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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 10, 1998
KILROY REALTY CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Maryland Commission File Number: 1-12675 95-4598246
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
2250 East Imperial Highway, Suite 1200, El Segundo, California 90245
(Address of principal executive offices)
Registrant's telephone number, including area code: (310) 563-5500
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ITEM 5. OTHER EVENTS
On April 10, 1998, the Company acquired seven office buildings totaling
411,402 rentable square feet on 29 acres of land in San Diego, California. The
property acquisition was not individually a significant acquisition at the time
of acquisition or at the date of this filing pursuant to the rules governing the
reporting of transactions on Form 8-K. However, since during 1998 the Company
consummated a series of transactions to acquire 34 operating buildings in 14
separate transactions for a total purchase price of $174.6 million which in
aggregate were significant pursuant to Rule 3-14 of Regulation S-X under the
Securities Exchange Act of 1934, the Company is hereby filing the financial
information indicated under Rule 3-14 and Article 11 and of Regulation S-X under
the Securities Exchange Act of 1934 for this acquisition.
The seven office buildings acquired on April 10, 1998 are 87% leased at the
date of this filing at an average annual rental rate of $10.70 per square foot.
The properties were purchased from LMP Properties, Ltd., an unaffiliated entity,
for approximately $54.6 million in cash based on arms length negotiations. The
acquisition was financed with borrowings on the Company's unsecured revolving
credit facility.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Properties Acquired.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Kilroy Realty Corporation:
We have audited the accompanying combined historical summary of certain
revenues and certain expenses (the "Historical Summary") of the April 1998
Acquisition (as described in Note 1) for the year ended December 31, 1997. This
Historical Summary is the responsibility of the April 1998 Acquisition's
management. Our responsibility is to express an opinion on the Historical
Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the Historical Summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the Historical
Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and for
inclusion in Form 8-K of Kilroy Realty Corporation as described in Note 1 to the
Historical Summary and is not intended to be a complete presentation of the
April 1998 Acquisition revenues and expenses.
In our opinion, such Historical Summary presents fairly, in all material
respects, the combined certain revenues and certain expenses described in Note 1
to the Historical Summary of the April 1998 Acquisition for the year ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Los Angeles, California
June 12, 1998
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APRIL 1998 ACQUISITION
COMBINED HISTORICAL SUMMARY OF CERTAIN REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1997
(In thousands)
<TABLE>
<S> <C>
CERTAIN REVENUES:
Rental revenues (Note 2) .............................................. $4,905
------
CERTAIN EXPENSES:
Property expenses ..................................................... 550
Real estate taxes ..................................................... 382
------
Total certain expenses ............................................. 932
------
CERTAIN REVENUES IN EXCESS OF CERTAIN EXPENSES .......................... $3,973
======
</TABLE>
See notes to combined historical summary of certain revenues and certain
expenses.
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APRIL 1998 ACQUISITION
NOTES TO COMBINED HISTORICAL SUMMARY OF CERTAIN REVENUES
AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1997
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The combined historical summary of certain revenues and certain expenses
relates to the operations of the following properties which were acquired on
April 10, 1998 by Kilroy Realty Corporation (the "Company") from an unaffiliated
party in a single transaction (the "April 1998 Acquisition"). The properties
were purchased for approximately $54.6 million, and the transaction was financed
using borrowings on the Company's unsecured revolving credit facility. Each
property is located in San Diego, California.
Property Address
----------------
10398 Pacific Center Court
10394 Pacific Center Court
10455 Pacific Center Court
10445 Pacific Center Court
10421 Pacific Center Court
10350 Barnes Canyon
10120 Pacific Heights
Operating revenues and direct operating expenses are presented on the accrual
basis of accounting. The accompanying historical summary of certain revenues and
certain expenses is not representative of the actual operations for the year
presented as certain revenues and expenses which may not be comparable to the
revenues and expenses expected to be incurred by the Company in the proposed
future operations of the properties have been excluded. Revenues and expenses
excluded consist of other income, interest, depreciation and amortization and
professional fees not directly related to the future operations of the
properties.
