
Total other (expenses) income | (19,342 | ) | (20,679 | ) | |||
INCOME FROM CONTINUING OPERATIONS | 2,388 | 2,165 | |||||
DISCONTINUED OPERATIONS | |||||||
Income from discontinued operations | — | 3,697 | |||||
Net gain on dispositions of discontinued operations | — | 72,809 | |||||
Total income from discontinued operations | — | 76,506 | |||||
NET INCOME | 2,388 | 78,671 | |||||
Net loss (income) attributable to noncontrolling common units of the Operating Partnership | 22 | (1,795 | ) | ||||
NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION | 2,410 | 76,876 | |||||
PREFERRED DISTRIBUTIONS AND DIVIDENDS: | |||||||
Distributions to noncontrolling cumulative redeemable preferred units of the Operating Partnership | — | (1,397 | ) | ||||
Preferred dividends | (3,313 | ) | (3,021 | ) | |||
Original issuance costs of redeemed preferred stock | — | (4,918 | ) | ||||
Total preferred distributions and dividends | (3,313 | ) | (9,336 | ) | |||
NET (LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS | $ | (903 | ) | $ | 67,540 | ||
Loss from continuing operations available to common stockholders per common share - basic (Note 12) | $ | (0.02 | ) | $ | (0.12 | ) | |
Loss from continuing operations available to common stockholders per common share - diluted (Note 12) | $ | (0.02 | ) | $ | (0.12 | ) | |
Net (loss) income available to common stockholders per share - basic (Note 12) | $ | (0.02 | ) | $ | 1.06 | ||
Net (loss) income available to common stockholders per share - diluted (Note 12) | $ | (0.02 | ) | $ | 1.06 | ||
Weighted average common shares outstanding - basic (Note 12) | 74,977,240 | 63,648,704 | |||||
Weighted average common shares outstanding - diluted (Note 12) | 74,977,240 | 63,648,704 | |||||
Dividends declared per common share | $ | 0.35 | $ | 0.35 |
Common Stock | Total Stock- holders' Equity | Noncontrol- ling Interests - Common Units of the Operating Partnership | Total Equity | |||||||||||||||||||||||||||
Preferred Stock | Number of Shares | Common Stock | Additional Paid-in Capital | Distributions in Excess of Earnings | ||||||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2011 | $ | 121,582 | 58,819,717 | $ | 588 | $ | 1,448,997 | $ | (277,450 | ) | $ | 1,293,717 | $ | 33,765 | $ | 1,327,482 | ||||||||||||||
Net income | 76,876 | 76,876 | 1,795 | 78,671 | ||||||||||||||||||||||||||
Issuance of Series G Preferred stock | 96,155 | 96,155 | 96,155 | |||||||||||||||||||||||||||
Series E and Series F Preferred stock, called for redemption | (121,582 | ) | (4,918 | ) | (126,500 | ) | (126,500 | ) | ||||||||||||||||||||||
Issuance of common stock | 9,487,500 | 95 | 381,968 | 382,063 | 382,063 | |||||||||||||||||||||||||
Issuance of share-based compensation awards | 59,938 | — | 294 | 294 | 294 | |||||||||||||||||||||||||
Noncash amortization of share-based compensation | 1,469 | 1,469 | 1,469 | |||||||||||||||||||||||||||
Repurchase of common stock and restricted stock units | (22,312 | ) | (603 | ) | (603 | ) | (603 | ) | ||||||||||||||||||||||
Exercise of stock options | 5,000 | 129 | 129 | 129 | ||||||||||||||||||||||||||
Adjustment for noncontrolling interest | (4,578 | ) | (4,578 | ) | 4,578 | — | ||||||||||||||||||||||||
Preferred dividends and distributions | (4,418 | ) | (4,418 | ) | (4,418 | ) | ||||||||||||||||||||||||
Dividends declared per common share and common unit ($0.35 per share/unit) | (24,289 | ) | (24,289 | ) | (603 | ) | (24,892 | ) | ||||||||||||||||||||||
BALANCE AS OF MARCH 31, 2012 | $ | 96,155 | 68,349,843 | $ | 683 | $ | 1,827,676 | $ | (234,199 | ) | $ | 1,690,315 | $ | 39,535 | $ | 1,729,850 | ||||||||||||||
Common Stock | Total Stock- holders' Equity | Noncontrol- ling Interests - Common Units of the Operating Partnership | Total Equity | |||||||||||||||||||||||||||
Preferred Stock | Number of Shares | Common Stock | Additional Paid-in Capital | Distributions in Excess of Earnings | ||||||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2012 | $ | 192,411 | 74,926,981 | $ | 749 | $ | 2,126,005 | $ | (129,535 | ) | $ | 2,189,630 | $ | 46,303 | $ | 2,235,933 | ||||||||||||||
Net income (loss) | 2,410 | 2,410 | (22 | ) | 2,388 | |||||||||||||||||||||||||
Issuance of common stock (Note 7) | 453,679 | 4 | 23,391 | 23,395 | 23,395 | |||||||||||||||||||||||||
Issuance of share-based compensation awards (Note 9) | — | 336 | 336 | 336 | ||||||||||||||||||||||||||
Noncash amortization of share-based compensation (Note 9) | 2,422 | 2,422 | 2,422 | |||||||||||||||||||||||||||
Repurchase of common stock and restricted stock units (Note 9) | (33,534 | ) | (1,199 | ) | (1,199 | ) | (1,199 | ) | ||||||||||||||||||||||
