(Mark One) | ||
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended June 30,
2011
|
||
OR
|
||
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period
from to
|
Kilroy Realty Corporation |
Maryland (State or other jurisdiction of incorporation or organization) |
95-4598246 (I.R.S. Employer Identification No.) |
Kilroy Realty, L.P. |
Delaware (State or other jurisdiction of incorporation or organization) |
95-4612685 (I.R.S. Employer Identification No.) |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o |
| 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 |
2
| 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 Companys Consolidated Financial Statements; | |
| Note 7, Stockholders Equity of the Company; | |
| Note 8, Partners Capital of the Operating Partnership; | |
| Note 14, Net (Loss) Income Available to Common Stockholders per Share of the Company; | |
| Note 15, Net (Loss) Income Available to Common Unitholders per Unit of the Operating Partnership; | |
| Note 17, Pro Forma Results of the Company; and | |
| Note 18, Pro Forma Results of the Operating Partnership. |
3
Page | ||||||||
PART IFINANCIAL INFORMATION | ||||||||
Item 1. | 5 | |||||||
5 | ||||||||
6 | ||||||||
7 | ||||||||
8 | ||||||||
Item 1. | 9 | |||||||
9 | ||||||||
10 | ||||||||
11 | ||||||||
12 | ||||||||
13 | ||||||||
Item 2. | 34 | |||||||
Item 3. | 55 | |||||||
Item 4. | 55 | |||||||
PART IIOTHER INFORMATION | ||||||||
Item 1. | 56 | |||||||
Item 1A | 56 | |||||||
Item 2. | 56 | |||||||
Item 3. | 56 | |||||||
Item 4. | 56 | |||||||
Item 5. | 56 | |||||||
Item 6. | 57 | |||||||
SIGNATURES | 58 | |||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-31.3 | ||||||||
EX-31.4 | ||||||||
EX-32.1 | ||||||||
EX-32.2 | ||||||||
EX-32.3 | ||||||||
EX-32.4 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
4
ITEM 1. | FINANCIAL STATEMENTS OF KILROY REALTY CORPORATION |
June 30, |
December 31, |
|||||||
2011 | 2010 | |||||||
(unaudited) | ||||||||
ASSETS
|
||||||||
REAL ESTATE ASSETS:
|
||||||||
Land and improvements (Note 2)
|
$ | 528,082 | $ | 491,333 | ||||
Buildings and improvements (Note 2)
|
2,820,766 | 2,435,173 | ||||||
Undeveloped land and construction in progress
|
303,998 | 290,365 | ||||||
Total real estate held for investment
|
3,652,846 | 3,216,871 | ||||||
Accumulated depreciation and amortization
|
(720,864 | ) | (672,429 | ) | ||||
Total real estate assets, net
|
2,931,982 | 2,544,442 | ||||||
CASH AND CASH EQUIVALENTS
|
25,412 | 14,840 | ||||||
RESTRICTED CASH
|
1,349 | 1,461 | ||||||
MARKETABLE SECURITIES (Note 12)
|
5,654 | 4,902 | ||||||
CURRENT RECEIVABLES, NET (Note 4)
|
4,732 | 6,258 | ||||||
DEFERRED RENT RECEIVABLES, NET (Note 4)
|
97,958 | 89,052 | ||||||
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE
ASSETS, NET (Notes 2 and 3)
|
153,231 | 131,066 | ||||||
DEFERRED FINANCING COSTS, NET (Note 5)
|
18,910 | 16,447 | ||||||
PREPAID EXPENSES AND OTHER ASSETS, NET
|
25,559 | 8,097 | ||||||
TOTAL ASSETS
|
$ | 3,264,787 | $ | 2,816,565 | ||||
LIABILITIES, NONCONTROLLING INTEREST AND EQUITY | ||||||||
LIABILITIES:
|
||||||||
Secured debt, net (Notes 5 and 12)
|
$ | 475,820 | $ | 313,009 | ||||
Exchangeable senior notes, net (Notes 5 and 12)
|
303,374 | 299,964 | ||||||
Unsecured senior notes, net (Notes 5 and 12)
|
655,929 | 655,803 | ||||||
Unsecured line of credit (Notes 5 and 12)
|
245,000 | 159,000 | ||||||
Accounts payable, accrued expenses and other liabilities
|
66,664 | 68,525 | ||||||
Accrued distributions (Note 16)
|
22,563 | 20,385 | ||||||
Deferred revenue and acquisition-related intangible liabilities,
net (Note 3)
|
90,149 | 79,322 | ||||||
Rents received in advance and tenant security deposits
|
28,117 | 29,189 | ||||||
Total liabilities
|
1,887,616 | 1,625,197 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 11)
|
||||||||
NONCONTROLLING INTEREST (Note 6):
|
||||||||
7.45% Series A Cumulative Redeemable Preferred units of the
Operating Partnership
|
73,638 | 73,638 | ||||||
EQUITY:
|
||||||||
Stockholders Equity (Note 7):
|
||||||||
Preferred stock, $.01 par value, 30,000,000 shares
authorized:
|
||||||||
7.45% Series A Cumulative Redeemable Preferred stock,
$.01 par value,
1,500,000 shares authorized, none issued and outstanding |
| | ||||||
7.80% Series E Cumulative Redeemable Preferred stock,
$.01 par value,
1,610,000 shares authorized, issued and outstanding ($40,250 liquidation preference) |
38,425 | 38,425 | ||||||
7.50% Series F Cumulative Redeemable Preferred stock,
$.01 par value,
3,450,000 shares authorized, issued and outstanding ($86,250 liquidation preference) |
83,157 | 83,157 | ||||||
Common stock, $.01 par value, 150,000,000 shares
authorized,
58,464,412 and 52,349,670 shares issued and outstanding, respectively |
585 | 523 | ||||||
Additional paid-in capital
|
1,433,951 | 1,211,498 | ||||||
Distributions in excess of earnings
|
(285,916 | ) | (247,252 | ) | ||||
Total stockholders equity
|
1,270,202 | 1,086,351 | ||||||
Noncontrolling interest:
|
||||||||
Common units of the Operating Partnership (Note 6)
|
33,331 | 31,379 | ||||||
Total equity
|
1,303,533 | 1,117,730 | ||||||
TOTAL LIABILITIES, NONCONTROLLING INTEREST AND EQUITY
|
$ | 3,264,787 | $ | 2,816,565 | ||||
5
Six Months Ended |
||||||||||||||||
Three Months Ended June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
REVENUES:
|
||||||||||||||||
Rental income
|
$ | 83,452 | $ | 65,038 | $ | 163,742 | $ | 125,694 | ||||||||
Tenant reimbursements
|
7,510 | 6,483 | 13,932 | 12,201 | ||||||||||||
Other property income
|
1,102 | 895 | 2,515 | 1,340 | ||||||||||||
Total revenues
|
92,064 | 72,416 | 180,189 | 139,235 | ||||||||||||
EXPENSES:
|
||||||||||||||||
Property expenses
|
17,583 | 14,543 | 35,272 | 26,563 | ||||||||||||
Real estate taxes
|
8,413 | 6,482 | 16,582 | 12,518 | ||||||||||||
Provision for bad debts
|
120 | (12 | ) | 146 | 14 | |||||||||||
Ground leases (Note 11)
|
424 | 370 | 763 | 312 | ||||||||||||
General and administrative expenses
|
7,440 | 6,728 | 14,000 | 13,823 | ||||||||||||
Acquisition-related expenses
|
1,194 | 957 | 1,666 | 1,270 | ||||||||||||
Depreciation and amortization
|
32,248 | 23,722 | 61,559 | 44,660 | ||||||||||||
Total expenses
|
67,422 | 52,790 | 129,988 | 99,160 | ||||||||||||
OTHER (EXPENSES) INCOME:
|
||||||||||||||||
Interest income and other net investment gains (losses)
(Note 12)
|
58 | (18 | ) | 242 | 366 | |||||||||||
Interest expense (Note 5)
|
(21,228 | ) | (13,088 | ) | (42,104 | ) | (25,044 | ) | ||||||||
Loss on early extinguishment of debt
|
| (4,564 | ) | | (4,564 | ) | ||||||||||
Total other (expenses) income
|
(21,170 | ) | (17,670 | ) | (41,862 | ) | (29,242 | ) | ||||||||
NET INCOME
|
3,472 | 1,956 | 8,339 | 10,833 | ||||||||||||
Net loss (income) attributable to noncontrolling common units of
the Operating Partnership
|
10 | 60 | (24 | ) | (132 | ) | ||||||||||
NET INCOME ATTRIBUTABLE TO KILROY REALTY CORPORATION
|
3,482 | 2,016 | 8,315 | 10,701 | ||||||||||||
PREFERRED DISTRIBUTIONS AND DIVIDENDS:
|
||||||||||||||||
Distributions to noncontrolling cumulative redeemable preferred
units of the Operating Partnership
|
(1,397 | ) | (1,397 | ) | (2,794 | ) | (2,794 | ) | ||||||||
Preferred dividends
|
(2,402 | ) | (2,402 | ) | (4,804 | ) | (4,804 | ) | ||||||||
Total preferred distributions and dividends
|
(3,799 | ) | (3,799 | ) | (7,598 | ) | (7,598 | ) | ||||||||
NET (LOSS) INCOME AVAILABLE TO COMMON STOCKHOLDERS
|
$ | (317 | ) | $ | (1,783 | ) | $ | 717 | $ | 3,103 | ||||||
Net (loss) income available to common stockholders per
share-basic (Note 14)
|
$ | (0.01 | ) | $ | (0.04 | ) | $ | 0.00 | $ | 0.05 | ||||||
Net (loss) income available to common stockholders per
share-diluted (Note 14)
|
$ | (0.01 | ) | $ | (0.04 | ) | $ | 0.00 | $ | 0.05 | ||||||
Weighted average common shares outstanding-basic (Note 14)
|
57,685,710 | 50,296,643 | 55,008,765 | 46,674,494 | ||||||||||||
Weighted average common shares outstanding-diluted (Note 14)
|
57,685,710 | 50,296,643 | 55,384,729 | 46,677,850 | ||||||||||||
Dividends declared per common share
|
$ | 0.35 | $ | 0.35 | $ | 0.70 | $ | 0.70 | ||||||||
6
Noncontrol- |
||||||||||||||||||||||||||||||||
ling Interests |
||||||||||||||||||||||||||||||||
Common Stock |
Total |
Common |
||||||||||||||||||||||||||||||
Additional |
Distributions |
Stock- |
Units of the |
|||||||||||||||||||||||||||||
Preferred |
Number of |
Common |
Paid-in |
in Excess of |
holders |
Operating |
Total |
|||||||||||||||||||||||||
Stock | Shares | Stock | Capital | Earnings | Equity | Partnership | Equity | |||||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2009
|
$ | 121,582 | 43,148,762 | $ | 431 | $ | 913,657 | $ | (180,722 | ) | $ | 854,948 | $ | 28,890 | $ | 883,838 | ||||||||||||||||
Net income
|
10,701 | 10,701 | 132 | 10,833 | ||||||||||||||||||||||||||||
Issuance of common stock
|
9,200,000 | 92 | 299,755 | 299,847 | 299,847 | |||||||||||||||||||||||||||
