<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-12675
KILROY REALTY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MARYLAND 95-4598246
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
OF INCORPORATION OR ORGANIZATION)
</TABLE>
2250 EAST IMPERIAL HIGHWAY, SUITE 1200, EL SEGUNDO, CALIFORNIA 90245
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
----------------
(310) 563-5500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
N/A
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
As of May 13, 1998, 27,597,551 shares of common stock, par value $.01 per
share, were outstanding.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I--FINANCIAL INFORMATION
<C> <S> <C>
Item 1. FINANCIAL STATEMENTS
Consolidated balance sheet of Kilroy Realty Corporation as of
March 31, 1998 (unaudited) and Combined Balance Sheet of the
Kilroy Group (predecessor to Kilroy Realty Corporation) as of
December 31, 1997.............................................. 3
Consolidated Statements of Operations of Kilroy Realty
Corporation for the three months ended March 31, 1998
(unaudited) and for the period from February 1, 1997 to March
31, 1997 (unaudited) and the Combined Statement of Operations
of the Kilroy Group for the period from January 1, 1997 to
January 31, 1997............................................... 4
Consolidated Statements of Cash Flows of Kilroy Realty
Corporation for the three months ended March 31, 1998 and 1997
(unaudited).................................................... 5
Notes to the Kilroy Realty Corporation Consolidated and Kilroy
Group Combined Financial Statements............................ 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.......................................... 10
PART II--OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.............................................. 16
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...................... 16
Item 3. DEFAULTS UPON SENIOR SECURITIES................................ 16
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 16
Item 5. OTHER INFORMATION.............................................. 16
Item 6. EXHIBITS AND REPORTS ON FORM 8-K............................... 16
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KILROY REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
1998 DECEMBER 31,
(UNAUDITED) 1997
----------- ------------
<S> <C> <C>
ASSETS
INVESTMENT IN REAL ESTATE (Note 2):
Land and improvements............................... $ 216,650 $ 177,118
Buildings and improvements.......................... 721,513 622,901
Land and construction in progress................... 40,828 34,671
--------- ---------
Total investment in real estate................... 978,991 834,690
Accumulated depreciation............................ (127,075) (121,780)
--------- ---------
Investment in real estate, net.................... 851,916 712,910
CASH AND CASH EQUIVALENTS............................. 13,526 8,929
RESTRICTED CASH....................................... 4,914 5,680
TENANT RECEIVABLES, NET............................... 6,887 7,367
ESCROW DEPOSITS....................................... 16,439 5,114
DEFERRED FINANCING AND LEASING COSTS, NET............. 14,389 13,052
PREPAID EXPENSES AND OTHER ASSETS, NET................ 4,638 4,602
--------- ---------
TOTAL ASSETS...................................... $ 912,709 $ 757,654
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Mortgage debt (Note 3).............................. $ 134,959 $ 131,363
Line of credit (Note 4)............................. 162,000 142,000
Accounts payable and accrued expenses............... 9,378 9,711
Accrued distributions............................... 12,413 10,804
Rents received in advance and tenant security
deposits........................................... 12,538 11,441
--------- ---------
Total liabilities................................. 331,288 305,319
--------- ---------
MINORITY INTERESTS (Note 5):
8.075% Series A Cumulative Redeemable Preferred
Units.............................................. 59,077
Common units........................................ 66,338 55,185
--------- ---------
Total minority interest........................... 125,415 55,185
--------- ---------
STOCKHOLDERS' EQUITY (Note 6):
Preferred stock, $.01 par value, 28,300,000 shares
authorized, none issued and outstanding............
8.075% Series A Cumulative Redeemable Preferred
Stock, $.01 par value, 1,700,000 shares authorized,
none issued and outstanding........................
Common stock, $.01 par value, 150,000,000 shares
authorized: 26,746,585 and 24,475,000 shares issued
and outstanding, respectively...................... 267 245
Additional paid-in capital.......................... 463,951 403,163
Distributions in excess of earnings................. (8,212) (6,258)
--------- ---------
Total stockholder's equity........................ 456,006 397,150
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 912,709 $ 757,654
========= =========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
3
<PAGE>
KILROY REALTY CORPORATION (THE "COMPANY") CONSOLIDATED AND
KILROY GROUP (PREDECESSOR TO THE COMPANY) COMBINED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
KILROY REALTY
CORPORATION
------------------------ KILROY
THREE MONTHS FEBRUARY 1, GROUP
ENDED 1997 TO JANUARY 1,
MARCH 31, MARCH 31, 1997 TO
1998 1997 JANUARY 31,
(UNAUDITED) (UNAUDITED) 1997
------------ ----------- -----------
<S> <C> <C> <C>
REVENUES:
Rental income......................... $ 25,460 $ 7,110 $2,760
Tenant reimbursements................. 2,823 706 275
Interest income....................... 474 971
Development services.................. 14
Other income.......................... 194 185 4
---------- ---------- ------
Total revenues...................... 28,951 8,972 3,053
---------- ---------- ------
EXPENSES:
Property expenses..................... 3,971 1,239 579
Real estate taxes..................... 1,686 353 106
General and administrative............ 1,559 725 78
Ground lease.......................... 305 185 64
Development expense................... 46
Interest expense...................... 4,786 1,531 1,895
Depreciation and amortization......... 5,854 1,744 787
---------- ---------- ------
Total expenses...................... 18,161 5,777 3,555
---------- ---------- ------
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN,
EQUITY IN LOSS OF UNCONSOLIDATED
SUBSIDIARY AND MINORITY INTERESTS...... 10,790 3,195 (502)
EQUITY IN LOSS OF UNCONSOLIDATED
SUBSIDIARY............................. (1) (57)
---------- ---------- ------
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN
AND MINORITY INTERESTS................. 10,789 3,138 (502)
---------- ---------- ------
MINORITY INTERESTS:
Distributions on 8.075% Series A
Cumulative Redeemable Preferred Units
(Note 5)............................. (700)
Minority interest in earnings......... (1,210) (486)
---------- ---------- ------
Total minority interests............ (1,910) (486)
---------- ---------- ------
INCOME (LOSS) BEFORE EXTRAORDINARY
GAINS.................................. 8,879 2,652 (502)
EXTRAORDINARY GAIN...................... 3,204
---------- ---------- ------
NET INCOME.............................. $ 8,879 $ 2,652 $2,702
========== ========== ======
Net income per common share basic....... $ .35 $ .18
========== ==========
Net income per common share diluted..... $ .35 $ .18
========== ==========
Weighted average shares outstanding
basic.................................. 25,230,467 14,475,000
========== ==========
Weighted average shares outstanding
diluted................................ 25,400,890 14,585,633
========== ==========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
4
<PAGE>
KILROY REALTY CORPORATION CONSOLIDATED AND KILROY GROUP COMBINED
STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................. $ 8,879 $ 5,354