Settlement of restricted stock units for shares of common stock (Note 9) | 2,579 | (10 | ) | (10 | ) | (10 | ) | |||||||||||||||||||||||
Adjustment for noncontrolling interest | (1,893 | ) | (1,893 | ) | 1,893 | — | ||||||||||||||||||||||||
Preferred dividends and distributions | (3,313 | ) | (3,313 | ) | (3,313 | ) | ||||||||||||||||||||||||
Dividends declared per common share and common unit ($0.35 per share/unit) | (26,773 | ) | (26,773 | ) | (639 | ) | (27,412 | ) | ||||||||||||||||||||||
BALANCE AS OF MARCH 31, 2013 | $ | 192,411 | 75,349,705 | $ | 753 | $ | 2,149,052 | $ | (157,211 | ) | $ | 2,185,005 | $ | 47,535 | $ | 2,232,540 |
Three Months Ended March 31, | |||||||
2013 | 2012 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | 2,388 | $ | 78,671 | |||
Adjustments to reconcile net income to net cash provided by operating activities (including discontinued operations): | |||||||
Depreciation and amortization of building and improvements and leasing costs | 50,011 | 36,464 | |||||
Increase in provision for bad debts | 95 | 2 | |||||
Depreciation of furniture, fixtures and equipment | 380 | 288 | |||||
Noncash amortization of share-based compensation awards | 2,234 | 1,287 | |||||
Noncash amortization of deferred financing costs and debt discounts and premiums | 1,413 | 2,976 | |||||
Noncash amortization of net below market rents (Note 3) | (2,047 | ) | (525 | ) | |||
Net gain on dispositions of discontinued operations | — | (72,809 | ) | ||||
Noncash amortization of deferred revenue related to tenant-funded tenant improvements | (2,442 | ) | (2,261 | ) | |||
Straight-line rents | (6,724 | ) | (5,487 | ) | |||
Net change in other operating assets | (7,390 | ) | (3,869 | ) | |||
Net change in other operating liabilities | 18,581 | 14,956 | |||||
Insurance proceeds received for property damage | — | (951 | ) | ||||
Net cash provided by operating activities | 56,499 | 48,742 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Expenditures for acquisition of operating properties (Note 2) | (85,692 | ) | (162,380 | ) | |||
Expenditures for operating properties | (25,571 | ) | (17,307 | ) | |||
Expenditures for development and redevelopment properties and undeveloped land | (73,369 | ) | (13,477 | ) | |||
Net proceeds received from dispositions of operating properties | — | 100,765 | |||||
Insurance proceeds received for property damage | — | 951 | |||||
Increase in acquisition-related deposits | — | (5,250 | ) | ||||
Decrease (increase) in restricted cash (Note 1) | 228,079 | (386 | ) | ||||
Net cash provided by (used in) investing activities | 43,447 | (97,084 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Net proceeds from issuance of Series G preferred stock | — | 96,757 | |||||
Net proceeds from issuance of common stock (Note 7) | 23,395 | 382,063 | |||||
Borrowings on unsecured line of credit | — | 30,000 | |||||
Repayments on unsecured line of credit | (185,000 | ) | (212,000 | ) | |||
Principal payments on secured debt | (84,918 | ) | (1,546 | ) | |||
Proceeds from the issuance of unsecured debt (Note 5) | 299,901 | 150,000 | |||||
Financing costs | (2,870 | ) | (1,877 | ) | |||
Repurchase of common stock and restricted stock units (Note 9) | (1,209 | ) | (603 | ) | |||
Proceeds from exercise of stock options | — | 129 | |||||
Dividends and distributions paid to common stockholders and common unitholders | (26,956 | ) | (21,191 | ) | |||
Dividends and distributions paid to preferred stockholders and preferred unitholders | (3,313 | ) | (3,799 | ) | |||
Net cash provided by financing activities | 19,030 | 417,933 | |||||
Net increase in cash and cash equivalents | 118,976 | 369,591 | |||||
Cash and cash equivalents, beginning of period | 16,700 | 4,777 | |||||
Cash and cash equivalents, end of period | $ | 135,676 | $ | 374,368 |
Three Months Ended March 31, | |||||||
2013 | 2012 | ||||||
SUPPLEMENTAL CASH FLOWS INFORMATION: | |||||||
Cash paid for interest, net of capitalized interest of $7,175 and $3,251 as of March 31, 2013 and 2012, respectively | $ | 11,303 | $ | 4,487 | |||
NONCASH INVESTING TRANSACTIONS: | |||||||
Accrual for expenditures for operating properties and development and redevelopment properties | $ | 42,140 | $ | 5,421 | |||
Tenant improvements funded directly by tenants | $ | 1,426 | $ | 95 | |||
Assumption of secured debt in connection with property acquisitions (Notes 2 and 5) | $ | 95,496 | $ | — | |||
Assumption of other assets and liabilities in connection with operating and development property acquisitions, net (Note 2) | $ | 422 | $ | 137 | |||
