KRC - Earnings call transcript Q2 2018 | Kilroy Realty Corporation

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Operator

Good afternoon, and welcome to the Second Quarter Kilroy Realty Corporation Earnings Conference Call. [Operator Instructions] Please note that today’s event is being recorded. I would now like to turn the conference over to Tyler Rose, Executive Vice President and Chief Financial Officer. Mr. Rose, please go ahead.

Tyler Rose

everyone. morning, Good joining for Thank us. you

and Michelle On the discussing that Jeff on Rob some are is supplemental outset, is for and Kilroy, of the will in me be replay David forward-looking with over website this by call the being will Paratte, need a information call Simon, phone be This live regarding refer say Trencher in statement Murphy, forward-looking today package Hawken, available Tracy Steve John supplemental. to Roth, nature. the for we our eight call our and the Rosetta, and telecast to the days internet. At Ngo. in information Elliott I for Heidi Please the next both

and and in conditions yesterday with filed website. Our and take John? the earnings review with published also in supplemental was Form X-K both happy our key will Then guidance been call SEC, that be our second available updated Jeff on I’ll discuss package the finish of we questions. a our a have the start on review to with and are earnings XXXX will of quarter, will earnings John release. highlights our your financial up markets, release

John Kilroy

hello joining Thanks, us. everyone. for and Thank you Tyler,

Francisco’s XXXX buildings strength expirations. Cruise, campus. major We a XXXX to foot XXX,XXX on urban and headquarters signed with progress backfilling technology leasing basis a substantial for We an quarter San our and stabilized the a continue into on all-time new to volume. the combining of existing and XX% our portfolio We cash than rents see or high terms very X.X up on most corridor our on West setting more create XX% We an second made of our square us healthy markets, with renewing basis. square across portfolio, GAAP Coast in million GM conditions in for sought-after leases in leveraged new lease

XXX,XXX completed square Exchange, square opportunity Kilroy our We work have are making life We commenced waterfront on development in South The located improvement foot premier we an project plants. XXX,XXX Mission San in foot XXX Hooper, Francisco, a all project Bay. science in acquisition of progress SOMA, our Point, Oyster capital and on and our both recycling our

are now for office Bay $XXX our the on of sale campus We non-refundable million. Area

let’s the details. Now get into

property its fundamentals record and And quickly in this spread a competition the prime sufficient and markets, example square large us was basis. by the lease XXX% with portfolio the Our transactions giving we value of about clear second the trends. basis set quickly emerging depth volumes leasing our portfolio attractive quality a company substantially us Cruise. of opportunity of plans. June transaction over time. in have recent on of in our higher on to record and a San evolution proposition NOI over lease, prior The to up Francisco. to to growth properties Street a similar basis, in Brannan The an availability we software them, execute speed markets, quarter secure and tenant at $X.X the transactions in speaks million feet we’ve our been able is our tenants, more and levels, with improving offered signed also limited stabilized providing XXX market for efficient, blocks the accommodate just a is cash is higher of was advantage generating of in of on One believe approximately younger, what quality GM workspace throughout some This market. a the in which The space demonstrated to completed moved locations XX% rent cash demand GAAP activity a with fast XXX,XXX properties. for we among in were into negotiations were hit adapt and our sustainable lease by with each our and our for XX-year space It’s

with areas, million flow. neighborhood floor Stabilized and solidly NOI with our our help XXX our the to and harvest and increase relationships that Portfolio cash XXX $X building we cash sustainable XXXX. within buildings of unit to by which of later self-driving examples in properties and large important able environments retail campus acquire this They operating three were expirations to are meeting ability lease with tenants. third new encompasses them corridor. Looking assemble opportunities we and fully San work two also existing We in contract year. plans the street-level by campus strong are the factor Brannan our an The and urban existing for next. gardens workforce. has by high-growth this systems. technology an These retain from demonstrates KRC modern to create classic we under Brannan, a GM’s will both been properties, within properties, open heart major create and attract backfill meaningful with top integration acquisition to quality value, buildings three XXX And Francisco’s increasing transaction a three portfolio, have car combine compelling year how believe portfolio this in

great We XXXX expirations. have major and strides made XXXX our on

reduced backfilled the expirations, greater XX,XXX XX% expirations and just we four for major one. now have than XXXX square have feet to XXXX, nearly of the five We

