Kilroy Realty Corporation · NYSE:KRC
Kilroy Realty — Bank of America Real Estate Conference 2023
23 slides from Kilroy Realty's conference presentation, September 2023
Slide 1: Kilroy Realty – Bank of America Real Estate Conference
KILROY Bank of America Real Estate REALTY Conference September 2023 1 One Paseo | San Diego
Slide 2: Agenda
AGENDA 01 Company Update 02 Market Observations 03 Strong Financial Position Indeed Tower | Austin 2
Slide 3: Company Update
COMPANY UPDATE 3
Slide 4: Kilroy at a Glance
KILROY AT A GLANCE A Premier, Developer, Owner, and Manager of Class A Properties on the West Coast and Austin Pacific Northwest // ~15% ~285% Baa2 / BBB Total Shareholder Return Outperforming Peers by ~100% (1) Investment Grade San Francisco // ~25% Other Bay Area // ~27% Los Angeles // ~15% 5.6% 5
Slide 5: Kilroy Is Built for All Environments
KILROY IS BUILT FOR ALL ENVIRONMENTS Three Guiding Principles Best-in-Class Real Disciplined and Fortress Balance Estate in the Most Experienced Sheet Dynamic Markets Approach to Capital Allocation 5
Slide 6: Kilroy Is a Leading Space Provider in Portfolio Age and Quality
KILROY IS A LEADING SPACE PROVIDER IN PORTFOLIO AGE AND QUALITY… 75 49 46 47 35 35 Peer Office REIT Average 26 26 26 24 21 16 11 KRC Bi-Coastal Sunbelt Sunbelt West-Coast Bi-Coastal Sunbelt West-Coast West-Coast Bi-Coastal East-Coast East-Coast East-Coast REIT REIT REIT REIT REIT REIT REIT REIT REIT
Slide 7: Which Uniquely Positions Kilroy to Be Resilient
… WHICH UNIQUELY POSITIONS KILROY TO BE RESILIENT… Flight to Quality Driving a Divergence in Market Performance Plays to Kilroy’s Advantage 6% What Differentiates KRC? Design & Architecture Modern Space Planning 4% 2% Historical Net Absorption as % of Inventory Performance Spread 0% -2% Current Proj
Slide 8: Optionality to Play Both Offense and Defense Throughout a Real Estate Cycle
…AND HAVE OPTIONALITY TO PLAY BOTH OFFENSE & DEFENSE THROUGHOUT A REAL ESTATE CYCLE Select Categories Commentary OFFENSIVE DEFENSIVE DEFENSE • $1.9B of liquidity including ~$830M in cash and undrawn term loan proceeds Fortress Balance Sheet • 6.0x (1) levered with no debt maturities until December 2
Slide 9: Market Observations
MARKET OBSERVATIONS 9
Slide 10: Recent Return to Office Announcements
MARKET Recent Return to Office Announcements OBSERVATIONS Return to Office Momentum Continues and Existing Mandates Are Strengthened 3 days per week; Instituting stricter monitoring and 5 times per 2 weeks beginning in September enforcement of hybrid employees’ attendance 3 days per week; Institutin
Slide 11: Recent Employment Trends in the Tech Sector
MARKET Recent Employment Trends in the Tech Sector OBSERVATIONS Slowdown in Tech Layoffs Coupled With Increased Office Job Postings Will Drive Positive Momentum U.S. Tech Layoffs Large Cap Tech Job Postings in KRC Markets (1) 7K 70K 60K 6K 50K 5K 40K -90% YTD 4K 30K 20K 3K Jan-23 Feb-23 Mar-23 Apr-2
Slide 12: Lifestyle Recovery Trends Present Green Shoots for Office Sector
MARKET Lifestyle Recovery Trends Present Green Shoots for Office Sector OBSERVATIONS In 2023, Key Lifestyle Trends Are At or Exceeding Pre-Covid Levels 130% Recovery Compared to Pre-Covid Levels 125% 120% Air Travel, 121% 115% Gym Attendance, 115% 110% 105% 100% 95% Restaurant Reservations, 94% 90%
Slide 13: Building Age and Quality Influence Market Vacancy Rates
MARKET Building Age and Quality Influence Market Vacancy Rates OBSERVATIONS Kilroy Vacancy vs. Market Vacancy 24% 20% 18% 13% 12% 8% 7% 2% Overall Market Average San Francisco Del Mar Hollywood KRC Markets Select KRC Submarkets Kilroy Vacancy Market Vacancy Note: Data based on Company’s’ stabilized
Slide 14: U.S. Office Supply Slowing Down
MARKET U.S. Office Supply Slowing Down OBSERVATIONS The Deceleration of Groundbreakings Will Create a Future Shortage of High-Quality Product 80 70 Groundbreakings (m.s.f) 60 50 40 77.6M 30 49.7M 20 41.8M 25.4M 10 4.8M 0 2019 2020 2021 2022 YTD 14 Source: JLL.
