Kilroy Realty Corporation Reports Second Quarter Financial Results

Kilroy Realty Corporation (NYSE:KRC) today reported financial results for its second quarter ended June 30, 2009 with net income available for common stockholders of $9.1 million, or $0.25 per share, compared to $4.5 million, or $0.14 per share, in the second quarter of 2008. Net income in the second quarter of 2009 included a $2.5 million gain from a property disposition. Revenues from continuing operations in the second quarter totaled $71.1 million, up from $69.5 million in the prior year's second quarter. Funds from operations (FFO) for the period totaled $30.3 million, or $0.79 per share, compared to $25.9 million, or $0.74 per share, in the year-earlier period.

For the first six months of 2009, KRC reported net income available to common stockholders of $16.7 million, or $0.47 per share, compared to $13.3 million, or $0.40 per share, in the first half of 2008. Revenues from continuing operations in the six-month period totaled $143.6 million, up from $140.1 million in the same period of 2008. FFO in the first half of 2009 totaled $59.3 million, or $1.61 per share, compared to $54.9 million, or $1.57 per share, in the first half of 2008.

All per-share amounts in this report are presented on a diluted basis. Financial information for the prior periods has been adjusted for the retroactive application of new accounting guidance adopted by the company effective January 1, 2009.

"During the quarter, we made progress on our two highest priorities – maintaining a strong balance sheet and leasing our vacant and expiring space,” said John B. Kilroy, Jr., the company's president and chief executive officer. "We strengthened our balance sheet with the issuance of just over 10 million shares of common equity, and advanced our leasing goals with the successful execution of approximately 300,000 square feet of new and renewing leases.”

At the end of the second quarter, KRC’s stabilized portfolio totaled 12.3 million square feet and was 85.5% occupied.

On June 3, 2009, KRC completed the sale of 10,062,500 shares of common stock generating aggregate net proceeds of approximately $191.7 million. Proceeds from the offering were used to repay a portion of the borrowings under the company’s unsecured revolving credit facility. The outstanding balance of the unsecured revolving credit facility was $94 million at the end of the second quarter.

In conjunction with the equity offering, the company reduced its quarterly dividend approximately 40% to $0.35 per share, or $1.40 per share on an annual basis.

During the quarter, Accredited Home Lenders ("Accredited") rejected its lease in bankruptcy, and the company drew down the $1.9 million letter of credit it held as credit support under the terms of the lease. The company applied $1.6 million of the letter of credit proceeds against the unbilled deferred rents receivable from Accredited, and reversed $1.6 million of the allowance for bad debts that it had recorded for the Accredited unbilled deferred receivable in prior quarters. The remaining $0.3 million of letter of credit proceeds was applied to rent owed under the Accredited lease prior to the bankruptcy filing. In addition, the company recorded $0.9 million during the quarter related to settlement payments from a prior period lease termination.

The company currently has one completed development project in lease-up, a 51,000 square-foot medical office building located in the company’s Sorrento Gateway development in coastal San Diego County. The property represents a total investment of $23 million, of which about $17 million has been spent to date.

KRC management will discuss updated earnings guidance for fiscal 2009 during the company's July 28, 2009 earnings conference call. The call will begin at 11:00 a.m. Pacific time and last approximately one hour. Those interested in listening via the Internet can access the conference call at www.kilroyrealty.com. Please go to the website 15 minutes before the call and register. It may be necessary to download audio software to hear the conference call. Those interested in listening via telephone can access the conference call at (888) 680-0860, reservation #78543289. A replay of the conference call will be available via phone through August 11, 2009 at (888) 286-8010, reservation #14996732, or via the Internet at the company's website.

Some of the information presented in this release is forward looking in nature within the meaning of the Private Securities Litigation Reform Act of 1995. Although Kilroy Realty Corporation believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, there can be no assurance that its expectations will be achieved. Certain factors that could cause actual results to differ materially from Kilroy Realty's expectations are set forth as risk factors in the company's Securities and Exchange Commission reports and filings. Included among these factors are changes in general economic conditions, including changes in the economic conditions affecting industries in which its principal tenants compete; Kilroy Realty's ability to timely lease or re-lease space at current or anticipated rents; changes in interest rates; changes in operating costs, including utility costs; future demand for its debt and equity securities; its ability to refinance its debt on reasonable terms at maturity; its ability to complete current and future development projects on schedule and on budget; the demand for office space in markets in which Kilroy Realty has a presence; and risks detailed from time to time in the company's SEC reports, including quarterly reports on Form 10-Q, current reports on Form 8-K and annual reports on Form 10-K. Many of these factors are beyond Kilroy Realty's ability to control or predict. Forward-looking statements are not guarantees of performance. For forward-looking statements herein, Kilroy Realty claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

Kilroy Realty Corporation, a member of the S&P Small Cap 600 Index, is a Southern California-based real estate investment trust active in the office and industrial property sectors. For over 60 years, the company has owned, developed, acquired and managed real estate assets primarily in the coastal regions of Los Angeles, Orange and San Diego Counties. At June 30, 2009, the company owned 8.7 million rentable square feet of commercial office space and 3.7 million rentable square feet of industrial space. More information is available at www.kilroyrealty.com.