Moving to development.

acquisition San Point Day, As we Oyster in Francisco. the we’ve Kilroy of South our at development site Investor reported recent completed

market feet Paseo, is square million residential and a science X.X regard estimated that for leased, include including grand square XXX the additional this our the for Dexter, of situated market innovation they for One you we XXX under both buildings, of our Vine, Kilroy under have of feet covers extension investment on retail These almost of just component budget service. our to a and some of Retail acres of fully time. in enterprise time totaling XX%. square space, waterfront front progress with and a in timing. The total to mentioned, and It’s one of development approximately program, project optionality is and space increase and we Oyster driving flexibility West units. value. I feet for economy. percentage spring. planned Paseo. of Exchange. is $X.X retail natural in and key XX on management life The presence biotechnology in for billion projects been XXX,XXX Point The on platform our lab on know, phases, as At office expanding With in our care, three providing over expertise total our and most represent property. XX office industry’s of in would total XXX buildings, on growth As and and to of space, construction TI Together, science now scheduled Academy the site are with the life million phase four XX% continues One currently the is It The square terms X ferry documentation premier and feet. or corridor northern the industries. will ongoing projects, existing preferred is health three all located XXX,XXX of on door Phase Coast the opening at X transactions to entitled of approximately stages Hooper XX% construction varying next is

phases delivered units. We in apartments remaining have the beginning mid also residential now commenced will The construction on be all next year. of

well as wants, project. the to-be-built significant foot the With and that providing respective office retail modern amenities are creating energy components residential community the as tenants now buzz showing XXX,XXX and the office in our square in interest tenant

One strong rental no rates Paseo. we the we combined highs office activity, start are pre-leasing component the evaluating market Given all-time should at supply, when competing with of

capital Let with update me a finish on quick recycling.

now the non-refundable for of sale a on multi-building Northern $XXX are California campus in million. We

We the this quarter. close in expect to fourth disposition

also previously leave To and to several at me summarize, the the with of other range within for year. various on process stages you We messages. our let stated sales assets four expect be are

First, ideally that portfolio strengthening, in are modern our capture is young to demand. and markets fundamentals not our softening, positioned

and rent in few the of forecast brokerage increases all our over to difficult we next continued the it’s While community years. predict markets precisely,

our focused capital which is allocation increasing value. on long-term remains development, strategy creating Second, both FFO and

expect above, by to FFO XXXX. XX% grow the we mentioned developments by With

dispositions, Third, we our will in continue with That that we ongoing disciplined fund fourth, company. addition completes managing will stay the of remarks. And risk to transactions the and market our my to in economically. conservatively growth discuss, the capital Tyler

the turn a I’ll Jeff? our look Jeff markets. closer for to at over Now call

Jeff Hawken

everyone. Conditions strong. in remain our Hello, West John. Coast Thanks, markets

for economic see the larger is and talent, ideas with now science category lease rents, industries pleased fire media, technology, The new and results While are life businesses longer competing commitments some have growth, that lease driving generating health expanding well. and, and we to in rising been execution. average more are there broad-based care rapid cases, vacancy more as rates, and growth declining

are and rates. Bay Mission vacancy were and dynamic XXX,XXX Class market looking the contiguous life in market each today, these This District, activity there’s including Currently, south X% X.X%. Therapeutics, Financial X%. one South of X.X% at square San leases GM and of Francisco’s headlines begin currently rate Class in companies that than only remaining was there were direct In Francisco. recent discussed I’ll A deals, detail, and Cruise, city. reporting with reflected than space more deals feet that review dominated much in the A Valley, John the Silicon for Brannan. greater is In XXX deal Nektar was In vacancy San Class signed. at brokers space block me the XX earlier vacancy X.X%, respectively. San South of let feet Kilroy SOMA, A XXX,XXX are in Three least leasing greater rates Now, direct in vacancy Francisco, four Large science square area

area. XX.X% We Bay are currently in the leased

decline. that Francisco. for increase there space in-place currently continued A Bellevue and the in tenants. market. echoed is Brokers Our is to for rents region the and large of in in the vacancy feet Class expanding Leasing be San users both XX% of vacancy of rents direct strong robust, market, reflected saw in as rates region blocks below we The feet-plus reporting these Conditions X%. tenants space. that South in several million remains spoken by performance to as XXX,XXX are activity Seattle numbers, are continue Union are are the square Lake over X square continued and approximately seeking

