KRC - Earnings call 1 2021 | Kilroy Realty Corporation

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Operator

Good day, and welcome to the Kilroy Royalty Corporation First Quarter 2021 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded.

I would now like to turn the conference over to Michelle Ngo, Chief Financial Officer. Please go ahead, ma'am.

Michelle Ngo

you. Thank everyone. morning, Good joining for us. you Thank

with On Tyler are Kilroy, today Rob the Paratte call Rose, and John me Eliott Trencher.

At both that some information on be need for a to information supplemental the to I in will over forward-looking regarding refer forward-looking replay this in This supplemental. on Internet. the call discussing next for the we is live be the package and Please the and website will call our by X days, statement and the of available outset, the is for nature. say phone being telecast

Our have both Form are a and earnings And on X-K available release website. our supplemental been filed also SEC. package with the on

conditions financial your John discuss quarter. I the will a the and guidance happy results review to start take questions. with our business first in will call quarter and you we'll be second of for John? with provide Then, earnings markets. quarter the

John Kilroy

joining Hello, Michelle. you, Thank today. everybody. you for us Thank

We're are and pleased growth, as indicators well tenant corporate estate. job to and expected. in to quickly rebounding earnings, housing than on we strength for hold beginning are more bode forecasting economists And These see growth in increasingly is optimism global positive all the economy demand. real take

there we While understand have corner. appears we turned ahead, the it will be headwinds

Diego and environments to their buildings Francisco, San superior example, are and Seattle, reporting brokers looking renew expand to are modern We've seen increases. approaching workforce similar tenants Los Further, the work inferior their requirements markets. appear levels frequency of space. more with property starting regularly with new upgrade leases, for tours for our In tour significantly increase Angeles across San all pre-pandemic reporting activity, and

valuations, square Kettner markets quarter, assets more we the record with are strong see to In in than Diego. to pricing. leases last to XXXX compared beginning High-quality, in continue feet portfolio, in in our traction and our XX,XXX many square San feet cases, well-located signed of we command quarter on first XXX,XXX

San to the very to the The science, work development trends respect validate and of combined acceleration Diego is demand They and and Bay commitment Area quality favor. strategy to flight our obsolescence our sustainability and of with in buildings robust. older properties the And in life our newer, higher San wellness. Francisco of

And and we are Netflix, hearing they the Facebook, are plans. entry many lines forward. Amazon, increasingly technology Microsoft their from among return-to-office companies media that are companies and are Google, moving time that advancing

past, a and overview, look present that at X that closer let's future success. underpin With take key our objectives

to allocation. continue thoughtful disciplined First, to on focus we approach capital and a

Looking our that back, month valuable development we footprint completed exchanges sale milestone the more the our decade, efforts. over pipelines than country, transactions market portfolio, reshaped fundamentally and diversified of one the $XX produced other of in billion and the and these in last most in have past

significant late a demonstrates acquired because to incremental record new for limited It We the square $XXX an options real We value. with us to asset San construction with transaction the additional billion $X,XXX per value month capital commercial substantial chose investment. sell the XXXX. add was like I'd valuations. under point between million or And out us exchange in for that provided of square XXXX, for to while it also land price It private estate market full an also Francisco. the disconnect and leased monetized public Dropbox property in XXX,XXX for the of site for to nearly it to the for investment. sale the last doubling property invested and $XX foot a XX-year our completed in the We total develop term foot, million $X.X

that land the own. least at at strategic deployment objective currently are the driving science on life capital is but for expansion and into portfolio, focused, our entitled market effective life primarily The the substantial, sector growth in already point science second we this the forces of discipline. caution The near-term, requires

to science not be we will life acquired that We continue successful. properties for believe and see marketed

this we creation. With have several sites we and the markets, sell expertise the we have sector round the built pipeline land of new we for in positioned of in significant of believe well are best accumulated value a

life XX $XXX quarter, construction believe Approximately San Phase in in South we commence we of X X already been roughly negotiations Kilroy include has plan phase Oyster represent and across tenants. to of our square prospective investment ideally square XXX,XXX are acre, Later in projected will Francisco. on X X several Point second will the science foot total million. a million feet space this already positioned land $XXX and are invested with million and with Phase of We buildings infrastructure. campus the

Summit square planning to At also new San own. Fe the are addition In Phase we KOP XX,XXX in of in in XXX,XXX Fe on existing entitlements in feet we Diego properties others property X Corridor expires in XX all build XXXX. Phase KOP plan square projects UTC building to we have product. a of develop at life XX,XXX we Diego. XXXX science the to negotiations And as when as X XXXX X, Towne X are and Santa Summit, its life on Drive, properties we submarket. approximately a Drive Santa on foot Executive like UTC, science in full the redevelop square-foot San well lease X, nearby Center And heart

And else When longer additional we the X.X all have Point X life it all XX%, to at square million expand Kilroy portfolio would and In our life from and entitled science projects X Oyster to equal. our more tenants health fully X, science phases up, by fully development pipeline an being revenues X.X Adding this life completed future the increase a feet. million close add feet. science and million approximately square XX% X than care these will for leased, from square our science to will aggregate, term, feet portfolio. life X.X current in

We the in will best of with approximately average X best-in-class science life an feet portfolio have X million locations. assembled years the of age square

our is third And and diversity, portfolio for wellness expectations a and that company at a equity highest leads in inclusion. and meets commitment build the sustainability objective to

been ours As this most time. has for some passion of you of a know,

We neutral are every industry leader the in in measurable operations, sustainable of company achievement year category carbon last culminating and of property the operations.

our profiles the any are We and certified have non-government the progress of in now of making owner. portfolio, we substantial and health projects enhancing Fitwel underway most property wellness stabilized

initiatives, human team Across our company, we mentoring. management capital including in hiring, career and continue a number and of strong diversity prioritize building to development

better to many benefit more managed, each tenants, make a our our and attractive rewarding communities, they we awards receive place our importantly, actions to and that work. in durable. our shareholders. and We efforts these these which more our accolades because year enterprise make They to and are They dedicated our note in more for I'm properties always smarter, proud areas.

