Good day, ladies and gentlemen and welcome to the Second Quarter 2015 Kilroy Realty Corporation Earnings Conference Call. My name is Jennet and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session [Operator Instructions]. As a reminder, this conference is being recorded for replay purposes. I’d now like to turn the conference over to Mr. Tyler Rose, Executive Vice President and Chief Financial Officer. Please proceed.

Good morning, everyone. Thank you for joining us. On the call with me today are John Kilroy, Jeff Hawken, Eli Khouri, David Simon, Heidi Roth, Mike Sanford and Michelle Ngo. At the outset, I need to say that some of the information we will be discussing is forward-looking in nature. Please refer to our supplemental package for a statement regarding the forward-looking information in this call and in the supplemental. This call is being telecast live on our website and will be available for replay for the next seven days both by phone and over the Internet. Our press release and supplemental packages have been filed on a Form 8-K with the SEC and both are also available on our website. John will start the call with a review of the second quarter. Jeff will discuss conditions in our key markets and I will finish up with financial highlights and updated earnings guidance for 2015. Then we will be happy to take your questions. John?

Thank you Tyler. And hello everyone and thank you for joining us today. We had a very productive second quarter at KRC executing on all fronts. We increased occupancy 60 basis points to 96.7% and are now 97.2% leased. Our same-store cash NOI increased 4.6% year-over-year largely driven by continued rent growth in San Francisco, Seattle and Los Angeles. We initiated construction on The Exchange on 16th, our 700,000 square foot project in the Mission Bay submarket of San Francisco and we completed successful negotiations with various community groups regarding both One Paseo in Del Mar and the Flower Mart in San Francisco. We sold 146 million of non-strategic properties and two transactions and our unsecured bond rating were increased a one notch. The momentum carried into the third quarter as we delivered the historic office component of our Columbia Square project in Hollywood. We acquired an attractive new development opportunity in San Francisco south of market area that is fully entitled and shovel ready. We completed the second tranche of our San Diego portfolio disposition that totaled 163 million and we raised 250 million of equity with an existing institutional investor to fund the San Francisco land acquisition and boost the strength and flexibility of our balance sheet as we prepare for potential additional development starts. Let's take a look at some of the details. We had another solid leasing quarter signing new and renewing leases on 247,000 feet and our stabilized portfolio that puts us just under 650,000 square feet for the first half of 2015. Rents on our second quarter leases were up 20% on a cash basis and 31% on a GAAP basis. We also had 350,000 square feet of letters of intent outstanding in our core portfolio at quarter’s end with similar cash and GAAP…

Thanks John. Hello everyone. Conditions across our West Coast real estate markets remain strong and healthy with continued positive job growth occurring in every one of our regions. In Northern California and San Francisco Bay areas unemployment rate fell to 3.4% on a 4.1% year-over-year increase in jobs. In Silicon Valley unemployment fell to 4.1% and net new jobs increased by an impressive 5.5%. In Southern California the LA Metro area added more than 100,000 net new jobs year-over-year in June driving unemployment rate down to 7.3%. And in San Diego, June job growth was just under 3% pushing the unemployment rate down to 5%. The economic news is just a strong in Greater Seattle. Unemployment there has now fallen to 4% and strong job growth continues to outpace most of the nation. The quality of jobs created is notable. According to a red scene analysis of Lincoln Data the number of tech workers in Seattle climbed 21% in May from a year earlier. With that backdrop, let's take a look at each market starting with San Francisco. San Francisco Bay area is once again on a taste to outperform most U.S. real estate markets in 2015. In San Francisco, rental growth remains strong. The supply of large blocks of space is very limited and demand continues to grow. JLL reports that there are now more than 35 tenants in the market for office space greater than 50,000 square feet and only three available blocks of space of that size. Class A direct vacant remains effectively 0% in the SOMA district, 5.7% in the South Financial district and 4.2% in Silicon Valley market excluding San Jose. In the Silicon Valley venture capital funding continues fuel growth as the Bay area accounted for approximately 55% of total U.S. high tech venture…