Issuance of share-based compensation awards
|
3,239 | 1,660 | 1,660 | 1,660 | ||||||||||||||||||||||||||||
Noncash amortization of share-based compensation
|
3,361 | 3,361 | 3,361 | |||||||||||||||||||||||||||||
Exercise of stock options
|
4,000 | 83 | 83 | 83 | ||||||||||||||||||||||||||||
Repurchase of common stock and restricted stock units
|
(59,782 | ) | (2,121 | ) | (2,121 | ) | (2,121 | ) | ||||||||||||||||||||||||
Allocation to the equity component of cash paid upon repurchase
of 3.25% Exchangeable Notes
|
(2,694 | ) | (2,694 | ) | (2,694 | ) | ||||||||||||||||||||||||||
Adjustment for noncontrolling interest
|
(4,985 | ) | (4,985 | ) | 4,985 | | ||||||||||||||||||||||||||
Preferred distributions and dividends
|
(7,598 | ) | (7,598 | ) | (7,598 | ) | ||||||||||||||||||||||||||
Dividends declared per common share and common unit ($0.70 per
share/ unit)
|
(33,936 | ) | (33,936 | ) | (1,207 | ) | (35,143 | ) | ||||||||||||||||||||||||
BALANCE AS OF JUNE 30, 2010
|
$ | 121,582 | 52,296,219 | $ | 523 | $ | 1,208,716 | $ | (211,555 | ) | $ | 1,119,266 | $ | 32,800 | $ | 1,152,066 | ||||||||||||||||
Noncontrol- |
||||||||||||||||||||||||||||||||
ling Interests |
||||||||||||||||||||||||||||||||
Common Stock |
Total |
Common |
||||||||||||||||||||||||||||||
Additional |
Distributions |
Stock- |
Units of the |
|||||||||||||||||||||||||||||
Preferred |
Number of |
Common |
Paid-in |
in Excess of |
holders |
Operating |
Total |
|||||||||||||||||||||||||
Stock | Shares | Stock | Capital | Earnings | Equity | Partnership | Equity | |||||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2010
|
$ | 121,582 | 52,349,670 | $ | 523 | $ | 1,211,498 | $ | (247,252 | ) | $ | 1,086,351 | $ | 31,379 | $ | 1,117,730 | ||||||||||||||||
Net income
|
8,315 | 8,315 | 24 | 8,339 | ||||||||||||||||||||||||||||
Issuance of common stock (Note 7)
|
6,037,500 | 61 | 220,954 | 221,015 | 221,015 | |||||||||||||||||||||||||||
Issuance of share-based compensation awards (Note 9)
|
68,727 | 1 | 2,155 | 2,156 | 2,156 | |||||||||||||||||||||||||||
Noncash amortization of share-based compensation
|
2,813 | 2,813 | 2,813 | |||||||||||||||||||||||||||||
Exercise of stock options
|
15,000 | 395 | 395 | 395 | ||||||||||||||||||||||||||||
Repurchase of common stock and restricted stock units
(Note 9)
|
(11,485 | ) | (732 | ) | (732 | ) | (732 | ) | ||||||||||||||||||||||||
Exchange of common units of the Operating Partnership
|
5,000 | 91 | 91 | (91 | ) | | ||||||||||||||||||||||||||
Adjustment for noncontrolling interest
|
(3,223 | ) | (3,223 | ) | 3,223 | | ||||||||||||||||||||||||||
Preferred distributions and dividends
|
(7,598 | ) | (7,598 | ) | (7,598 | ) | ||||||||||||||||||||||||||
Dividends declared per common share and common unit ($0.70 per
share/ unit)
|
(39,381 | ) | (39,381 | ) | (1,204 | ) | (40,585 | ) | ||||||||||||||||||||||||
BALANCE AS OF JUNE 30, 2011
|
$ | 121,582 | 58,464,412 | $ | 585 | $ | 1,433,951 | $ | (285,916 | ) | $ | 1,270,202 | $ | 33,331 | $ | 1,303,533 | ||||||||||||||||
7
Six Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net income
|
$ | 8,339 | $ | 10,833 | ||||
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||
Depreciation and amortization of building and improvements and
leasing costs
|
61,029 | 44,229 | ||||||
Increase in provision for bad debts
|
146 | 14 | ||||||
Depreciation of furniture, fixtures and equipment
|
530 | 431 | ||||||
Noncash amortization of share-based compensation awards
|
2,239 | 3,519 | ||||||
Noncash amortization of deferred financing costs and debt
discounts and premiums
|
6,884 | 5,750 | ||||||
Noncash amortization of above/(below) market rents (Note 3)
|
1,398 | 32 | ||||||
Loss on early extinguishment of debt
|
| 4,564 | ||||||
Noncash amortization of deferred revenue related to
tenant-funded tenant improvements
|
(4,668 | ) | (4,775 | ) | ||||
Changes in operating assets and liabilities:
|
||||||||
Marketable securities
|
(752 | ) | (635 | ) | ||||
Current receivables
|
1,380 | 483 | ||||||
Deferred rent receivables
|
(8,906 | ) | (5,421 | ) | ||||
Other deferred leasing costs
|
398 | (2,594 | ) | |||||
Prepaid expenses and other assets
|
(3,519 | ) | (2,991 | ) | ||||
Accounts payable, accrued expenses and other liabilities
|
(6,384 | ) | (4,177 | ) | ||||
Deferred revenue
|
(577 | ) | 507 | |||||
Rents received in advance and tenant security deposits
|
(1,072 | ) | 7,619 | |||||
Net cash provided by operating activities
|
56,465 | 57,388 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Expenditures for acquisition of operating properties
(Note 2)
|
(378,554 | ) | (373,574 | ) | ||||
Expenditures for operating properties
|
(28,230 | ) | (33,593 | ) | ||||
Expenditures for development and redevelopment properties and
undeveloped land
|
(12,347 | ) | (8,113 | ) | ||||
Net increase in escrow deposits
|
(16,500 | ) | | |||||
Decrease in restricted cash
|
112 | 1,096 | ||||||
Receipt of principal payments on note receivable
|
| 76 | ||||||
Net cash used in investing activities
|
(435,519 | ) | (414,108 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Net proceeds from issuance of common stock (Note 7)
|
221,015 | 299,847 | ||||||
Borrowings on unsecured line of credit
|
302,000 | 288,000 | ||||||
Repayments on unsecured line of credit
|
(216,000 | ) | (235,000 | ) | ||||
Principal payments on secured debt
|
(3,403 | ) | (100,104 | ) | ||||
Repurchase of exchangeable senior notes
|
| (151,097 | ) | |||||
Proceeds from issuance of secured debt (Note 5)
|
135,000 | 71,000 | ||||||
Proceeds from issuance of unsecured debt
|
| 247,870 | ||||||
Financing costs
|
(5,201 | ) | (4,643 | ) | ||||
Decrease in loan deposits
|
2,027 | 1,420 | ||||||
Repurchase of common stock and restricted stock units
|
(732 | ) | (2,121 | ) | ||||
Proceeds from exercise of stock options
|
395 | 83 | ||||||
Dividends and distributions paid to common stockholders and
common unitholders
|
(37,877 | ) | (31,392 | ) | ||||
Dividends and distributions paid to preferred stockholders and
preferred unitholders
|
(7,598 | ) | (7,598 | ) | ||||
Net cash provided by financing activities
|
389,626 | 376,265 | ||||||
Net increase in cash and cash equivalents
|
10,572 | 19,545 | ||||||
Cash and cash equivalents, beginning of period
|
14,840 | 9,883 | ||||||
Cash and cash equivalents, end of period
|
$ | 25,412 | $ | 29,428 | ||||
SUPPLEMENTAL CASH FLOWS INFORMATION:
|
||||||||
Cash paid for interest, net of capitalized interest of $3,327
and $4,055 as of June 30, 2011 and 2010, respectively
|
$ | 34,568 | $ | 18,634 | ||||
NONCASH INVESTING TRANSACTIONS:
|
||||||||
Accrual for expenditures for operating properties and
development and redevelopment properties
|
$ | 9,966 | $ | 11,378 | ||||
Tenant improvements funded directly by tenants to third parties
|
$ | 3,027 | $ | 1,946 | ||||
Assumption of secured debt with property acquisition
(Notes 2 and 5)
|
$ | 30,042 | $ | 51,079 | ||||
Assumption of other liabilities with property acquisitions
(Note 2)
|
$ | 4,438 | $ | 6,369 | ||||
NONCASH FINANCING TRANSACTIONS:
|
||||||||
Accrual of dividends and distributions payable to common
stockholders and common unitholders
|
$ | 21,064 | $ | 18,907 | ||||
Accrual of dividends and distributions payable to preferred
stockholders and preferred unitholders
|
$ | 1,909 | $ | 1,909 | ||||
Issuance of share-based compensation awards (Note 9)
|
$ | 7,216 | $ | 5,418 | ||||
Exchange of common units of the Operating Partnership into
shares of the Companys common stock
|
$ | 91 | $ | | ||||
8
ITEM 1: | FINANCIAL STATEMENTS OF KILROY REALTY, L.P. |
June 30, |
December 31, |
|||||||
2011 | 2010 | |||||||
(unaudited) | ||||||||
ASSETS
|
||||||||
REAL ESTATE ASSETS:
|
||||||||
Land and improvements (Note 2)
|
$ | 528,082 | $ | 491,333 | ||||
Buildings and improvements (Note 2)
|
2,820,766 | 2,435,173 | ||||||
Undeveloped land and construction in progress
|
303,998 | 290,365 | ||||||
Total real estate held for investment
|
3,652,846 | 3,216,871 | ||||||
Accumulated depreciation and amortization
|
(720,864 | ) | (672,429 | ) | ||||
Total real estate assets, net
|
2,931,982 | 2,544,442 | ||||||
CASH AND CASH EQUIVALENTS
|
25,412 | 14,840 | ||||||
RESTRICTED CASH
|
1,349 | 1,461 | ||||||
MARKETABLE SECURITIES (Note 12)
|
5,654 | 4,902 | ||||||
CURRENT RECEIVABLES, NET (Note 4)
|
4,732 | 6,258 | ||||||
DEFERRED RENT RECEIVABLES, NET (Note 4)
|
97,958 | 89,052 | ||||||
DEFERRED LEASING COSTS AND ACQUISITION-RELATED INTANGIBLE
ASSETS, NET (Notes 2 and 3)
|
153,231 | 131,066 | ||||||
DEFERRED FINANCING COSTS, NET (Note 5)
|
18,910 | 16,447 | ||||||
PREPAID EXPENSES AND OTHER ASSETS, NET
|
25,559 | 8,097 | ||||||
TOTAL ASSETS
|
$ | 3,264,787 | $ | 2,816,565 | ||||
LIABILITIES, NONCONTROLLING INTEREST AND CAPITAL | ||||||||
LIABILITIES:
|
||||||||
Secured debt, net (Notes 5 and 12)
|
$ | 475,820 | $ | 313,009 | ||||
Exchangeable senior notes, net (Notes 5 and 12)
|
303,374 | 299,964 | ||||||
