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Kilroy Realty Corporation Reports Second Quarter Financial Results

LOS ANGELES–(BUSINESS WIRE)–Kilroy Realty Corporation (NYSE: KRC) today reported financial results for its second quarter ended June 30, 2022.

Second Quarter Highlights

Financial Results

  • Revenues grew approximately 20% to $271.2 million for the quarter ended June 30, 2022, as compared to $226.0 million for the quarter ended June 30, 2021
  • Net income available to common stockholders of $47.1 million, or $0.40 per diluted share, an increase of approximately 32% as compared to $35.8 million, or $0.30 per diluted share for the quarter ended June 30, 2021
  • Funds from operations available to common stockholders and unitholders (“FFO”) of $139.4 million, or $1.17 per diluted share, an increase of approximately 33% as compared to $104.6 million, or $0.88 per diluted share for the quarter ended June 30, 2021

Stabilized Portfolio

  • Stabilized portfolio was 91.4% occupied and 93.7% leased at June 30, 2022
  • Signed approximately 249,000 square feet of new and renewing leases, including approximately 26,000 square feet in the development portfolio

    • GAAP and cash rents increased approximately 35.3% and 20.7%, respectively, from prior levels
  • In April, commenced GAAP revenue recognition on the remaining phases of the approximately 619,000 square foot 333 Dexter office development project located in Seattle’s Lake Union submarket and added the building to the stabilized portfolio
  • In July, signed approximately 73,000 square feet of new and renewing leases

Balance Sheet / Liquidity Highlights

  • As of the date of this release, the company had approximately $1.2 billion of total liquidity comprised of approximately $120.0 million of cash and cash equivalents and full availability under the $1.1 billion unsecured revolving credit facility
  • Investment grade credit rated with approximately 95% unsecured debt and no significant debt maturities until December 2024

Dividend

  • Company’s Board of Directors declared and paid a regular quarterly cash dividend on its common stock of $0.52 per share, equivalent to an annual rate of $2.08 per share

Net Income Available to Common Stockholders / FFO Guidance and Outlook

The company is providing an updated guidance range of NAREIT-defined FFO per diluted share for the full year 2022 of $4.53 to $4.63 per share, with a midpoint of $4.58 per share.

 

 

 

 

 

 

 

 

Full Year 2022 Range

 

 

 

Low End

 

High End

 

 

Net income available to common stockholders per share – diluted

$

1.68

 

 

$

1.78

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – diluted (1)

 

117,150

 

 

 

117,150

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

$

197,000

 

 

$

209,000

 

 

 

Adjustments:

 

 

 

 

 

Net income attributable to noncontrolling common units of the Operating Partnership

 

2,850

 

 

 

3,250

 

 

 

Net income attributable to noncontrolling interests in consolidated property partnerships

 

24,000

 

 

 

25,000

 

 

 

Depreciation and amortization of real estate assets

 

350,000

 

 

 

350,000

 

 

 

Funds From Operations attributable to noncontrolling interests in consolidated property partnerships

 

(35,250

)

 

 

(36,250

)

 

 

Funds From Operations (2)

$

538,600

 

 

$

551,000

 

 

 

 

 

 

 

 

 

Weighted average common shares/units outstanding – diluted (3)

 

119,000

 

 

 

119,000

 

 

 

 

 

 

 

 

 

Funds From Operations per common share/unit – diluted (3)

$

4.53

 

 

$

4.63

 

 

 

 

 

 

 

 

Key 2022 assumptions:

  • Dispositions of $200.0 million to $500.0 million
  • Same Store Cash NOI growth of 5.0% to 6.0% (4)
  • Year-end occupancy of approximately 91.0% to 92.0%
  • Total remaining development spending of approximately $300.0 million to $350.0 million

________________________

(1)

Calculated based on estimated weighted average shares outstanding including non-participating share-based awards.

(2)

See management statement for Funds From Operations at end of release.

(3)

Calculated based on weighted average shares outstanding including participating and non-participating share-based awards, dilutive impact of contingently issuable shares, and assuming the exchange of all common limited partnership units outstanding. Reported amounts are attributable to common stockholders and common unitholders.

(4)

See management statement for Same Store Cash Net Operating Income on page 33 of our Supplemental Financial Report furnished on Form 8-K with this press release.