Slide 15: Strong Financial Position
STRONG FINANCIAL POSITION 15
Slide 16: Fortress Balance Sheet
STRONG FINANCIAL Fortress Balance Sheet POSITION Premier Access to a Multitude of Liquidity-Enhancing Avenues in Both Public and Private Markets Fortress Balance Sheet Strong Liquidity Uses ~6 Years Low Leverage Profile Total 2024 Bond Maturity $425M Average Debt Remaining In-Process Development Spe
Slide 17: Healthy FAD Payout Ratio with a Sustainable Dividend
STRONG FINANCIAL Healthy FAD Payout Ratio with a Sustainable Dividend POSITION 2023 Estimated FAD Payout Ratios & Dividend Growth Since 2016 111% 89% 84% 76% 74% 72% 57% 69% Avg. FAD Ratio = 72% 51% 54% 55% 51% 39% 23% 27% 18% 13% N/A N/A 0 4% -14% -63% KRC East-Coast East-Coast Bi-Coastal Bi-Coasta
Slide 18: Case Study: One Paseo
STRONG FINANCIAL Case Study: One Paseo POSITION Deal Summary Asset: Portion of One Paseo Campus Lender // Loan Proceeds: New York Life // $375M Rate: 5.9% Fixed; Interest Only Term: 11 Years Strategic Drivers Size // Cost of Capital: Ability to execute jumbo loan at an efficient all-in rat
Slide 19: Platform Debt Maturities
STRONG FINANCIAL Platform Debt Maturities POSITION KRC Has Addressed December 2024 Bond Maturity With One Paseo Financing $350 $158 $475 $500 $425 $82 $425 $450 $400 $400 $375 $350 $250 $175 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Avg. Interest Rate (Weighted) 3.5% 4.4% 5.0% 3.7%
Slide 20: Annual Lease Expirations From 2023-2025
STRONG FINANCIAL Annual Lease Expirations From 2023-2025 POSITION KRC Rollover is Among the Lowest Within its Peer Set, Mitigating Near-Term Lease-Up Risk and Re-Leasing Costs 18% 13% 13% 11% 11% 8% 9% 9% 7% 7% 5% East-Coast KRC Bi-Coastal Bi-Coastal Bi-Coastal Bi-Coastal Bi-Coastal East-Coast West-
Slide 21: Leverage Sensitivity
STRONG FINANCIAL Leverage Sensitivity POSITION Even Assuming No Additional Leasing and All Debt Funding, Leverage Remains Manageable Pro Forma for Completion of In-Process Development 2Q23 Debt Funded, Debt Funded, Partially Stabilized Fully Stabilized Annualized (31% Leased) (100% Leased) 7.0x 6.3x
Slide 22: Where Innovation Works
Where Innovation Works 22 Jardine | Hollywood
Slide 23: Disclaimer
DISCLAIMER This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on our current expectations, beliefs and assumptions,
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