To our few a embedded two, for our capital a wrap in across both which allocation up, One, with through space well lastly, focuses successful reiterate provides with portfolio; we with markets to entitled our are growth have modern, the well sites young, investment from value increasing, a points: development me markets; sustainable to us let been perspective, leasing is quality clear as monetize as highlighting positioned demand product program, an we develop in well our already and and science program. a that best-in-class assembling portfolio returns. This superior life advantage own on perspective located strong we

That remarks. my completes

to I'll Now Michelle? turn Michelle. the call over

Michelle Ngo

driven included quarters. quarter per FFO Thank are growth trending in $X.XX was driven share and quarter direction the office by assessments. half was pipeline. clearly which first development few and credit right share in our per you, half These $X.XX contribution current in residential reflected the last from FFO and continued the tenant the the COVID-XX charge, John. of from charges by

earnings, XXXX Center Long XXX,XXX in and on contributed quarter. benefits Drive recognized in early were the project by a of offset fourth we quarter full feet the on revenue Netflix expiration Beach These square our Towne lease Vine the January. in partially of

of have same-store Adjusted was X.X%, NOI parking in termination of cash and positive for results, $X.X growth GAAP down million reflecting been quarter same-store our cash NOI lower first first XXXX, In down NOI income. same-store payments occupancy quarter lower would X.X%. X.X%. lease was the

positive quarter, were positive currently undergoing spreads XX.X%. generally XXX,XXX X/X square an Rent second-tier spreads which than renewals had of of Cash leases, were more rent and term were and leases. largely markets, signed were projects our the leases, located GAAP rent driven by feet years new which X.X% X spreads renewal within renovation. X we of in and average During X/X were

points office from XX% currently small quarter sale of portfolio XXX These rent Overall occupied, rent our points quarter, overall life rate tenant the quarter, leased, by well-capitalized basis expirations driven which which basis across overall down collection with exchange collection continued At up collection XX was the of is and from and and -- the technology, our of XX.X% end science was XX%. rent In media the stabilized strong was portfolio. rent base. the April, levels prior XX%. reflect our life in and XX.X% first collection quarter science was the the last first

pricing to XX extension reflects reduction the an credit term profile. credit additional sustainability the sustainability-linked point, April, save our options. approval. amendment X liquidity Under balance annual XXXX X-month billion billion assuming new an to we lender turning we further with and $X.X basis The a with with a completion metric point targets. $X.X may a facility Now two In allows KPI us sheet. that extended in up borrow secured to we of facility accordion this to hit enhances feature, basis The

after approximately material approximately sale XXXX. exchange, and including stands And $X.X of our approximately the the no revolver. at maturities cash $X.X billion today full debt availability liquidity have the of billion, billion for the until new We under $X.X of -- accounting

QX about to EBITDA to is debt but as cash annualized net time the current deployed. is increase this Our expect over we Xx

COVID-XX we this sale guidance Given pandemic are not we're the the evaluating with various of the XXXX exchange, providing as from the proceeds continuing options deploying full uncertainties well as in associated the at time. year

the providing expected from be for quarter, reflecting first is by is on interest driven approximately Cap of of NOI key of first the second quarter seasonal $X.XX quarter. we decline contributed to burn-off share guidance to in the second million, the of between sale to the as quarter. to $X similar to XX%. be first in following will rent. well rent $X and approximately margin million based exchange million the to expect the roughly expected free as sale are FFO expenses straight-line range we G&A assumptions. $XX The quarter, the the $XX continued exchange corporate million However, per

located project, mixed-use XXX mid-April, we our Jardine, on we'll At capping residential the units Hollywood the campus, residential our interest. and newest cease completed

quarter, first to the roughly to flat relatively remain between to occupancy XX.X% ranging end quarter expect we Lastly, XX.X%.

to the impact this have between a of the to adjusted So bringing our to results second then $X.XX first per online, of charges for for related FFO. quarter to exchange, of range FFO $X.XX. per Jardine sale If the of share COVID summarize, quarter project $X.XX adjust $X.XX would higher the share midpoint we $X.XX slightly G&A and been with we

Further, the retail $X.X parking results the impact. for of end also the deferral Noncontractual With minor which a following based is tenants X income we for of our earnings these our totals today assess to cash has from assumptions a month. help know perspective, XX% may $X.X program, rent earnings portfolio, month through approximately approximately of the approximately May. rent NOI respect what full we you million. relief extended per year. retail tenants This million on of included our And

businesses We until X/X amount this receive more expect resume about operations. to normal of

of and making are are expire with approximately feet we square them. third expirations, this one good on leases quarter, With the leased greater year lease than square respect X in feet. to progress of have that expirations XX,XXX to be XXX,XXX remaining only Both we

we in believe as have had up are previously not tenant strongly exercise a did a feet XXXX. the to Additionally, its with square which in option. dispute contraction reported, legal we We on XXX,XXX AT&T, validly option

end the the for we office, revenue Paseo projects office third following XX,XXX At recognition while by foot quarter. come ultimately Dexter, the and One on forecast depend within XX% the to life the revenue tenant by the working expect to TI science will time square lease frames. year, following on the with XXX complete XXX,XXX our this We revenue work. square to to of commence project the remaining At end we online recognition foot of the remaining commencement expect

end development residential, of end square Phase by of the $XXX leasing Phase occupancy we this of we of commence One our original have to to And to X, pace including year-end commencement $XXX remaining at we X. KOP putting year. the At million, to And revenue range expect of had on KOP anticipate date, high Paseo on the lastly, entirety foot project XXX,XXX us to XX%. XX% be spending the at million spending strong

Now that my remarks. completes

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

Operator

[Operator Nick Instructions] from come Yulico And the with first question will Scotiabank.