The company’s guidance estimates for the full year 2022, and the reconciliation of net income available to common stockholders per share – diluted and FFO per share and unit – diluted included within this press release, reflect management’s views on current and future market conditions, including assumptions with respect to rental rates, occupancy levels, and the earnings impact of the events referenced in this press release. Although these guidance estimates reflect the impact on the company’s operating results of an assumed range of future disposition activity, these guidance estimates do not include any estimates of possible future gains or losses from possible future dispositions because the magnitude of gains or losses on sales of depreciable operating properties, if any, will depend on the sales price and depreciated cost basis of the disposed assets at the time of disposition, information that is not known at the time the company provides guidance, and the timing of any gain recognition will depend on the closing of the dispositions, information that is also not known at the time the company provides guidance and may occur after the relevant guidance period. We caution you not to place undue reliance on our assumed range of future disposition activity because any potential future disposition transactions will ultimately depend on the market conditions and other factors, including but not limited to the company’s capital needs, the particular assets being sold and the company’s ability to defer some or all of the taxable gain on the sales. These guidance estimates also do not include the impact on operating results from potential future acquisitions, possible capital markets activity, possible future impairment charges or any events outside of the company’s control. There can be no assurance that the company’s actual results will not differ materially from these estimates.

Conference Call and Audio Webcast

The company’s management will discuss second quarter results and the current business environment during the company’s July 28, 2022 earnings conference call. The call will begin at 10:00 a.m. Pacific Time and last approximately one hour. Those interested in listening via the Internet can access the conference call at https://events.q4inc.com/attendee/405051510. 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 (844) 200-6205 and enter access code 296795 five to 10 minutes prior to the start time to allow time for registration. International callers should dial (929) 526-1599 and enter the same passcode. In order to bypass speaking to the operator on the day of the call, please pre-register anytime at https://ige.netroadshow.com/registration/q4inc/9127/q2-2022-kilroy-realty-corporation-earnings-conference-call/. A replay of the conference call will be available via telephone on July 28, 2022 through August 4, 2022 by dialing (866) 813-9403 and entering passcode 873673. International callers should dial (929) 458-6194 and enter the same passcode. The replay will also be available on our website at http://investors.kilroyrealty.com/shareholders/investor-events/default.aspx.

About Kilroy Realty Corporation

Kilroy Realty Corporation (NYSE: KRC, the “company”, “Kilroy”) is a leading U.S. landlord and developer, with operations in San Diego, Greater Los Angeles, the San Francisco Bay Area, the Pacific Northwest and Austin, Texas. The company has earned global recognition for sustainability, building operations, innovation and design. As pioneers and innovators in the creation of a more sustainable real estate industry, the company’s approach to modern business environments helps drive creativity and productivity for some of the world’s leading technology, entertainment, life science and business services companies.

The company is a publicly traded real estate investment trust (“REIT”) and member of the S&P MidCap 400 Index with more than seven decades of experience developing, acquiring and managing office, life science and mixed-use projects.

As of June 30, 2022, Kilroy’s stabilized portfolio totaled approximately 15.8 million square feet of primarily office and life science space that was 91.4% occupied and 93.7% leased. The company also had more than 1,000 residential units in Hollywood and San Diego, which had a quarterly average occupancy of 93.7%. In addition, the company had three in-process life science redevelopment projects with total estimated redevelopment costs of $115.0 million, totaling approximately 344,000 square feet, and four in-process development projects with an estimated total investment of $1.8 billion, totaling approximately 1.9 million square feet of office and life science space. The in-process development and redevelopment office and life science space was 38% leased.

A Leader in Sustainability and Commitment to Corporate Social Responsibility

The company is listed on the Dow Jones Sustainability World Index and has been recognized by industry organizations around the world. The company’s office portfolio was 72% LEED certified and 42% Fitwel certified, and 77% of eligible properties were ENERGY STAR certified as of June 30, 2022.

The company has been recognized by GRESB as the listed sustainability leader in the Americas for eight of the last nine years. Other honors have included the National Association of Real Estate Investment Trust’s (NAREIT) Leader in the Light award for eight consecutive years and ENERGY STAR Partner of the Year for nine years as well as ENERGY STAR’s highest honor of Sustained Excellence, for the past seven years.

A big part of the company’s foundation is its commitment to enhancing employee growth, satisfaction and wellness while maintaining a diverse and thriving culture. For the third year in a row, the company has been named to Bloomberg’s Gender Equality Index—recognizing companies committed to supporting gender equality through policy development, representation, and transparency.