Net disposition proceeds held by a qualified intermediary in connection with Section 1031 exchange | $ | — | $ | 42,395 | |||
NONCASH FINANCING TRANSACTIONS: | |||||||
Accrual of preferred stock issuance costs | $ | — | $ | 602 | |||
Accrual of dividends and distributions payable to common stockholders and common unitholders | $ | 27,011 | $ | 24,524 | |||
Accrual of dividends and distributions payable to preferred stockholders and preferred unitholders | $ | 1,694 | $ | 2,431 | |||
Issuance of share-based compensation awards, net (Note 9) | $ | 8,451 | $ | 29,989 | |||
Reclassification of preferred units called for redemption from equity to liabilities | $ | — | $ | 126,500 |
March 31, 2013 | December 31, 2012 | ||||||
(unaudited) | |||||||
ASSETS | |||||||
REAL ESTATE ASSETS: | |||||||
Land and improvements (Note 2) | $ | 637,854 | $ | 612,714 | |||
Buildings and improvements (Note 2) | 3,631,057 | 3,335,026 | |||||
Undeveloped land and construction in progress | 747,679 | 809,654 | |||||
Total real estate held for investment | 5,016,590 | 4,757,394 | |||||
Accumulated depreciation and amortization | (790,878 | ) | (756,515 | ) | |||
Total real estate assets held for investment, net ($0 and $319,770 of VIE, Note 1) | 4,225,712 | 4,000,879 | |||||
CASH AND CASH EQUIVALENTS | 135,676 | 16,700 | |||||
RESTRICTED CASH | 19,465 | 247,544 | |||||
MARKETABLE SECURITIES (Note 11) | 8,029 | 7,435 | |||||
CURRENT RECEIVABLES, NET (Note 4) | 10,666 | 9,220 | |||||
DEFERRED RENT RECEIVABLES, NET (Note 4) | 122,142 | 115,418 | |||||
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE ASSETS, NET (Notes 2 and 3) | 196,525 | 189,968 | |||||
DEFERRED FINANCING COSTS, NET | 20,501 | 18,971 | |||||
PREPAID EXPENSES AND OTHER ASSETS, NET | 16,571 | 9,949 | |||||
TOTAL ASSETS | $ | 4,755,287 | $ | 4,616,084 | |||
LIABILITIES AND CAPITAL | |||||||
LIABILITIES: | |||||||
Secured debt (Notes 2, 5 and 11) | $ | 570,676 | $ | 561,096 | |||
Exchangeable senior notes, net (Notes 5 and 11) | 165,022 | 163,944 | |||||
Unsecured debt, net (Notes 5 and 11) | 1,430,880 | 1,130,895 | |||||
Unsecured line of credit (Notes 5 and 11) | — | 185,000 | |||||
Accounts payable, accrued expenses and other liabilities | 171,694 | 154,734 | |||||
Accrued distributions (Note 14) | 29,106 | 28,924 | |||||
Deferred revenue and acquisition-related intangible liabilities, net (Notes 2 and 3) | 118,118 | 117,904 | |||||
Rents received in advance and tenant security deposits | 37,251 | 37,654 | |||||
Total liabilities | 2,522,747 | 2,380,151 | |||||
COMMITMENTS AND CONTINGENCIES (Note 10) | |||||||
CAPITAL: | |||||||
Partners' Capital (Note 8): | |||||||
6.875% Series G Cumulative Redeemable Preferred units, 4,000,000 units issued and outstanding ($100,000 liquidation preference) | 96,155 | 96,155 | |||||
6.375% Series H Cumulative Redeemable Preferred units, 4,000,000 units issued and outstanding ($100,000 liquidation preference) | 96,256 | 96,256 | |||||
Common units, 75,349,705 and 74,926,981 held by the general partner and 1,826,503 and 1,826,503 held by common limited partners issued and outstanding, respectively | 2,036,781 | 2,040,243 | |||||
Total partners' capital | 2,229,192 | 2,232,654 | |||||
Noncontrolling interest in consolidated subsidiaries | 3,348 | 3,279 | |||||
Total capital | 2,232,540 | 2,235,933 | |||||
TOTAL LIABILITIES AND CAPITAL | $ | 4,755,287 | $ | 4,616,084 |
Three Months Ended March 31, | |||||||
2013 | 2012 | ||||||
REVENUES: | |||||||
Rental income | $ | 107,380 | 84,349 | ||||
Tenant reimbursements | 9,887 | 7,180 | |||||
Other property income | 230 | 868 | |||||
Total revenues | 117,497 | 92,397 | |||||
EXPENSES: | |||||||
Property expenses | 23,773 | 16,132 | |||||
Real estate taxes | 10,337 | 7,665 | |||||
Provision for bad debts | 95 | 2 | |||||
Ground leases (Note 3) | 847 | 807 | |||||
General and administrative expenses | 9,669 | 8,767 | |||||
Acquisition-related expenses | 655 | 1,528 | |||||
Depreciation and amortization | 50,391 | 34,652 | |||||
Total expenses | 95,767 | 69,553 | |||||
OTHER (EXPENSES) INCOME: | |||||||
Interest income and other net investment gains (Note 11) | 392 | 484 | |||||
Interest expense (Note 5) | (19,734 | ) | (21,163 | ) | |||
Total other (expenses) income | (19,342 | ) | (20,679 | ) | |||
INCOME FROM CONTINUING OPERATIONS | 2,388 | 2,165 | |||||
DISCONTINUED OPERATIONS | |||||||
Income from discontinued operations | — | 3,697 | |||||
Net gain on dispositions of discontinued operations | — | 72,809 | |||||
Total income from discontinued operations | — | 76,506 | |||||
NET INCOME | 2,388 | 78,671 | |||||