Nicholas Yulico

a just know that cash first XXXX for day the you the large is set that's that versus balance. I maybe And balance Does earmarking deployed development? if be for aside you you're how guess, purchase? for us now. might question income-producing future give that a X cash sheet feel restricted that right just I on mean so, do have cash money towards could assets a being on

John Kilroy

Yes. This is John, Nick.

ability until do and the that up exchange. we context, to looking that fourth of ability have potential going to designate the we acquisitions with a in that through $X of -- which roughly we have into we from to you pool get not earnest, $X do As We're to billion worth I'm of billion specifics. know, And quarter. exchanges, at

purposes use ability we would the in for to substantial a special of cash to that go route, And if other if also then we we we which portion development. a have do that wanted quarter. like have We would the to do the fourth determine ability the

going. is to can what by different conference But a things on possibly a I that we're right imagine next looking the of description by of you you table all So that at of the we'll think be now. direction better we're NAREIT, able lot give call,

Nicholas Yulico

Okay. That's helpful, John.

a you demand, back a or mind potential terms of the hybrid any of some in like Any office in from through in number is guess on idea you model you just now increased would cases. the well. sectors Tenant of this on in sounds companies thinking impact tech, just did world, some impact Rob that some question second seeing So markets well activity of in post-COVID as are tour if impact forward, space could number seeing and what some the whether you're the people coming and I maybe cite other of going about which have deaths, seating from unassigned you're space as about trends there? of work thinking going as markets.

John Kilroy

Rob, that to cover do you one? want

A. Paratte

are how Nick, Sure. you.

highlight, and the that I thus job just Coast right postings XXXX And the what submarkets. think X Let a we're in a exceed me there on far, it's start are seeing. now, important with our all which general reality -- highlight of West XXXX, are really facts is in are a

return fact accelerated mentioned, that major second to John The work. plans, has their is tech to as

really once. be And are Some won't are in back back are moving components will are all important. back coming June, in July. in some some coming those move-ins progressive, May, it those at X be But

is at either pre-pandemic levels. the tour activity very And is information, and to you alluded close this last is piece activity, tour recent to or

And create get -- job So things a Francisco you in but I are couple a these it's amazing just the together, into to which San banner Diego and going into add XXXX, when when including think year. pretty in San I'll postings that, past, compared and it years demand. to hiring what's that's was Seattle, you minute,

is Seattle now, Seattle up just number, the incredible are I is March 'XX. hiring job starting which in there postings XX,XXX in STEM and XX%. hiring, Seattle, would in that's of STEM say an with that Right MSA,

in over If with look at million exceptionally X.X Bellevue X submarkets, busy total been that Amazon deals you has feet.

would time desire probably that also in say. for exceeded Bellevue. probably market Seattle hottest tours unabated, pandemic. and X.X space the is X tours in to seeing during that we're What is years of know country first Bellevue in Seattle I need continues the year their the in in And So for sort the you

that's I very think So notable.

their have all professional that we're requirements several and now. Seattle, occur. firms the seeing of VC-backed making right natural Snowflake, And service feet lease in are such companies which market commitments circulating also long-range are There late as expirations Remedy Convoy as and in over XXX,XXX round

good There's million can will the that of sublease activity. confident area Seattle has absorbed. the in, sublease that looking are that feet square things Seattle. So deliver than under in the market but and more there's we're space with get is now about in activity the was X There like markets, on fairly see 'XX; and we XX% space, space is, good construction most XXXX, between in that leased pretty

actually don't facts. was and but Francisco San -- want here, overly are be I to these optimistic

were job for March was there as XXXX, you postings So banner job XX,XXX, year. XXXX, remember some In let -- there's March. give me a STEM. XXXX posting XX,XXX XXXX that's of information. just of In In and and

that's tough environment. healthy So a pretty out we're coming a pretty of considering jump

are square promising represent Right XXX,XXX Pre-COVID, are in XX some feet. million to XX square million of we tracking around feet, think square about feet XX,XXX are X brokers I San demand. over those are feet. that law signs now, million Francisco growth for X.X were X XX There of dozen touring tenants now over right a over firms requirements. today, there running

lot there's come been past of the we've in in we've change out pandemic. of quarters as a what reporting this So

Francisco, there's that got activity the that be example a of seeing on space space. a space market activity. added sublease significant That it's So sublease undeniable million although lot space would of X and on the think in I another macys.com And San is QX. lot has X.X

fitted-out sublease that sublease whether is or of a do quality well-located, certainly, space I space, to be tech-friendly, direct is it's going touching going on to well. some John's flight sublease to to So think comments there well-positioned, relating is but

in There remained content from is the now. strong right market X no vacancy We're The to of Burbank in very City those have they in that some sublease with But Culver that In little are markets the a up. first we where our in really absorbed. our has to sublease tenants, west space, the Angeles, things the growth. active. But very Los with. typically have entertainment side absorb L.A. little deal seen producers. Burbank, not due will to and in the space but pick is has Hollywood, have hiring been be Hollywood they markets experience some they West L.A. think are slower quality to market space typically the the to not industry

particularly Mar, UTC Diego submarkets. downtown. And Little the location in Del and just XXXX We're San lastly, is in the amazing, Italy Kettner

