Kilroy Realty Corporation

Good morning, everyone, and welcome to the KRC 1Q24 earnings conference call. My name is Angie, and I'll be coordinating your call today. During the presentation, you can register to ask a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by T. Please be reminded to limit your time to one question and one follow-up only. I will now hand you over to your host, Bill Hutcherson, Senior Vice President of Investing Relations and Capital Markets. Please go ahead.

Thank you, Angie. Good morning, everyone. Thank you for joining us. On the call with me today are Angela Amann, our CEO, Justin Smart, President, Rob Peratt, our Chief Leasing Officer, and Elliot Trencher, our CIO and CFO. At the outset, I need to say that some of the information we will be discussing during this call is forward-looking in nature. Please refer to our supplemental package for a statement regarding the forward-looking information on this call and in the supplemental. This call is being webcast live on our website and will be available for replay for the next eight days, both by phone and over the internet. Our earnings release and supplemental package have been filed on a form 8K with the SEC, and both are available on our website. Angela will start the call with a strategic overview and quarterly highlights. And Elliot will discuss our financial results and provide our updated 24 guidance. Then we'll be happy to take your questions. Angela?

Thanks, Bill, and good morning. On our last earnings call, I summarized some initial takeaways from my first couple of weeks as CEO, including Kilroy's strong portfolio positioning, the underlying strength of our talented team, and the quality of their relationships with our tenants, and a clear trend of improving fundamentals within our markets. As I have settled in over the last three months, my initial takeaways continue to be reinforced. The quality of our portfolio and platform uniquely positions us to benefit from the recovery we are beginning to see take hold in our market. I'm happy to report on a very active first quarter for Kilroy. Leasing volumes were strong. We enhanced our liquidity profile and extended debt maturity. And last night, we raised both same property NOI growth and FFO guidance. During the first quarter, we signed approximately 400,000 square feet of leases. which represents Kilroy's highest first quarter leasing volume since 2017, and a 40% increase relative to the first quarter of 2023. We saw strength in our Southern California markets and across multiple industries, including gaming, professional services, finance, and technology. Some specific leasing highlights include. First, as previously discussed, we signed a 77,000 square foot renewal with Riot Games for Riot's Arena, a unique event space in the heart of their West LA campus. Second, we signed 70,000 square feet of new and renewal leases across our Del Mar portfolio in San Diego, resulting in a 98% lease rate in that submarket. The San Diego market in general, and Del Mar specifically, has been the strongest region in our portfolio, with physical occupancy approaching 90%. High physical occupancy rates have given companies certainty around their space needs and confidence to make real estate decisions, which has translated into strong results for our portfolio. And finally, we signed our first new lease at West 8th Street in Seattle, where an AI company took a partial floor. AI demand is notable in both San Francisco and Seattle, where the aggregation of top tech talent is most pronounced. We fully expect that the growth in AI over the next several years will lead to accelerating demand in our markets from both big tech platforms and startup companies alike. Our forward leasing pipeline also remains strong. In particular, at Kilroy Oyster Point phase two, Tour activity has meaningfully accelerated during 2024, with several large-format user tours occurring over the last six weeks. We also remain on track to deliver our spec suites in one of the three Phase II buildings in October, and we'll be ready to capture demand from smaller users with requirements for move-in ready space as we approach delivery. We remain excited by the uniqueness and quality of this project and its long-term competitiveness within the South San Francisco Submarket. Shifting to the fundraising environment, we are starting to see some green shoots, suggesting capital flows are improving in the technology sector. During the quarter, Stripe, our tenant at KOP Phase 1, raised a round of private funding at a $65 billion valuation, representing a 30% increase in valuation from just a year ago. Additionally, Reddit, our tenant at 303 2nd Street in San Francisco, successfully completed their IPO at a $6.5 billion valuation, the high end of its indicated range. Blue chip tech companies are demonstrating access to capital, which bodes well for the broader tech ecosystem and ultimately for real estate requirements. As it relates to life science, after record years of venture capital deployment during the height of the pandemic, the pace has decelerated to more normalized levels. That said, 2023 saw over $30 billion of activity, significantly higher than any standalone pre-pandemic year. And 2024 appears to be on pace for similar levels. As the population continues to age, Healthcare costs continue to increase, and novel drug approvals continue to proceed at an accelerated pace. The stage is set for continued growth in the life science sector, and we believe that our portfolio is extremely well positioned to benefit from these long-term trends. Turning to the transaction market, we are starting to see some signs of life. Sellers for quality properties are beginning to softly test the market. The wide bid-ask spread that has been observed over the last several quarters persists, and debt financing is challenging to secure, so overall transaction volumes remain low. We are hopeful that will begin to change over the coming quarters. As we navigate this environment, we will be patient and continue to adhere to our three core pillars, high-quality properties, strategic capital allocation, and a fortress balance sheet. Ultimately, we expect to be both an opportunistic buyer and a strategic seller when market conditions permit. Making decisions based on real estate fundamentals and risk-adjusted returns not based on capital needs, as we have maintained exceptional liquidity and financial flexibility. We are proud of the company's capital allocation track record and are confident that we will identify meaningful opportunities to create value for shareholders moving forward. Before turning the call over to Elliot on behalf of the entire management team, I want to thank our Kilroy colleagues who have continued to execute so effectively across all disciplines. I've been extraordinarily impressed with the quality and commitment of this team. specifically their motivation, creativity, and collaboration. And I look forward to what we can deliver together over the coming year. Elliot?