Unsecured senior notes, net (Notes 5 and 12)
|
655,929 | 655,803 | ||||||
Unsecured line of credit (Notes 5 and 12)
|
245,000 | 159,000 | ||||||
Accounts payable, accrued expenses and other liabilities
|
66,664 | 68,525 | ||||||
Accrued distributions (Note 16)
|
22,563 | 20,385 | ||||||
Deferred revenue and acquisition-related intangible liabilities,
net (Note 3)
|
90,149 | 79,322 | ||||||
Rents received in advance and tenant security deposits
|
28,117 | 29,189 | ||||||
Total liabilities
|
1,887,616 | 1,625,197 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 11)
|
||||||||
7.45% SERIES A CUMULATIVE REDEEMABLE PREFERRED UNITS
|
73,638 | 73,638 | ||||||
CAPITAL:
|
||||||||
Partners Capital (Note 8):
|
||||||||
7.80% Series E Cumulative Redeemable Preferred units,
1,610,000 units issued and outstanding ($40,250 liquidation
preference)
|
38,425 | 38,425 | ||||||
7.50% Series F Cumulative Redeemable Preferred units,
3,450,000 units issued and outstanding ($86,250 liquidation
preference)
|
83,157 | 83,157 | ||||||
Common units, 58,464,412 and 52,349,670 held by the general
partner and 1,718,131 and 1,723,131 held by common limited
partners issued and outstanding, respectively
|
1,180,249 | 994,511 | ||||||
Total partners capital
|
1,301,831 | 1,116,093 | ||||||
Noncontrolling interest in consolidated subsidiaries
|
1,702 | 1,637 | ||||||
Total capital
|
1,303,533 | 1,117,730 | ||||||
TOTAL LIABILITIES, NONCONTROLLING INTEREST AND CAPITAL
|
$ | 3,264,787 | $ | 2,816,565 | ||||
9
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||
REVENUES:
|
||||||||||||||||||||||||
Rental income
|
$ | 83,452 | 65,038 | $ | 163,742 | $ | 125,694 | |||||||||||||||||
Tenant reimbursements
|
7,510 | 6,483 | 13,932 | 12,201 | ||||||||||||||||||||
Other property income
|
1,102 | 895 | 2,515 | 1,340 | ||||||||||||||||||||
Total revenues
|
92,064 | 72,416 | 180,189 | 139,235 | ||||||||||||||||||||
EXPENSES:
|
||||||||||||||||||||||||
Property expenses
|
17,583 | 14,543 | 35,272 | 26,563 | ||||||||||||||||||||
Real estate taxes
|
8,413 | 6,482 | 16,582 | 12,518 | ||||||||||||||||||||
Provision for bad debts
|
120 | (12 | ) | 146 | 14 | |||||||||||||||||||
Ground leases (Note 11)
|
424 | 370 | 763 | 312 | ||||||||||||||||||||
General and administrative expenses
|
7,440 | 6,728 | 14,000 | 13,823 | ||||||||||||||||||||
Acquisition-related expenses
|
1,194 | 957 | 1,666 | 1,270 | ||||||||||||||||||||
Depreciation and amortization
|
32,248 | 23,722 | 61,559 | 44,660 | ||||||||||||||||||||
Total expenses
|
67,422 | 52,790 | 129,988 | 99,160 | ||||||||||||||||||||
OTHER (EXPENSES) INCOME:
|
||||||||||||||||||||||||
Interest income and other net investment gains (losses)
(Note 12)
|
58 | (18 | ) | 242 | 366 | |||||||||||||||||||
Interest expense (Note 5)
|
(21,228 | ) | (13,088 | ) | (42,104 | ) | (25,044 | ) | ||||||||||||||||
Loss on early extinguishment of debt
|
| (4,564 | ) | | (4,564 | ) | ||||||||||||||||||
Total other (expenses) income
|
(21,170 | ) | (17,670 | ) | (41,862 | ) | (29,242 | ) | ||||||||||||||||
NET INCOME
|
3,472 | 1,956 | 8,339 | 10,833 | ||||||||||||||||||||
Net income attributable to noncontrolling interests in
consolidated subsidiaries
|
(32 | ) | (51 | ) | (65 | ) | (96 | ) | ||||||||||||||||
NET INCOME ATTRIBUTABLE TO KILROY REALTY, L.P.
|
3,440 | 1,905 | 8,274 | 10,737 | ||||||||||||||||||||
PREFERRED DISTRIBUTIONS
|
(3,799 | ) | (3,799 | ) | (7,598 | ) | (7,598 | ) | ||||||||||||||||
NET (LOSS) INCOME AVAILABLE TO COMMON UNITHOLDERS
|
$ | (359 | ) | $ | (1,894 | ) | $ | 676 | $ | 3,139 | ||||||||||||||
Net (loss) income available to common unitholders per unit-basic
(Note 15)
|
$ | (0.01 | ) | $ | (0.04 | ) | $ | 0.00 | $ | 0.05 | ||||||||||||||
Net (loss) income available to common unitholders per
unit-diluted (Note 15)
|
$ | (0.01 | ) | $ | (0.04 | ) | $ | 0.00 | $ | 0.05 | ||||||||||||||
Weighted average common units outstanding-basic (Note 15)
|
59,407,687 | 52,019,774 | 56,731,316 | 48,397,625 | ||||||||||||||||||||
Weighted average common units outstanding-diluted (Note 15)
|
59,407,687 | 52,019,774 | 57,107,280 | 48,400,981 | ||||||||||||||||||||
Distributions declared per common unit
|
$ | 0.35 | $ | 0.35 | $ | 0.70 | $ | 0.70 | ||||||||||||||||
10
Partners |
Noncontrolling |
|||||||||||||||||||||||
Capital |
Interests |
|||||||||||||||||||||||
Number of |
Total |
in |
||||||||||||||||||||||
Preferred |
Common |
Common |
Partners |
Consolidated |
Total |
|||||||||||||||||||
Units | Units | Units | Capital | Subsidiaries | Capital | |||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2009
|
$ | 121,582 | 44,871,893 | $ | 760,756 | $ | 882,338 | $ | 1,500 | $ | 883,838 | |||||||||||||
Net income
|
10,737 | 10,737 | 96 | 10,833 | ||||||||||||||||||||
Issuance of common units
|
9,200,000 | 299,847 | 299,847 | 299,847 | ||||||||||||||||||||
Issuance of share-based compensation awards
|
3,239 | 1,660 | 1,660 | 1,660 | ||||||||||||||||||||
Noncash amortization of share-based compensation
|
3,361 | 3,361 | 3,361 | |||||||||||||||||||||
Exercise of stock options
|
4,000 | 83 | 83 | 83 | ||||||||||||||||||||
Repurchase of common units and restricted stock units
|
(59,782 | ) | (2,121 | ) | (2,121 | ) | (2,121 | ) | ||||||||||||||||
Allocation to the equity component of cash paid upon repurchase
of 3.25% Exchangeable Notes
|
(2,694 | ) | (2,694 | ) | (2,694 | ) | ||||||||||||||||||
Other
|
20 | 20 | (20 | ) | | |||||||||||||||||||
Preferred distributions
|
(7,598 | ) | (7,598 | ) | (7,598 | ) | ||||||||||||||||||
Distributions declared per common unit ($0.70 per unit)
|
(35,143 | ) | (35,143 | ) | (35,143 | ) | ||||||||||||||||||
BALANCE AS OF JUNE 30, 2010
|
$ | 121,582 | 54,019,350 | $ | 1,028,908 | $ | 1,150,490 | $ | 1,576 | $ | 1,152,066 | |||||||||||||
Partners |
Noncontrolling |
|||||||||||||||||||||||
Capital |
Interests |
|||||||||||||||||||||||
Number of |
Total |
in |
||||||||||||||||||||||
Preferred |
Common |
Common |
Partners |
Consolidated |
Total |
|||||||||||||||||||
Units | Units | Units | Capital | Subsidiaries | Capital | |||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2010
|
$ | 121,582 | 54,072,801 | $ | 994,511 | $ | 1,116,093 | $ | 1,637 | $ | 1,117,730 | |||||||||||||
Net income
|
8,274 | 8,274 | 65 | 8,339 | ||||||||||||||||||||
Issuance of common units (Note 8)
|
6,037,500 | 221,015 | 221,015 | 221,015 | ||||||||||||||||||||
Issuance of share-based compensation awards (Note 9)
|
68,727 | 2,156 | 2,156 | 2,156 | ||||||||||||||||||||
Noncash amortization of share-based compensation
|
2,813 | 2,813 | 2,813 | |||||||||||||||||||||
Exercise of stock options
|
15,000 | 395 | 395 | 395 | ||||||||||||||||||||
Repurchase of common units and restricted stock units
(Note 9)
|
(11,485 | ) | (732 | ) | (732 | ) | (732 | ) | ||||||||||||||||
Preferred distributions
|
(7,598 | ) | (7,598 | ) | (7,598 | ) | ||||||||||||||||||
Distributions declared per common unit ($0.70 per unit)
|
(40,585 | ) | (40,585 | ) | (40,585 | ) | ||||||||||||||||||
BALANCE AS OF JUNE 30, 2011
|
$ | 121,582 | 60,182,543 | $ | 1,180,249 | $ | 1,301,831 | $ | 1,702 | $ | 1,303,533 | |||||||||||||
11
Six Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net income
|
$ | 8,339 | $ | 10,833 | ||||
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||
Depreciation and amortization of building and improvements and
leasing costs
|
61,029 | 44,229 | ||||||
Increase in provision for bad debts
|
146 | 14 | ||||||
Depreciation of furniture, fixtures and equipment
|
530 | 431 | ||||||
Noncash amortization of share-based compensation awards
|
2,239 | 3,519 | ||||||
Noncash amortization of deferred financing costs and debt
discounts and premiums
|
6,884 | 5,750 | ||||||
Noncash amortization of above/(below) market rents (Note 3)
|
1,398 | 32 | ||||||
Loss on early extinguishment of debt
|
| 4,564 | ||||||
Noncash amortization of deferred revenue related to
tenant-funded tenant improvements
|
(4,668 | ) | (4,775 | ) | ||||
Changes in operating assets and liabilities:
|
||||||||
Marketable securities
|
(752 | ) | (635 | ) | ||||
Current receivables
|
1,380 | 483 | ||||||
Deferred rent receivables
|
(8,906 | ) | (5,421 | ) | ||||
Other deferred leasing costs
|
398 | (2,594 | ) | |||||
Prepaid expenses and other assets
|
(3,519 | ) | (2,991 | ) | ||||
Accounts payable, accrued expenses and other liabilities
|
(6,384 | ) | (4,177 | ) | ||||
Deferred revenue
|
(577 | ) | 507 | |||||
Rents received in advance and tenant security deposits
|
(1,072 | ) | 7,619 | |||||
Net cash provided by operating activities
|
56,465 | 57,388 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Expenditures for acquisition of operating properties
(Note 2)
|
(378,554 | ) | (373,574 | ) | ||||
Expenditures for operating properties
|
(28,230 | ) | (33,593 | ) | ||||
Expenditures for development and redevelopment properties and
undeveloped land
|
(12,347 | ) | (8,113 | ) | ||||
Net increase in escrow deposits