Our is currently Seattle XX.X% portfolio leased.

highest below up absorption in asking XXX,XXX totaled rents, place approximately square lowest significantly, San region's In driving in- activity levels vacancy direct XX%, were vacancy Positive Class to XX% XX.X%. feet. rate the Diego, net Mar, market. was the rents down has XXXX. Our picked with since Del the A

San established Our high. fashion fields leased, Diego above recently and employment TV tax state is media, and own growth hit and a all related rents actively X.X%, was XX-year entertainment, entertainment are portfolio was incentives. and Los West vacancy Angeles, Hollywood Netflix, Diego our Class approximately their and local Hollywood studios in-place San X.X%. by in In XX.X% are gaming, was X% currently have has Apple market. and Amazon L.A. encouraged digital talent. film West direct X.X%, The expanding recruiting and A

XX% basis, Los rents rents are is a below portfolio-wide are in-place market. currently In-place estimated XX.X% portfolio average our market. approximately leased. Angeles Our On X% below

the we future our reduced expirations. completed discussed, John lease record-breaking have activity significantly As

major have of completed leaving than we square only Diego, and XXXX Mar portion the market. That’s XX,XXX Of below XX,XXX of quarter, have completion Sunnyville, San we of square both last consist Diego. list them, square the building releasing Del than the a General four markets. now where Bridgepoint Corporate expirations is our With Atomics expirations more XXX,XXX greater the the foot San snapshot in a XXXX in on just of five building Center foot a rate in second the XX% lease feet

in Tyler our will cover results Now detail. Tyler? more financial

Tyler Rose

and several Thanks, Jeff. this FFO quarter. was in $X.XX There were quarter. the outs per second share in

partially reversal has share related charge per debt bad $X.XX of debt related which an expense, $X.XX by discussion, tenant $X.XX company a our bad a offset lease one ongoing includes FFO to with to for assignment. the First,

the with the lease Second, on mark-to-market reserve, share related per deferred $X.XX a those offset it and of was associated $X.XX amortization certain this although related discussions are termination a of issues, in this The lease position. revenues we primarily of has terminations. half that regard income back a $X.XX tenant, we reserve, say from adjustment location. legal that quality up And non-cash related other time. is deferred its possible that rents and write-off, and still but a fees, take fees With share is rents could occupancy, high appreciate that also given with we was stock this and matter, are full credit But this includes and third, not of can is that provide from name market. to we're in it's not is or write-off space the below to we on time. well compensation, all you able at SG&A, higher to to $X.XX a tenant our cash are very over can to $X.XX we derisking We The the program. services hope say professional

largely rental grow second quarter, on. to by the Moving Same-store driven NOI in continued higher rates.

debt expense. and on X.X% a a the The quarter, number reserve. bad includes GAAP non-cash basis. GAAP same-store For the It's cash X.X% second increased

was We completed cash tranches, up in In capital May, delay options, private million active and $XXX with a respectively. and GAAP also three- senior the two For unsecured X-year notes X.X% up the NOI were was half, six-month placement of we X%. in NOI markets. first draw

The X.X% notes, we first was down of million earlier month. tranche this drew which $XX for

million for $XXX X.XX% second notes. of tranche The is

are by funds required We draw these mid-October. to

approximately $X We expandable currently a ATM May, a $XXX $XXX by in availability of using which on ATM accordion established for million. $XX our an the feature of million million is a under capacity raised our credit total and million $XXX capacity available have In facility, with we billion. of remaining program, issued stock June, common $XXX $XXX million new also We million program.

