Kilroy Realty Corporation · NYSE:KRC
Kilroy Realty — Investor Day (October 2011)
52 slides from Kilroy Realty's investor day presentation, Oct 11, 2011
Slide 1: Investor/Analyst Presentation – Bellevue, Washington October 10, 2011
Exhibit 99.1 Exhibit 99.1 Investor/Analyst Presentation – Bellevue, Washington October 10, 2011
Slide 2: Disclaimer
Statements Disclaimer 1934, plans “should,” forward Company Partnership. achieved, forward-looking Company’s 2011 differ. This leases do, leasing In rent Measuring 1reliable, this that growth presentation included and as The contemplated presentation, or the looking but amended. and objectives “expe
Slide 3: Program Agenda
I. Tyler Program Company Introduction Acquisitions, Eastside Financial Overlake Key 2Plaza Takeaways Center, Yarrow Rose Market Office Update Overview Bellevue II. Dispositions Bay, John Center, and Kirkland KRC Kilroy Redmond Properties and III.Seattle Eli Khouri Overview IV. Mike Shields V. Tyler
Slide 4: Company Overview – John Kilroy
John Kilroy Chief President 3Company Executive Overview Officer
Slide 5: Making Continued Progress on Four Fronts
Making Strong Four Company More Acquired Three Closed Additional 4Continued consecutive than pending leasing $24 Progress $516 now 1.1 focus dispositions million million performance acquisitions 93% million on on quarters of core occupied All dispositions square of totaling Fronts portfolio properti
Slide 6: Premier West Coast Gateway Markets Portfolio
Premier High 105 40 Gateway Greater Key Los San Orange 93% 5Note: industrial Angeles office Francisco Diego coastal occupied Leased quality, Data County: Seattle: West cities properties County: based Southern and properties well-located Coast Bay of 0.9 4.0 Ventura on Greater Area: 5.4 million Landl
Slide 7: Recent Leasing Activity
Recent 5010 Campus Incorporates 6Renovating Wateridge Leasing for project TD theActivity Ameritrade, Drive adjacent with – San estimated Sorrento strong Diego,Gateway occupancy credit CA tenant Lot of 7with 3Q land 2012 rating forKRC additional of Baa1/A-and incremental site amenities market investm
Slide 8: Strong Portfolio Performance: Leasing Executed
Strong Executed On Stabilized 10 Projected 97% 90% 100% 92% 93% 83% 89% 94% 96% 1999 (1) 7Fcst Year Represents target 97% 95% 2000 90% Leasing Average: 1.2 approximately to Occupancy 96% 95% Portfolio 2001 80% execute million change Performance 70% 2002 94%Occupancy more square Increase: 60% 2003 in
Slide 9: Disciplined Acquisitions Approach
Disciplined Total ($ $800 1997 Bubble $25 $98 $8 $31 $254 $507 YTD KRC $516 Pending $679 $698 Average 8Prices in millions) $700 1998 Property has well Years stabilized capitalized $600 1999 below Approach Acquisitions: $500 2000 replacement cap onto $400 2001 rate acquisition Acquisitions of $300 20
Slide 10: KRC Acquisitions Diversification
KRC Acquisitions approximately NOI Actual SEA SF OC SD The (1) 9assuming 15% Real 46% 12% 10% Bay by 8% Acquisition FY Region estate Area LA21% SD a2009 full 56% have and investments $4.1 year Diversification LA expanded Seattle billion contribution 32%make as defined KRC’s of up September based mor
Slide 11: Capital Recycling Program
Capital ($ $325 -$25 1997 Total YTD $1.3 Development $38 $175M Evaluating Note: 10 in$131 billion -$75 millions) $275 1998 Development Does Recycling Pending $174 -$125 $225 1999 additional not $0.8 Starts $202 include -$175 $175 2000 billion Since Starts: Dispositions $133 dispositions $125 2001 -$
Slide 12: Development and Redevelopment Pipeline
Development Carlsbad PCC Rancho One Santa SG Orange Plaza Redevelopment 2260 3880 5010 TOTAL (1) square 11 Estimated Lot Paseo Lot Wateridge E. Kilroy Yarrow Fefeet. 2County Bernardo Imperial 2.1M-3.2M 509,000 II 8Oaks Sorrento (1) Sorrento and Airport Bay and Pipeline rentable Del Carlsbad III (Off