|
(16,500 | ) | | |||||
Decrease in restricted cash
|
112 | 1,096 | ||||||
Receipt of principal payments on note receivable
|
| 76 | ||||||
Net cash used in investing activities
|
(435,519 | ) | (414,108 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Net proceeds from issuance of common units (Note 8)
|
221,015 | 299,847 | ||||||
Borrowings on unsecured line of credit
|
302,000 | 288,000 | ||||||
Repayments on unsecured line of credit
|
(216,000 | ) | (235,000 | ) | ||||
Principal payments on secured debt
|
(3,403 | ) | (100,104 | ) | ||||
Repurchase of exchangeable senior notes
|
| (151,097 | ) | |||||
Proceeds from issuance of secured debt (Note 5)
|
135,000 | 71,000 | ||||||
Proceeds from issuance of unsecured debt
|
| 247,870 | ||||||
Financing costs
|
(5,201 | ) | (4,643 | ) | ||||
Decrease in loan deposits
|
2,027 | 1,420 | ||||||
Repurchase of common units and restricted stock units
|
(732 | ) | (2,121 | ) | ||||
Proceeds from exercise of stock options
|
395 | 83 | ||||||
Distributions paid to common unitholders
|
(37,877 | ) | (31,392 | ) | ||||
Distributions paid to preferred unitholders
|
(7,598 | ) | (7,598 | ) | ||||
Net cash provided by financing activities
|
389,626 | 376,265 | ||||||
Net increase in cash and cash equivalents
|
10,572 | 19,545 | ||||||
Cash and cash equivalents, beginning of period
|
14,840 | 9,883 | ||||||
Cash and cash equivalents, end of period
|
$ | 25,412 | $ | 29,428 | ||||
SUPPLEMENTAL CASH FLOWS INFORMATION:
|
||||||||
Cash paid for interest, net of capitalized interest of $3,327
and $4,055 as of June 30, 2011 and 2010, respectively
|
$ | 34,568 | $ | 18,634 | ||||
NONCASH INVESTING TRANSACTIONS:
|
||||||||
Accrual for expenditures for operating properties and
development and redevelopment properties
|
$ | 9,966 | $ | 11,378 | ||||
Tenant improvements funded directly by tenants to third parties
|
$ | 3,027 | $ | 1,946 | ||||
Assumption of secured debt with property acquisitions
(Notes 2 and 5)
|
$ | 30,042 | $ | 51,079 | ||||
Assumption of other liabilities with property acquisitions
(Note 2)
|
$ | 4,438 | $ | 6,369 | ||||
NONCASH FINANCING TRANSACTIONS:
|
||||||||
Accrual of distributions payable to common unitholders
|
$ | 21,064 | 18,907 | |||||
Accrual of distributions payable to preferred unitholders
|
$ | 1,909 | $ | 1,909 | ||||
Issuance of share-based compensation awards (Note 9)
|
$ | 7,216 | $ | 5,418 | ||||
12
1. | Organization and Basis of Presentation |
Number of |
Rentable |
Number of |
||||||||||||||
Buildings | Square Feet | Tenants | Percentage Occupied | |||||||||||||
Office
Properties(1)
|
107 | 11,465,821 | 416 | 87.9 | % | |||||||||||
Industrial Properties
|
40 | 3,605,407 | 62 | 97.6 | % | |||||||||||
Total Stabilized Portfolio
|
147 | 15,071,228 | 478 | 90.2 | % | |||||||||||
(1) | Includes eight office properties acquired during the six months ended June 30, 2011 for a total amount of $413.0 million (see Note 2 for additional information). |
13
14
2. | Acquisitions |
Percentage |
||||||||||||||||||||
Occupied |
||||||||||||||||||||
Rentable |
as of |
Purchase |
||||||||||||||||||
Property |
Date of |
Number of |
Square |
June 30, |
Price |
|||||||||||||||
Property | Type | Acquisition | Buildings | Feet | 2011 | (in millions)(1) | ||||||||||||||
250 Brannan Street San Francisco, CA
|
Office | January 28, 2011 | 1 | 90,742 | 76.7 | % | $ | 33.0 | ||||||||||||
10210, 10220, and 10230 NE Points Drive; 3933 Lake Washington
Boulevard NE Kirkland,
WA(2)
|
Office | April 21, 2011 | 4 | 279,924 | 87.3 | % | 100.1 | |||||||||||||
10770 Wateridge Circle San Diego, CA
|
Office | May 12, 2011 | 1 | 174,310 | 97.5 | % | 32.7 | |||||||||||||
601 108th Avenue N.E.
Bellevue, WA |
Office | June 3, 2011 | 1 | 488,470 | 89.8 | % | 215.0 | |||||||||||||
4040 Civic Center Drive San Rafael, CA
|
Office | June 9, 2011 | 1 | 126,787 | 93.1 | % | 32.2 | |||||||||||||
Total
|
8 | 1,160,233 | $ | 413.0 | ||||||||||||||||
(1) | Excludes acquisition-related costs. | |
(2) | In connection with this acquisition, we assumed secured debt with an outstanding principal balance of $30.0 million and a premium of $1.0 million as a result of recording this debt at fair value on the acquisition date (see Note 5). |
15
601 108th Avenue |
All Other |
|||||||||||
N.E., Bellevue, WA(1) | Acquisitions(2) | Total | ||||||||||
(in thousands) | ||||||||||||
Assets
|
||||||||||||
Land(3)
|
$ | | $ | 36,740 | $ | 36,740 | ||||||
Buildings and
improvements(4)
|
214,095 | 143,545 | 357,640 | |||||||||
Undeveloped land
|
| 2,560 | 2,560 | |||||||||
Deferred leasing costs and acquisition-related intangible
assets(5)
|
13,790 | 17,500 | 31,290 | |||||||||
Total assets acquired
|
227,885 | 200,345 | 428,230 | |||||||||
Liabilities
|
||||||||||||
Deferred revenue and acquisition-related intangible
liabilities(6)
|
12,850 | 1,390 | 14,240 | |||||||||
Secured
debt(7)
|
| 30,997 | 30,997 | |||||||||
Accounts payable, accrued expenses and other liabilities
|
2,380 | 2,059 | 4,439 | |||||||||
Total liabilities assumed
|
15,230 | 34,446 | 49,676 | |||||||||
Net assets and liabilities
acquired(8)
|
$ | 212,655 | $ | 165,899 | $ | 378,554 | ||||||
(1) | The purchase of 601 108th Avenue N.E., Bellevue, WA, represents the largest acquisition and 52.1% of the total aggregate purchase price of the properties acquired during the six months ended June 30, 2011. | |
(2) | The purchase price of all other acquisitions completed during the six months ended June 30, 2011 were individually less than 5% and in aggregate less than 10% of the Companys total assets as of December 31, 2010. | |
(3) | In connection with the acquisition of 601 108th Avenue N.E., Bellevue, WA,, we assumed the lessee obligations under a noncancellable ground lease that is scheduled to expire in November 2093 (see Notes 3 and 11). | |
(4) | Represents buildings, building improvements, and tenant improvements. | |
(5) | Represents in-place leases (approximately $18.9 million with a weighted average amortization period of 4.1 years), above-market leases (approximately $6.6 million with a weighted average amortization period of 4.5 years), and unamortized leasing commissions (approximately $5.7 million with a weighted average amortization period of 2.8 years). | |
(6) | Represents below-market leases (approximately $9.0 million with a weighted average amortization period of 4.3 years) and an above-market ground lease obligation (approximately $5.2 million with a weighted average amortization period of 82.5 years), under which we are the lessee. | |
(7) | Represents the mortgage loan, which includes an unamortized premium of approximately $1.0 million, assumed in connection with the properties acquired in April 2011 (see Note 5). | |
(8) | Reflects the purchase price net of assumed secured debt and other lease-related obligations. |
16
3. | Deferred Leasing Costs and Acquisition-related Intangible Assets and Liabilities, net |
June 30, |
December 31, |
|||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Deferred Leasing Costs and Acquisition-related Intangible
Assets,
net(1):
|
||||||||
Deferred leasing costs
|
$ | 131,098 | $ | 128,980 | ||||
Accumulated amortization
|
(43,921 | ) | (45,869 | ) | ||||
Deferred leasing costs, net
|
87,177 | 83,111 | ||||||
Above-market leases
|
27,922 | 21,321 | ||||||
Accumulated amortization
|
(4,747 | ) | (2,163 | ) | ||||
Above-market leases, net
|
23,175 | 19,158 | ||||||
In-place leases
|
50,915 | 36,964 | ||||||
Accumulated amortization
|
(8,036 | ) | (8,167 | ) | ||||
In-place leases, net
|
42,879 | 28,797 | ||||||
Total deferred leasing costs and acquisition-related intangible
assets, net
|
$ | 153,231 | $ | 131,066 | ||||
Acquisition-related Intangible Liabilities,
net(1)(2):
|
||||||||
Below-market leases
|
$ | 27,152 | $ | 21,938 | ||||
Accumulated amortization
|
(2,462 | ) | (5,094 | ) | ||||
Below-market leases, net
|
24,690 | 16,844 | ||||||
Above-market ground lease obligation
|
5,200 | | ||||||
Accumulated amortization
|
(5 | ) | | |||||
Above-market ground lease obligation, net
|
5,195 | | ||||||
Total acquisition-related intangible liabilities, net
|
$ | 29,885 | $ | 16,844 | ||||
(1) | Balances and accumulated amortization amounts at June 30, 2011 reflect the write-off of the following fully amortized amounts at January 1, 2011: deferred leasing costs (approximately $10.4 million), in-place leases (approximately $5.0 million), and below-market leases (approximately $3.8 million). Our accounting policy is to write-off the asset and corresponding accumulated amortization for fully amortized balances on January 1st of each fiscal year. | |
(2) | Included in deferred revenue and acquisition-related intangible liabilities, net in the consolidated balance sheets. |
17
Three Months Ended |
||||||||||||||||
June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | ||||||||||||||||
Deferred leasing
costs(1)
|