Revenue Recognition
All tenant leases are classified as operating leases, and rental revenue is
recognized on a straight-line basis over the terms of the respective leases.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of revenues and expenses. Actual results could
differ from those estimates.
2. OPERATING LEASES
The properties are leased to tenants under operating leases with expiration
dates extending to the year 2008. The leases at these buildings are written on a
triple net or modified gross basis, with the tenants responsible for their pro
rata share of common area expenses and real estate taxes. Future minimum
rentals under noncancelable operating leases, excluding tenant reimbursements of
operating expenses, as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, (In Thousands)
<S> <C>
1998 ..................... $ 4,406
1999 ..................... 4,042
2000 ..................... 3,809
2001 ..................... 3,872
2002 ..................... 4,010
Thereafter ............... 13,368
-------
Total ................. $33,507
=======
</TABLE>
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(b) Pro forma financial information.
KILROY REALTY CORPORATION
PRO FORMA FINANCIAL INFORMATION
In a single transaction on April 10, 1998, the Company acquired seven office
building on 29 acres of land ("April 1998 Acquisition") for an aggregate
purchase price of $54.6 million which was financed with borrowings under the
Company's revolving unsecured line of credit. The unaudited pro forma condensed
consolidated balance sheet at December 31, 1997 is presented as if the April
1998 Acquisition and the related borrowing of $54.6 million under the revolving
unsecured line of credit had occurred on January 1, 1997. Such pro forma
information is based upon the balance sheet of the Company at December 31, 1997.
The unaudited pro forma condensed consolidated statement of operations for the
year ended December 31, 1997 was prepared as if the April 1998 Acquisition had
occurred on January 1, 1997.
During the year ended December 31, 1998, the Company consummated a series of
transactions to acquire 34 operating buildings in 14 separate transactions (the
"1998 Acquisitions"), for an aggregate purchase price of $174.6 million. The
accompanying unaudited pro forma condensed consolidated statement of operations
for the year ended December 31, 1998 was prepared as if the 1998 Acquisitions
had occurred on January 1, 1998.
These statements should be read in conjunction with the respective
consolidated financial statements and notes thereto included in the Company's
Annual Reports on Form 10-K for the years ended December 31, 1998 and 1997. In
the opinion of management, the unaudited, pro forma condensed consolidated
financial information provides for all adjustments necessary to reflect the
effects of these transactions.
These pro forma statements may not necessarily be indicative of the results
that would have actually occurred if the acquisitions had occurred on the dates
indicated, nor does it purport to present the financial position, results of
operations or cash flows for future periods.
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KILROY REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(Unaudited, Dollars in thousands)
<TABLE>
<CAPTION>
Kilroy Realty
Kilroy Realty April Corporation
Corporation 1998 Pro Forma
Historical Acquisition Consolidated
--------------- ------------- -------------
ASSETS
<S> <C> <C> <C>
Investment in real estate, net ................................................. $ 712,910 $ 54,613 (A) $ 767,523
Cash and cash equivalents ...................................................... 8,929 203 (B) 9,132
Restricted cash ................................................................ 5,680 5,680
Tenant receivables, net ........................................................ 7,367 7,367
Investment in subsidiary ....................................................... 123 123
Escrow deposits ................................................................ 5,114 5,114
Deferred charges and other assets, net ......................................... 17,531 17,531
--------------- ------------ -------------
Total ............................................................... $ 757,654 $ 54,816 $ 812,470
=============== ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage debt................................................................... $ 131,363 $ 131,363
Line of credit.................................................................. 142,000 54,613 (A) 196,613
Accounts payable and accrued expenses........................................... 9,711 9,711
Accrued distributions........................................................... 10,804 10,804
Rent received in advance and tenant security deposits........................... 11,441 203 (B) 11,644
--------------- ------------ --------------
Total liabilities...................................................... 305,319 54,816 360,135
--------------- ------------ --------------