Adjustment to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 5,854 2,531
Provision for bad debts.............................. 190 150
Restricted stock compensation........................ 115 77
Extraordinary gain................................... (3,204)
Minority interest in earnings........................ 1,210 486
Distributions on 8.075% Series A Cumulative
Redeemable Preferred Units.......................... 700
Equity in loss of unconsolidated subsidiary.......... 1 57
Changes in assets and liabilities:
Tenant receivables................................. 290 (645)
Deferred financing and leasing costs, net.......... (1,318) 801
Prepaid expenses and other assets, net............. (258)
Accounts payable and accrued expenses.............. (333) (2,652)
Accrued cost of option buy-out and tenant
improvements...................................... (1,390)
Rents received in advance and tenant security
deposits.......................................... 1,097 (1,261)
--------- ---------
Net cash provided by operating activities........ 16,427 304
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for rental properties..................... (124,716) (59,555)
Expenditures for land and construction in progress..... (6,157)
Escrow deposits, net................................... (11,325)
Net investment in and advances to unconsolidated
subsidiary............................................ 19 (51)
--------- ---------
Net cash used in investing activities............ (142,179) (59,606)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuances of common stock............ 58,992 302,703
Net proceeds from issuance of 8.075% Series A
Cumulative Redeemable Preferred Units................. 58,377
Proceeds from issuance of mortgage debt................ 5,000 96,000
Principal payments on mortgage debt.................... (1,404) (218,893)
Net borrowings on line of credit....................... 20,000
Finance costs.......................................... (578) (2,323)
Restricted cash........................................ 766 (4,244)
Due from affiliates.................................... (1,261)
Distributions paid..................................... (10,804)
Deemed and actual contributions from partners, net..... 3,483
--------- ---------
Net cash provided by financing activities........ 130,349 175,465
--------- ---------
Net increase in cash and cash equivalents................ 4,597 116,163
Cash and cash equivalents, beginning of period........... 8,929
--------- ---------
Cash and cash equivalents, end of period................. $ 13,526 $ 116,163
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................................. $ 4,926 $ 3,872
========= =========
NON-CASH TRANSACTIONS:
Accrual of distributions payable....................... $ 12,413
=========
Issuance of common units of Kilroy Realty, L.P. to
acquire properties.................................... $ 13,511
=========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
5
<PAGE>
KILROY REALTY CORPORATION CONSOLIDATED AND KILROY GROUP COMBINED
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1. ORGANIZATION
Kilroy Realty Corporation (the "Company") owns, operates and develops
commercial and industrial real estate, primarily in Southern California. The
Company commenced operations in January 1997 and has operated as a self-
administered real estate investment trust ("REIT"). The Company succeeded to
the real estate business of the Kilroy Group, the Company's predecessor, which
had been engaged in the acquisition, management, financing, construction and
leasing of commercial and industrial properties. The combined financial
statements of the Kilroy Group comprise the operations, assets and liabilities
of the properties contributed to the Company in connection with its formation,
the formation of Kilroy Realty, L.P. (the "Operating Partnership") and
completion of the Company's IPO (collectively the "Formation Transactions") on
January 31, 1997. As of March 31, 1998, the Company owned 67 office buildings
and 80 industrial buildings, which encompassed approximately 4.9 million and
5.5 million rentable square feet, respectively, and were 92.3% leased. The
Company owns its interests in all of the properties through the Operating
Partnership and Kilroy Realty Finance Partnership, L.P.
The majority of the properties are located in Southern California. The
ability of the tenants to honor the terms of their respective leases is
dependent upon the economic, regulatory and social factors affecting the
communities and industries in which the tenants operate.
The accompanying interim financial statements have been prepared by the
Company's management in accordance with generally accepted accounting
principles and in conjunction with the rules and regulations of the Securities
and Exchange Commission. In the opinion of management, the interim financial
statements presented herein, reflect all adjustments of a normal and recurring
nature which are necessary to fairly state the interim financial statements.
The results of operations for the interim period are not necessarily
indicative of the results that may be expected for the year ended December 31,
1998. These financial statements should be read in conjunction with the
audited financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
2. PROPERTY ACQUISITIONS
For the three months ended March 31, 1998, the Company completed a series of
transactions to acquire 12 office buildings and 13 industrial buildings in
California and Nevada, as follows:
<TABLE>
<CAPTION>
NUMBER OF ACREAGE/ LOCATION OF PURCHASE PRICE
DESCRIPTION BUILDINGS SQUARE FOOTAGE PROPERTY (MILLIONS)
-------------------- --------- --------------- ---------------- --------------
<S> <C> <C> <C> <C>
Undeveloped land 2 acres San Diego, CA $ 1.6
Office building 1 48,000 sq. ft. Los Angeles, CA 7.6
Office buildings 4 149,000 sq. ft. Fullerton, CA 10.6
Office building 1 70,000 sq. ft. Santa Monica, CA 16.6
Office buildings 2 79,000 sq. ft. Anaheim, CA 7.1
Office building 1 82,000 sq. ft. Carlsbad, CA 10.5
Office buildings 2 200,000 sq. ft. San Diego, CA 29.4
Office building 1 41,000 sq. ft. Camarillo, CA 5.0
Industrial buildings 9 143,000 sq. ft. Irvine, CA 12.5
Industrial buildings 3 234,000 sq. ft. San Jose, CA 27.4
Industrial building 1 75,000 sq. ft. Reno, NV 6.9
------
Total $135.2
======
</TABLE>
6
<PAGE>
KILROY REALTY CORPORATION CONSOLIDATED AND KILROY GROUP COMBINED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
These acquisitions were funded primarily with existing working capital and
borrowings on the line of credit. In addition, the Operating Partnership
issued 496,220 common limited partnership units valued at approximately
$13,511,000 in connection with the acquisition of two office buildings located
in San Diego, California and one industrial building located in Reno, Nevada
from entities controlled by Richard S. Allen, a member of the Company's board
of directors.
3. MORTGAGE DEBT
On January 31, 1998 the Company increased the amount of its $14.0 million
mortgage loan to $19.0 million and extended the maturity date to January 31,
2000.
In January 1998, a $900,000 promissory note was repaid in full.
4. LINE OF CREDIT
On February 24, 1998, the Operating Partnership entered into a $350.0
million unsecured revolving line of credit (together with the previous line of
credit, the "Credit Facility") replacing the Operating Partnership's previous
$250.0 million secured revolving credit facility. The new Credit Facility
matures in February 2000, and bears interest at either LIBOR plus 1.00%, LIBOR
plus 1.125% or LIBOR plus 1.25%, depending on the Company's leverage ratio at
the time of borrowing.
Borrowings outstanding at March 31, 1998 were $162.0 million. Availability
under the Credit Facility at March 31, 1998 was $125.5 million based on the
value of the Company's unencumbered assets. The fee for unused funds is 0.25%.