More information is available at http://www.kilroyrealty.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on our current expectations, beliefs and assumptions, and are not guarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult to predict, many of which are outside of our control. Accordingly, actual performance, results and events may vary materially from those indicated or implied in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results or events. Numerous factors could cause actual future performance, results and events to differ materially from those indicated in the forward-looking statements, including, among others: global market and general economic conditions, including periods of heightened inflation, and their effect on our liquidity and financial conditions and those of our tenants; adverse economic or real estate conditions generally, and specifically, in the States of California, Texas and Washington; risks associated with our investment in real estate assets, which are illiquid, and with trends in the real estate industry; defaults on or non-renewal of leases by tenants; any significant downturn in tenants’ businesses; our ability to re-lease property at or above current market rates; costs to comply with government regulations, including environmental remediation; the availability of cash for distribution and debt service and exposure to risk of default under debt obligations; increases in interest rates and our ability to manage interest rate exposure; the availability of financing on attractive terms or at all, which may adversely impact our future interest expense and our ability to pursue development, redevelopment and acquisition opportunities and refinance existing debt; a decline in real estate asset valuations, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing, and which may result in write-offs or impairment charges; significant competition, which may decrease the occupancy and rental rates of properties; potential losses that may not be covered by insurance; the ability to successfully complete acquisitions and dispositions on announced terms; the ability to successfully operate acquired, developed and redeveloped properties; the ability to successfully complete development and redevelopment projects on schedule and within budgeted amounts; delays or refusals in obtaining all necessary zoning, land use and other required entitlements, governmental permits and authorizations for our development and redevelopment properties; increases in anticipated capital expenditures, tenant improvement and/or leasing costs; defaults on leases for land on which some of our properties are located; adverse changes to, or enactment or implementations of, tax laws or other applicable laws, regulations or legislation, as well as business and consumer reactions to such changes; risks associated with joint venture investments, including our lack of sole decision-making authority, our reliance on co-venturers’ financial condition and disputes between us and our co-venturers; environmental uncertainties and risks related to natural disasters; our ability to maintain our status as a REIT; and uncertainties regarding the impact of the COVID-19 pandemic, and restrictions intended to prevent its spread, on our business and the economy generally. These factors are not exhaustive and additional factors could adversely affect our business and financial performance. For a discussion of additional factors that could materially adversely affect our business and financial performance, see the factors included under the caption “Risk Factors” in our quarterly report on Form 10-Q for the period ending June 30, 2022 to be filed on July 28, 2022 and in our annual report on Form 10-K for the year ended December 31, 2021 and our other filings with the Securities and Exchange Commission. All forward-looking statements are based on currently available information and speak only as of the dates on which they are made. We assume no obligation to update any forward-looking statement made in this press release that becomes untrue because of subsequent events, new information or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws.

KILROY REALTY CORPORATION

SUMMARY OF QUARTERLY RESULTS

(unaudited; in thousands, except per share data)

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2022

 

2021

 

2022

 

2021

Revenues

$

271,184

 

$

225,983

 

$

536,685

 

 

$

461,629

 

 

 

 

 

 

 

 

 

Net income available to common stockholders

$

47,105

 

$

35,839

 

$

100,233

 

 

$

533,470

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – basic

 

116,822

 

 

116,452

 

 

116,737

 

 

 

116,398

 

Weighted average common shares outstanding – diluted

 

117,185

 

 

116,917

 

 

117,123

 

 

 

116,860

 

 

 

 

 

 

 

 

 

Net income available to common stockholders per share – basic

$

0.40

 

$

0.30

 

$

0.85

 

 

$

4.58

 

Net income available to common stockholders per share – diluted

$

0.40

 

$

0.30

 

$

0.85

 

 

$

4.56

 

 

 

 

 

 

 

 

 

Funds From Operations (1)(2)

$

139,353

 

$

104,595

 

$

277,119

 

 

$

220,839

 

 

 

 

 

 

 

 

 

Weighted average common shares/units outstanding – basic (3)

 

118,584

 

 

118,340

 

 

118,606

 

 

 

118,337

 

Weighted average common shares/units outstanding – diluted (4)

 

118,946

 

 

118,806

 

 

118,992

 

 

 

118,798

 

 

 

 

 

 

 

 

 

Funds From Operations per common share/unit – basic (2)

$

1.18

 

$

0.88

 

$

2.34

 

 

$

1.87

 