Minority interests................................................................ 55,185 55,185
--------------- --------------
Stockholders' equity:
Common stock.................................................................... 245 245
Additional paid-in capital...................................................... 403,163 403,163
Distributions in excess of earnings............................................. (6,258) (6,258)
--------------- --------------
Total stockholders' equity............................................. 397,150 397,150
--------------- ------------- --------------
Total.................................................................. $ 757,654 $ 54,816 $ 812,470
=============== ============= ==============
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
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KILROY REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Unaudited, dollars in thousands, except share data)
<TABLE>
<CAPTION>
Kilroy
Kilroy Realty
Group Corporation
January 1, February 1,
1997 to 1997 to
January 31, December 31, April Company Pro
1997 1997 1998 Pro Forma Forma
Historical Historical Acquisition Adjustments Consolidated
------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental income............................................... $2,760 $ 56,069 $4,905 $ 63,734
Tenant reimbursements....................................... 275 5,600 5,875
Development and management fees............................. 14 14
Interest income............................................. 3,571 3,571
Other income................................................ 4 889 893
------------ ------------ ----------- ------------ -----------
Total revenues.............................................. 3,053 66,129 4,905 74,087
------------ ------------ ----------- ------------ -----------
EXPENSES:
Property expenses........................................... 579 8,770 550 9,899
Real estate taxes........................................... 106 3,048 382 $ 164 (C) 3,700
General and administrative expenses......................... 78 4,949 5,027
Ground leases............................................... 64 938 1,002
Development and management expenses......................... 46 46
Interest expense............................................ 1,895 9,738 4,096 (D) 15,729
Depreciation and amortization............................... 787 13,236 1,132 (E) 15,155
------------ ------------ ----------- ------------ -----------
Total expenses.............................................. 3,555 40,679 932 5,392 50,558
------------ ------------ ----------- ------------ -----------
(Loss) income from operations before equity in income
of unconsolidated subsidiary, minority interest and
extraordinary gains........................................ (502) 25,450 3,973 (5,392) 23,529
Equity in income of unconsolidated subsidiary............... 23 23
Minority interests.......................................... (3,413) 173 (F) (3,240)
------------ ------------ ----------- ------------ -----------
Net income (loss) from continuing operations................ $ (502) $ 22,060 $3,973 $(5,219) $ 20,312
============ ============ =========== ============ ===========
Weighted average shares outstanding--basic.................. 18,445,149 18,445,149
============ ===========
Weighted average shares outstanding--diluted................ 18,539,299 18,539,299
============ ===========
Pro forma net income from continuing operations per common.. $1.20 $1.10
share--basic............................................... ============ ===========
Pro forma net income from continuing operations per common.. $1.19 $1.10
share--diluted............................................. ============ ===========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
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KILROY REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Unaudited, dollars in thousands)
PRO FORMA ADJUSTMENTS
(A) Reflects the purchase price and closing costs of the April 1998
Acquisition, which was acquired from LMP Properties Ltd. The April 1998
Acquisition was accounted for as a purchase transaction. The acquisition
was financed with borrowings on the Company's unsecured line of credit. The
cost of the acquisition is allocated as follows:
<TABLE>
<S> <C>
Land ................................................... $14,979
Buildings .............................................. 39,634
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$54,613
=======
</TABLE>
(B) Represents tenant security deposits received.
(C) Represents incremental property taxes on the April 1998 Acquisition due to
the change of ownership.
(D) Represents the incremental interest expense associated with the increased
borrowings outstanding on the line of credit based on the line of credit
average interest rate of 7.5% for the year ended December 31, 1997.
(E) Represents depreciation expense calculated based on the cost allocated to
buildings of the April 1998 Acquisition depreciated on the straight-line
method over a 35 year life.