5. MINORITY INTERESTS
On February 6, 1998, the Company issued 1,200,000 8.075% Series A Cumulative
Redeemable Preferred Units, representing limited partnership interests in the
Operating Partnership (the "1,200,000 Preferred Units"), with a liquidation
value of $50.00 per unit, in exchange for a gross cash contribution to the
Operating Partnership of $60.0 million. The Company used the contribution
proceeds, less applicable transactions costs and expenses of approximately
$1.6 million, for the repayment of borrowings outstanding on the Credit
Facility. On April 22, 1998 the Company issued an additional 300,000 Preferred
Units (together with the 1,200,000 Preferred Units the "Preferred Units") for
a gross cash contribution to the Operating Partnership of $15.0 million. The
Company used the contribution proceeds, less applicable transaction costs and
expenses of approximately $400,000 for the repayment of borrowings outstanding
on the Credit Facility. The Preferred Units, which may be called by the
Operating Partnership at par on or after February 6, 2003, have no stated
maturity or mandatory redemption and are not convertible into any other
securities of the Operating Partnership. The Preferred Units are exchangeable
at the option of the majority of the holders, for shares of 8.075% Series A
Cumulative Preferred Stock issuable by the Company, beginning February 6, 2008
which may be accelerated under certain circumstances.
At March 31, 1998, distributions of approximately $700,000 were accrued and
payable to holders of Preferred Units. These distributions were paid on April
7, 1998.
6. STOCKHOLDERS EQUITY
On February 18, 1998, the Company completed a public offering of 724,888
shares of its $.01 par value per share, common stock (the "Common Stock")
which resulted in net offering proceeds to the Company of $18.9 million. On
February 23, 1998, the Company completed a public offering of an additional
1,000,000 shares of Common Stock which resulted in net offering proceeds to
the Company of $25.9 million. On March 30, 1998,
7
<PAGE>
KILROY REALTY CORPORATION CONSOLIDATED AND KILROY GROUP COMBINED
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
the Company completed a public offering of an additional 546,697 shares of
Common Stock which resulted in net offering proceeds to the Company of
$14.2 million. The Company used the net proceeds of each transaction to repay
borrowings under the Credit Facility.
As a result of the capital transactions referred to above, and the issuance
of common limited partnership units of the Operating Partnership in connection
with the acquisition of certain properties (Note 2), the Company owned an
87.3% general partnership interest in the Operating Partnership as of March
31, 1998.
7. SUBSEQUENT EVENTS
Subsequent to March 31, 1998, the Company acquired the following properties.
Except as otherwise indicated, the properties were acquired from unaffiliated
third parties and were financed with borrowings on the Credit Facility and
available working capital:
<TABLE>
<CAPTION>
NUMBER OF ACREAGE/ LOCATION OF PURCHASE PRICE
DESCRIPTION BUILDINGS SQUARE FOOTAGE PROPERTY (MILLIONS)
----------- --------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Undeveloped land(1) 18 acres Calabasas, CA $ 2.9
Office buildings 7 411,000 sq. ft.(2) San Diego, CA $64.3
Office building 1 69,000 sq. ft. San Diego, CA $ 7.4
Industrial building 1 84,000 sq. ft. Anaheim, CA $ 6.3
-----
$80.6
=====
</TABLE>
- --------
(1) This property was acquired from a partnership owned by John B. Kilroy, Sr.
and John B. Kilroy, Jr., the Company's Chairman and its President and
Chief Executive Officer, respectively, in exchange for cash and the
issuance of 90,787 common limited partnership units of the Operating
Partnership valued at $2.5 million.
(2) Includes 12.85 acres of undeveloped land.
On April 7, 1998, distributions of $12,413,000 were paid to Stockholders and
Unitholders of record on March 31, 1998.
On April 20, 1998, the Company completed a direct placement of 110,225
shares of Common Stock to an institutional investor, which resulted in net
offering proceeds to the Company of approximately $3.0 million. The net
proceeds were used to repay borrowings under the Credit Facility.
On April 27, 1998, the Company completed a public offering of 740,741 shares
of Common Stock which resulted in net offering proceeds to the Company of
approximately $19.0 million. The net proceeds were used to repay borrowings
under the Credit Facility.
8
<PAGE>
8. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted-
average number of common shares outstanding for the period. Diluted earnings
per share is computed by dividing net income by the sum of the weighted-
average number of common shares outstanding for the period plus the assumed
exercise of all dilutive securities. The following reconciles the numerator
and denominator of the basic and diluted per-share computations for net
income:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, PERIOD FEBRUARY 1, 1997 THROUGH
1998 MARCH 31, 1997
-------------------------------- --------------------------------
PER PER
INCOME SHARES SHARE INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------ ----------- ------------- ------
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Basic................... $8,879 25,230,467 $0.35 $2,652 14,475,000 $0.18
Effect of Dilutive
Securities:
Stock Options granted. 170,423 110,633
------ ---------- ----- ------ ---------- -----
Diluted................. $8,879 25,400,890 $0.35 $2,652 14,585,633 $0.18
====== ========== ===== ====== ========== =====
</TABLE>
9. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The accompanying unaudited pro forma information for the three months ended
March 31, 1998 and 1997 is presented as if the acquisitions described in Note
3 to the financial statements had occurred on January 1, 1997. Such pro forma
information is based upon the consolidated statements of operations of the
Company for the three months ended March 31, 1998 and the period from February
1, 1997 to March 31, 1997 and the combined statement of operations of the
Kilroy Group for the period January 1, 1997 to January 31, 1997, and should be
read in conjunction with the consolidated and combined financial statements
and the notes thereto.
This unaudited pro forma condensed consolidated information does not purport
to represent what the actual results of operations of the Company would have
been assuming such property acquisitions had been completed as set forth
above, nor do they purport to predict the results of operations for future
periods.
PRO FORMA INCOME STATEMENT
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Total revenues.................................... $ 30,873 $ 14,003
============== ==============
Net income before extraordinary items............. $ 9,524 $ 1,916
============== ==============
Net income........................................ $ 9,524 $ 5,120
============== ==============
Net income per common share-basic................. $ 0.38 $ 0.35
============== ==============
Net income per common share-diluted............... $ 0.37 $ 0.35
============== ==============
Weighted average shares outstanding-basic......... 25,230,467 14,475,000
============== ==============
Weighted average shares outstanding-diluted....... 25,400,890 14,585,663
============== ==============
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion relates to the consolidated financial statements of
the Company, and the combined financial statements of the Company's
predecessor, the Kilroy Group, and should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this report.
OVERVIEW AND BACKGROUND
The Company owns, operates and develops commercial and industrial real
estate, primarily in Southern California. The Company commenced operations in
January 1997 and has operated as a self-administered REIT. The Company
succeeded to the real estate business of the Kilroy Group, the Company's
predecessor, which had been engaged in the acquisition, management, financing,
construction and leasing of commercial and industrial properties. The combined
financial statements of the Kilroy Group comprise the operations, assets and
liabilities of the properties contributed to the Company in connection with
the Formation Transactions. As of March 31, 1998, the Company owned 67 office
buildings and 80 industrial buildings, which encompassed approximately 4.9
million and 5.5 million rentable square feet, respectively, and were 92.3%
leased. The Company owns its interests in all of the properties through the
Operating Partnership and the Finance Partnership.