As on we we've for bit, John convergence and X%. of calls, now and UTC previous talked about quite have a and said space, UTC, particularly this has life science right about vacancy rate tech in is competing

So that's pursuing, that mentioned And we're comments, projects why, into of his pleased the development desirable submarkets. in really activity the have. that's causing other in spillover we a we're as John about terms

the science going from going and X. absorption to square what's the I what's feet went of X market, in Bay Point to in vacancy life as on our at net would Area San XXX,XXX well. relating say Diego QX, rate exactly Oyster is in on up

that's amazing. pretty So

that's the venture VC And in funding $X and billion science in has last life point about been I'd Area placed, make of a Bay record. about QX that the capital for is

things and and have sublease space, looking are say, we're based linear progression, So but keep I Francisco. they all certainly have. particularly overall, these know would things to are than going looking I to better be up. in But quickly, a San I monitoring won't It on spoke markets,

Operator

The from with Bank next America. Jamie of come question Feldman will

James Feldman

think how rolling? have effective regions, positive might spreads, That Can you about maybe net guys moved you was to you through that the how your much think color know had if talk mark-to-market be you and the markets portfolio helpful a I basis compare markets. does what's today? where on on go different leasing but the you really or

John Kilroy

Are you Michelle? that, going to handle

Michelle Ngo

to market I Yes. think net I are provided rents comment think don't but that's enough points today. effective don't guess where what pre-COVID, I we data relevant. have rents We've as on

John Kilroy

are add In ever could highest Okay. around we're just that. little to little has highest a achieved If the rents rents in going bit. Bellevue, move Bellevue, I the Jamie, this the I'm is in we've Obviously, market to John. a today the doing ever color achieved.

We is be downtown we San With -- for the done regard very that for own. in we're all-time rents because about are everything pre-pandemic are any Francisco, KOP ready life leased on South rents start, around more. our will was seeing Seattle Phase X leasing strong we rents quality still to And haven't to think We vacancy has space we're our be that to have San high. will where rates XX on we all-time space we back Francisco, and In have. Phase been which XX% rents up Diego, the net. Culver high, then the up product over some in at rents the Square we City of Columbia rents think office strong In our Hollywood, and rates. we negotiating what did triple San X, very science or have strong.

James Feldman

but Okay. markets And or ground? Is stats also. down the think Bay seeing to that rest guys Francisco of read I and kind to Area the for better there CBD from on go that that, trends? what market depending the in through And you have those up -- been then the Valley how or actually know was quarter, you your of occupancy submarket. leased are slightly flat do slightly up on was Silicon you percent San when But the something

A. Paratte

about about occupancy? Jamie, asking I hear demand? asking are And is you are Or didn't it you part, -- the first

James Feldman

what's if the the occupancy don't My you the both. much know I happening rolling rest of that have increased the guess Bay the from but rate really slightly. quarter, look at I Well, declined, Area, market? that stats Francisco indicative Silicon peninsula -- Bay your question of in the that was, Valley quarter-to-quarter. you actually Area Is San the

better sense than to Bay that just part San of the of of that up trying much -- would the So southern Francisco? a downtown you part I'm is say holding Area get really

A. Paratte

Francisco be the better, severe available not still shut but I that's everyone only had San wouldn't down, shutdown. buildings was but say transit you is XX% holding you workforce it's much about mean Silicon to occupy how had Valley Valley well. has well-located a up I generalize, locations storm the careful has Silicon has to Silicon fairly -- and Valley have centric in again, really weathered but

back what's talking happening. with I what market would to go John just about were you and and rates

at product the X $XXX in available, Class you over Francisco, premium we A made as a space rates. look San and all a that of XXX is don't Building, market, are foot, know, If square pre-pandemic Mission, but have and you have deals lot Ferry -- those rates

are So also, Francisco. people go work. and companies next things with holding the up. accelerating just Supposedly, we'll to their into back least-restrictive think, that tier, week, San It's coincides to plans I bring

Eliott Trencher

Jamie, this Eliott. is

your the question to and the city valley. the Just to add that, and difference between on

us, rollover where a really wasn't in particular the much in and was valley. function For quarter, there to our it's rollover speak of of the there

So the I wouldn't read too occupancy much into differences.

James Feldman

Do it's think and raised Okay. going Bay the Area job the you what downtown space that capital by the you you for mean been growth early? And out or about that's valley think to that too demand? that's when parse in all versus and can

A. Paratte

These potentially plans. I of at now focus those Well, East They're add. as and relatively I a are -- can't shelved to they've just strong, strong be looking public city. requirements have X add VC-backed plans I'd to shelved about the XX they'll lot San but they're X There names, but companies, also, now. but those a demonstrating were right commitment the smaller, X and over large think are last Bay months Francisco. There's on soon, is to I a returned relocate firms to the did location firms. study separate it the that downtown a active

that tech that's back stated to big especially to all San work. the So again, think city a at look you much I pretty returning and the in they Francisco, if commitment

doing and is in Google Tower And fashion. -- in XXX scaled Fremont thing. specifically, mean in form occupy a June same and is Park coming Salesforce to percentage going So starting May. Facebook some back in the I is

that's lot a going there's summer. happen this So to

Operator

The Sakwa with next question ISI. will come Steve Evercore from

Steve Sakwa

really But just high is I want sublease expectation Rob, maybe And the Francisco. remained space your to curious for I'm guess follow on I Jamie's question up San demand. in on has if maybe to put to tenants the maybe back. to that the on has the start market. at Salesforce majority back of to sublet that, start get And space XXX pulled Mission come as

come if of curious summer. expect maybe perhaps I'm in to space by you off So start the QX to or some that