Thanks Jeff. FFO was $0.82 a share in the second quarter exceeding our internal forecast by $0.04 primarily driven by stronger operating results, better than expected occupancy and disposition timing. We ended the quarter with stabilized occupancy at 96.7% up from 96.1% at the end of the first quarter. Same-store NOI in the second quarter increased 2.7% on a GAAP basis and 4.6% on a cash basis. For the first six months of the year same-store NOI was up 4.5% on a GAAP basis and 3.4% on a cash basis. Looking at capital flows at the end of the first quarter we acquired Hooper development site for approximately 78 million, and repaid 34 million of secured debt. We also spend about 100 million on development and paid down the outstanding balance of our pipeline. The funding transactions we completed the dispositions as John detailed created 25 million of equity under our ATM program and raised an additional 250 million of equity through a direct placement. Taking into account these transactions, we currently have full availability on our $600 million bank line with a capacity that borrow us $900 million and we currently have 175 million of unsecured cash. During the second quarter both Moody’s and S&P upgraded our bond ratings by one notch to Baa2 and BBB respectively. Now let’s discuss updated guidance for 2015. To begin everyone, we remind you that we approach our near term performance forecasting with a high degree of caution given all the uncertainties in today's economy. Our internal forecasting and guidance reflects the information and market intelligence as we know it today and a significant shift in the economy, our market tenant demand, construction cost and new office supply going forward could have a meaningful impact on our results in ways not currently reflected…

Thank you [Operator Instructions]. Your first question comes from the line of Craig Mailman with Citibank Capital Markets. Please proceed.

This is Craig Mailman from KeyBanc. John just a question, the 100 Hooper is pretty close to the exchange in ’16. Did you guys started the end of this year delivery time frame would be pretty closer to each others. Is there any risk of cannibalizing kind of the tenant search with having those two that almost going on similar time?

Well, you know generous and we have been really started up marketing program on the exchange so we just are not in exchange rather the 100 Hooper I guess we just hired the broker. We’re already having them for proposals going back and forth on that. Some people prefer the same some people prefer the Hooper location. But I want to make clear that I don’t see us starting Hooper unless we have until we have some substantially seeing at the exchange or some substantial commitment in advance on the Hooper building. I think that the position we have is extremely unique and probably a first in my life time in the real estate business that is that we have the two projects that really have the kind of foreplays and amenities locationally and so forth the vast majority of tenants want. And there are other buildings that are similar size but they’re spoken for so recently position is absolutely fantastic.

And I know in the past you’ve talked about good connectivity at the exchange and I thought maybe you guys have something signed by now. Is there any one kind of did the hook there or are you guys -- just taking longer to take paper?

We don’t want to get into a lot of discussions on these phone calls, because I’ve said before, all the stuff is public record and we don’t like brokers and tenants and so forth knowing exactly what we’re doing. But we have increased the level of activity on that project substantially with proposals going back and forth. Some of them are tech, some of them are non-tech the non-techs typically take longer. And people keep changing the amount of square footage. We have one tenant that want 300 and then they wanted 150, now they want 200, 250. There’re all trying to figure out what their long term needs are and that has become more intense because of the -- due to some space available the tenants are really worried about getting it right because there is so little space coming through in the pipeline.

And then just lastly, sounds like dispositions may continue to ramp here at the end of the year into ’16. What do you think your bucket of non-core assets at this point? And are we at a point in the cycle where -- or maybe it makes sense to sell from your earlier cycle San Francisco acquisitions.

I don't really want to speculate on that but in terms of a non core stuff most of the stuff that we've sold has been kind of noncore non strategic, more suburban, low rise, we'll sell some stuff that is less of that character in all likelihood. We're just going to be opportunistic and do what we think is right to create the best value for our shareholders and I'm not going to speculate on what we're going to sell in San Francisco otherwise, you know the rumor mills are always, it's drives us a little crazy because we hear we're selling stuff that we haven't even talked to the market about, nor have we considered so I don't want to fuel any more flames. We're going to continue to sell and recycle as we see appropriate which is what we've done for 17 years.

Your next question comes from the line of Nick Yulico with UBS, please proceed.

Thanks, I was hoping you could talk a little bit more about leasing traction in Hollywood and just remind us whether you're only looking to start Academy once you get Columbia Square, so.