Net income attributable to noncontrolling interests in consolidated subsidiaries | (69 | ) | (53 | ) | |||
NET INCOME ATTRIBUTABLE TO KILROY REALTY, L.P. | 2,319 | 78,618 | |||||
Preferred distributions | (3,313 | ) | (4,418 | ) | |||
Original issuance costs of redeemed preferred units | — | (4,918 | ) | ||||
Total preferred distributions | (3,313 | ) | (9,336 | ) | |||
NET (LOSS) INCOME AVAILABLE TO COMMON UNITHOLDERS | $ | (994 | ) | $ | 69,282 | ||
Loss from continuing operations available to common unitholders per common unit - basic (Note 13) | $ | (0.02 | ) | $ | (0.12 | ) | |
Loss from continuing operations available to common unitholders per common unit - diluted (Note 13) | $ | (0.02 | ) | $ | (0.12 | ) | |
Net (loss) income available to common unitholders per unit - basic (Note 13) | $ | (0.02 | ) | $ | 1.05 | ||
Net (loss) income available to common unitholders per unit - diluted (Note 13) | $ | (0.02 | ) | $ | 1.05 | ||
Weighted average common units outstanding - basic (Note 13) | 76,803,743 | 65,366,835 | |||||
Weighted average common units outstanding - diluted (Note 13) | 76,803,743 | 65,366,835 | |||||
Dividends declared per common unit | $ | 0.35 | $ | 0.35 |
Partners' Capital | Total Partners' Capital | Noncontrolling Interests in Consolidated Subsidiaries | ||||||||||||||||||||
Preferred Units | Number of Common Units | Common Units | Total Capital | |||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2011 | $ | 121,582 | 60,537,848 | $ | 1,203,259 | $ | 1,324,841 | $ | 2,641 | $ | 1,327,482 | |||||||||||
Net income | 78,618 | 78,618 | 53 | 78,671 | ||||||||||||||||||
Issuance of Series G Preferred units | 96,155 | 96,155 | 96,155 | |||||||||||||||||||
Redemption of Series E and Series F Preferred units, called for redemption | (121,582 | ) | (4,918 | ) | (126,500 | ) | (126,500 | ) | ||||||||||||||
Issuance of common units | 9,487,500 | 382,063 | 382,063 | 382,063 | ||||||||||||||||||
Issuance of share-based compensation awards | 59,938 | 294 | 294 | 294 | ||||||||||||||||||
Noncash amortization of share-based compensation | 1,469 | 1,469 | 1,469 | |||||||||||||||||||
Repurchase of common units and restricted stock units | (22,312 | ) | (603 | ) | (603 | ) | (603 | ) | ||||||||||||||
Exercise of stock options | 5,000 | 129 | 129 | 129 | ||||||||||||||||||
Preferred distributions | (4,418 | ) | (4,418 | ) | (4,418 | ) | ||||||||||||||||
Distributions declared per common unit ($0.35 per unit) | (24,892 | ) | (24,892 | ) | (24,892 | ) | ||||||||||||||||
BALANCE AS OF MARCH 31, 2012 | $ | 96,155 | 70,067,974 | $ | 1,631,001 | $ | 1,727,156 | $ | 2,694 | $ | 1,729,850 | |||||||||||
Partners' Capital | Total Partners' Capital | Noncontrolling Interests in Consolidated Subsidiaries | ||||||||||||||||||||
Preferred Units | Number of Common Units | Common Units | Total Capital | |||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2012 | $ | 192,411 | 76,753,484 | $ | 2,040,243 | $ | 2,232,654 | $ | 3,279 | $ | 2,235,933 | |||||||||||
Net income | 2,319 | 2,319 | 69 | 2,388 | ||||||||||||||||||
Issuance of common units (Note 8) | 453,679 | 23,395 | 23,395 | 23,395 | ||||||||||||||||||
Issuance of share-based compensation awards (Note 9) | — | 336 | 336 | 336 | ||||||||||||||||||
Noncash amortization of share-based compensation (Note 9) | 2,422 | 2,422 | 2,422 | |||||||||||||||||||
Repurchase of common units and restricted stock units (Note 9) | (33,534 | ) | (1,199 | ) | (1,199 | ) | (1,199 | ) | ||||||||||||||
Settlement of restricted stock units (Note 9) | 2,579 | (10 | ) | (10 | ) | (10 | ) | |||||||||||||||
Preferred distributions | (3,313 | ) | (3,313 | ) | (3,313 | ) | ||||||||||||||||
Distributions declared per common unit ($0.35 per unit) | (27,412 | ) | (27,412 | ) | (27,412 | ) | ||||||||||||||||
BALANCE AS OF MARCH 31, 2013 | $ | 192,411 | 77,176,208 | $ | 2,036,781 | $ | 2,229,192 | $ | 3,348 | $ | 2,232,540 |
Three Months Ended March 31, | |||||||
2013 | 2012 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | 2,388 | $ | 78,671 | |||
Adjustments to reconcile net income to net cash provided by operating activities (including discontinued operations): | |||||||
Depreciation and amortization of building and improvements and leasing costs | 50,011 | 36,464 | |||||
Increase in provision for bad debts | 95 | 2 | |||||
Depreciation of furniture, fixtures and equipment | 380 | 288 | |||||
Noncash amortization of share-based compensation awards | 2,234 | 1,287 | |||||
Noncash amortization of deferred financing costs and debt discounts and premiums | 1,413 | 2,976 | |||||
Noncash amortization of net below market rents (Note 3) | (2,047 | ) | (525 | ) | |||