A. Paratte

Steve, question. Yes. good

of that's encouraging what I the spectrum. are going kind opposite are tenants on sublease into the think about we one foot looking the of to things X range with see in sublease at space expiration give flexibility are a companies at or those that sublease XX,XXX things, XX,XXX and in modestly, have generally look work. to Smaller space, back space they're either people and starting lease to to coming up grown have but bring order them

sublease there over XX,XXX deals are feet space. On end some at looking spectrum, the of the larger other

watching XXX,XXX the deals that of be in now, there's absorption about city. will feet that Right closely. So we're pending

sublease those to And that a So lot positive when obviously. deal happen, very a we space still occurrence, have of will be with.

plan point that in on to if market on restrictive some others last move they and your get the and basically nibble have in market short they terms to are the off very And space and taking as could companies the space they've question, lease. were back got anyone seeing to seeing had on the we it,

where sublease that last move X to see the wants in not to of tenants. flexibility this there's So lot lease. some for of tenant years think, And options or move market a It's of like actually subway in. space that because cases, the years space component back the I X difficult the is that is, a you term in for

we're keep we San people early, to -- if quarter hard question, seeing that absorption think thinking, could little a been second -- still things talking absorb we'll think were the but see your but might about definitely don't today, I and third So is to going I quicker fourth, it's it than second pinpoint, be at pace I some it. of Francisco we've

Steve Sakwa

things base and of the sort frame a X? not, much special John, I that up help case, to of outlined might or into. dividend did the how X development maybe you of if us Great. Okay. KOP making kind be an at you the you'd air, still XXXX out you whether exchange find what to you But know just lot transaction able for in retain the the can be acquisition and

John Kilroy

be not XX%, likely progress. retain. be Yes. again, think -- It's is more for able a into in going you little were to discussing that, to transactions get think don't it bit that I that happen. appropriate I to we'd situation roughly But we would But to

Steve Sakwa

understand. But dividend find total sales couldn't be if I of XX% to need might price the something? you special

John Kilroy

roughly. a less. little Yes, Maybe

Steve Sakwa

And then circle I back. just wanted just Michelle, lastly, to

You of being quarter TI I little a bunch it you and 'XX? sounded that date. as that to into of like comments, on commencing maybe of supposed be something in out Dexter, it kind bit issues. some a and hesitant about build the hard little slip thought first But a might was sounds QX. remaining said rent know XX%, made I It of kind there's like like Is that sounding were XXX you a

Michelle Ngo

come in it's right tenant now. that build hard it the be by with We're we're Yes. saying, of out by driven but tell the end It's TI going the should working to to on. year, hopefully,

Operator

next will Korchman come question Citi. with The from Emmanuel

Emmanuel Korchman

there to and I questions are amount is be A of lease ways John, or talking your about One, that you that who remarks that portfolio is large about the amount when space, of is they How the people to in how looking that. own outlined to science. of footage office think of to in And for life prepared mentioned square nature. other out tenant? second will related life going tenants a science your be given you doing before and/or work question science the couple lab science that just much are underwriting signing life the be that much versus a going landlord lease? this

John Kilroy

ratio The and Yes. by lab tenant. obviously, office varies, of

to hard what predict that it's So will be.

is specific give science, buildings have Manny. can't expect you we I bit of So lab. really quite about we that the talked there, a a life But all

it repeat I'm second for me? to question, regard with you then And could your sorry,

Emmanuel Korchman

life look, office the location need? me buildings than It's They are are science." rather been how really about how this Just maybe it's in thinking saying, someone life is you tenants good, much told "Oh, development. landlord or before the who specific that's science experience a

John Kilroy

as a think. science have you heights lot the mechanical floor ceiling ratios right systems life Yes. people isn't to as and forth. Well, so of structural, have and tricky Obviously, and

So the the circle, and square bones, square, the physicality triangle, like is bones important. the or

you can't space XX-foot carve-in an or unless floor You a can't floor, above. the just floor-to-floor XX-foot a make physically you XX-foot

right it buildings the structure ratios and some adapt or don't or So the forth. won't have physically so they to

it you baloney. want it? Would we go, we just don't do the be it No, is this as that what top and of be convert Could And we've stuff lot marketed science calls being seeing being a life prospectively look is see product. Maybe. -- at a No. this stuff of to It's marketed lot of to We mentioned we're that kind Would ideal? previous fringe. on and questions. tiered? on we

it's people time. I generally With regards They square These And sticky to of that money TI. more, issue long of think tend own it's $XXX on not pretty landlord, to of have provided landlord lab stay important. in $XXX for $XXX, or to unusual these your for top a a spend issue their back their occupancy. very $XXX, the are to companies foot

does the this notwithstanding best. huge that stuff kind more best-in-class tech years science has now, for the campuses the they XX and And vibe community thing tech and sticky. is very Kilroy retain the facilities looking life investment them a like the special are kind which same that been seeing we're thing same modern amenities inside that of have to feeling a life over that that's -- and they community with and we but a think attract looking that is lot be and the years, of the the looking causes for now, sciences, and And employees we've their of so of last talked outside that life in kind the want number same the science same is needs, So for about what forth.