Funds From Operations per common share/unit – diluted (2)

$

1.17

 

$

0.88

 

$

2.33

 

 

$

1.86

 

 

 

 

 

 

 

 

 

Common shares outstanding at end of period

 

 

 

 

 

116,871

 

 

 

116,454

 

Common partnership units outstanding at end of period

 

 

 

 

 

1,151

 

 

 

1,151

 

Total common shares and units outstanding at end of period

 

 

 

 

 

118,022

 

 

 

117,605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2022

 

June 30, 2021

Stabilized office portfolio occupancy rates: (5)

 

 

 

 

 

 

 

Greater Los Angeles

 

 

 

 

 

84.9

%

 

 

86.7

%

San Diego County

 

 

 

 

 

90.9

%

 

 

91.0

%

San Francisco Bay Area

 

 

 

 

 

93.1

%

 

 

94.7

%

Greater Seattle

 

 

 

 

 

97.8

%

 

 

96.5

%

Weighted average total

 

 

 

 

 

91.4

%

 

 

91.8

%

 

 

 

 

 

 

 

 

Total square feet of stabilized office properties owned at end of period: (5)

 

 

 

 

 

 

 

Greater Los Angeles

 

 

 

 

 

4,422

 

 

 

4,410

 

San Diego County

 

 

 

 

 

2,174

 

 

 

2,410

 

San Francisco Bay Area

 

 

 

 

 

6,212

 

 

 

5,528

 

Greater Seattle

 

 

 

 

 

3,000

 

 

 

1,804

 

Total

 

 

 

 

 

15,808

 

 

 

14,152

 

________________________

(1)

Reconciliation of Net income available to common stockholders to Funds From Operations available to common stockholders and unitholders and management statement on Funds From Operations are included after the Consolidated Statements of Operations.

(2)

Reported amounts are attributable to common stockholders, common unitholders and restricted stock unitholders.

(3)

Calculated based on weighted average shares outstanding including participating share-based awards (i.e. nonvested stock and certain time based restricted stock units) and assuming the exchange of all common limited partnership units outstanding.

(4)

Calculated based on weighted average shares outstanding including participating and non-participating share-based awards, dilutive impact of stock options and contingently issuable shares, and assuming the exchange of all common limited partnership units outstanding.

(5)

Occupancy percentages and total square feet reported are based on the company’s stabilized office portfolio for the periods presented. Occupancy percentages and total square feet shown for June 30, 2021 include the office properties that were sold subsequent to June 30, 2021.

KILROY REALTY CORPORATION

CONSOLIDATED BALANCE SHEETS

(unaudited; in thousands)

 

 

 

 

 

June 30, 2022

 

December 31, 2021

ASSETS

 

 

 

REAL ESTATE ASSETS:

 

 

 

Land and improvements

$

1,713,152

 

 

$

1,731,982

 

Buildings and improvements

 

7,530,547

 

 

 

7,543,585

 

Undeveloped land and construction in progress

 

2,272,508

 

 

 

2,017,126

 

Total real estate assets held for investment

 

11,516,207

 

 

 

11,292,693

 

Accumulated depreciation and amortization

 

(2,104,990

)

 

 

(2,003,656

)

Total real estate assets held for investment, net

 

9,411,217

 

 

 

9,289,037

 

 

 

 

 

Cash and cash equivalents

 

210,044

 

 

 

414,077

 

Restricted cash

 

13,008

 

 

 

13,006

 

Marketable securities

 

22,988

 

 

 

27,475

 

Current receivables, net

 

13,268

 

 

 

14,386

 

Deferred rent receivables, net

 

435,549

 

 

 

405,665

 

Deferred leasing costs and acquisition-related intangible assets, net

 

217,026

 

 

 

234,458

 

Right of use ground lease assets

 

126,587

 

 

 

127,302

 

Prepaid expenses and other assets, net

 

65,554

 

 

 

57,991

 

TOTAL ASSETS

$

10,515,241

 

 

$

10,583,397

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

LIABILITIES:

 

 

 

Secured debt, net

$

245,680

 

 

$

248,367

 

Unsecured debt, net

 

3,822,482

 

 

 

3,820,383

 

Accounts payable, accrued expenses and other liabilities

 

357,253

 

 

 

391,264

 

Ground lease liabilities

 

125,277

 

 

 

125,550

 

Accrued dividends and distributions

 

61,880

 

 

 