Net gain on dispositions of discontinued operations | — | (72,809 | ) | ||||
Noncash amortization of deferred revenue related to tenant-funded tenant improvements | (2,442 | ) | (2,261 | ) | |||
Straight-line rents | (6,724 | ) | (5,487 | ) | |||
Net change in other operating assets | (7,390 | ) | (3,869 | ) | |||
Net change in other operating liabilities | 18,581 | 14,956 | |||||
Insurance proceeds received for property damage | — | (951 | ) | ||||
Net cash provided by operating activities | 56,499 | 48,742 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Expenditures for acquisition of operating properties (Note 2) | (85,692 | ) | (162,380 | ) | |||
Expenditures for operating properties | (25,571 | ) | (17,307 | ) | |||
Expenditures for development and redevelopment properties and undeveloped land | (73,369 | ) | (13,477 | ) | |||
Net proceeds received from dispositions of operating properties | — | 100,765 | |||||
Insurance proceeds received for property damage | — | 951 | |||||
Increase in acquisition-related deposits | — | (5,250 | ) | ||||
Decrease (increase) in restricted cash (Note 1) | 228,079 | (386 | ) | ||||
Net cash provided by (used in) investing activities | 43,447 | (97,084 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Net proceeds from issuance of Series G preferred units | — | 96,757 | |||||
Net proceeds from issuance of common units (Note 8) | 23,395 | 382,063 | |||||
Borrowings on unsecured line of credit | — | 30,000 | |||||
Repayments on unsecured line of credit | (185,000 | ) | (212,000 | ) | |||
Principal payments on secured debt | (84,918 | ) | (1,546 | ) | |||
Proceeds from the issuance of unsecured debt (Note 5) | 299,901 | 150,000 | |||||
Financing costs | (2,870 | ) | (1,877 | ) | |||
Repurchase of common units and restricted stock units (Note 9) | (1,209 | ) | (603 | ) | |||
Proceeds from exercise of stock options | — | 129 | |||||
Distributions paid to common unitholders | (26,956 | ) | (21,191 | ) | |||
Distributions paid to preferred unitholders | (3,313 | ) | (3,799 | ) | |||
Net cash provided by financing activities | 19,030 | 417,933 | |||||
Net increase in cash and cash equivalents | 118,976 | 369,591 | |||||
Cash and cash equivalents, beginning of period | 16,700 | 4,777 | |||||
Cash and cash equivalents, end of period | $ | 135,676 | $ | 374,368 |
Three Months Ended March 31, | |||||||
2013 | 2012 | ||||||
SUPPLEMENTAL CASH FLOWS INFORMATION: | |||||||
Cash paid for interest, net of capitalized interest of $7,175 and $3,251 as of March 31, 2013 and 2012, respectively | $ | 11,303 | $ | 4,487 | |||
NONCASH INVESTING TRANSACTIONS: | |||||||
Accrual for expenditures for operating properties and development and redevelopment properties | $ | 42,140 | $ | 5,421 | |||
Tenant improvements funded directly by tenants | $ | 1,426 | $ | 95 | |||
Assumption of secured debt in connection with property acquisitions (Notes 2 and 5) | $ | 95,496 | $ | — | |||
Assumption of other assets and liabilities in connection with operating and development property acquisitions, net (Note 2) | $ | 422 | $ | 137 | |||
Net disposition proceeds held by a qualified intermediary in connection with Section 1031 exchange | $ | — | $ | 42,395 | |||
NONCASH FINANCING TRANSACTIONS: | |||||||
Accrual of preferred unit issuance costs | $ | — | $ | 602 | |||
Accrual of distributions payable to common unitholders | $ | 27,011 | $ | 24,524 | |||
Accrual of distributions payable to preferred unitholders | $ | 1,694 | $ | 2,431 | |||
Issuance of share-based compensation awards, net (Note 9) | $ | 8,451 | $ | 29,989 | |||
Reclassification of preferred units called for redemption from equity to liabilities | $ | — | $ | 126,500 |
Number of Buildings | Rentable Square Feet | Number of Tenants | Percentage Occupied | ||||||||
Office Properties | 116 | 13,570,059 | 553 | 90.3 | % |
Number of Properties | Estimated Rentable Square Feet | |||
Development properties under construction (1) | 4 | 1,416,000 | ||
Lease-up properties | 2 | 508,000 |
Property | Date of Acquisition | Number of Buildings | Rentable Square Feet | Occupancy as of March 31, 2013 | Purchase Price (in millions)(1) | ||||||||
320 Westlake Ave. N. and 321 Terry Ave. N. (2) (3) | |||||||||||||
Seattle, WA | January 16, 2013 | 2 | 320,398 | 100.0% | $ | 170.0 | |||||||
Total | 2 | 320,398 | $ | 170.0 |
(1) | Excludes acquisition-related costs and includes assumed tenant improvements. |
(2) | We acquired these properties through a new special purpose entity wholly owned by the Finance Partnership. |