at was quarter-end times, debt approximately debt-to-EBITDA adjusted the bad expense. for X.X Our

of provided Now, you in begin, me given the all guidance earnings. degree let’s XXXX caution our our remind yesterday’s in discuss let we near-term performance approach updated with economy. To uncertainties that forecasting today’s high

currently revenue With Our could are supply economy we those Any occupancies. we ways intelligence market to we on disposition range that remains new the current going not reflected to our for million; in demand guidance million remaining several million project revenue follows: XXXX Projected a subject development significant shifts guidance forward the our $XXX construction timing continue as are the today. and approximately our $XXX know analysis. factors we in markets be reflects including it recognition spending to meaningful tenant and control, results in to the $XXX the anticipate recognition information XXXX to as caveats, $XXX million; costs days lease have no Dropbox can't fourth assumptions occupancy lease updated from XXXX. or take at impact and is three contribution starting later expected Adobe from in into Hooper the mid-next XXX phases, in to the quarter and Dropbox XXXX. of the in year

end ins X% same-store funded Day, growth range results, X%, reported of will of to and new FFO outs, development X% cash that given to while a quarter, And at on the same-store we our projected XXXX stronger As NOI a approximately including core lots the had strong Investor a we second these range our we're X%. from quarter results XX% expect basis, given in deliveries by increasing to the XXXX. grow our by of of leverage-neutral

maintaining range occupancy we are for are annual and debt the bad maintaining XX% our to year-end adjusted We guidance, our of office XX%, reserve. down

quarter, we midpoint guidance of provided per XXXX $X.XX $X.XX last for share. to Specifically, per share a with of earnings $X.XX

$X.XX per net with from is our better Higher guidance share, the to range $X.XX results. the impact $X.XX of of are We bad of the essentially midpoint to That's news share, expense. $X.XX of the that core offset the per updating KRC. latest by G&A reflects debt

to happy be your questions. Operator? we'll take Now

Operator

Instructions]. [Operator

Capital question Craig go comes KeyBanc from today First ahead. Please with Markets. Mailman

Craig Mailman

you kind back guys curious on troubled more tenant. to you know can sort if what go potentially on reserve any about are background I you talk whether triggered the portfolio some give to you’re take with on that and what this of and the watch credit the has of limited prompted list? guys just But there's to companies whether you could afternoon. Good

Tyler Rose

as already. was can’t to the comment going related issues I'm we I in as said prepared my really mean, I all remarks, more, Yeah. say that's I much and on. really tenant, it to credit And said with

I think, very at credit on your portfolio, all, in other any we tenants actually, the few significance. issues, if other question have of

on that good front. really we're So

not a is pervasive this So issue.

Craig Mailman

Okay. And tenant? is this related this matter G&A hit quarter? something the of ongoing? quarter, is it this And just legal separate? Or Or it kind to that is more the in one-time

Jeff Hawken

in This in connection Francisco. the Yeah. to the It’s is our matter defense to millennial relates Jeff. towel related not it's costs this tenant, G&A San with

Craig Mailman

Is there – forward? of going be to what should going expect kind we

Tyler Rose

built the legal some but legal are, have what we a those that. In forecast but for going obviously our not budgeted do from know, We for cost, – for terms costs money the into to have of the we're some cost. obviously, perspective, don't we project do reveal assumed

Craig Mailman

did ATM, have amount then of is given process thought kind you And justly, where to Okay. NAV. there, of – you relative trading kind consensus the use the stock guys even though just a of curious fair

Tyler Rose

we’re feel going going to and And debt. so we to to We’ve opportunities said we're on of opportunity took conservative that a investing raise projects keep comfortable dispositions Yeah. accretive take be in million then and we're or at bit sources, through raise basis, that to money and we in through both the $XXX are going little capital and the always felt equity, capital, price, different and through – doing so raise that. to we

Craig Mailman

Okay. Thank you.

Operator

Manny Please with Korchman go Citi. comes question from ahead. Next

Manny Korchman

on on Craig’s G&A. question the Hi, a follow-up just

legal for haven't what this given even G&A in next, think worth time had though gave guidance? said changed we especially a there, item? this year for you around the differently, guess, guidance I guidance how and current budgeted budget You it's said you your you that should about between and amount, XQ has

Tyler Rose

Yeah.

do half, year, quarter year. to comment $XX.X little run XXXX. per per come it this basis the the million we expect the on It’s quarter, the bit, second – for range for on a for of and million, $XX in sort of down in to a remainder too early rate So,

Manny Korchman

and in looking XXXX. the others? are for larger – prospects Jeff, expect And the the announcement expirations had you're should of mature XXXX we XXXX, at What kind you the when And with done there? just think or XX% I

Rob Paratte

Bridgepoint In have we’ve of two in actually of of vacancy are spaces is we're feet them. between final Center, Del about got and Diego, San the in between square remaining those both Mar discussion. the some in Corporate documentation. we Seattle XX,XXX in committed activity and The in Bellevue, Again, of stages and documentation, some the

we So the about good activity feel really both got we've those on projects.