61,850

 

Deferred revenue and acquisition-related intangible liabilities, net

 

176,845

 

 

 

171,151

 

Rents received in advance and tenant security deposits

 

73,273

 

 

 

74,962

 

Total liabilities

 

4,862,690

 

 

 

4,893,527

 

 

 

 

 

EQUITY:

 

 

 

Stockholders’ Equity

 

 

 

Common stock

 

1,169

 

 

 

1,165

 

Additional paid-in capital

 

5,151,705

 

 

 

5,155,232

 

Retained earnings

 

260,020

 

 

 

283,663

 

Total stockholders’ equity

 

5,412,894

 

 

 

5,440,060

 

Noncontrolling Interests

 

 

 

Common units of the Operating Partnership

 

53,289

 

 

 

53,746

 

Noncontrolling interests in consolidated property partnerships

 

186,368

 

 

 

196,064

 

Total noncontrolling interests

 

239,657

 

 

 

249,810

 

Total equity

 

5,652,551

 

 

 

5,689,870

 

TOTAL LIABILITIES AND EQUITY

$

10,515,241

 

 

$

10,583,397

 

KILROY REALTY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited; in thousands, except per share data)

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

REVENUES

 

 

 

 

 

 

 

Rental income

$

268,576

 

 

$

224,473

 

 

$

531,784

 

 

$

459,129

 

Other property income

 

2,608

 

 

 

1,510

 

 

 

4,901

 

 

 

2,500

 

Total revenues

 

271,184

 

 

 

225,983

 

 

 

536,685

 

 

 

461,629

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

Property expenses

 

49,922

 

 

 

40,482

 

 

 

95,346

 

 

 

79,341

 

Real estate taxes

 

25,433

 

 

 

22,109

 

 

 

51,303

 

 

 

47,375

 

Ground leases

 

1,876

 

 

 

2,023

 

 

 

3,702

 

 

 

3,851

 

General and administrative expenses

 

22,120

 

 

 

24,507

 

 

 

44,901

 

 

 

46,492

 

Leasing costs

 

1,447

 

 

 

883

 

 

 

2,460

 

 

 

1,575

 

Depreciation and amortization

 

96,415

 

 

 

73,589

 

 

 

185,075

 

 

 

149,521

 

Total expenses

 

197,213

 

 

 

163,593

 

 

 

382,787

 

 

 

328,155

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSES)

 

 

 

 

 

 

 

Interest and other income, net

 

125

 

 

 

1,337

 

 

 

206

 

 

 

2,710

 

Interest expense

 

(20,121

)

 

 

(21,390

)

 

 

(40,746

)

 

 

(43,724

)

Gains on sales of depreciable operating properties

 

 

 

 

543

 

 

 

 

 

 

457,831

 

Total other (expenses) income

 

(19,996

)

 

 

(19,510

)

 

 

(40,540

)

 

 

416,817

 

 

 

 

 

 

 

 

 

NET INCOME

 

53,975

 

 

 

42,880

 

 

 

113,358

 

 

 

550,291

 

 

 

 

 

 

 

 

 

Net income attributable to noncontrolling common units of the Operating Partnership

 

(515

)

 

 

(354

)

 

 

(1,031

)

 

 

(5,240

)

Net income attributable to noncontrolling interests in consolidated property partnerships

 

(6,355

)

 

 

(6,687

)

 

 

(12,094

)

 

 

(11,581

)

Total income attributable to noncontrolling interests

 

(6,870

)

 

 

(7,041

)

 

 

(13,125

)

 

 

(16,821

)

 

 

 

 

 

 

 

 

NET INCOME AVAILABLE TO COMMON STOCKHOLDERS

$

47,105

 

 

$

35,839

 

 

$

100,233

 

 

$

533,470

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding – basic

 

116,822

 

 

 

116,452

 

 

 

116,737

 

 

 

116,398

 

Weighted average common shares outstanding – diluted

 

117,185

 

 

 

116,917

 

 

 

117,123

 

 

 

116,860

 

 

 

 

 

 

 

 

 

Net income available to common stockholders per share – basic

$

0.40

 

 

$

0.30

 

 

$

0.85

 

 

$

4.58

 

Net income available to common stockholders per share – diluted

$

0.40

 

 

$

0.30

 

 

$

0.85

 

 

$

4.56

 

KILROY REALTY CORPORATION

FUNDS FROM OPERATIONS

(unaudited; in thousands, except per share data)