$ | 3,970 | $ | 2,968 | $ | 7,738 | $ | 5,673 | ||||||||
Net above-market
leases(2)
|
745 | 60 | 1,398 | 32 | ||||||||||||
In-place
leases(1)
|
2,686 | 267 | 4,859 | 285 | ||||||||||||
Above-market ground lease
obligation(3)
|
5 | | 5 | | ||||||||||||
Total
|
$ | 7,406 | $ | 3,295 | $ | 14,000 | $ | 5,990 | ||||||||
(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 net above-market leases is recorded as a decrease to rental income in the consolidated statements of operations for the periods presented. | |
(3) | 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. |
Above-Market |
||||||||||||||||
Deferred Leasing |
Net Above-/(Below)- |
In-Place |
Ground Lease |
|||||||||||||
Year Ending | Costs | Market Leases(1) | Leases | Obligation | ||||||||||||
(in thousands) | ||||||||||||||||
Remaining 2011
|
$ | 8,946 | $ | 706 | $ | 6,165 | $ | 32 | ||||||||
2012
|
16,558 | 1,303 | 10,766 | 63 | ||||||||||||
2013
|
14,751 | 1,062 | 8,682 | 63 | ||||||||||||
2014
|
13,042 | 324 | 6,922 | 63 | ||||||||||||
2015
|
9,859 | (220 | ) | 3,991 | 63 | |||||||||||
Thereafter
|
24,021 | (4,690 | ) | 6,353 | 4,911 | |||||||||||
Total
|
$ | 87,177 | $ | (1,515 | ) | $ | 42,879 | $ | 5,195 | |||||||
(1) | Represents estimated annual net amortization related to above-/(below)-market leases. Amounts shown for 2011-2014 represent net above-market leases which will be recorded as a decrease to rental income in the consolidated statement of operations, and amounts shown for the periods 2015 and thereafter represent net below-market leases which will be recorded as an increase to rental income in the consolidated statement of operations. |
18
4. | Receivables |
June 30, |
December 31, |
|||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Current receivables
|
$ | 7,655 | $ | 9,077 | ||||
Allowance for uncollectible tenant receivables
|
(2,923 | ) | (2,819 | ) | ||||
Current receivables, net
|
$ | 4,732 | $ | 6,258 | ||||
June 30, |
December 31, |
|||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Deferred rent receivables
|
$ | 101,780 | $ | 92,883 | ||||
Allowance for deferred rent receivables
|
(3,822 | ) | (3,831 | ) | ||||
Deferred rent receivables, net
|
$ | 97,958 | $ | 89,052 | ||||
5. | Secured and Unsecured Debt of the Operating Partnership |
19
3.25% Exchangeable Notes | 4.25% Exchangeable Notes | |||||||||||||||
June 30, |
December 31, |
June 30, |
December 31, |
|||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | ||||||||||||||||
Principal amount
|
$ | 148,000 | $ | 148,000 | $ | 172,500 | $ | 172,500 | ||||||||
Unamortized discount
|
(2,485 | ) | (4,004 | ) | (14,641 | ) | (16,532 | ) | ||||||||
Net carrying amount of liability component
|
$ | 145,515 | $ | 143,996 | $ | 157,859 | $ | 155,968 | ||||||||
Carrying amount of equity component
|
$33,675 | $19,835 | ||||||||||||||
Maturity date
|
April 2012 | November 2014 | ||||||||||||||
Stated coupon rate
|
3.25%(1) | 4.25%(2) | ||||||||||||||
Effective interest
rate(3)
|
5.45% | 7.13% | ||||||||||||||
Exchange rate per $1,000 principal value of the Exchangeable
Notes, as
adjusted(4)
|
11.3636 | 27.8307 | ||||||||||||||
Exchange price, as
adjusted(4)
|
$88.00 | $35.93 | ||||||||||||||
Number of shares on which the aggregate consideration to be
delivered on conversion is
determined(4)
|
1,681,813 | 4,800,796 |
(1) | Interest on the 3.25% Exchangeable Notes is payable semi-annually in arrears on April 15th and October 15th of each year. | |
(2) | Interest on the 4.25% Exchangeable Notes is payable semi-annually in arrears on May 15th and November 15th of each year. | |
(3) | The rate at which we record interest expense for financial reporting purposes, which reflects the amortization of the discounts on the Exchangeable Notes. This rate represents our conventional debt borrowing rate at the date of issuance. | |
(4) | 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. |
3.25% Exchangeable Notes(1) | 4.25% Exchangeable Notes(2) | |||||||
Referenced shares of common stock
|
1,121,201 | 4,800,796 | ||||||
Exchange price including effect of capped calls
|
$102.72 | $42.81 |
(1) | The capped calls mitigate the dilutive impact to us of the potential exchange of two-thirds of the 3.25% Exchangeable Notes into shares of common stock. | |
(2) | The capped calls mitigate the dilutive impact to us of the potential exchange of all of the 4.25% Exchangeable Notes into shares of common stock. |
Three Months Ended |
Six Months Ended |
|||||||
June 30, 2011 | June 30, 2011 | |||||||
Average Trading Price of the Companys Stock
|
$ | 39.90 | $ | 38.94 |
20
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | ||||||||||||||||
Contractual interest payments
|
$ | 3,035 | $ | 4,241 | $ | 6,070 | $ | 8,495 | ||||||||
Amortization of discount
|
1,722 | 2,372 | 3,410 | 4,679 | ||||||||||||
Interest expense attributable to the Exchangeable Notes
|
$ | 4,757 | $ | 6,613 | $ | 9,480 | $ | 13,174 | ||||||||
June 30, |
December 31, |
|||||||
2011 | 2010 | |||||||
(in thousands) | ||||||||
Outstanding borrowings
|
$ | 245,000 | $ | 159,000 | ||||
Remaining borrowing capacity
|
255,000 | 341,000 | ||||||
Total borrowing
capacity(1)
|
$ | 500,000 | $ | 500,000 | ||||
Interest
rate(2)
|
2.87% | 2.99% | ||||||
Facility fee-annual
rate(3)
|
0.350% | 0.575% | ||||||
Maturity
date(4)
|
August 2015 | August 2013 |
(1) | We may elect to borrow, subject to lender approval, up to an additional $200 million under an accordion feature under the terms of the Credit Facility. | |
(2) | The Credit Facility interest rate included interest at an annual rate of LIBOR plus 1.750% and 2.675% as of June 30, 2011 and December 31, 2010, respectively. | |
(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, we also incurred debt origination and legal costs of approximately $5.0 million when we entered into the Credit Facility in 2010 and an additional $3.3 million when we amended the Credit Facility in 2011. The unamortized balance of these costs will be amortized as additional interest expense over the extended term of the Credit Facility. | |
(4) | Under the terms of the Credit Facility, we may exercise an option to extend the maturity date by one year. |
21
Year Ending | (in thousands) | |||
Remaining 2011
|
$ | 72,262 | ||
2012
|
305,303 | |||
2013
|
6,373 | |||
2014
|
262,443 | |||
2015
|
602,382 | |||
Thereafter
|
450,028 | |||
Total
|
$ | 1,698,791 | (1) | |
(1) | Includes gross principal balance of outstanding debt before impact of all debt discounts and premiums. |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | ||||||||||||||||
Gross interest expense
|
$ | 23,293 | $ | 15,897 | $ | 46,148 | $ | 30,437 | ||||||||
Capitalized interest
|
(2,065 | ) | (2,809 | ) | (4,044 | ) | (5,393 | ) | ||||||||
Interest expense
|
$ | 21,228 | $ | 13,088 | $ | 42,104 | $ | 25,044 | ||||||||
6. | Noncontrolling Interests on the Companys Consolidated Financial Statements |
22
7. | Stockholders Equity of the Company |
8. | Partners Capital of the Operating Partnership |
9. | Share-Based Compensation |
23
Weighted- |
||||||||
Average |
||||||||
Grant Date |
||||||||
Fair Value |
||||||||
Nonvested Shares | Shares | Per Share | ||||||
Outstanding at January 1, 2011
|
50,032 | $ | 58.40 | |||||
Granted
|
68,727 | 37.83 | ||||||
Vested(1)
|
(9,474 | ) | 56.76 | |||||
Outstanding as of June 30, 2011
|
109,285 | $ | 45.61 | |||||
(1) | The total shares vested include 2,198 shares that were then tendered to satisfy minimum statutory tax withholding requirements related to the restricted shares that have vested in accordance with the terms of the 2006 Plan. We accept the return of shares at the current quoted market price of the Companys common stock to satisfy tax obligations. |
Shares Granted | Shares Vested | |||||||||||||||
Weighted-Average |
||||||||||||||||
Grant Date |
Total Vest Date |
|||||||||||||||
Non-Vested Shares |
Fair Value |
Fair
Value(1) |
||||||||||||||
Six Months Ended June 30, | Issued | Per Share | Vested Shares | (in thousands) | ||||||||||||
2011
|
68,727 | $ | 37.83 | (9,474 | ) | $ | 370 | |||||||||
2010
|
3,239 | 30.88 | (16,358 | ) | 474 |
(1) | Total fair value of shares vested was calculated based on the quoted closing share price of the Companys common stock on the NYSE on the day of vesting. |
Nonvested RSUs | ||||||||||||||||
Weighted-Average |
||||||||||||||||
Grant Date |
||||||||||||||||
Fair Value |
||||||||||||||||
Amount | Per Share | Vested RSUs | Total RSUs | |||||||||||||
Outstanding at January 1, 2011
|
125,754 | $ | 29.88 | 588,068 | 713,822 | |||||||||||
Granted
|
107,673 | 37.94 | | 107,673 | ||||||||||||
Vested
|
(23,035 | ) | 30.57 | 23,035 | | |||||||||||
Issuance of dividend
equivalents(1)
|
13,494 | 13,494 | ||||||||||||||
Canceled(2)
|
(8,448 | ) | (8,448 | ) | ||||||||||||
Outstanding as of June 30, 2011
|
210,392 | $ | 33.93 | 616,149 | 826,541 | |||||||||||
(1) | RSUs issued as dividend equivalents are vested upon issuance. | |