Manny Korchman

Thanks, guys.

Operator

comes question next Please with from Jamie Lynch. Merrill go America Feldman ahead. Bank of The

Jamie Feldman

Great, thank you.

follow-up what San lead so the is so XX,XXX lease? with in the in a Just the last left Diego, question, feet square that

Tyler Rose

We a second have we’ve we’ve XXX got Bridgepoint. hold at got, on – – so left

And the the Center, Corporate portfolio thirds So that probably, have of in who different more we Del causing fruition, it take of of in And to half over One leasing now feet roughly. again, really and and if left can all activity drive Corporate Mar Center, it that around sort different Mar comes Paseo two of our uptick stages. probably in see there is Del it we say, an at the thing, have square we got I'd with stages is there, committed And activity. it you that XX,XXX

Jamie Feldman

soon pretty And or leased Okay. fully much is be fully Seattle said leased. you will then

Tyler Rose

Yeah.

Jamie Feldman

take what Okay. on for you reverse the it to would the And I charge? mean, then charge, Tyler, just

Tyler Rose

really better talk specifics But the cost, TI that in of to evaluate chose then some straight-line number. the about what rent, would obviously, quarterly so specifically we that credit, there’s on there’s a basis. there’s rent, We’re deferred Obviously, is. charge tenant not if the going

Jamie Feldman

on bigger also, guess, speculative I I the thinking yet, then, Oyster Dexter started over you’re just talking The your Academy needs And leased you office development about not it? and appetite One next with just mean, funding thoughts for Paseo, And talking at the of year? how Point, just And you’re about Okay. picture. risks? about kind both

John Kilroy

a already this projects is eight prospects I basis broken I existing the same course we without answer. unless question, building And we the ones were over Hooper leased, know see what me years. both time across I’ve with sound spec had mentioned. and like were, or was I’ve the and Exchange. us properties let which projects multi-tenant having the we strong they of record both talk starting perspective. because every on were matter been basically have case made of building on those last contemplating don’t No asked big the John, under the about a the This appetite construction progress you the have, for portfolio, full they’re I

mixed Paseo to The started same. going get you’re just – before has the has up. and that the Remember So couple markets, are of rents all me, shell that excuse in going Academy, the The XXX to year XX this both up Exchange, me, excuse beginning we One these more years just more see have – we And about I just completion. of Dexter we more the feel pretty a substantially. months We complete. projects

we have when to and we and we best results buildings them increasing that starting rents. how tension lease to financial the achieve regard with between So possible other want

So more come, to Jamie.

Tyler Rose

front, under on of the about over to Jamie, to the projects have And complete. next Hooper, of The and the the And spend construction, $XXX rest on Exchange years. $XXX million million funding on we couple about

We to do have October. have that’s obviously now the down So We $XXX disposition. a on. draw placement we’re non-refundable in private We million. going were that

there’ll dispositions. activity And more other have be to going well. funding as We’re

going and we’re to So of skis. as our we fund out it go continue it to knock

Jamie Feldman

of WeWork then, question. types your appetite co-working other or these And projects? for just some tenants at Okay. last my of What’s

John Kilroy

is Yes, I’ll answer that. again. This John

preference. be in We’ve just at preference. been it’s if markets. or been The properties it Hooper won’t, other done our we was opportunities, Exchange haven’t many saying had it our of whether all. will any was that magnitude, whether co-work or Not it many, hasn’t We any don’t I whether know

Jamie Feldman

Okay. you. All Thank right.