David talked a moment about what the leasing activity is. I think we're pretty substantially leased at Columbia Square and with [indiscernible] we think we're going to be, have a lion's share of the space done before Academy could start, and we would start Academy, again depended upon the market conditions. If the market looks very, continues to look favorable than we start it. In terms of just leasing update without getting into specifics, we have to work on, you want to give a sense of color there, David.

Sure, sure. I mean as you guys know we did a big deal with Viacomb last year, they're going to be taking over the premises and start an OTI first quarter of next year and you know the [indiscernible] tenant is finishing up their improvements as well. But the activity's been good on the balance at this stage at about a 120 to 140,000 square feet we have remaining we've been trading proposals with some users that want all of it and there's been lately a flood of activity of 40s and 50,000 square footage as well, but in media, entertainment and technology tenants. So we're pleased with that and we feel pretty confident over the course of the next six to eight months, we’re going to be in good shape at Columbia with the balance at this stage.

Louis the balance at this stage is what, roughly a $150…

About a 140 to 145,000 feet yes.

Okay that's helpful and then you know looking at the development pipeline, you know if you add up the current pipeline plus the near term development pipeline looks like all together you guys are going to need if you build everything there in that near term development pipeline I guess 2 billion of total capital, what's, what are your latest thoughts on the mix of asset sales versus, equity, versus debt. Thanks.

Yes, I mean I think it's pretty consistent with what we've been doing it's sort of a third, a third, a third over the last couple of years, I mean we, obviously did the equity transaction earlier this month and as John said we're going to be doing more [indiscernible], we have a bond maturity in November which we'll be refinancing and probably raising more than just the amount that's necessary for the refinance and it will continue that way going forward. I think dispositions, of the, the bulk of, -- between equity and dispositions what we've weighted on dispositions but our leverage is extremely no on a [indiscernible] market cap raises were 25 and [indiscernible] the bases were in the low 30s. We have a lot of capacity there as well.

And Tyler what's the assumption we should use on the bond deal here this year.

Well in terms of timing you know depending on the market, it's September, October probably, in terms of rates I would say right now, I mean it's obviously moved around every day, it's in the low 4% range. I think that would be on a ten year basis where if we do it seven year it'd be in the 375ish range.

And the amount?

3.5 maturing so my guess is, it's between 350 and 400.

All right, thanks, thanks guys.

Your next question comes from the line of Jamie Feldman with Bank of America, please proceed.

Hey, thank you. I guess starting with Tyler, can you walk us through your occupancy outlook through the end of the year, just in setting expectations in terms of move out.

I might let Jeff jump in here but you know we're 96.7 now and our guidance is taking us down to 94.5, but Jeff can go through the, sort of the details.

Jamie as I mentioned, we have about 250,000 square feet of move outs and those will actually commence in 2016 so as Tyler mentioned we'll go from we are now to approximately 94.5% by year end occupancy.

Okay, and then I guess a question for John, just thinking about land pricing in San Francisco right now and we’ve seen lately, just what are your latest thoughts on that market and how much more you can invest there and just you know where you think we are in this cycle.

You know Jamie, I think a lot about realting a lot about where we are in the cycle and I think in the last couple of years you and other analysts, investors and so forth have asked the questions, that same question, where are we? And I've been probably wrong, I don't know if it's wrong or right but I said we don't see any signs of deterioration, we're not seeing signs of deterioration in fact we are seeing acceleration of tenants moving into the area. You probably would have read that IBM has moved in or just signed a deal for southern market. Apple has signed a deal for the city and southern market, it's not a big deal but like 75,000 feet or so but that's the first for them. We are well aware of a number of other folks that have size, their size on some big requirements downstream, we could get those very well for our Flower Mart. But in terms of the bigger, in terms of where we are on the cycle who the heck knows? I mean it's one of the reason why we operate with such a conservative balance sheet if you are going to do the development and so forth that we do, you want to make sure you are well insulated. With our Flower Mart project remember that based upon the projected entitlements we are somewhere in the neighborhood of $45 in FAR cost in a market that's trading at 300 plus or minus. There are a bunch of folks that have options on sites that are optioned at, the completion price is in the 200 plus $200 to $300 range depending upon when they get entitlement, at least according what the broker tell us. I wouldn't see buying something that’s…

Okay, that’s helpful. And as tenants get pushed out to some of these secondary submarkets, is that interesting to you to get ahead of that demand?