Slide 13: Market Conditions
Market Orange Los San Greater Seventh Positive Pace Demand Lack Very growth Seattle 12 Angeles/ Diego Francisco of strong ofamong in Conditions County rental Seattle inventory quarter absorption remains thetenant Ventura professional rate national ofuneven, and decline demand positive in both high l
Slide 14: Strong San Francisco and Seattle Tech Leasing
Strong San 4,000 368 Seattle RSF 3,000 2006 535 Tech Current Source: 13 Francisco 985 359 in Leasing 2007 3,500 2,500 Technology Tech 000s Tech The 1,100 2,333 2008 3,000 2000 CAC Leasing Demand (RSF) Tech 229 1,644 2009 1,500 Group, 2,500 1,170 Leasing leasing 2,118 2010 (RSF) 1,000 2000 3,778 Jone
Slide 15: Robust San Francisco and Seattle Demand
Robust San Dolby, Aon, Seattle Approximately More AMZN, Other Carlyle Source: 14 Francisco Gensler, than 26% 20% Macy’s.com, Demand Group, The HTC, 6.5 485 25 from CAC million users Fremont million Concur CH2M 45% 50% in professional Group, Knowledge greater square Salesforce.com, comes square Techn
Slide 16: 2011 Outlook
2011 Outlook Market Anticipate Executing Flexibility/agility/discipline 15 volatility capital continued hasn’t recycling KRCimpacted occupancy program will be leasing the Cautiously improvements key traction in uncertain evaluating times growth opportunities along the West Coast Bolstered management
Slide 17: Acquisitions, Dispositions and Seattle Overview – Eli Khouri
Eli Khouri Chief Acquisitions, 16 Investment Dispositions Officer and Seattle Overview
Slide 18: Current Pricing – Core Acquisitions
Current Pricing Gateway Long-term High-quality Multifamily Primary Cap 4.50% Core 17 Rates Real pricing -very Acquisitions 5.50% buyers city Estate Unlevered credit strong has industrial CBD 6.25% are risen lease pension office Environment IRRs strongly -in 7.00% topfunds markets – early Mortgage KR
Slide 19: Current Pricing – Value-add Acquisitions
Current Value-add Pricing High Rehab Primary Cap N/A “Imperfectly 18 Rates –vacancy Due and choppier Acquisitions buyers Real Unlevered timing topriced Vacancy with Estate are –risk moderated lease-up value-add/opportunity market” Environment IRRs 8.50%compared -by10.50% turmoil to core fundsStill D
Slide 20: YTD Closed Acquisitions
YTDThird $350 6.7% 9.1% 89% Embedded Increased Greater Plaza Key (Off-market) Bellevue 250 201 San 10770 KRC 19 Francisco Brannan Diego Center occupied PSF: 2011 Closed deals stabilized IRR atWateridge Seattle Yarrow development Street 20% Acquisitions NOI better Acquisitions 4040 Bay cap to growth
Slide 21: Pending Acquisitions
Greater Los Orange San Pending $283 7.3% 10.5% 87% Embedded Strong 20 Angeles/Ventura Francisco Diego occupied PSF: stabilized IRR metrics County Seattle Acquisitions 38% NOIBay –cap replacement growth healthy Area rate Acquisitions: NOI growth 3 Total in core SFmarkets Acquired: 574K SF Total Deal
Slide 22: 201 Third Street Highlights
Highlights 201 Ideal Adjacent BART, Abundant Building Capture Market Executed Locked 21 Third SOMA CalTrain, NNN in demand has to lease amenities Street purchase ofkey location great rents Recent with transportation –from Muni San bones 60% price Twitter Major Acquisitions tech Francisco above Febru
Slide 23: Recent Acquisitions: Before and After Repositioning
Highlights Similar After Before 22 to 303 of Recent SecondAcquisitions: – great opportunity, Repositioning major transformation Plans
Slide 24: Key Center Highlights
Highlights Key Spectacular Transportation Amenities Rental Replacement 23 Center rate of leader –views NNN Recent Bellevue Premier –rents 22 Acquisitions $215M stories multi-tenant 75% above 50 ($440 yard property in-place PSF) line –location 488,470K in Bellevue SFPoised for growth