Operator

with comes Stifel. next John The Guinee Please go ahead. question from

John Guinee

impressive Day, had think, you which mentioned this you mentioned FFO year-end then, do today, and now you earlier a between you your I I quarters? think in a in can XXXX. think John to possible? $X.XX is little during much it a by as as quarter you up Investor drivers maybe of quarter the Tyler, increase get to Can be main but It’s thanks. very to that more detail XX% a get $X.XX color and XX late in the Great, XXXX, might give what

Tyler Rose

Yes, well, development the that, being if the remember back new put you over various delivered what’s which – at of billion chart the we under up Day, of board boxes the development, what’s Investor showed on a $X stabilized coming portfolio growth, the online. construction,

excruciating through equal, dispositions. point to by deck, components. So the call, no to that going And various it’s everything website. various on it’s without other our the being it our But shows which an offset think and components that, – the of detail is obviously obviously can on through the I walks it but changes I else basically you structure,

John Guinee

hour. speaker significant, first that you’re sure okay, instead the next the something fourth time, do you of make If

Operator

from next The BTIG. comes Catherwood with question ahead. Tom Please go

Tom Catherwood

we Thanks. in take, from on are the where taken or Back suggest which expirations. leasing roll quarter, it far, the midpoint each XXXX third, but so look guidance, give if quarter at Lot positive $X.XX about now. commentary down fourth the implies you’ve roughly down what of of to the a would we

expirations but year? when leases the can and And between you kind the in of outs backfilled walk kind of So through the that lag the happen the and the of you space, half what’s the commence? obviously, you when new the ins second have

Tyler Rose

because good Well, occupancy the it’s quarter we Actually, Dental dip slightly to third a have question. is Delta the going move-out.

the So space. to move in in that to is Okta quarter up and scheduled then back pop that expect when we fourth in,

and Bridgepoint another had Atomics timing. taking So exploration then in fourth General is and in an outs quarter. there are and ins the Bridgepoint expiration July, the and space, that there’s

get And lots when about are ins and coming backfilling let quickly. we’re can outs, out Rob someone moves back talk usually there news takes long is someone between good but I it the and how in. we of when that So

Rob Paratte

generally, level mean, probably minimum San But months months those and from improvement on three tenant depends to to I on the work factors Yes. again, the the it market. tenant. Diego other it’s in depending six submarkets, and anywhere probably, of with respect of

Tom Catherwood

Okay. – recognition? is guys take leaves to for But when already Bridgepoint months revenue the but it’s from let’s Atomics, example, that that when six you General is with, like, start backfill, signed, Bridgepoint

Jeff Hawken

– this in Jeff is That September. think again. commences one I

I think about the months we back got when and move to the downtime fit three of side. in, roughly so the there’s going when space from space shorter to So they’re on

Tom Catherwood

Okay.

So we then year? half back get a through of the the pickup

Jeff Hawken

that project. on Yes,

Tom Catherwood

and revenue from Brannan Okay. mean, you’ve going GM the Cruise? buildings the XXX, any lag to incremental releasing guys and Street And assets? purchase the over than recognition capital Are then, other you like, obviously, XXX, price? termination XXX putting And got and termination there. those obviously, into I the what’s Dropbox’s between

Tyler Rose

expect And moving in Dropbox late year. moving out Cruise will to we year. be next last the mid-next out question, be On

crystal lease. two, exactly downtime it still on could So be it’s not clear that months three timing, of but the

the of terms CapEx, In Rob?

Rob Paratte

the of It’s really just tenant improvements transaction. as part

Tom Catherwood

there? a all because So TI modern? was new package smaller this is, being buildings, Or new so buildings, it very they’re just relatively standard that they’re

Rob Paratte

XXX the Well, lower, XXX it. buildings. improvement tenant are older XXX is the so and TI package newer the with is have the that’s build And a going out, associated to higher

John Kilroy

TI The This leases. TI on roughly on of these packages the market. the me TI Rob, the are one-third wrong, don’t newer build, older historic was like. is which register, on an but know people it’s which market. there the still package in historic XXX, well building a it’s if below package cool, I And long-term were I’m buildings, less, package, much The current is but XXX, XXX, current John. correct TI remember, very The if

terrific. pretty are economics the So

Tom Catherwood

you Got Do sticking the like of you. In comes that? with last SOMA plan, a steps the the it. John, review. And Supervisors begun timing maybe on has kind regards the rezoning the one it approval have to Central in of And are process? if Board sense for looks me, next what through, of

John Kilroy

or the the them. four that recess make approve because that I SOMA our respond to they – meeting, three have were in already don’t a Central, to been defeat Well, by Investor properly And Central scheduled to approved as four were be those that that they appeals it at the appeals they have Day, Yes. sure want be but department, and to a there July could they August. delayed. delayed they planning And said plan. they It’s in could

square going And they October given of regard the the in million with expect then. quarter. third the it We early pool September, this implementation. they’ll delays have time into to to first allocation to the assuming in roughly, we would it’s expect end will in feet year, quarter, of be expect that and feet, year. come at its So And approved back by don’t the it we X roughly approved any XXX,XXX allocations the square have is

Tom Catherwood

it. Got Thanks, guys.

