Kilroy Sees Strong Leasing Activity Throughout Its Portfolio

Kilroy Realty Group has had a strong year of leasing activity throughout its portfolio. On its third quarter call, CEO and president John Kilroy and EVP and CFO Tyler Rose reviewed the company's performance this year and its future pipeline. This year, leasing will exceed 2018 activity.

This year, the company has signed 1.3 million square feet in leases. At the end of the third quarter, the company's portfolio was 97.3% leased and 92.1% occupied. "With our strong leasing activity through the first 10 months of the year, we've effectively addressed all 2019 lease expirations with just 64,000 square feet remaining, and have a manageable 2020 expiration profile of 774,000 square feet or just 6% of the portfolio. We only have one expiration greater than 100,000 square feet in 2020," Rose said on the call.

The firm's portfolio is also outperforming national averages. Weighted average in-place rents remain above 21% below market, according to Rose. San Francisco leads the portfolio with 33% of weighted average in-place rents below market. In Los Angeles and Seattle they are 10% below market, while San Diego's are about 9% below market. In addition, 2020 lease expirations are approximately 17% below market.

In Q3 alone, Kilroy signed 550,000 square feet of leases in its stabilized portfolio with cash rents on the signed leases up 19% and GAAP rents up 40%. In Del Mar, Kilory signed two leases with existing tenants that both expanded to take approximately 300,000 square feet in the aggregate, with the change in cash and GAAP rents average 20% and 50% respectively. "[This is] one transaction that provides a good example of how we are leveraging our existing assets and development skills in today's strong markets," said Kilroy.

At One Paseo in San Diego, the office component is now 70% to 76% leased, and the balance of the space is in negotiation and the retail component of One Paseo is 100% leased. "We delivered 237 residential units at One Paseo in mid-September; more than a third of the units are already leased," says Kilroy. "We are also active in negotiations at our 9455 Towne Center Drive development in San Diego."

The company has had more than a great year for leasing activity. It has also completed two acquisitions totaling $226 million. The company plans to redevelop both properties. "We maintained a sharp focus on balance sheet, raising $616 million through the pending sale of one building in the issuance of public bonds, and we continue to build a world-class sustainable enterprise," said Kilroy on the call. The company also started construction on 2,100 Kettner, a $140 million office project in the Little Italy neighborhood, San Diego.