Slide 25: Case Study: Key Center Acquisition
Case Submarket Closing Price In-Place 10 KRC’s June 5.1% Comparable September KRC (1) 24 Yr For 2011 Study /remains at IRR RSF Repl. Key comparison 88% Cap Bellevue 2011 -(1) Center Recent Cost Key occupancy Rate disciplined North Center purposes, $469 Transaction Financial 8.5% Acquisition PSF in a
Slide 26: Recent Acquisitions Highlights
Highlights 201 Ideal Adjacent BART, Abundant Major Building Capture Poised Market 99% Executed Off-market Locked Key Spectacular Premier Transportation Amenities Rental Replacement KRC 25 Third Center leased SOMA executes reposition rate for CalTrain, NNN in multi-tenant demand has to lease amenitie
Slide 27: Closed Dispositions
Greater Orange $175M Closed Los San Properties Very Low Focused KRC 26 Angeles/Ventura Francisco Diego cap strong Dispositions executing will $24M of County Seattle on rate be dispositions with managing market aggressive pricing disposition Bay limited capital Strategy Area demand Orange disposition
Slide 28: KRC Acquisitions Strategy and Focus Criteria
Focuscriteria Core Key Value Strong Well Discount Attractive KRC 27 located pricing plus Acquisitions underwriting creation on markets to high-quality & fundamental opportunities replacement value-add –aggressive opportunity proximity Strategy reflects acquisitions offer characteristics in remain co
Slide 29: Why Seattle
Why Seattle Great 28 Quality of Life Exceptional Workforce Critical Mass of Knowledge Companies
Slide 30: Educated Population and Research Funding in Seattle
Educated Population 60% Seattle Federal $700 $MM U. Source: Most Highest 29 Washington 50% $600 educated San Research The U.S. research Demographic 40% $500 25 Francisco Center Census Years workforce U. 30% $400 funding Funds Michigan for and 20% Bureau, Washington $300 Measuring –Allocated Over on
Slide 31: Seattle Office Employment Outperformance
Indexed 160 1995 ≈2x U.S. US Seattle Source: Note: 30 Office 150 Outperformance 24% 1996 Office Outpacing 48% Office is BLS.gov Monthly 140 one Employment 1997 130 employment of Employment the 1998 120 Office Nation leading 110 1999 Employment in 100 is 2000 West Employment defined 2001 Coast asGrow
Slide 32: Critical Mass of Knowledge Companies
CriticalCBD/ Seattle 31 EastsideMass South of Knowledge Lake Union Companies
Slide 33: Seattle Ranks Among Top Markets in Absorption
Seattle Top 0Manhattan 4Worth Source: 32200,000 of 20 5 ofRanks Markets: CBRE KRC’s 400,000 SanAmong statistics Francisco markets Net600,000 Absorption thebased are Top Chicago 800,000 inFive on the at2Q11 Seattle Top Strongest 2Q11 1,000,000 20 results. (SF) Phoenix Markets 1,200,000 Orange in Abso
Slide 34: Seattle Office Employment and Tech Leasing Growth
Indexed 108 110 102 Seattle 98 ≈4x U.S. Jan-10 RSF 3,000 Tech Current 535 2006 CAC 33 106 100 359 Outperformance 1.97% in Leasing 2007 Group, 2,500 Feb-10 is 8.40% 000s Tech Monthly 104 2,333 Poised 2008 2,000 Jones Demand (RSF) Mar-10 1,644 2009 for Office 1,500 Lang Growth 2,116 2010 (RSF) Apr-10
Slide 35: Seattle Outlook and KRC Platform
Has outpaced Quality KRC Quality, Built Significant Seattle 34 sharpshooter Outlook well poised platform of well-leased positioned life local the for attracts bolsters experience nation growth Region platform assets topremier create in KRC’s in job instrong value office operations, growth Westlocati
Slide 36: Eastside Market Overview – Mike Shields
MikePresident, Vice Eastside 35 Shields MarketPacific and KRCNorthwest Properties
Slide 37: Eastside Market Focused on High-Tech Jobs
Eastside Half named KRC 36 of Focused #1 the Market place highSubmarkets to tech “Live jobsand in Seattle Launch”areby located CNN inMoney.com the Eastside Recent Market infrastructure Residence ofinvestment choice forand high-tech retail and executives residential Skilled development workforce have