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

Net income available to common stockholders

$

47,105

 

 

$

35,839

 

 

$

100,233

 

 

$

533,470

 

Adjustments:

 

 

 

 

 

 

 

Net income attributable to noncontrolling common units of the Operating Partnership

 

515

 

 

 

354

 

 

 

1,031

 

 

 

5,240

 

Net income attributable to noncontrolling interests in consolidated property partnerships

 

6,355

 

 

 

6,687

 

 

 

12,094

 

 

 

11,581

 

Depreciation and amortization of real estate assets

 

94,718

 

 

 

72,037

 

 

 

181,719

 

 

 

146,468

 

Gains on sales of depreciable real estate

 

 

 

 

(543

)

 

 

 

 

 

(457,831

)

Funds From Operations attributable to noncontrolling interests in consolidated property partnerships

 

(9,340

)

 

 

(9,779

)

 

 

(17,958

)

 

 

(18,089

)

Funds From Operations(1)(2)(3)

$

139,353

 

 

$

104,595

 

 

$

277,119

 

 

$

220,839

 

 

 

 

 

 

 

 

 

Weighted average common shares/units outstanding – basic (4)

 

118,584

 

 

 

118,340

 

 

 

118,606

 

 

 

118,337

 

Weighted average common shares/units outstanding – diluted (5)

 

118,946

 

 

 

118,806

 

 

 

118,992

 

 

 

118,798

 

 

 

 

 

 

 

 

 

Funds From Operations per common share/unit – basic (2)

$

1.18

 

 

$

0.88

 

 

$

2.34

 

 

$

1.87

 

Funds From Operations per common share/unit – diluted (2)

$

1.17

 

 

$

0.88

 

 

$

2.33

 

 

$

1.86

 

________________________

(1)

We calculate Funds From Operations available to common stockholders and common unitholders (“FFO”) in accordance with the 2018 Restated White Paper on FFO approved by the Board of Governors of NAREIT. The White Paper defines FFO as net income or loss calculated in accordance with GAAP, excluding extraordinary items, as defined by GAAP, gains and losses from sales of depreciable real estate and impairment write-downs associated with depreciable real estate, plus real estate-related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets) and after adjustment for unconsolidated partnerships and joint ventures. Our calculation of FFO includes the amortization of deferred revenue related to tenant-funded tenant improvements and excludes the depreciation of the related tenant improvement assets. We also add back net income attributable to noncontrolling common units of the Operating Partnership because we report FFO attributable to common stockholders and common unitholders.

 

 

 

We believe that FFO is a useful supplemental measure of our operating performance. The exclusion from FFO of gains and losses from the sale of operating real estate assets allows investors and analysts to readily identify the operating results of the assets that form the core of our activity and assists in comparing those operating results between periods. Also, because FFO is generally recognized as the industry standard for reporting the operations of REITs, it facilitates comparisons of operating performance to other REITs. However, other REITs may use different methodologies to calculate FFO, and accordingly, our FFO may not be comparable to all other REITs.

 

 

 

Implicit in historical cost accounting for real estate assets in accordance with GAAP is the assumption that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies using historical cost accounting alone to be insufficient. Because FFO excludes depreciation and amortization of real estate assets, we believe that FFO along with the required GAAP presentations provides a more complete measurement of our performance relative to our competitors and a more appropriate basis on which to make decisions involving operating, financing and investing activities than the required GAAP presentations alone would provide.

 

 

 

However, FFO should not be viewed as an alternative measure of our operating performance because it does not reflect either depreciation and amortization costs or the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, which are significant economic costs and could materially impact our results from operations.

 

 

(2)

Reported amounts are attributable to common stockholders and common unitholders.

 

 

(3)

FFO available to common stockholders and unitholders includes amortization of deferred revenue related to tenant-funded tenant improvements of $4.9 million and $4.7 million for the three months ended June 30, 2022 and 2021, respectively, and $9.2 million and $8.9 million for the six months ended June 30, 2022 and 2021, respectively..

 

 

(4)

Calculated based on weighted average shares outstanding including participating share-based awards (i.e. certain time based restricted stock units) and assuming the exchange of all common limited partnership units outstanding.

 

 

(5)

Calculated based on weighted average shares outstanding including participating and non-participating share-based awards, dilutive impact of stock options and contingently issuable shares, and assuming the exchange of all common limited partnership units outstanding.