(3) | In connection with this acquisition, we assumed secured debt with an outstanding principal balance of $83.9 million that was recorded at fair value on the acquisition date, resulting in a premium of approximately $11.6 million (see Note 5). |
320 Westlake Ave. N. and 321 Terry Ave. N., Seattle, WA | |||
(in thousands) | |||
Assets | |||
Land and improvements | $ | 25,140 | |
Buildings and improvements(1) | 142,021 | ||
Deferred leasing costs and acquisition-related intangible assets(2) | 16,019 | ||
Total assets acquired | 183,180 | ||
Liabilities | |||
Deferred revenue and acquisition-related intangible liabilities(3) | 1,570 | ||
Secured debt(4) | 95,496 | ||
Accounts payable, accrued expenses and other liabilities | 422 | ||
Total liabilities assumed | 97,488 | ||
Net assets and liabilities acquired(5) | $ | 85,692 |
(1) | Represents buildings, building improvements and tenant improvements. |
(2) | Represents in-place leases (approximately $13.0 million with a weighted average amortization period of 3.9 years), above-market leases (approximately $0.3 million with a weighted average amortization period of 4.6 years), and leasing commissions (approximately $2.7 million with a weighted average amortization period of 3.0 years). |
(3) | Represents below-market leases (approximately $1.6 million with a weighted average amortization period of 9.2 years). |
(4) | Represents the mortgage loan, which includes an unamortized premium of approximately $11.6 million at the date of acquisition, assumed in connection with the properties acquired in January 2013 (see Note 5). |
(5) | Reflects the purchase price net of assumed secured debt and other lease-related obligations. |
March 31, 2013 | December 31, 2012 | ||||||
(in thousands) | |||||||
Deferred Leasing Costs and Acquisition-related Intangible Assets, net(1): | |||||||
Deferred leasing costs | $ | 171,107 | $ | 168,087 | |||
Accumulated amortization | (62,265 | ) | (61,443 | ) | |||
Deferred leasing costs, net | 108,842 | 106,644 | |||||
Above-market operating leases | 27,627 | 27,977 | |||||
Accumulated amortization | (13,010 | ) | (12,180 | ) | |||
Above-market operating leases, net | 14,617 | 15,797 | |||||
In-place leases | 103,778 | 101,061 | |||||
Accumulated amortization | (31,195 | ) | (34,019 | ) | |||
In-place leases, net | 72,583 | 67,042 | |||||
Below-market ground lease obligation | 690 | 690 | |||||
Accumulated amortization | (207 | ) | (205 | ) | |||
Below-market ground lease obligation, net | 483 | 485 | |||||
Total deferred leasing costs and acquisition-related intangible assets, net | $ | 196,525 | $ | 189,968 | |||
Acquisition-related Intangible Liabilities, net(1)(2): | |||||||
Below-market operating leases | $ | 67,705 | $ | 70,486 | |||
Accumulated amortization | (16,690 | ) | (17,555 | ) | |||
Below-market operating leases, net | 51,015 | 52,931 | |||||
Above-market ground lease obligation | 6,320 | 6,320 | |||||
Accumulated amortization | (147 | ) | (122 | ) | |||
Above-market ground lease obligation, net | 6,173 | 6,198 | |||||
Total acquisition-related intangible liabilities, net | $ | 57,188 | $ | 59,129 |
(1) | Balances and accumulated amortization amounts at March 31, 2013 reflect the write-off of the following fully amortized amounts at January 1, 2013: deferred leasing costs (approximately $7.0 million), above-market leases (approximately $0.6 million), in-place leases (approximately $10.3 million), and below-market leases (approximately $4.4 million). |
(2) | Included in deferred revenue and acquisition-related intangible liabilities, net in the consolidated balance sheets. |
Three Months Ended March 31, | |||||||
2013 | 2012 | ||||||
(in thousands) | |||||||
Deferred leasing costs (1) | $ | 7,844 | $ | 4,498 | |||
Above-market operating leases (2) | 1,438 | 1,371 | |||||
In-place leases (1) | 7,458 | 3,781 | |||||
Below-market ground lease obligation (3) | 2 | 50 | |||||
Below-market operating leases (4) | (3,485 | ) | (1,896 | ) | |||
Above-market ground lease obligation (5) | (25 | ) | (16 | ) | |||
Total | $ | 13,232 | $ | 7,788 |
(1) | The amortization of deferred leasing costs and in-place leases is recorded to depreciation and amortization expense in the consolidated statements of operations for the periods presented. |
(2) | The amortization of above-market operating leases is recorded as a decrease to rental income in the consolidated statements of operations for the periods presented. |
(3) | The amortization of the below-market ground lease obligation is recorded as an increase to ground lease expense in the consolidated statements of operations for the periods presented. |