RESULTS OF OPERATIONS
The Company's management believes that in order to provide meaningful
historical analysis of the financial statements, certain adjustments must be
made to the historical Kilroy Group financial statements to make accounting
periods comparable. Accordingly the results of operations for the period
January 1, 1997 to January 31, 1997 have been adjusted to reflect interest
income, general and administrative expenses, interest expense and
extraordinary items as if the Formation Transactions had been consummated on
January 1, 1997. The following sections discuss the results of operations as
adjusted.
Three Months Ended March 31, 1998 compared to Adjusted Three Months Ended
March 31, 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(IN THOUSANDS)
-------------------
1998 1997
------- -----------
AS ADJUSTED
<S> <C> <C>
REVENUES:
Rental income......................................... $25,460 $9,870
Tenant reimbursements................................. 2,823 981
Interest income....................................... 474 1,457
Development services.................................. 14
Other income.......................................... 194 189
------- ------
Total revenues...................................... 28,951 12,511
======= ======
EXPENSES:
Property expenses..................................... 3,971 1,818
Real estate taxes..................................... 1,686 459
General and administrative............................ 1,559 1,088
Ground leases......................................... 305 249
Development expense................................... 46
Interest expense...................................... 4,786 2,297
Depreciation and amortization......................... 5,854 2,531
------- ------
Total expenses...................................... 18,161 8,488
------- ------
INCOME BEFORE EQUITY IN LOSS OF SUBSIDIARY,
MINORITY INTERESTS AND EXTRAORDINARY GAIN.............. $10,790 $4,023
======= ======
</TABLE>
10
<PAGE>
Total revenues increased $16.5 million, or 131.4% to $29.0 million for the
three months ended March 31, 1998 compared to $12.5 million for the three
months ended March 31, 1997. Rental income increased $15.6 million, or 158.0%
to $25.5 million for the three months ended March 31, 1998 compared to $9.9
million for the three months ended March 31, 1997. Of this increase, $12.8
million was generated by properties acquired during 1997 subsequent to the IPO
(the "1997 Acquisitions") and $1.4 million was generated from properties
acquired during the three months ended March 31, 1998 (the "1998
Acquisitions"). During 1997, subsequent to completion of the Formation
Transactions, the Company acquired 96 Office and Industrial properties
totaling 2.2 million and 3.7 million rentable square feet, respectively, for
an aggregate acquisition cost of $507.4 million. During the three months ended
March 31, 1998, the Company acquired 25 Office and Industrial properties
totaling 667,000 and 453,000 rentable square feet, respectively, for a total
investment of $133.6 million. The properties acquired during the three months
ended March 31, 1998 were acquired on various dates throughout the quarter
and, as such, a full quarter's revenue and expenses were not recognized during
the quarter.
A $0.9 million increase in rental income was generated by seven properties
acquired in connection with the IPO (the "IPO Properties"). These properties
were purchased for $58.0 million and encompass 770,000 rentable square feet.
The $0.9 increase in rental income is attributable to owning the seven
properties for a full quarter in 1998.
The remaining $0.5 million increase in rental income was generated by
properties owned at the IPO and still owned at March 31, 1998 (the "Existing
Properties"). The increase is primarily the result of leasing activity at the
SeaTac Office Center, including a lease for 211,000 rentable square feet with
The Boeing Company, which was effective January 1, 1998 (the "Boeing lease").
Excluding the Boeing lease, occupancy and average rent per square foot
remained consistent for the Existing Properties for the three months ended
March 31, 1998 compared to the three months ended March 31, 1997.
As a result of the properties acquired subsequent to March 31, 1997, the
Company's rentable square footage increased 7.0 million, or 206.9% to 10.4
million rentable square feet at March 31, 1998 compared to 3.4 million
rentable square feet at March 31, 1997. As of March 31, 1998, the Company's
portfolio was comprised of 67 office properties encompassing 4.9 million
rentable square feet and 80 industrial properties encompassing 5.5 million
rentable square feet. The overall portfolio occupancy rate at March 31, 1998
was 92.3%, with the Office and Industrial properties 94.0% and 90.8% leased,
respectively, as of such date.
Tenant reimbursements increased $1.8 million, or 187.8% to $2.8 million for
the three months ended March 31, 1998 compared to $1.0 million for the three
months ended March 31, 1997. The increase was primarily due to tenant
reimbursements from the office and industrial buildings purchased subsequent
to March 31, 1997. In addition, $0.3 million of the increase represents tenant
reimbursements under the Boeing lease. Interest income decreased $1.0 million
or 67.5% to $0.5 million for the three months ended March 31, 1998, compared
to $1.5 million for the three months ended March 31, 1997, due to interest
earned on $116.2 million of net IPO proceeds during the three months ended
March 31, 1997. Other income for the three months ended March 31, 1998
primarily consists of lease termination fees and property management fees.
Total expenses increased $9.7 million, or 114.0%, to $18.2 million for the
three months ended March 31, 1998 compared to $8.5 million for the three
months ended March 31, 1997. Property expenses increased $2.2 million, or
118.4% to $4.0 million and real estate taxes increased $1.2 million, or 267.3%
to $1.7 million for the three months ended March 31, 1998 compared to $1.8
million and $0.5 million, respectively, for the three months ended March 31,
1997. Of the collective increase of $ 3.4 million in property expenses and
real estate taxes, $2.6 million was generated by the 1997 Acquisitions and $.4
million was generated from the 1998 Acquisitions. An increase of $0.2 was
generated by the IPO Properties, due to these properties being owned for a
full quarter in 1998. The remaining increase of $0.2 million is attributable
to the Existing Properties. This $0.2 million increase from the Existing
Properties is due primarily to increased property expenses at the SeaTac
Office Center resulting from lease-up, and an increase in property taxes due
to the reassessment of property values at the date of the IPO, offset
partially by a decrease in repairs and maintenance expense. General and
administrative expenses increased $0.5 million, or 43.3%, for the three months
ended March 31, 1998 compared
11
<PAGE>
to the three months ended March 31, 1997, due to increased management and
administrative costs associated with the increased portfolio size and the
operations of the Company as a public REIT. Ground lease expense increased
$56,000 during the three months ended March 31, 1998 over the same period in
1997 primarily as a result of a ground lease on two of the IPO Properties.
Interest expense increased $2.5 million, or 108.4%, to $4.8 million for the
three months ended March 31, 1998 compared to $2.3 million for the three
months ended March 31, 1997, primarily due to borrowings on the Credit
Facility. The Company's weighted average interest rate decreased .9% to 7.5%
at March 31, 1998 compared to 8.4% at March 31, 1997.