And or of know that been think based have going going highly upon I that either compete to as be that finally, go, And developed, have can't a leasing, is drive go you're way deals lousy have I buying going is is be but place if do lot could be go go some cases, for That you then a we're can we've to rent end And this valuation some mean you science" hot. you people way about, and "life economics, you really the no you doesn't of conversion through, market us because go a on a that going is lot to not you're that that you're markets then just number that see at folks less. and stuff its to which is we've having be. with which up the life science means to or product falter you up talking it for in And math, especially people and stuff it, yes, marketed far in no that property. stuff a through are doesn't and for to to of our vibe. going of desirable ultimately, being seen looked

square feet whistles that's development we all and So the product own, in that and positioned wants. bells ideally X.X now life state-of-the-art the we're terrific the of that right that's we I property our think the user has entitled, properties, portfolio with locations just within that's that build science brand-new on can million

Michael Bilerman

or not if assets, stock that your identifying stock. investments thinking existing to it, the XX% you distribution know get those you your John, the cash have for do a that of to either potential you've want it's in you're raise, distribution you gain about I now opportunities. new new Mike the opportunities main investment, made, able able while perspective right think a And identify development to be opportunities. about I focus Bilerman. as you how need that new of is to been could

your share does buying where deploying you could and about that advantage your sites. your large-scale effectively portfolio doing does so you And of that or Dutch tender more capital? a as sit repurchase, about think into And of something How take rank overall your else, development think mind? existing in buying effectively to

John Kilroy

might I Well, to want do time -- a don't some go. going take the of regard fairly period exchanges. with we're anything, table the to within We Yes. significant whether off Michael, significant direction which do we have to to determine

You criteria. markets of where product And we looking existing occasional some into XXXX, most if value. feel best be imagine products, create meets be land been can at will a we that busy we've various think opportunities for we like we our it's that in that could substantial the site into the can

next to better everything, evaluating looking going we're -- the able questions that the question much will are address that raised, everything. to company I'm months we be be or and understand at others but your and the So few able within have

Michael Bilerman

you're be about the of the X has down come not these stock so to question the It attractive. months was fruition. be imagine X, at your your else anybody I specific levels, to of things road, stock know discounted if which that more talking and -- may portfolio all your And a today, would it, shares that a about pretty how than you better and other these value

best a your So to on. today, you to be may what of trying sort was moment where you get alternative. time in That's that may focus I have

John Kilroy

more to need time. on regard everything if a we where pride route, that Yes. process, come. go at to be with understand we that ourselves to all we Obviously, giving look feel the we don't you allocate diligent question. We'll internally that and our I just comfortable capital. a that but to We specific through go answer

Operator

from question Craig KeyBanc with Mailman next come Markets. The Capital will

Craig Mailman

tells there pretty of the curious or life how out. maybe much kind you the of that what basis What that to per foot as all-in to guys have get pipeline want kind a they and the million kind more entitled the that they you have? value get someone healthy kind go talk Dropbox kind the Just science think if science exchange, would buyer guess of to curious route, paid life building. on just have X.X of obviously, on creation to price square that within about I that of foot went pound spend an you you per

John Kilroy

Yes.

when create we we're a selling way it what take look is with obviously, me that also value. the and take price, it we we Let we money what not of the in consider an at say we regard to might selling attractive at for might a only that with and added what something, that redeploying look do shareholder

look to property tenant or just you conversion, the improvements. you XX% at a order Specifically if with off give magnitude I'm of was the But could numbers be to that take by XX%. it, going improved

science. spend foot, improvements already backbone those would of many many tenant think it them possibly of But could you because wouldn't I So would for it and but square has probably was the $XXX remain, a developed life wouldn't more TI, improvement place probably sort of in have downtime, which have by have -- you have construction, a in out, place you'd year thing, you'd you'd move you'd plus downtime, of have people tenant rent. to that

something. end buyout might or You with up a

what we was and did know transaction didn't for I appropriate what might options science. that sold and Kilroy. for building the transaction their that route, life because is. we to that knowledge. all us, the We return and not for the look certainly took one it. discuss with They a And did consider are very felt we of thresholds down well a would building go buyer the at -- But the obviously, never my plan we various the don't perform excellent that

and carry have was your just at the speak you'd on I might on be, while your would So to any -- the -- your I ultimate if you'd you get. of got mean, money, carry look happening, math, buyout what credited can't on one the you've no quick return vacancy kind specifically cost that have but by

And and in you'd can the whatever costs improvement whether there's tenant thing. or there's And with free the are, have then that. economics rent You'd that into soft costs of or have you assumptions. move the sort get phased all kinds lease a of associated whether

greater was future. it's building we beauty of foot a for of it felt, different and us with what than others thought stated more the But the We may it at certain an that good might have point to business. we That's a that for did, that to we us we when the we $X,XXX announced do value a again, that us view. in transaction was for asset today it transaction really

Craig Mailman

guys relative basis, you're That's of it say, But paying like at are KOP, life you assets, science value. significant to feels a amount needless to the create helpful. to going

John Kilroy

XXX,XXX Yes. mean a I you was around if that I KOP, feet Michelle? phase, foot. think, right, the Is first about think roughly, $XXX

Michelle Ngo

right. that's Yes,

John Kilroy

you is second to but $X,XXX, that. the the the regard XX forth roughly recently escalated some of look the or $X,XXX what and bought contribute that nicely. Obviously, whatever a one the our take to paid, phase main are competitors a months, it, cost our which a foot. And and so the escalation, have And rents XXX, achieve various properties in higher what pretty to on there think rents we're side location at with other of different is sites was that foot. higher in And And our it a the that's was last first opinion, main. nearly significantly in things on We're I thinking quality we're were location, fine. phase, in and rents It's X. not as that they of And rents rents, KOP. we sort than as recall, $X,XXX achieved, Phase was as I lower that going

look the of life cap than years. whatnot, massive apply I a developing the value would couple dear of rate science, create a amount if at be we that So over we or office sort you and and you product be the lower which will top-tier think of next to through rents

you're right. So

Craig Mailman

it potentially asked Are kind guys you know point? outside update of core life have -- still any said you're you Is this just on are of for you with due Or guys past, there I've any the markets, at looking that and I doing your is capital in this And -- today? science. question Yes. diligence this infusion? closer