(4) | The amortization of below−market operating leases is recorded as an increase to rental income in the consolidated statements of operations for the periods presented. |
(5) | The amortization of the above-market ground lease obligation is recorded as a decrease to ground lease expense in the consolidated statements of operations for the periods presented. |
Year | Deferred Leasing Costs | Above-Market Operating Leases(1) | In-Place Leases | Below-Market Ground Lease Obligation(2) | Below-Market Operating Leases(3) | Above-Market Ground Lease Obligation(4) | |||||||||||||||||
(in thousands) | |||||||||||||||||||||||
Remaining 2013 | $ | 18,417 | $ | 3,939 | $ | 20,874 | $ | 6 | $ | (9,847 | ) | $ | (76 | ) | |||||||||
2014 | 21,530 | 4,389 | 18,012 | 8 | (11,512 | ) | (101 | ) | |||||||||||||||
2015 | 17,558 | 2,586 | 11,729 | 8 | (8,998 | ) | (101 | ) | |||||||||||||||
2016 | 14,877 | 1,559 | 8,613 | 8 | (6,814 | ) | (101 | ) | |||||||||||||||
2017 | 12,311 | 1,225 | 6,818 | 8 | (5,747 | ) | (101 | ) | |||||||||||||||
Thereafter | 24,149 | 919 | 6,537 | 445 | (8,097 | ) | (5,693 | ) | |||||||||||||||
Total | $ | 108,842 | $ | 14,617 | $ | 72,583 | $ | 483 | $ | (51,015 | ) | $ | (6,173 | ) |
(1) | Represents estimated annual amortization related to above-market operating leases. Amounts will be recorded as a decrease to rental income in the consolidated statements of operations. |
(2) | Represents estimated annual amortization related to below−market ground lease obligations. Amounts will be recorded as an increase to ground lease expense in the consolidated statements of operations. |
(3) | Represents estimated annual amortization related to below-market operating leases. Amounts will be recorded as an increase to rental income in the consolidated statements of operations. |
(4) | Represents estimated annual amortization related to above−market ground lease obligations. Amounts will be recorded as a decrease to ground lease expense in the consolidated statements of operations. |
March 31, 2013 | December 31, 2012 | ||||||
(in thousands) | |||||||
Current receivables | $ | 13,192 | $ | 11,801 | |||
Allowance for uncollectible tenant receivables | (2,526 | ) | (2,581 | ) | |||
Current receivables, net | $ | 10,666 | $ | 9,220 |
March 31, 2013 | December 31, 2012 | ||||||
(in thousands) | |||||||
Deferred rent receivables | $ | 124,269 | $ | 118,025 | |||
Allowance for deferred rent receivables | (2,127 | ) | (2,607 | ) | |||
Deferred rent receivables, net | $ | 122,142 | $ | 115,418 |
Annual Stated | GAAP | ||||||||||||
Type of Debt | Interest Rate (1) | Effective Rate (1)(2) | Maturity Date | March 31, 2013 (3) | December 31, 2012 (3) | ||||||||
(in thousands) | |||||||||||||
Mortgage note payable | 4.27% | 4.27% | February 2018 | $ | 134,815 | $ | 135,000 | ||||||
Mortgage note payable (4) | 4.48% | 4.48% | July 2027 | 97,000 | 97,000 | ||||||||
Mortgage note payable (4)(5) | 6.05% | 3.50% | June 2019 | 94,896 | — | ||||||||
Mortgage note payable (6) | 6.37% | 3.55% | April 2013 | — | 83,116 | ||||||||
Mortgage note payable | 6.51% | 6.51% | February 2017 | 68,383 | 68,615 | ||||||||
Mortgage note payable (4) | 5.23% | 3.50% | January 2016 | 55,863 | 56,302 | ||||||||
Mortgage note payable (4) | 5.57% | 3.25% | February 2016 | 42,672 | 43,016 | ||||||||
Mortgage note payable (4) | 5.09% | 3.50% | August 2015 | 35,245 | 35,379 | ||||||||
Mortgage note payable (4) | 4.94% | 4.00% | April 2015 | 28,620 | 28,941 | ||||||||
Mortgage note payable | 7.15% | 7.15% | May 2017 | 10,665 | 11,210 | ||||||||
Public facility bonds (7) | Various | Various | Various | 2,517 | 2,517 | ||||||||
Total | $ | 570,676 | $ | 561,096 |
(1) | All interest rates presented are fixed-rate interest rates. |
(2) | This represents the rate at which interest expense is recorded for financial reporting purposes, which reflects the amortization of discounts/premiums, excluding debt issuance costs. |
(3) | Amounts reported include the amounts of unamortized debt premiums and discounts for the periods presented. |
(4) | The secured debt and the related properties that secure the debt are held in a special purpose entity and the properties are not available to satisfy the debts and other obligations of the Company or the Operating Partnership. |
(5) | In January 2013, in connection with the acquisition of two office buildings in Seattle, Washington, we assumed a mortgage loan that is secured by the project. The assumed mortgage had a principal balance of $83.9 million at the acquisition date and was recorded at fair value on the date of the acquisition resulting in a premium of approximately $11.6 million. The loan requires monthly principal and interest payments based on a 6.4 year amortization period. |