Net income before extraordinary gains increased $6.8 million, or 168.2% to
$10.8 million for the three months ended March 31, 1998 compared to $4.0
million for the three months ended March 31, 1997. The increase is due
primarily to an increase in rental income and tenant reimbursements of $15.6
million and $1.8 million, respectively, offset by an increase in property
expenses of $2.2 million, an increase in real estate taxes of $1.2 million, an
increase in interest expense of $2.5 million and an increase in depreciation
and amortization of $3.3 million.
LIQUIDITY AND CAPITAL RESOURCES
In February 1998, the Company entered into its $350.0 million Credit
Facility, which bears interest at a rate of either LIBOR plus 1.00%, LIBOR
plus 1.125% or LIBOR plus 1.25% depending on the Company's leverage ratios,
and matures in February 2000. Availability under the Credit Facility is
dependent upon the value of the Company's pool of unencumbered assets and was
$130.8 million at May 13, 1998. There were borrowings of $207.0 million
outstanding at May 13, 1998.
On January 31, 1998 the Company increased the amount of its $14.0 million
mortgage loan to $19.0 million and extended the maturity date to January 31,
2000. In addition, the Company repaid a $0.9 million promissory note in
January 1998 at scheduled maturity. As of March 31, 1998 the Company's
mortgage loans have a weighted average interest rate of 8.19%.
In January 1998, the Company filed a "shelf" registration statement on Form
S-3 with the Securities and Exchange Commission (the "SEC") which registered
$400.0 million of equity securities of the Company. The statement was declared
effective by the SEC on February 11, 1998. Through May 15, 1998 the Company
has completed 4 public offerings of an aggregate 3,012,326 shares of Common
Stock and a direct placement of 110,225 shares of Common Stock, with aggregate
proceeds of $81.0 million used to paydown borrowings on the Credit Facility.
As of May 13, 1998, an aggregate of $314.5 million of equity securities were
issuable under the registration statement. The Company, as general partner of
the Operating Partnership and as required by the terms and conditions of the
Agreement of Limited Partnership of the Operating Partnership, as amended (the
"Partnership Agreement"), invested the net proceeds of such offerings in the
Operating Partnership, which used such net proceeds to repay borrowings under
the Credit Facility.
In February 1998, the Company issued 1,200,000 8.075% Series A Cumulative
Redeemable Preferred Units, representing limited partnership interests in the
Operating Partnership, with a liquidation value of $50.00 per unit, in
exchange for a gross contribution to the Operating Partnership of $60.0
million. The Company used the contribution proceeds, less applicable
transactions costs and expenses of approximately $1.6 million, for the
repayment of borrowings outstanding on the Credit Facility. On April 22, 1998
the Company issued an additional 300,000 Preferred Units for a gross
contribution to the Operating Partnership of $15.0 million. The Company used
the contribution proceeds, less applicable transaction costs and expenses of
approximately $0.4 million for the repayment of borrowings outstanding on the
Credit Facility. The Preferred Units, which may be called by the Operating
Partnership at par on or after February 6, 2003, have no stated maturity or
mandatory redemption and are not convertible into any other securities of the
Operating Partnership. The Preferred Units are exchangeable at the option of
the majority of the holders, for shares of 8.075% Series A Cumulative
Preferred Stock issuable by the Company, beginning February 6, 2008 which may
be accelerated under certain circumstances.
12
<PAGE>
The Company believes that it will have sufficient capital resources to
satisfy its obligations for the next twelve months. The Company expects to
meet its long-term liquidity requirements and possible future property
acquisitions and development, through long-term secured and unsecured
borrowings, including under the Credit Facility, and the issuance of debt
securities or additional equity securities of the Company or, possibly in
connection with acquisitions of land or improved properties, the issuance of
additional common units of the Operating Partnership.
CAPITAL EXPENDITURES
On October 31, 1997, the Company entered into an agreement with The Allen
Group, a group of affiliated real estate development and investment companies
based in Visalia, California ("The Allen Group"), to purchase through a series
of transactions office and industrial buildings with approximately 1,730,000
aggregate rentable square feet and develop approximately 750,000 rentable
square feet of office space for an aggregate purchase price of approximately
$300.0 million. The acquisition agreement with The Allen Group was based on
arms-length negotiations. Subsequent to the execution of the related
documentation, Richard S. Allen, the majority equity owner and Chief Executive
Officer of The Allen Group, was elected to serve as a director of the Company.
As of December 31, 1997, the Company completed the first phase of the
acquisitions from The Allen Group by acquiring four office and four industrial
buildings encompassing 907,000 aggregate rentable square feet for an aggregate
purchase price of approximately $80.0 million.
The second phase of such acquisitions is presently expected to consist of
the purchase of five office and three industrial properties located in
California and Nevada encompassing approximately 823,000 aggregate rentable
square feet and an estimated aggregate purchase price of approximately $120.0
million. As of March 31, 1998 the Company has completed the purchase of two
office and one industrial properties encompassing approximately 275,000
aggregate rentable square feet at an aggregate purchase price of $36.3
million. The acquisitions were financed with borrowings under the Credit
Facility and the issuance of 496,220 common limited partnership units of the
Operating Partnership. The Company presently expects the remaining
acquisitions to occur during 1998 and early 1999, pursuant to the completion
of construction and/or stabilized occupancy of the properties.
The third phase of the transaction with The Allen Group is presently
expected to consist of the development of two office projects in San Diego,
California with approximately 750,000 aggregate rentable square feet for an
estimated aggregate development cost of approximately $100.0 million. The
Company has agreed to purchase a 50% managing interest in the two projects
upon completion of all necessary entitlements and infrastructure and is
expected to manage the development of both projects. The Company has an option
to purchase The Allen Group's remaining interest in both projects for a
purchase price to be determined upon completion of the projects. The Company
presently expects development of the two office projects to commence during
the fourth quarter of 1998.
As of March 31, 1998, the Company commenced development of approximately 1.3
million rentable square feet of space at a total budgeted cost of
approximately $82.8 million. The Company has spent an aggregate of $30.4
million on these projects as of March 31, 1998. The Company intends to finance
all development with borrowings under the Credit Facility and working capital.
At March 31, 1998, the Company had escrow deposits of $16.4 million for
contemplated acquisitions of 951,000 aggregate rentable square feet of office
and industrial buildings and 139 acres of undeveloped land. The aggregate
acquisition cost of the land and buildings is estimated to be approximately
$235.0 million.
Subsequent to March 31, 1998 the Company acquired eight office buildings,
one industrial building and 30.85 acres of undeveloped land for an aggregate
purchase price of $80.6 million. The properties were acquired from
unaffiliated third parties with borrowings on the Credit Facility, except for
18 acres of undeveloped land acquired from a partnership owned by John B.
Kilroy, Sr. and John B. Kilroy, Jr., the Chairman and the President and Chief
Executive Officer, respectively, in exchange for cash and the issuance of
90,787 common limited partnership units of the Operating Partnerships valued
at $2.5 million.