(2) | We accept the return of RSUs, at the current quoted market price of the Companys common stock, to satisfy minimum statutory tax-withholding requirements related to either RSUs that have vested or RSU dividend equivalents in accordance with the terms of the 2006 Plan. |
24
RSUs Granted | RSUs Vested | |||||||||||||||
Weighted-Average |
||||||||||||||||
Grant Date |
Total Vest-Date |
|||||||||||||||
Non-Vested RSUs |
Fair Value |
Fair
Value(1) |
||||||||||||||
Six Months Ended June 30, | Issued | Per Share | Vested RSUs | (in thousands) | ||||||||||||
2011
|
107,673 | $ | 37.94 | 23,035 | $ | 897 | ||||||||||
2010
|
159,606 | 30.24 | 23,564 | 740 |
(1) | Total fair value of RSUs vested was calculated based on the quoted closing share price of the Companys common stock on the NYSE on the day of vesting. |
10. | Future Minimum Rent |
Year Ending | (in thousands) | |||
Remaining 2011
|
$ | 153,705 | ||
2012
|
313,019 | |||
2013
|
293,621 | |||
2014
|
263,342 | |||
2015
|
210,150 | |||
Thereafter
|
658,754 | |||
Total
|
$ | 1,892,591 | ||
11. | Commitments and Contingencies |
25
Year Ending | (in thousands) | |||
Remaining 2011
|
$ | 1,041 | ||
2012
|
1,926 | |||
2013
|
1,926 | |||
2014
|
1,870 | |||
2015
|
1,830 | |||
Thereafter(1)(2)
|
133,212 | |||
Total
|
$ | 141,805 | ||
(1) | One of our ground lease obligations is subject to a fair market value adjustment every five years; however, the lease includes ground rent subprotection and infrastructure rent credits which currently limit our annual rental obligations to $1.0 million. The contractual obligations for that ground lease included above assumes the lesser of $1.0 million or annual lease rental obligation in effect as of June 30, 2011. | |
(2) | One of our ground lease obligations includes a component which is based on the percentage of gross income that exceeds the minimum ground rent. The minimum rent is subject to increases every five years based on 50% of the average annual percentage rent for the previous five years. Currently gross income does not exceed the threshold requiring us to pay percentage rent. The contractual obligations for that ground lease included above assumes the annual lease rental obligation in effect as of June 30, 2011. |
12. | Fair Value Measurements and Disclosures |
Fair Value (Level 1)(1) | ||||||||
Description | June 30, 2011 | December 31, 2010 | ||||||
(in thousands) | ||||||||
Marketable
securities(2)
|
$ | 5,654 | $ | 4,902 | ||||
Deferred compensation plan
liability(3)
|
$ | 5,560 | $ | 4,809 |
(1) | Based on quoted prices in active markets for identical securities. | |
(2) | The marketable securities are held in a limited rabbi trust. | |
(3) | The deferred compensation liability is reported on our consolidated balance sheets in accounts payable, accrued expenses, and other liabilities. |
26
Three Months Ended | Six Months Ended | |||||||||||||||
Description | June 30, 2011 | June 30, 2010 | June 30, 2011 | June 30, 2010 | ||||||||||||
(in thousands) | ||||||||||||||||
Other net investments gains (losses)
|
$ | 26 | $ | (322 | ) | $ | 213 | $ | (121 | ) | ||||||
Compensation cost
|
(26 | ) | 359 | (213 | ) | 158 |
June 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying |
Fair |
Carrying |
Fair |
|||||||||||||
Description | Value | Value | Value | Value | ||||||||||||
(in thousands) | ||||||||||||||||
Liabilities
|
||||||||||||||||
Secured debt
|
$ | 475,820 | $ | 493,185 | $ | 313,009 | $ | 329,456 | ||||||||
Exchangeable notes
|
303,374 | 324,322 | 299,964 | 312,598 | ||||||||||||
Unsecured senior notes
|
655,929 | 705,220 | 655,803 | 661,644 | ||||||||||||
Credit Facility
|
245,000 | 244,757 | 159,000 | 159,659 |
27
13. | Segment Disclosure |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands) | ||||||||||||||||
Reportable SegmentOffice Properties
|
||||||||||||||||
Operating
revenues(1)
|
$ | 84,560 | $ | 64,718 | $ | 165,379 | $ | 124,321 | ||||||||
Property and related expenses
|
24,729 | 19,503 | 47,639 | 35,757 | ||||||||||||
Net Operating Income
|
59,831 | 45,215 | 117,740 | 88,564 | ||||||||||||
Non-Reportable SegmentIndustrial Properties
|
||||||||||||||||
Operating
revenues(1)
|
7,504 | 7,698 | 14,810 | 14,914 | ||||||||||||
Property and related expenses
|
1,811 | 1,880 | 5,124 | 3,650 | ||||||||||||
Net Operating Income
|
5,693 | 5,818 | 9,686 | 11,264 | ||||||||||||
Total Segments:
|
||||||||||||||||
Operating
revenues(1)
|
92,064 | 72,416 | 180,189 | 139,235 | ||||||||||||
Property and related expenses
|
26,540 | 21,383 | 52,763 | 39,407 | ||||||||||||
Net Operating Income
|
$ | 65,524 | $ | 51,033 | $ | 127,426 | $ | 99,828 | ||||||||
Reconciliation to Consolidated Net Income:
|
||||||||||||||||
Total Net Operating Income for segments
|
$ | 65,524 | $ | 51,033 | $ | 127,426 | $ | 99,828 | ||||||||
Unallocated (expenses) income:
|
||||||||||||||||
General and administrative expenses
|
(7,440 | ) | (6,728 | ) | (14,000 | ) | (13,823 | ) | ||||||||
Acquisition-related expenses
|
(1,194 | ) | (957 | ) | (1,666 | ) | (1,270 | ) | ||||||||
Depreciation and amortization
|
(32,248 | ) | (23,722 | ) | (61,559 | ) | (44,660 | ) | ||||||||
Interest income and other net investment gains (losses)
|
58 | (18 | ) | 242 | 366 | |||||||||||
Interest expense
|
(21,228 | ) | (13,088 | ) | (42,104 | ) | (25,044 | ) | ||||||||
Loss on early extinguishment of debt
|
| (4,564 | ) | | (4,564 | ) | ||||||||||
Net income
|
$ | 3,472 | $ | 1,956 | $ | 8,339 | $ | 10,833 | ||||||||
(1) | All operating revenues are comprised of amounts received from third-party tenants. |
28
June 30, 2011 | December 31, 2010 | |||||||
(in thousands) | ||||||||
Assets:
|
||||||||
Reportable Segment Office Properties
|
||||||||
Land, buildings, and improvements, net
|
$ | 2,481,829 | $ | 2,108,019 | ||||
Undeveloped land and construction in progress
|
303,998 | 290,365 | ||||||
Total
assets(1)
|
3,027,731 | 2,611,206 | ||||||
Non-Reportable Segment Industrial Properties
|
||||||||
Land, buildings, and improvements, net
|
146,155 | 146,058 | ||||||
Total
assets(1)
|
160,172 | 159,612 | ||||||
Total Segments
|
||||||||
Land, buildings, and improvements, net
|
2,627,984 | 2,254,077 | ||||||
Undeveloped land and construction in progress
|
303,998 | 290,365 | ||||||
Total
assets(1)
|
3,187,903 | 2,770,818 | ||||||
Reconciliation to Consolidated Assets:
|
||||||||
Total assets allocated to segments
|
$ | 3,187,903 | $ | 2,770,818 | ||||
Other unallocated assets:
|
||||||||
Cash and cash equivalents
|
25,412 | 14,840 | ||||||
Restricted cash
|
1,349 | 1,461 | ||||||
Marketable securities
|
5,654 | 4,902 | ||||||
Deferred financing costs, net
|
18,910 | 16,447 | ||||||
Prepaid expenses and other assets, net
|
25,559 | 8,097 | ||||||
Total consolidated assets
|
$ | 3,264,787 | $ | 2,816,565 | ||||
(1) | Includes land, buildings, and improvements, undeveloped land and construction in progress, current receivables, deferred rent receivables deferred leasing costs, and acquisition-related intangible assets, all shown on a net basis. |
29
14. | Net (Loss) Income Available to Common Stockholders Per Share of the Company |
Three Months Ended |
Six Months Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands, except share and per share amounts) | ||||||||||||||||
Numerator:
|
||||||||||||||||
Net income attributable to Kilroy Realty Corporation
|
$ | 3,482 | $ | 2,016 | $ | 8,315 | $ | 10,701 | ||||||||
Preferred distributions and dividends
|
(3,799 | ) | (3,799 | ) | (7,598 | ) | (7,598 | ) | ||||||||
Net (loss) income available to common stockholders
|
(317 | ) | (1,783 | ) | 717 | 3,103 | ||||||||||
Allocation to participating securities (nonvested shares and
RSUs)
|
(327 | ) | (305 | ) | (649 | ) | (604 | ) | ||||||||
Numerator for basic and diluted net (loss) income available to
common stockholders
|
$ | (644 | ) | $ | (2,088 | ) | $ | 68 | $ | 2,499 | ||||||
Denominator:
|
||||||||||||||||
Basic weighted average vested shares outstanding
|
57,685,710 | 50,296,643 | 55,008,765 | 46,674,494 | ||||||||||||
Effect of dilutive securities- Exchangeable Notes and stock
options
|
| | 375,964 | 3,356 | ||||||||||||
Diluted weighted average vested shares and common share
equivalents outstanding
|
57,685,710 | 50,296,643 | 55,384,729 | 46,677,850 | ||||||||||||
Basic earnings per share:
|
||||||||||||||||
Net (loss) income available to common stockholders per share
|
$ | (0.01 | ) | $ | (0.04 | ) | $ | 0.00 | $ | 0.05 | ||||||
Diluted earnings per share:
|
||||||||||||||||
Net (loss) income available to common stockholders per share
|
$ | (0.01 | ) | $ | (0.04 | ) | $ | 0.00 | $ | 0.05 |
30
15. | Net (Loss) Income Available to Common Unitholders Per Unit of the Operating Partnership |
Three Months Ended |
Six Months Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands, except unit and per unit amounts) | ||||||||||||||||
Numerator:
|
||||||||||||||||
Net income attributable to Kilroy Realty, L.P.