Operator

Kim comes ahead. go from question next The John Please BMO with Capital Markets.

John Kim

you. Thank

that in? the this you On quarter, is the you can made industry tenant discuss reserve what

John Kilroy

No.

John Kim

and timing would really I not asking for decision some this major you forward Point, more impact about Oyster had because or it? major you opportunity that’s development at with of your was particular whether life move the and developments or a incident push sciences been a to

Tyler Rose

no impact tenant, that The is no. that’s a recap. answer of existing developments has gone anything just to It through to

John Kim

Okay.

mentioned you among traditional is more specifically it up. think, picked you remarks, tech? what in referring were fin has you the fire Or I your tenants? markets this fire prepared in to? broad-based And Jeff, leasing that is discuss industry Can

Rob Paratte

an North tenants. that’s in in the in pretty category County, is where Diego, based, Yes, there’s And John, fire we’re uptick prevalent. Rob. this Particularly San

so, past tenants. Francisco I we're Salesforce if of fire of leasing, at in the those think, look seeing also, have seen the composition that of category lot eight expansions or and Tower you the are a that San where months primarily over

downtown, So we terms category. assets in of category. where fire fire downtown more had activity well in of L.A., their market kind have some Seattle from And as centered good don't in actually has

John Kim

you. Okay, great. Thank

Operator

with next Please Green from The comes Street Daniel Advisors. go question ahead. Ismail

Daniel Ismail

curious thoughts Francisco get tenants? Hey potential your Curious guys, you and the portfolio? its feedback morning. San And from Proposition market on on good you and received to your impact if hear any in C

John Kilroy

a I ago, anything. noise heard tenants. me you've one. my haven't me But anything, deal hadn't week John, heard knowledge, if let to or tenants. This any of as first the from is heard we Rob, from with so correct

Secondly, regard the I'll talk let about to Tyler – impact. with

is sides and C, is that reading C therefore upon the were feeling that will this with be of that both pro-Prop people both and aisle of based lots a anti-Prop nullified. unconstitutional Our conversations ruled

Now that. impact, we interesting it's when you the do what that? want but been to are Tyler, can tell of only With the you to Prop proponents C regard cover saying hearing, we've

Tyler Rose

it that at for Yes. by our $X.XXX based share. The would our be would XXXX, point, impact about impact on a numbers estimates this

Daniel Ismail

is helpful. Thanks. there Any timing with as C? ongoing – That’s current any to currently legal proceedings Prop

John Kilroy

at top This out. We know that are a about my can't of again. imagine, head. you fighting that it. is people of lot I there's But don't tell can the you John the find But can lawsuit. I

Daniel Ismail

growth You see on year-to-date? in to concessions rent on your the market. Curious earlier spoke trended how thoughts your

Rob Paratte

But we're also. on else in, and is anyone that is really, in jump I'll Rob, favor. can all markets landlord's This the in the again, tackle

And just are thing. only tenant driven in sort cost concessions so free typically the labor any other is increasing improvements sort at improvement building related But and materials space, come of that of The out increase and minimums. discussion. means, are probably of of concessions really the and that to rent up not by and by tenant types

Daniel Ismail

guys. Great. Thanks

Operator

with question Rob Evercore The go Please next from ahead. comes Simone ISI.

Rob Simone

the Hey taking guys, thanks for question.

end. Just a item quick housekeeping on my

– of internal any – of potential what have wondering be formed was but what changes. your could And the year? obviously, next when selectively began early, accounting was their from if that I I you it's guys views share for had wondering if I impact just on to some know So peers were the views lease

Tyler Rose

because returns and $X.XX development. would range, – early our on development still most analysis. And noneconomic We're now, so completely they it you the through things. that's that. on working to that's would complicated capitalization, lot that. or But be It's front, it your early know, lots cost and But our right – as And an to helping that improve compensation by Obviously, would $X.XX sort different compensation as share. – impacted a our would be of without could to of change. a where a on more as it it you And yields we an Yes. can now it's of adjusting anything be be that number, structure if is much expensed. that at come were look a how

Rob Simone

appreciate I Tyler. Thanks, it.