13
<PAGE>
HISTORICAL CASH FLOWS
The Company's net cash from operating activities increased $16.1 million for
the three months ended March 31, 1998 compared to the three months ended March
31, 1997, from $0.3 million in 1997 to $16.4 million in 1998. The increase was
primarily due to an increase in income before depreciation and amortization,
extraordinary gain, minority interests in earnings and distributions on 8.075%
Series A Cumulative Redeemable Preferred Units of $11.5 million, an increase
in rents received in advance and tenant security deposits of $2.4 million and
a decrease in accounts payable and accrued expenses of $2.3 million. In
addition, a $1.4 million payment for the accrued cost of option buy-out and
tenant improvements was made during the three months ended March 31, 1997.
These increases in cash provided were offset primarily by an increase in
deferred leasing costs of $2.1 million.
Net cash used in investing activities increased $82.6 million to $142.2
million for the three months ended March 31, 1998 from $59.6 million for the
three months ended March 31, 1997. The increase was due primarily to the
purchase of 25 buildings and 2 acres of undeveloped land for an aggregate cost
of $135.2 million, of which $13.5 million was acquired with common units of
the Operating Partnership, and additional tenant improvements of $3.0 million
during the three months ended March 31, 1998. During the three months ended
March 31, 1997, the Company purchased 7 buildings for an aggregate cost of
$58.0 million and had additional tenant improvements of $1.6 million. Also,
during the three months ended March 31, 1998, there were payments for escrow
deposits of $11.3 million and expenditures for undeveloped land and
construction in progress of $6.2 million.
Cash flows provided by financing activities decreased $45.2 million from
$175.5 million for the three months ended March 31, 1997 to $130.3 million for
the three months ended March 31, 1998. The decrease was due to a decrease in
net proceeds from equity offerings of $243.7 million and an increase in
distributions paid of $14.3 million. These decreases were offset by and
increase in proceeds received from debt (net of repayments) of $146.5 million,
an increase in proceeds from the issuance of 8.075% Series A Cumulative
Redeemable Preferred Units of $58.4 million, a decrease in cash paid for
finance costs of $1.7 million and an increase in restricted cash and due from
affiliates of $6.3 million.
FUNDS FROM OPERATIONS
Industry analysts generally consider Funds from Operations, as defined by
the National Association of Real Estate Investment Trusts ("NAREIT"), an
alternative measure of performance for an equity REIT. Funds from Operations
is defined by NAREIT to mean net income (loss) determined in accordance with
GAAP, excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization (other than amortization of
deferred financing costs and depreciation of non-real estate assets), and
after adjustment for unconsolidated partnerships and joint ventures. The
Company believes that in order to facilitate a clear understanding of the
combined historical operating results of the Company, Funds from Operations
should be examined in conjunction with net income as presented in the
financial statements included elsewhere in this report. The Company computes
Funds from Operations in accordance with standards established by the Board of
Governors of NAREIT in its March 1995 White Paper, which may differ from the
methodologies used by other equity REITs and, accordingly, may not be
comparable to that published by such other REITs. Funds from Operations should
not be considered as an alternative to net income (loss), as an indication of
the Company's performance or to cash flows as a measure of liquidity or the
ability to pay dividends or make distributions.
14
<PAGE>
The following table presents the Company's Funds from Operations for the
quarter ended March 31, 1998 and the period from February 1, 1997 to March 31,
1997.
<TABLE>
<CAPTION>
THREE MONTHS FEBRUARY 1,
ENDED 1997 TO
MARCH 31, MARCH 31,
1998 1997
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Net income........................................ $ 8,879 $2,652
Add
Minority interest in earnings................. 1,210 486
Depreciation and amortization................. 5,854 1,744
Other......................................... 118 77
------- ------
Funds from Operations............................. $16,061 $4,959
======= ======
</TABLE>
The following table presents the Company's Funds Available for Distribution
for the quarter ended March 31, 1998 and the period from February 1, 1997 to
March 31, 1997.
<TABLE>
<CAPTION>
THREE MONTHS FEBRUARY 1,
ENDED 1997 TO
MARCH 31, MARCH 31,
1998 1997
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Funds from Operations............................ $16,061 $4,959
Adjustments
Amortization of deferred financing costs..... 206 161
Tenant improvements, leasing commissions and
recurring capital expenditures.............. (485) (212)
Net effect of straight-line rents............ (657) 5
------- ------
Funds Available for Distribution................. $15,125 $4,913
======= ======
</TABLE>
INFLATION
The majority of the Company's tenant leases require tenants to pay most
operating expenses, including real estate taxes and insurance, and increases
in common area maintenance expenses, which reduce the Company's exposure to
increases in costs and operating expenses resulting from inflation.
15
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of March 31, 1998, there were no pending legal proceedings were initiated
against or on behalf of the Company, the adverse determination of which would
have a material adverse effect upon the financial condition and results of
operations of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 1998, the Operating Partnership
issued 496,220 common limited partnership units (the "Units") with an
aggregate value of approximately $13.5 million to entities controlled by
Richard S. Allen, a member of the board of directors of the Company in
exchange for the contribution of two properties. The Units were issued in
reliance on an exemption registration requirement pursuant to regulation D
under the Securities Act of 1933 as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES--NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS--NONE
ITEM 5. OTHER INFORMATION--NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ---------------------------------------------------------------------
<C> <S>
3.1 Articles of Amendment and Restatement of the Registrant.(1)
3.2 Amended and Restated Bylaws of the Registrant.(1)
3.3 Form of Certificate for Common Stock of the Registrant.(1)
3.4 Articles Supplementary of the Registrant(10)
3.5 Registration Rights Agreement dated February 6, 1998 (10)
4.1 First Amendment to the Amended and Restated Agreement of the Limited
Partnership of Kilroy Realty, L.P., dated October 31, 1997.(8)
4.2 Registration Rights Agreement dated as of October 31, 1997.(7)
10.1 Amended and Restated Agreement of Limited Partnership of Kilroy
Realty, L.P.(1)
10.2 Form of Registration Rights Agreement among the Registrant and the
persons named therein.(1)
10.3 Omnibus Agreement, dated as of October 30, 1996, by and among Kilroy
Realty, L.P. and the parties named therein.(1)
10.4 Supplemental Representations, Warranties and Indemnity Agreement by
and among Kilroy Realty, L.P. and the parties named therein.(1)
10.5 Pledge Agreement by and among Kilroy Realty, L.P., John B. Kilroy,
Sr., John B. Kilroy, Jr. and Kilroy Industries.(1)
10.6 1997 Stock Option and Incentive Plan of the Registrant and Kilroy
Realty, L.P.(1)