John Kilroy

going I'm be of months. be to better within able to much as should to to that speak company, a couple able -- a we,

Craig Mailman

Okay. Fair Michelle. for enough. just last And X one then

or earnings does anything the there AT&T are Or You DIRECTV. how guys had of itself Is mentioned on kind reserving perspective? out balance that play anything an and you from that that? for sheet

Michelle Ngo

No.

including our guidance. in reserves legal And we not quarter are said, We we're as in a dispute. second any

nothing this know time. we'll more, So but at

Craig Mailman

that feet? it just out be that Or for guys one still accrue square you Would are XXX,XXX the numbers? of

Tyler Rose

We're rent still this point. that collecting on at

So 'XX. the the in expire option beginning of is to

matter no pay they So rent what, for still 'XX.

Operator

Johnston The next question will Bank. come Deutsche Derek with from

Derek Johnston

answered. were questions my of Most

a enough tossed would around. and by I've but to as forgive programs concerned space effect? And balance me not creative. greater I'm for smart up start Do begin you snowball in bit this, the now. the offering their work-from-home a to and Are that work-life a So come getting that the hybrid office viewed be to model less with become address ESG for possibly need a you and weighing it way heard companies S for mind in?

John Kilroy

for out to we're I asking They question. by all. You're think is that's everything they and reopen for themselves is it's can't hearing, haven't part work They want just play wait that to house. can a and be productive to into to be their going exhausted speaking, and socially get get advanced to back life are get people back. home. from way the so hearing John this the educated don't that Everything to at we're wild your kids school, schools reopened your within both a back not living

at a be forth. -- and the there amongst a nice coffee will some cocktail be university offense. margin? companies of some college work-from-home a question speak. certainly think that Sure. coffee been will particularly are sort a around -- in intellectual glass crowd, going work-from-home we're or that's so a a on or not always options to house No There There's So have I independents But to that provide. of people of

Derek Johnston

left. not There's No, a just understand. I more lot

John Kilroy

overhearing. not It's

Derek Johnston

do merit administration the think how any you XXXX up the more potential continues or about frequency And Do frequently. has the it How the you do mean, that, implications? legs What think -- John? feel exchange CRE to understands it? about you you elimination? more I do come to elimination, that think about

John Kilroy

like an things real the of NAREIT of roundtable. defeat members members working is Any we're elimination. trade et We're implication. have either up time, a XXXX estate the cetera, crackpot that, BOMA, concept and put Yes. it to other parties can the these of groups, all Well, concern. it Obviously, they're

And be you happens. think harmful. I I I'll what think would it tell it

company the a of XXXX bigger I expense power REITs. elimination it are think all I be consolidate smaller most think and in was the operators, I travesty. companies, a we're And more the will would big-sized the reasonably families and as think what do of at just

advantage I I operators. it's think it companies, will in harmful to probably, just bad to some ways big smaller be terribly think an be And but policy. the it

this well a it it's of too stupid of obviously tell. gives government, feel more, certainly speak, it's states. have terms in insane. seen on call and being are of my because no me the that everybody In the as or amongst implications rating lot in the and And knows, out me like mind, way as I most people use causes this X, as here for just administration to early to further We've ideas discussed come that just policy are, whatever,

Operator

Baird. Dave question will come Rodgers from next with The

Dave Rodgers

for John, Diego. XXXX was a follow-ups deal couple just down San me. obviously, One in was a of lab not

you're guess to year? those notwithstanding continued that a those proceeds, continue pushed achieved this out? think monetizing sales, had able big you couple what's that quarters around the in then asset doing Kettner that making talked comments and the might be on this Does on assets reinvest here proceeds, clearly quarter. I about curious And get reinvesting last demand I So one second and progress of does you the there. your if question, view

John Kilroy

-- there's at going be But I anything portfolio. out the We're at margin, to always going point. that's the might to -- least Dave, margins significant, think I this goes there the don't this year. trimming unlikely there's it's Yes. be something -- that around at that be I

do a company more. right, we've bigger life life company, probably likely company particular We and to science tech thing and and You're good lot science. the that we probably a that's had big wasn't And even won. done tech a XXXX had an because with company

lot progress, terms tours had know until building COVID you get it all out to we interest It don't we're to are was lease that you the be seeing come I had could help our of of to out but to me hard the users. the come what now can't lot continue But wait a that We're seeing seriously -- and because for seriously. do of can't a we in Kettner and X-X, We're what I on In see lot a to X-X doing X-X, a this hard tours. it's was interest a would seeing of taking when broker everybody companies whole XXXX. here, handful any we the we're Diego. as big Rob, all in San from very us even to take have to from that want able come tours building of take through to people call thing.

I'll And I'll the tell you, Paseo. at Paseo are One One project our in put sitting I office, and San Diego Eliott which in project anybody's the or world. our is country against

in What That the look the thing you me and by and we've can office retail all midyear. think San XXXX that retail says in We're I building most about the and amazing yes, been highest that. -- in has what is done, in to I the and shell in the I'd Eliott, take highest rents extraordinary. the guess, office at will invite done of both just seen, I've be think tell, rents it sees -- -- later the ever a and quarter, as it's margin. a you performance, huge leasing second you Diego's in building. Kettner. rents history highest you And getting tell everybody resi,

of creation a achiever that think think going not of our rent and asset. I as investment. very an percentage high I be a will it's value the there to be enormous big It's

it's hundred thousand So many couple XXX square how a feet. that What's of million? -- only

Michelle Ngo

feet. It's XXX,XXX square

John Kilroy

And how many million, roughly?