(F) Adjustment to reflect the 12.2% minority interest in the Operating
Partnership owned by the holders of common limited partnership units in the
Operating Partnership.
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KILROY REALTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(Unaudited, dollars in thousands, except share data)
<TABLE>
<CAPTION>
Kilroy
Realty Pre-Acquisition
Corporation Period for Company
Consolidated the 1998 Pro Forma Pro Forma
Historical Acquisitions Adjustments Consolidated
------------ ---------------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Rental income ................................................... $ 117,338 $3,276 $ 120,614
Tenant reimbursements ........................................... 14,152 26 14,178
Interest income ................................................. 2,334 2,334
Other income .................................................... 2,460 2,460
----------- ------ -----------
Total revenues .................................................. 136,284 3,302 139,586
----------- ------ -----------
EXPENSES:
Property expenses ............................................... 19,281 404 19,685
Real estate taxes ............................................... 9,579 119 $ 54 (A) 9,752
General and administrative expenses ............................. 7,739 7,739
Ground leases ................................................... 1,223 2 1,225
Provision for potentially unrecoverable pre-development costs ... 1,700 1,700
Interest expense ................................................ 20,568 2,160 (B) 22,728
Depreciation and amortization ................................... 26,200 504 (C) 26,704
----------- ------ ------- -----------
Total expenses .................................................. 86,290 525 2,718 89,533
----------- ------ ------- -----------
Income (loss) from operations before equity in income
of unconsolidated subsidiary, minority interest and extraordinary
gains .......................................................... 49,994 2,777 (2,718) 50,053
----------- ------ ------- -----------
Equity in income of unconsolidated subsidiary ................... 5 5
----------- -----------
Minority interests:
Distributions on Cumulative Redeemable Preferred Units........... (5,556) (5,556)
Minority interest in earnings.................................... (5,621) (251)(D) (5,872)
----------- ------- -----------
Total minority interests.......................................... (11,177) (251) (11,428)
----------- ------ ------- -----------
Net income (loss) ............................................... $ 38,822 $2,777 $(2,969) $ 38,630
=========== ====== ======= ===========
Weighted average shares outstanding--basic ...................... 26,989,422 26,989,422
========== ===========
Weighted average shares outstanding--diluted .................... 27,059,988 27,059,988
========== ===========
Pro forma net income per common share--basic .................... $1.44 $1.43
=========== ===========
Pro forma net income per common share--diluted .................. $1.43 $1.43
=========== ===========
</TABLE>
PRO FORMA ADJUSTMENTS
(A) Represents incremental property taxes on the 1998 Acquisitions due to the
change of ownership.
(B) Represents the incremental interest expense associated with the increased
borrowings outstanding on the line of credit based on the line of credit
weighted average interest rate of 6.9% for the year ended December 31,
1998.
(C) Represents adjustment to reflect 12 months of depreciation expense
calculated based on the cost allocated to buildings of $181,474 of the 1998
Acquisitions depreciated on the straight-line method over a 35 year life.
(D) Adjustment to reflect the 13.2% minority interest in the Operating
Partnership owned by the holders of units in the Operating Partnership.
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(c) Exhibits.
Exhibit
Number Description
- ------- -----------
*23.1 Consent of Deloitte & Touche LLP
- --------
*Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
KILROY REALTY CORPORATION
By: /s/ Ann Marie Whitney
-----------------------------
Ann Marie Whitney
Vice-President and Controller
Date: July 9, 1999
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-77739 on Form S-8 of Kilroy Realty Corporation, Amendment No. 1 to
Registration Statement No. 333-45097 of Kilroy Realty Corporation on Form S-3,
and Registration Statement No. 333-43227 of Kilroy Realty Corporation on Form
S-8 of our report on the April 1998 Acquisition dated June 12, 1998, appearing
in this Current Report on Form 8-K of Kilroy Realty Corporation dated July 9,
1999.
/s/ Deloitte & Touche LLP
Los Angeles, California
July 9, 1999