10.7 Form of Indemnity Agreement of the Registrant and Kilroy Realty, L.P.
with certain officers and directors.(1)
10.8 Lease Agreement, dated January 24, 1989, by and between Kilroy Long
Beach Associates and the City of Long Beach for Kilroy Long Beach
Phase I.(1)
10.9 First Amendment to Lease Agreement, dated December 28, 1990, by and
between Kilroy Long Beach Associates and the City of Long Beach for
Kilroy Long Beach Phase I.(1)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ----------------------------------------------------------------------
<C> <S>
10.10 Lease Agreement, dated July 17, 1985, by and between Kilroy Long Beach
Associates and the City of Long Beach for Kilroy Long Beach Phase
III.(1)
10.11 Lease Agreement, dated April 21, 1988, by and between Kilroy Long
Beach Associates and the Board of Water Commissioners of the City of
Long Beach, acting for and on behalf of the City of Long Beach, for
Long Beach Phase IV.(1)
10.12 Lease Agreement, dated December 30, 1988, by and between Kilroy Long
Beach Associates and City of Long Beach for Kilroy Long Beach Phase
II.(1)
10.13 First Amendment to Lease, dated January 24, 1989, by and between
Kilroy Long Beach Associates and the City of Long Beach for Kilroy
Long Beach Phase III.(1)
10.14 Second Amendment to Lease Agreement, dated December 28, 1990, by and
between Kilroy Long Beach Associates and the City of Long Beach for
Kilroy Long Beach Phase III.(1)
10.15 First Amendment to Lease Agreement, dated December 28, 1990, by and
between Kilroy Long Beach Associates and the City of Long Beach for
Kilroy Long Beach Phase II.(1)
10.16 Third Amendment to Lease Agreement, dated October 10, 1994, by and
between Kilroy Long Beach Associates and the City of Long Beach for
Kilroy Long Beach Phase III.(1)
10.17 Development Agreement by and between Kilroy Long Beach Associates and
the City of Long Beach.(1)
10.18 Amendment No. 1 to Development Agreement by and between Kilroy Long
Beach Associates and the City of Long Beach.(1)
10.19 Ground Lease by and between Frederick Boysen and Ted Boysen and Kilroy
Industries, dated May 15, 1969, for SeaTac Office Center.(1)
10.20 Amendment No. 1 to Ground Lease and Grant of Easement, dated April 27,
1973, among Frederick Boysen and Dorothy Boysen, Ted Boysen and Rose
Boysen and Sea/Tac Properties.(1)
10.21 Amendment No. 2 to Ground Lease and Grant of Easement, dated May 17,
1977, among Frederick Boysen and Dorothy Boysen, Ted Boysen and Rose
Boysen and Sea/Tac Properties.(1)
10.22 Airspace Lease, dated July 10, 1980, by and among the Washington State
Department of Transportation, as lessor, and Sea Tac Properties, Ltd.
and Kilroy Industries, as lessee.(1)
10.23 Lease, dated April 1, 1980, by and among Bow Lake, Inc., as lessor,
and Kilroy Industries and SeaTac Properties, Ltd., as lessees for
Sea/Tac Office Center.(1)
10.24 Amendment No. 1 to Ground Lease, dated September 17, 1990, between Bow
Lake, Inc., as lessor, and Kilroy Industries and Sea/Tac Properties,
Ltd., as lessee.(1)
10.25 Amendment No. 2 to Ground Lease, dated March 21, 1991, between Bow
Lake, Inc., as lessor, and Kilroy Industries and Sea/Tac Properties,
Ltd., as lessee.(1)
10.26 Property Management Agreement between Kilroy Realty Finance
Partnership, L.P. and Kilroy Realty, L.P.(1)
10.27 Form of Environmental Indemnity Agreement.(1)
10.28 Option Agreement by and between Kilroy Realty, L.P. and Kilroy Airport
Imperial Co.(1)
10.29 Option Agreement by and between Kilroy Realty, L.P. and Kilroy
Calabasas Associates.(1)
10.30 Employment Agreement between the Registrant and John B. Kilroy, Jr.(1)
10.31 Employment Agreement between the Registrant and Richard E. Moran
Jr.(1)
10.32 Employment Agreement between the Registrant and Jeffrey C. Hawken.(1)
10.33 Employment Agreement between the Registrant and C. Hugh Greenup.(1)
10.34 Noncompetition Agreement by and between the Registrant and John B.
Kilroy, Sr.(1)
10.35 Noncompetition Agreement by and between the Registrant and John B.
Kilroy, Jr.(1)
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ----------------------------------------------------------------------
<C> <S>
10.36 License Agreement by and among the Registrant and the other persons
named therein.(1)
10.37 Form of Indenture of Mortgage, Deed of Trust, Security Agreement,
Financing Statement, Fixture Filing and Assignment of Leases, Rents
and Security Deposits.(1)
10.38 Form of Mortgage Note.(1)
10.39 Form of Indemnity Agreement.(1)
10.40 Form of Assignment of Leases, Rents and Security Deposits.(1)
10.41 Form of Credit Agreement.(1)
10.42 Form of Variable Interest Rate Indenture of Mortgage, Deed of Trust,
Security Agreement, Financing Statement, Fixture Filing and Assignment
of Leases and Rents.(1)
10.43 Form of Environmental Indemnity Agreement.(1)
10.44 Form of Assignment, Rents and Security Deposits.(1)
10.45 Revolving Credit Agreement, dated as of May 21, 1997, among Kilroy
Realty, L.P., Morgan Guaranty Trust Company of New York and the Banks
listed herein.(5)
10.46 Form of Mortgage, Deed of Trust, Security Agreement, Financing
Statement, Fixture Filing and Assignment of Leases and Rents.(1)
10.47 Assignment of Leases, Rents and Security Deposits.(1)
10.48 Purchase and Sale Agreement and Joint Escrow Instructions, dated April
30, 1997, by and between Mission Land Company, Mission-Vacaville, L.P.