|
$ | 3,440 | $ | 1,905 | $ | 8,274 | $ | 10,737 | ||||||||
Preferred distributions
|
(3,799 | ) | (3,799 | ) | (7,598 | ) | (7,598 | ) | ||||||||
Net (loss) income available to common unitholders
|
(359 | ) | (1,894 | ) | 676 | 3,139 | ||||||||||
Allocation to participating securities (nonvested units and RSUs)
|
(327 | ) | (305 | ) | (649 | ) | (604 | ) | ||||||||
Numerator for basic and diluted net (loss) income available to
common unitholders
|
$ | (686 | ) | $ | (2,199 | ) | $ | 27 | $ | 2,535 | ||||||
Denominator:
|
||||||||||||||||
Basic weighted average vested units outstanding
|
59,407,687 | 52,019,774 | 56,731,316 | 48,397,625 | ||||||||||||
Effect of dilutive securities-Exchangeable Notes and stock
options
|
| | 375,964 | 3,356 | ||||||||||||
Diluted weighted average vested units and common unit
equivalents outstanding
|
59,407,687 | 52,019,774 | 57,107,280 | 48,400,981 | ||||||||||||
Basic earnings per unit:
|
||||||||||||||||
Net (loss) income available to common unitholders per unit
|
$ | (0.01 | ) | $ | (0.04 | ) | $ | 0.00 | $ | 0.05 | ||||||
Diluted earnings per unit:
|
||||||||||||||||
Net (loss) income available to common unitholders per unit
|
$ | (0.01 | ) | $ | (0.04 | ) | $ | 0.00 | $ | 0.05 |
16. | Subsequent Events |
31
17. | Pro Forma Results of the Company |
Three Months
Ended(1) |
Six Months
Ended(1) |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands except per share amounts) | ||||||||||||||||
Revenues
|
$ | 95,050 | $ | 76,981 | $ | 187,478 | $ | 148,282 | ||||||||
Net (loss) income available to common
stockholders(2)(3)
|
$ | (585 | ) | $ | (1,544 | ) | $ | (645 | ) | $ | 3,876 | |||||
Net (loss) income available to common stockholders per
sharebasic(2)(3)
|
$ | (0.02 | ) | $ | (0.04 | ) | $ | (0.02 | ) | $ | 0.07 | |||||
Net (loss) income available to common stockholders per
sharediluted(2)(3)
|
$ | (0.02 | ) | $ | (0.04 | ) | $ | (0.02 | ) | $ | 0.07 |
(1) | The purchase of 601 108th Avenue N.E., Bellevue, WA, represents the largest acquisition and 52.1% of the total aggregate purchase price of the properties acquired during the six months ended June 30, 2011. | |
(2) | The pro forma earnings for the three and six months ended June 30, 2011 were adjusted to exclude non-recurring, acquisition-related expenses of $0.3 million incurred in 2011 for 601 108th Avenue N.E., Bellevue, WA. The pro forma data for the three and six months ended June 30, 2010 were adjusted to include these charges. | |
(3) | The pro forma earnings for all periods presented includes incremental interest expense associated with the pro forma borrowings under the Credit Facility. The pro forma interest expense estimate is calculated based on the applicable interest rate. Actual funding of the acquisition may be from different sources and the pro forma borrowing and related pro forma interest expense estimate assumed herein are not indicative of actual results. |
(in thousands) | ||||
Revenues
|
$ | 1,425 | ||
Net
income(1)
|
7 |
(1) | Reflects the net operating income less depreciation for this property and amortization of acquisition-related intangibles. |
32
18. | Pro Forma Results of the Operating Partnership |
Three Months
Ended(1) |
Six Months
Ended(1) |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in thousands except per share amounts) | ||||||||||||||||
Revenues
|
$ | 95,050 | $ | 76,981 | $ | 187,478 | $ | 148,282 | ||||||||
Net (loss) income available to common
unitholders(2)(3)
|
$ | (632 | ) | $ | (1,650 | ) | $ | (713 | ) | $ | 3,932 | |||||
Net (loss) income available to common unitholders per
unitbasic(2)(3)
|
$ | (0.02 | ) | $ | (0.04 | ) | $ | (0.02 | ) | $ | 0.07 | |||||
Net (loss) income available to common unitholders per
unitdiluted(2)(3)
|
$ | (0.02 | ) | $ | (0.04 | ) | $ | (0.02 | ) | $ | 0.07 |
(1) | The purchase of 601 108th Avenue N.E., Bellevue, WA, represents the largest acquisition and 52.1% of the total aggregate purchase price of the properties acquired during the six months ended June 30, 2011. | |
(2) | The pro forma earnings for the three and six months ended June 30, 2011 were adjusted to exclude non-recurring, acquisition-related expenses of $0.3 million incurred in 2011 for 601 108th Avenue N.E., Bellevue, WA. The pro forma data for the three and six months ended June 30, 2010 were adjusted to include these charges. | |
(3) | The pro forma earnings for all periods presented includes incremental interest expense associated with the pro forma borrowings under the Credit Facility. The pro forma interest expense estimate is calculated based on the applicable interest rate. Actual funding of the acquisition may be from different sources and the pro forma borrowing and related pro forma interest expense estimate assumed herein are not indicative of actual results. |
(in thousands) | ||||
Revenues
|
$ | 1,425 | ||
Net
income(1)
|
7 |
(1) | Reflects the net operating income less depreciation for this property and amortization of acquisition-related intangibles. |
33
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
34
2nd Generation(1) | ||||||||||||||||||||||||||||||||
1st & 2nd Generation(1) |
Weighted |
|||||||||||||||||||||||||||||||
Number of |
Rentable |
Changes |
Average |
|||||||||||||||||||||||||||||
Leases(2) | Square Feet(2) |
Changes in |
in Cash |
Retention |
Lease Term |
|||||||||||||||||||||||||||
New | Renewal | New | Renewal | Rents(3) | Rents(4) | Rates(5) | (in months) | |||||||||||||||||||||||||
Office Properties
|
22 | 7 | 199,540 | 45,373 | 1.1 | % | (6.6 | )% | 11.6 | % | 47 | |||||||||||||||||||||
Industrial Properties
|
3 | 1 | 60,481 | 54,795 | (23.8 | )% | (31.7 | )% | 100.0 | % | 81 | |||||||||||||||||||||
Total portfolio
|
25 | 8 | 260,021 | 100,168 | (4.2 | )% | (11.8 | )% | 22.4 | % | 64 | |||||||||||||||||||||
2nd Generation(1) | ||||||||||||||||||||||||||||||||
1st & 2nd Generation(1) |
Weighted |
|||||||||||||||||||||||||||||||
Number of |
Rentable |
Changes |
Average |
|||||||||||||||||||||||||||||
Leases(2) | Square Feet(2) |
Changes in |
in Cash |
Retention |
Lease Term |
|||||||||||||||||||||||||||
New | Renewal | New | Renewal | Rents(3) | Rents(4) | Rates(5) | (in months) | |||||||||||||||||||||||||
Office Properties
|
37 | 17 | 367,449 | 119,329 | (12.0 | )% | (17.1 | )% | 23.6 | % | 55 | |||||||||||||||||||||
Industrial Properties
|
5 | 2 | 145,270 | 91,766 | (17.4 | )% | (23.6 | )% | 93.9 | % | 84 | |||||||||||||||||||||
Total portfolio
|
42 | 19 | 512,719 | 211,095 | (12.7 | )% | (17.9 | )% | 35.0 | % | 68 | |||||||||||||||||||||
(1) | First generation leasing includes space where we have made capital expenditures that result in additional revenue generated when the space is re-leased. Second generation leasing includes space where we have made capital expenditures to maintain the current market revenue stream. | |
(2) | Represents leasing activity for leases that commenced during the period, including first and second generation space, net of month-to-month leases. Excludes development and redevelopment leasing. | |
(3) | Calculated as the change between GAAP rents for new/renewed leases and the expiring GAAP rents for the same space. Excludes leases for which the space was vacant longer than one year, or vacant when the property was acquired. | |
(4) | Calculated as the change between stated rents for new/renewed leases and the expiring stated rents for the same space. Excludes leases for which the space was vacant longer than one year, or vacant when the property was acquired. | |
(5) | Calculated as the percentage of space either renewed or expanded into by existing tenants or subtenants at lease expiration. |
35
Percentage of |
||||||||||||||||||||||||
Net Rentable |
Percentage of |
Annualized |
Average Annualized |
|||||||||||||||||||||
Area |
Leased |
Annualized Base |
Base Rental |
Base Rental |
||||||||||||||||||||
Subject |
Square Feet |
Rental Revenue |
Revenue |
Revenue Per |
||||||||||||||||||||
Number of |
to Expiring |
Represented by |
Under |
Represented |
Square Foot Under |
|||||||||||||||||||
Expiring |
Leases |
Expiring |
Expiring Leases |
by Expiring |
Expiring Leases |
|||||||||||||||||||
Year of Lease Expiration | Leases | (Sq. Ft.) | Leases | (000s)(2) | Leases(2) | (000s)(2) | ||||||||||||||||||
Office Properties:
|
||||||||||||||||||||||||
Remainder of 2011
|
21 | 131,454 | 1.0 | % | $ | 3,355 | 1.0 | % | $ | 25.52 | ||||||||||||||
2012
|