Operator

The next question comes go Please ahead. ISI. from Steve Sakwa with Evercore

Steve Sakwa

whether looking Just I'm John, these that costs curious, about how as Obviously, but construction just wanted And or pretty you're of it's how cost? tariffs, to impact some the Oyster little new be see guys seeing. might office on if you Paseo the now on what front, guys could returns? you are it construction bit discuss you're out maybe Point One fluid and at projects, a thinking

John Kilroy

X% have to somewhere anything. I Justin the years. that in X% commodities building the Steve, – cost and we've was of says, obviously, most can't is follow group experiencing, with him of mean, ball, And to don't X% depending this building do and And about his on length closely And increases other not last our over as we as it steel from thing talking sort "Look, neighborhood through of the made at day, and crystal on the is is issue so all Seattle the steel." Francisco, San anywhere because X% implications he the they are when markets, Smart a the I certain several of I prevalent. rattles been the course forth, upon the

So we've cost depending construction, for and as tricky, the is baked on provided adequately we've and pro deliveries which done to it's seen be increases. all And a that, with the formas. we regard by so have under comments little what tariffs with potential Will that forth? more bit our Probably. into happens we today it by

is, bigger but think sort of also what of basis on do outpaced return on if the meet modern is properties the to seen the the the product I office modern, don't fence, what versus properties less or doesn't criteria. the – this question are we've any side believe, impact it versus of Sure. the return think desirable? that if I for the particularly Yield-wise, increases, increase Could premium over physical I I'd that sort tenant, to go existing going this, around that more going kind rate rental the impacts? But construction points? play in we've their won't, to of that tech, it will little question what's seen because will I quality believe And it tenants, out be have so issue, by your going insensitive cost. unlevered parallel was – the to asking X, that on XX, have in properties. entertainment-type it happen the older a be I for average rent So X reason XX properties are in But is they're that increases high right product – is time. to low the

I in with regard we to contingencies that structuring the and in think formas. a very cost we're extensive our good shape do pro

Steve Sakwa

And terms how handicap demand Okay. just kind of do the sort guess, or of kind think, circle to I leasing projects? lay for both kind at of and I of those getting done the timeline, the, tenant Academy, to do in you one of just back and of mean, then, The you maybe or out XXX expectations. Dexter

John Kilroy

you do Rob, take want to that?

Rob Paratte

Sure. Hi, Steve.

Dexter. Let's about talk

left and of core own amazing that but in that we the only state. are a terms users in to is that delivery. the not want, in number where There parts We've on full of up, the And the I Seattle seeing. ago. what's of it number year of got about now that single its construction pretty onto market. the talent, But has shell credit, just So are other frame software large the tenants aren't Dexter building Area started I good we're think user tenants think for XX clear come months what's companies engineers a Bay

And interesting we're has activity me seeing just it's focus. the to a so quite increased that of an and level because area not bit, it's

what So – so started feeling to on activity spent and of billion is, dynamic. typically don't a statistic, billion users between but in Academy, – HBO that year industry or just you, much there's And spent tenants levels as future I said, year. $X the we're good I for change $X again, Netflix just more again, with last number spending or as want pretty spend the and just in billion building on is entertainment this the full come $X really guess, there's John smaller January. going And I'd And such about to predict it. fundamental we the say. content.

happen and AT&T something gap, that. it's with taking no in Now close billion Warner HBO, that happen question to to over to that's going Time about going there's There's there $X Hollywood.

and a Disney seeing and activity interesting lot on we're between and media it and just space. other the So goes of companies really on in content

Steve Sakwa

Okay. you. Thank

Operator

Tyler This for the any session. back question-and-answer concludes our to turn would I Rose over to like remarks. conference closing

Tyler Rose

news appreciate in today. the KRC. KRC. you us from we latest your That's We joining interest for And thank

Operator

now for attending you has conference presentation. concluded. This today's Thank

You now disconnect. may

Kilroy Realty (KRC) 26 Jul 182018 Q2 Earnings call transcript