and Kilroy Realty, L.P.(2)
10.49 Agreement of Purchase and Sale and Joint Escrow Instructions, dated
April 30, 1997, by and between Camarillo Partners and Kilroy Realty,
L.P.(2)
10.50 Purchase and Sale Agreement and Escrow Instructions, dated May 5,
1997, by and between Kilroy Realty, L.P. and Pullman Carnegie
Associates.(4)
10.51 Amendment to Purchase and Sale Agreement and Escrow Instructions,
dated June 27, 1997, by and between Pullman Carnegie Associates and
Kilroy Realty, L.P.(4)
10.52 Purchase and Sale Agreement, Contribution Agreement and Joint Escrow
Instructions, dated May 12, 1997, by and between Shidler West
Acquisition Company, LLC and Kilroy Realty, L.P.(3)
10.53 First Amendment to Purchase and Sale Agreement, Contribution Agreement
and Joint Escrow Instructions, dated June 6, 1997, between Kilroy
Realty, L.P. and Shidler West Acquisition Company, L.L.C. and Kilroy
Realty, L.P.(3)
10.54 Second Amendment to Purchase and Sale Agreement, Contribution
Agreement and Joint Escrow Instructions, dated June 12, 1997, by and
between Shidler West Acquisition Company, LLC and Kilroy Realty,
L.P.(3)
10.55 Agreement of Purchase and Sale and Joint Escrow Instructions, dated
June 12, 1997, by and between Mazda Motor of America, Inc. and Kilroy
Realty, L.P.(4)
10.56 Amendment to Agreement of Purchase and Sale and Joint Escrow
Instructions, dated June 30, 1997, by and between Mazda Motor of
America, Inc. and Kilroy Realty, L.P.(4)
10.57 Agreement for Purchase and Sale of 2100 Colorado Avenue, Santa Monica,
California, dated June 16, 1997, by and between Santa Monica Number
Seven Associates L.P. and Kilroy Realty L.P.(4)
10.58 First Amendment to Credit Agreement dated July 1, 1997.(5)
10.59 Second Amendment to Credit Agreement and First Amendment to Variable
Interest Rate Indenture of Mortgage, Deed of Trust, Security
Agreement, Financing Statement, Fixture Filing and Assignment of
Leases and Rent dated August 13, 1997.(5)
10.60 Purchase and Sale Agreement and Joint Escrow Instructions, dated July
10, 1997, by and between Kilroy Realty, L.P. and Mission Square
Partners.(6)
10.61 First Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated August 22, 1997.(6)
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ----------------------------------------------------------------------
<C> <S>
10.62 Second Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated September 5, 1997.(6)
10.63 Third Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated September 19, 1997.(6)
10.64 Fourth Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated September 22, 1997.(6)
10.65 Fifth Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated September 23, 1997.(6)
10.66 Sixth Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated September 25, 1997(6)
10.67 Seventh Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated September 29, 1997.(6)
10.68 Eighth Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated October 2, 1997.(6)
10.69 Ninth Amendment to the Purchase and Sale Agreement and Joint Escrow
Instructions, dated July 10, 1997, by and between Kilroy Realty, L.P.
and Mission Square Partners, dated October 24, 1997.(6)
10.70 Contribution Agreement, dated October 21, 1997, by and between Kilroy
Realty, L.P. and Kilroy Realty Corporation and The Allen Group and the
Allens. (Previously filed as exhibit 2.1 to the Registrant's Current
Report on Form 8-K dated October 29, 1997 and incorporated herein by
reference)
10.71 Purchase and Sale Agreement and Escrow Instructions, dated December
11, 1997, by and between Kilroy Realty, L.P. and Swede-Cal Properties,
Inc., Viking Investors of Southern California, L.P. and Viking
Investors of Southern California II, L.P.(9)
10.72 Second Amended and Restated Agreement of Limited Partnership of Kilroy
Realty, L.P.(10)
10.73 Revolving Credit Agreement dated as of February 24, 1998, among Kilroy
Realty, L.P., Morgan Guaranty Trust Company of New York, as Lead Agent
for the Banks and the Banks listed therein (previously filed as
exhibit 10.71 to the Registrant's Current Report on Form 8-K dated
March 30, 1998 and incorporated herein by reference).
21.1 List of Subsidiaries of the Registrant.(1)
24.1 Power of Attorney.
27.1* Financial Data Schedule.
</TABLE>
- --------
*Filed herewith.
(1) Previously filed as an exhibit to the Registration Statement on Form S-11
(No. 333-15553) as declared effective on January 28, 1997 and incorporated
herein by reference.
(2) Previously filed as Exhibit 10.11 and 10.12, respectively, to the Current
Report on Form 8-K, dated May 22, 1997, and incorporated herein by
reference.
(3) Previously filed as Exhibit 10.57, 10.58 and 10.59, respectively, to the
Current Report on Form 8-K, dated June 30, 1997, and incorporated herein
by reference.
19
<PAGE>
(4) Previously filed as Exhibit 10.54, 10.59, 10.60, 10.61 and 10.62,
respectively, to the Current Report on Form 8-K, dated June 30, 1997, and
incorporated herein by reference.
(5) Previously filed as an exhibit to the Registration Statement on Form S-11
(No. 333-32261), and incorporated herein by reference.
(6) Previously filed as an exhibit on Form 10-Q, for the quarterly period
ended September 30, 1997, and incorporated herein by reference.
(7) Previously filed as an exhibit to the Current Report on Form 8-K/A, dated
October 29, 1997, and incorporated herein by reference.
(8) Previously filed as Exhibit 10.70 and 10.71, respectively, to the Current
Report on Form 8-K, dated November 7, 1997, and incorporated herein by
reference.
(9) Previously filed as Exhibit 10.70 to the Current Report on Form 8-K, dated
December 17, 1997, and incorporated herein by reference.
(10) Previously filed as an exhibit to the Registrant's Current Report on Form
8-K dated February 6, 1998 and incorporated herein by reference.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K (No. 1-12675), dated January
7, 1998, in connection with the acquisition of an industrial building.
The Company filed a Current Report on Form 8-K, dated January 13, 1998, in
connection with the acquisition of six office buildings and four industrial
buildings.
The Company filed a Current Report on Form 8-K/A, dated January 13, 1997, in
connection with the acquisition of six office buildings and four industrial
buildings.
The Company filed a Current Report on Form 8-K, dated February 6, 1998, in
connection with the private placement of 1,200,000 8.075% Series A Cumulative
Redeemable Preferred Units of Kilroy Realty, L.P.
The Company filed a Current Report on Form 8-K, dated February 18, 1998, in
connection with the issuance of 724,888 shares of its $.01 par value per share
common stock.
The Company filed a Current Report on Form 8-K, dated February 23, 1998, in
connection with the issuance of 1,000,000 shares of its $.01 par value per
share common stock.
The Company filed a Current Report on Form 8-K, dated March 30, 1998, in
connection with the issuance of 546,697 shares of its $.01 par value per share
common stock.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on May , 1998.
Kilroy Realty Corporation
/s/ John B. Kilroy, Jr.
By: _________________________________
JOHN B. KILROY, JR.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
/s/ Richard E. Moran Jr.
By: _________________________________
RICHARD E. MORAN JR.
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
/s/ Ann Marie Whitney
By: _________________________________
ANN MARIE WHITNEY
VICE PRESIDENT AND CONTROLLER
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 13,526 8,929
<SECURITIES> 0 0
<RECEIVABLES> 7,323 7,875
<ALLOWANCES> (436) (508)
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 978,991 834,690
<DEPRECIATION> (127,075) (121,780)
<TOTAL-ASSETS> 912,709 757,654
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 267 245
<OTHER-SE> 455,739 396,905
<TOTAL-LIABILITY-AND-EQUITY> 912,709 757,654
<SALES> 0 0
<TOTAL-REVENUES> 28,951 12,025
<CGS> 0 0
<TOTAL-COSTS> 13,375 5,906
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,786 3,426
<INCOME-PRETAX> 10,790 2,693
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 10,790 2,693
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 3,204
<CHANGES> 0 0
<NET-INCOME> 8,879<F1> 5,856
<EPS-PRIMARY> 0.35 0.18
<EPS-DILUTED> 0.35 0.18
<FN>
<F1>NET INCOME IS AFTER EQUITY IN LOSS OF UNCONSOLIDATED SUBSIDIARY OF ($1) AND
MINORITY INTERESTS OF ($1,910).
</FN>
</TABLE>