Michelle Ngo

million It's project. a $XXX

John Kilroy

in numbers all value another -- very to not I'm going sell. keen remember I we'll can't terms of in here. on we're see San we're what's Diego saying I exchange think anymore, on but going likely creation. But that's these be to Sorry,

move my where life and, of earlier Paseo in it's and been We're at where to XX the to strongly. we're climb XX. see really Eliott, here other report in ahead. always here our think dramatically science, go Carmel formal life assets Valley. in I and XX, going I science out One up in seeing prediction in also markets made are intersection come called Del here. As UTC, the here start to of the in future. Torrey the in into we're I'm seeing X. is science comments San Rob guess, going obviously, the Mar them going That's life with part make to They've to We're regard Mar, seeing pre-pandemic values Del Pines And years seeing rents not-too-distant the in to these Francisco that and we're the

Operator

come question Frank BMO. Lee with from next The will

Tak-Sun Lee

city footage rights of Can hundred in you terms of seeing also demand development several on update tenant still provide you're there. And X? an thousand KOP the square Phase at owns

an likelihood the to from Just what acquire square wondering opportunity there's footage is if even and them? additional

John Kilroy

of square part your the I KOP me, the X Phase -- was question? What excuse second demand. footage got What

Tak-Sun Lee

of I'm city still the several wondering owns hundred thousand just development rights.

footage even Just opportunity if from the to there's see curious square acquire an them. to

John Kilroy

I'm the it's I of square project. X, regard you do size not but that? on the multiples going of want sort with Phase But know exact Rob, Yes. that. to several footage, KOP the to take know I don't to of comment

A. Paratte

Yes.

X So XXX,XXX we're we've and feet, we've our delivering. QX this that is also space actually Frank, activity square this got X on than in -- buildings. call Phase And interest said about said more

the about excited we too pleased because it. divulge call, we're activity want this I little much being to bit we're is So with don't a have. cautious a public but really because pretty I'm

around incredible. to in look big San acres Paseo, industrial adjacent the product distinction when life whether is life was between areas. Point there on for campus -- parts are South John And One a this and life other Bay to at going you that again, XX-plus and market, science Francisco science you as talking this adjacent Francisco about And of one more it's, the a -- Bay project, or Sierra as other science be it San is

projects those tech. I be are to just because science companies after talent, life think challenge to going tougher it's for just a lease like

So biologists, type the building helping is these And what and what doing. that's question. do people. doing are after. all an highly has companies by environment scientists, that And them we're I cetera, helps layout that we're are hope those exactly et provide retain bright done, and sought answers tech campus of attract your to which that

Tak-Sun Lee

last it then one for does. me. And Yes, definitely

with What appetite the Just on core for opportunities Class evaluating exchange value-add A? proceeds. want opportunities is more touch acquisition to the the sale you're versus

John Kilroy

at are We're John. creators, value in therefore, but looking ways some value-add an to lots and more to to not a going mix. that. where and have that low opportunities leasing, at on going in core the buy just at a things We're development sit traditional. are be that markets cap value. There a is grow we value are ourselves tremendously. to add range This are a create pride it's value-add it. or rate rents And There's to are of of looking few. think asset we There's We're ground-up

You are can that going to skyrocket. where is cap going is a asset an at rents it's buy roll, core low that rate the to

You can physical add do it. -- things to

do you can have consideration. of that properties. things and know done are the All expand us to we You kinds under

in rate in of to is there's life about back under area science X%. demand of there's South vacancy life feet San the Francisco, million of Area science a Bay where just square X.X most the demand, San that Francisco, in And

we're to folks. talking imagine, can lot you a of So

Operator

Mizuho. Okusanya from come question with next The will Omotayo

Omotayo Okusanya

better. for $X.XX. a little more bit I'm guidance understand of XQ kind at you're trying Michelle, is XQ one This to I Michelle. mean just

the $X.XX back $X.XX. at add charge You

out exchange, have You the for $X.XX $X.XX, range $X.XX. to at G&A $X.XX, take you're higher is guidance $X.XX $X.XX, you at you're by but

kind So I'm of potentially higher as low trying gets point. like starting to moving you what $X.XX of end understand kind the $X.XX the versus you from to range that of

Michelle Ngo

Yes.

to we're $X.XX the charge. said you the plus COVID first add at midpoint, So back the for starting the on we the $X.XX walk quarter, with

of at as $X.XX, to about $X.XX, lease-up $X.XX, less Jardine G&A the you're as both said of the is midpoint. the So of gets impact which the to you we remaining exchange, well less for $X.XX getting the you

$X.XX still And in that range with respect to we right now just as of $X.XX, provided up think are lot starting to the there's of a again. uncertainty to we open the marketplace our markets

to So ourselves we wanted give flexibility.

Tyler Rose

Tyler. And this is

Just of is guidance I difficulty I this got example mean you've this seasonality. think providing an on the in market, of that.

adjustments our temporary just got us, X in exchange, markets. for went Jardine, all and that are to You've through, the those uncertainty And FFO. the Michelle which the G&A were drivers

be time, to So back theoretically, over picking going up. we're all that

just it's difficult another is why of guidance right now. example So

Operator

any Michelle like question-and-answer concludes to I would for conference Ngo the over to ahead. remarks. our go turn session. Please back closing This

Michelle Ngo

for us you appreciate your joining KRC. today. continuing in We Thank Goodbye. interest

Operator

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

You may now disconnect.

Kilroy Realty (KRC) 29 Apr 212021 Q1 Earnings call transcript