Kilroy Realty Corp. (NYSE:KRC) Q3 2018 Earnings Conference Call Transcript

Oct 25, 2018 • 01:00 pm ET


Kilroy Realty Corp. (NYSE:KRC) Q3 2018 Earnings Conference Call Transcript


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Good afternoon and welcome to the Kilroy Realty's Third Quarter 2018 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Tyler Rose, Chief Financial Officer. Mr. Rose, please go ahead.

Tyler Rose

Good morning, everyone. Thank you for joining us. On the call with me today are John Kilroy, Jeff Hawken, Steve Rosetta, Heidi Roth, Tracy Murphy, Rob Paratte, Eliott Trencher and Michelle Ngo.

(Forward-Looking Cautionary Statement)

John will start the call with a review of the third quarter. Jeff will discuss conditions in our key markets. And I'll finish up with financial highlights and a review of our updated 2018 earnings guidance that was published yesterday in our earnings release. Then we'll be happy to take your questions. John?

John Kilroy

Thank you for joining us today. Operating conditions remained strong in our West Coast markets and this was reflected in our third quarter results. We signed new or renewing leases on 335,000 square feet in our stabilized portfolio at rents that were up 16% on a cash basis and 35% on a GAAP basis. And so far in October, we signed an additional 415,000 square feet of leases, which brings our year-to-date leasing total to 2.6 million square feet. We're on track to have our best leasing year ever. We commenced revenue recognition on the entirety of our 312,000 square-foot office space at our newly completed 100 Hooper project in San Francisco. We increased retail leasing at our under-construction One Paseo mixed-use project in Del Mar to approximately 85%.

We agreed to terms on approximately $375 million of asset sales that we expect to complete by year-end. And we continue to earn the highest awards for our sustainability programs. Now let's get into the details. Strong demand and limited supply are driving leasing activity across our markets with a wide variety of high-quality tenants actively seeking large blocks of space. The pace of negotiations and decision-making continues to quicken. New supply especially in prime locations is quickly absorbed and run rates are hitting new highs. Our recent experience includes several transactions that demonstrate the strength of the markets. In Seattle, we signed new leases with Facebook during the quarter at our Skyline Tower and Key Center properties in Bellevue that total 85,000 square feet of space. Cash and GAAP rents were up towards 25% and 47% respectively from the prior leases.

This completes the re-leasing of the former Valve space at our Bellevue properties, which are now fully leased. In San Francisco, we signed 193,000 square foot lease with a technology company for its future corporate headquarters at 303 Second Street. Even though we are currently fully leased in this project, we were able to assemble various future explorations to create a cohesive workspace for this tenant that they will take sequentially as it becomes available between 2019 and 2021. On a cash and GAAP basis, rents were increased 56% and 102% from prior leases.

This transaction demonstrates how tenants