83 | 847,738 | 6.3 | % | 23,085 | 7.0 | % | 27.23 | ||||||||||||||||
2013
|
84 | 1,085,761 | 8.1 | % | 30,575 | 9.3 | % | 28.16 | ||||||||||||||||
2014
|
78 | 1,331,446 | 9.9 | % | 35,427 | 10.8 | % | 26.61 | ||||||||||||||||
2015
|
112 | 1,901,249 | 14.2 | % | 58,942 | 17.9 | % | 31.00 | ||||||||||||||||
2016
|
48 | 584,546 | 4.4 | % | 14,500 | 4.4 | % | 24.81 | ||||||||||||||||
Total Office
|
426 | 5,882,194 | 43.9 | % | 165,884 | 50.4 | % | $ | 28.20 | |||||||||||||||
Industrial Properties:
|
||||||||||||||||||||||||
Remainder of 2011
|
1 | 78,605 | 0.6 | % | 733 | 0.2 | % | $ | 9.33 | |||||||||||||||
2012
|
11 | 452,557 | 3.4 | % | 2,647 | 0.8 | % | 5.85 | ||||||||||||||||
2013
|
9 | 628,386 | 4.7 | % | 4,671 | 1.4 | % | 7.43 | ||||||||||||||||
2014
|
17 | 568,386 | 4.2 | % | 4,528 | 1.4 | % | 7.97 | ||||||||||||||||
2015
|
10 | 544,864 | 4.1 | % | 3,839 | 1.2 | % | 7.05 | ||||||||||||||||
2016
|
5 | 317,198 | 2.4 | % | 3,695 | 1.1 | % | 11.65 | ||||||||||||||||
Total Industrial
|
53 | 2,589,996 | 19.4 | % | 20,113 | 6.1 | % | $ | 7.77 | |||||||||||||||
Total
|
479 | 8,472,190 | 63.3 | % | $ | 185,997 | 56.5 | % | $ | 21.95 | ||||||||||||||
(1) | The information presented reflects leasing activity through June 30, 2011. For leases that have been renewed early or space that has been re-leased to a new tenant, the expiration date and annualized base rent information presented takes into consideration the renewed or re-leased lease terms. Excludes space leased under month-to-month leases and vacant space as of June 30, 2011. | |
(2) | Reflects annualized contractual base rent calculated on a straight-line basis in accordance with GAAP excluding the amortization of deferred revenue related to tenant-funded tenant improvements and expense reimbursement revenue. Additionally, the underlying leases contain various expense structures including full service gross, modified gross and triple net. Amounts represent percentage of total portfolio annualized contractual base rental revenue. |
36
37
38
Office Properties | Industrial Properties | Total | ||||||||||||||||||||||
Number of |
Rentable |
Number of |
Rentable |
Number of |
Rentable |
|||||||||||||||||||
Buildings | Square Feet | Buildings | Square Feet | Buildings | Square Feet | |||||||||||||||||||
Total as of June 30, 2010
|
100 | 10,088,803 | 41 | 3,654,463 | 141 | 13,743,266 | ||||||||||||||||||
Acquisitions
|
11 | 1,852,726 | 11 | 1,852,726 | ||||||||||||||||||||
Properties moved to the redevelopment portfolio
|
(2 | ) | (384,394 | ) | (2 | ) | (384,394 | ) | ||||||||||||||||
Dispositions
|
(2 | ) | (106,791 | ) | (1 | ) | (51,567 | ) | (3 | ) | (158,358 | ) | ||||||||||||
Remeasurement
|
15,477 | 2,511 | | 17,988 | ||||||||||||||||||||
Total as of June 30, 2011
|
107 | 11,465,821 | 40 | 3,605,407 | 147 | 15,071,228 | ||||||||||||||||||
Number of |
Square Feet |
Occupancy at(1) | ||||||||||||||||||
Region | Buildings | Total | 6/30/2011 | 3/31/2011 | 12/31/2010 | |||||||||||||||
Office Properties:
|
||||||||||||||||||||
Los Angeles and Ventura Counties
|
28 | 2,976,006 | 82.9 | % | 90.7 | % | 89.3 | % | ||||||||||||
San Diego
|
64 | 5,640,608 | 88.4 | 87.8 | 86.4 | |||||||||||||||
Orange County
|
5 | 540,656 | 92.5 | 93.9 | 93.1 | |||||||||||||||
San Francisco Bay Area
|
4 | 1,418,054 | 93.1 | 87.0 | 84.3 | |||||||||||||||
Greater Seattle
|
6 | 890,497 | 90.4 | 100.0 | 100.0 | |||||||||||||||
107 | 11,465,821 | 87.9 | 89.0 | 87.5 | ||||||||||||||||
Industrial Properties:
|
||||||||||||||||||||
Los Angeles County
|
1 | 192,053 | 100.0 | 100.0 | 100.0 | |||||||||||||||
Orange County
|
39 | 3,413,354 | 97.4 | 95.6 | 93.5 | |||||||||||||||
40 | 3,605,407 | 97.6 | 95.9 | 93.9 | ||||||||||||||||
Total Stabilized Portfolio
|
147 | 15,071,228 | 90.2 | % | 90.8 | % | 89.1 | % | ||||||||||||
Average Occupancy for |
||||||||||||||||
Three Months Ended |
||||||||||||||||
June 30, | ||||||||||||||||
Stabilized |
Core |
|||||||||||||||
Portfolio(1) | Portfolio(2) | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Office Properties
|
88.1 | % | 84.6 | % | 87.4 | % | 84.5 | % | ||||||||
Industrial Properties
|
97.0 | % | 85.0 | % | 97.0 | % | 84.7 | % | ||||||||
Total Portfolio
|
90.2 | % | 84.7 | % | 90.3 | % | 84.6 | % |
Average Occupancy for |
||||||||||||||||
Six Months Ended |
||||||||||||||||
June 30, | ||||||||||||||||
Stabilized |
||||||||||||||||
Portfolio(1) | Core Portfolio(2) | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Office Properties
|
88.4 | % | 82.8 | % | 88.2 | % | 82.9 | % | ||||||||
Industrial Properties
|
95.7 | % | 85.1 | % | 95.7 | % | 84.9 | % | ||||||||
Total Portfolio
|
90.2 | % | 83.5 | % | 90.5 | % | 83.5 | % |
(1) | Occupancy percentages reported are based on our stabilized portfolio as of the end of the period presented. | |
(2) | Occupancy percentages reported are based on Office Properties and Industrial Properties owned and stabilized as of January 1, 2010 and still owned and stabilized as of June 30, 2011. |
39
40
41
Three Months Ended June 30, |
Dollar |
Percentage |
||||||||||||||
2011 | 2010 | Change | Change | |||||||||||||
($ in thousands) | ||||||||||||||||
Net Operating Income, as defined
|
$ | 65,524 | $ | 51,033 | $ | 14,491 | 28.4 | % | ||||||||
Unallocated (expense) income:
|
||||||||||||||||
General and administrative expenses
|
(7,440 | ) | (6,728 | ) | (712 | ) | 10.6 | |||||||||
Acquisition-related expenses
|
(1,194 | ) | (957 | ) | (237 | ) | 24.8 | |||||||||
Depreciation and amortization
|
(32,248 | ) | (23,722 | ) | (8,526 | ) | 35.9 | |||||||||
Interest income and other net investment gains (losses)
|
58 | (18 | ) | 76 | 422.2 | |||||||||||
Interest expense
|
(21,228 | ) | (13,088 | ) | (8,140 | ) | 62.2 | |||||||||
Loss on early extinguishment of debt
|
| (4,564 | ) | 4,564 | 100.0 | |||||||||||
Net income
|
$ | 3,472 | $ | 1,956 | $ | 1,516 | 77.5 | % | ||||||||
2011 | 2010 | |||||||||||||||||||||||||||||||
Core |
Acquisitions |
Total |
Core |
Acquisitions |
Total |
|||||||||||||||||||||||||||
Portfolio(1) | Portfolio(2) | Other | Portfolio | Portfolio(1) | Portfolio(2) | Other | Portfolio | |||||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||||||||||
Operating revenues:
|
||||||||||||||||||||||||||||||||
Rental income
|
$ | 62,182 | $ | 20,908 | $ | 362 | $ | 83,452 | $ | 59,929 | $ | 3,252 | $ | 1,857 | $ | 65,038 | ||||||||||||||||
Tenant reimbursements
|
5,779 | 1,697 | 34 | 7,510 | 5,855 | 64 | 564 | 6,483 | ||||||||||||||||||||||||
Other property income
|
1,082 | 20 | | 1,102 | 694 | 1 | 200 | 895 | ||||||||||||||||||||||||
Total
|
69,043 | 22,625 | 396 | 92,064 | 66,478 | 3,317 | 2,621 | 72,416 | ||||||||||||||||||||||||
Property and related expenses:
|
||||||||||||||||||||||||||||||||
Property expenses
|
12,094 | 5,180 | 309 | 17,583 | 13,082 | 813 | 648 | 14,543 | ||||||||||||||||||||||||
Real estate taxes
|
5,762 | 2,285 | 366 | 8,413 | 5,701 | 355 | 426 | 6,482 | ||||||||||||||||||||||||
Provision for bad debts
|
120 | | | 120 | (12 | ) | | | (12 | ) | ||||||||||||||||||||||
Ground leases
|
330 | 60 | 34 | 424 | 334 | | 36 | 370 | ||||||||||||||||||||||||
Total
|
18,306 | 7,525 | 709 | 26,540 | 19,105 | 1,168 | 1,110 | 21,383 | ||||||||||||||||||||||||
Net Operating Income, as defined
|
$ | 50,737 | $ | 15,100 | $ | (313 | ) | $ | 65,524 | $ | 47,373 | $ | 2,149 | $ | 1,511 | $ | 51,033 | |||||||||||||||
(1) | Properties owned and stabilized as of January 1, 2010 and still owned and stabilized as of June 30, 2011. | |
(2) | Includes results, from the dates of acquisition through the periods presented, for the ten office buildings we acquired during 2010 and the eight office buildings we acquired during the first half of 2011. |
42
Three Months Ended June 30, 2011 |
||||||||||||||||||||||||
As Compared to the Three Months Ended June 30, 2010 | ||||||||||||||||||||||||
Core Portfolio | Acquisitions Portfolio | Total Portfolio | ||||||||||||||||||||||
Dollar |
Percentage |
Dollar |
Percentage |
Dollar |
Percentage |
|||||||||||||||||||
Change | Change | Change | Change | Change | Change | |||||||||||||||||||
($ in thousands) | ||||||||||||||||||||||||
Operating revenues:
|
||||||||||||||||||||||||
Rental income
|
$ | 2,253 | 3.8 | % | $ | 17,656 | 542.9 | % | $ | 18,414 | 28.3 | % | ||||||||||||
Tenant reimbursements
|
(76 | ) | (1.3 | ) | 1,633 | 2,551.6 | 1,027 | 15.8 | ||||||||||||||||
Other property income
|
388 | 55.9 | 19 | 1,900.0 | 207 | 23.1 | ||||||||||||||||||
Total
|
2,565 |