Slide 38: Bellevue Corporate Tenants
Bellevue 300,000 380,000 115,000 60,000 580,000 130,000 160,000 385,000 400,000 50,000 740,000 43,000 37 RSF RSF - Corporate Tenants
Slide 39: Bellevue Inventory, Vacancy and Rental Rates
Bellevue: INVENTORY 8,000,000 2000 RENTAL $20.00 22.5% VACANT DIRECT Source: 38 2001 VACANCY $25.00 Pacific AVERAGE RATE Strong 7,000,000 SF 2002 OCCUPIED (SF) $30.00 Real 2003 (FSG) and 9% Estate 6,000,000 RATE Resilient 2004 $35.00 VACANCY SF Partners, 2005 $40.00 Submarket 5,000,000 2006 13.3% In
Slide 40: Microsoft Spurs Tech Innovation and Growth
Over 300 local Microsoft 39 Spurstech encompasses Innovation companies 14 million andhave Growth square grownfeet from of leased Microsoft androots owned space in the Seattle region
Slide 41: KRC Seattle Portfolio
KRC Seattle Portfolio 40
Slide 42: Overlake Business Center – Redmond
3-story,Center) Office Customer Microsoft Overlake 41 Class Office service Campus AKRC office, Center to grow Business built - Redmond relationship inPlan: 1998 122,000 square feet 100% leased to Microsoft through 2014 Microsoft funded 60% of a $30 million freeway overpass to connect the Main campus
Slide 43: Plaza at Yarrow Bay – Kirkland
Plazaof Four One Lease Upgrade Tenant Approximately 42 building, Yarrow vacant retention top exterior Eastside space Bay 279,900 67environment -acres and Kirkland suburban SF grow of campus waterfront rents office90% projects land occupied was KRC donated by Business technology, to City Plan: legal,
Slide 44: Key Center – Bellevue
Key Center 22-story Built Best Lease Tenant Bravern Sound 43 in invacant Transit retention class, 2001 retail office – space premier Bellevue center Station tower; andEastside grow rents office property; LEED Gold Certified Favorable long-term ground lease 88% occupied by financial institutions and
Slide 45: Financial Update – Tyler Rose
Tyler Rose Chief Financial 44 Financial UpdateOfficer
Slide 46: 3Q Preliminary Results and Guidance
2Q11 3Q 2011 Year-end 45 2011 FFO FFO Conference per Preliminary preliminary occupancy pershare share Call ofin range of forecast $0.56 results Results Guidance guidance 92%of $2.22 of 92% range to $2.29
Slide 47: Projected Funding Sources and Uses
Funding $35 $163 $121 Projected $175 $83 $19 Executing Note: 46 million million Analysis Update sources capital –of–Assumed projected cash, Pay Pending does recycling ofoff $0 not capital year-end maturing drawn debt acquisitions dispositions include plan foron bank pending any mortgages tobank fund
Slide 48: Key Takeaways – John Kilroy
JohnTakeaways Chief President Key 47 Kilroy Executive Officer
Slide 49: Track Record
Track 1997 Greater Los 1997/1998: > 2010: Replicating IPO Became 2008: 2011: 48Built Angeles/Ventura 1997: IPO Expanded Market Exited Record team Seattle San 2000 No Acquired San Diego’s and Seattle dislocations of San San 2008 Diego team, Growing purchased Diego Francisco at largest Orange 2010 San
Slide 50: Key Recent Additions to the Team
Keyyears Greater Los Orange San Public: Mike 21 Eli Executive 29 Private Added 49 Khouri, Angeles/Ventura Francisco Diego Recent Shields, Sanford, top-flight real Spieker County Seattle ofVice real estate: Additions Vice Bay Vice President & estate regional EOP Lowe Broadreach Area President-Northwe
Slide 51: Conclusion
Built topsignificant Conclusion Created Unmatched Platform Opportunity Experienced Maintain KeyKey Leading 50 West Center, in tier strong place leasing to management West Coast continue balance Center, for Coast value success Office continued Bellevue to sheet franchise over team create Landlord and
Slide 52: Q&A
REALTY CORPORATION Q&A 51