(6) | In January 2013, we repaid this loan prior to the stated maturity. |
(7) | The public facility bonds (the “Bonds”), the proceeds from which were used to finance infrastructure improvements on one of the Company’s undeveloped land parcels, were issued in February 2008 by the City of Carlsbad. The Bonds have annual maturities from September 1, 2013 through September 1, 2038, with interest rates ranging from 4.74% to 6.19%. Principal and interest payments for the Bonds will be charged through the assessment of special property taxes. |
4.25% Exchangeable Notes | |||||||
March 31, 2013 | December 31, 2012 | ||||||
(in thousands) | |||||||
Principal amount | $ | 172,500 | $ | 172,500 | |||
Unamortized discount | (7,478 | ) | (8,556 | ) | |||
Net carrying amount of liability component | $ | 165,022 | $ | 163,944 | |||
Carrying amount of equity component | $19,835 | ||||||
Issuance date | November 2009 | ||||||
Maturity date | November 2014 | ||||||
Stated coupon rate (1) | 4.25% | ||||||
Effective interest rate (2) | 7.13% | ||||||
Exchange rate per $1,000 principal value of the 4.25% Exchangeable Notes, as adjusted (3) | 27.8307 | ||||||
Exchange price, as adjusted (3) | $35.93 | ||||||
Number of shares on which the aggregate consideration to be delivered on conversion is determined (3) | 4,800,796 |
(1) | Interest on the 4.25% Exchangeable Notes is payable semi-annually in arrears on May 15th and November 15th of each year. |
(2) | The rate at which we record interest expense for financial reporting purposes, which reflects the amortization of the discounts on the 4.25% Exchangeable Notes. This rate represents our conventional debt borrowing rate at the date of issuance. |
(3) | The exchange rate, exchange price, and the number of shares to be delivered upon conversion are subject to adjustment under certain circumstances including increases in our common dividends. |
Three Months Ended March 31, | |||
2013 | 2012 | ||
Per share average trading price of the Company's common stock | $51.14 | $42.86 |
March 31, 2013 | March 31, 2012 | ||||||
(in thousands) | |||||||
Approximate fair value of shares upon conversion | $ | 247,300 | $ | 208,700 | |||
Principal amount of the 4.25% Exchangeable Notes | 172,500 | 172,500 | |||||
Approximate fair value in excess amount of principal amount | $ | 74,800 | $ | 36,200 |
Three Months Ended March 31, | |||||||
2013 (1) | 2012 | ||||||
(in thousands) | |||||||
Contractual interest payments | $ | 1,833 | $ | 3,035 | |||
Amortization of discount | 1,078 | 1,797 | |||||
Interest expense attributable to the Exchangeable Notes | $ | 2,911 | $ | 4,832 |
(1) | The Company repaid the 3.25% Exchangeable Notes in April 2012. Interest payments and discount amortization for the three months ended March 31, 2013 are solely attributable to the 4.25% Exchangeable Notes. |
4.25% Exchangeable Notes | |||
Referenced shares of common stock | 4,800,796 | ||
Exchange price including effect of capped calls | $ | 42.81 |
March 31, 2013 | December 31, 2012 | ||||||
(in thousands) | |||||||
Outstanding borrowings | $ | — | $ | 185,000 | |||
Remaining borrowing capacity | 500,000 | 315,000 | |||||
Total borrowing capacity(1) | $ | 500,000 | $ | 500,000 | |||
Interest rate(2) | — | % | 1.66 | % | |||
Facility fee-annual rate(3) | 0.300% | ||||||
Maturity date(4) | April 2017 |
(1) | We may elect to borrow, subject to bank approval, up to an additional $200.0 million under an accordion feature under the terms of the revolving credit facility. |
(2) | The revolving credit facility interest rate was calculated based on an annual rate of LIBOR plus 1.450% as of both March 31, 2013 and December 31, 2012. |
(3) | The facility fee is paid on a quarterly basis and is calculated based on the total borrowing capacity. In addition to the facility fee, from 2010 to 2012 we incurred debt origination and legal costs totaling approximately $10.2 million that are currently being amortized through the maturity date of the revolving credit facility. |
(4) | Under the terms of the revolving credit facility, we may exercise an option to extend the maturity date by one year. |
Year | (in thousands) | |||
Remaining 2013 | 7,016 | |||
2014 | 265,346 | |||
2015 | 395,104 | |||
2016 | 249,431 | |||
2017 | 71,748 | |||
Thereafter | 1,169,741 | |||
Total | $ | 2,158,386 | (1) |
(1) | Includes gross principal balance of outstanding debt before impact of net unamortized premiums totaling approximately $8.2 million. |