Eli is here, he has got the day-to-day responsibility for that. I have to tell you personally I am not a big fan of the Oakland market and north people that have moved there at cheap rents but ultimately if you build building in Oakland you are going to pay the same price which you pay for a building in San Francisco, the only dealt is going to be the land cost. And so ultimately that's a very small market over there, some good more people move over, it's not a lot of capacity. Question is, are people going to start moving out way out the barge system or way out in East Bay and everything we see trend wise with regard to how these companies want to operate, how they want to have people together be in a campus whether it's vertical, horizontal, the collaborative work force, having the team together, lies in the faiths of moving way out to Heather and Juan, that’s for the suburb. So I think we've got a good, it feels like there is a couple of really good years ahead of us but we will see.

Yes, and alike John I would have one thing to that which is everything [indiscernible] day we're paying attention to what's going on in those secondary markets because it has effect to us but we're also looking for good investment opportunities. And I will tell you paying very granular attention to them. We haven’t seen the opportunities that have been compelling for us. We will keep an eye on that, as that develops over the next year or two years that we think it's really something interesting you will definitely hear about it.

Okay. And then finally, can you talk about the decision to do the private placement in the quarter and if that's something we'll continue to see down the road for that sort of capital, Eli was talking about?

Yes, well I think the direct placement opportunity was sort of an unique opportunity where an investor said to us, my guess is we won't do it in that form very often in the future. I think the decision was made based on the accretive opportunities and the unique, use the proceeds with 100 Hooper starting The Exchange and the future development. So it was a very efficient transaction for us that we completed at very low cost and it has positioned us so we don’t have to use our ATM for a while probably next year and so it allowed us to fund Hooper and the future development we’re going to be doing.

Your next questions comes from the line of Brendan Maiorana. Please proceed with Wells Fargo.

Thanks. Tyler I think in prior guidance dispositions was listed as 400 you are sort of in the middle of that range, definitely for the year. Is that, kind of 400 upper band is still a reasonable outlook or is there any change likely in dispositions?

Yes, I mean it sell anywhere to 335 right now, so as we say, we’re in the middle of that range. We’re working on some things as John mentioned that could happen in the end of this year or early next year. So it’s unclear whether that number will go up this year or next year, it’s just too soon to tell. But from a modeling perspective probably it would happen as soon as next year.

So probably no impact in terms of the guidance that you’ve offered asset recycling isn’t going to have a material impact at least on 2015?

Not a material impact.

Not based upon what we’re looking at right now.

And then I think you guys had said, rent spreads maybe heading into the year thought it was going to be around plus 10 for this year. I think Jeff mentioned that you’re 13% or 14% below market. John I think you mentioned that you thought spreads are probably going to be pretty healthy through the back half of the year. So is it fair to think that we’re going to be above that initial guidance on rent spreads as well?

Yes, rent spreads have moved in our favor in almost every market and particularly in Los Angeles. So, we’re 13% under market for our ’15 expirations we’re 11% under market for next expirations, we’re 13% under market for our overall portfolio.

And then just last one probably for John or Mike Sanford. So the 100 Hooper site, I can definitely appreciate that, you guys are in a great competitive advantage with that in the exchange relative to other entitled projects that are out there. If you just think about 100 Hooper long term and maybe as the cycle ended sooner than we all thought. Is that a development site that you think stacks up well with other sites that maybe aren’t entitled today but could be if they got their Prop M allocation if 100 Hooper is a site that doesn’t work this cycle?

I don’t understand by doesn’t work this cycle…

Let’s say I think John you had mentioned that you would start that project if you have good demand or saw that you had good leasing at the exchange. So let’s say something happens to the economic cycle and you determine that it doesn’t make sense for you to start 100 Hooper this economic cycle….

Yes, I get it. I think it’s going to be a great size whether we start this cycle or next. And I am betting that we’re going to be able to start at this cycle based upon what we’re seeing in activity in the market and with its floor plates. So remember that these are four story buildings with 50,000 foot floor plates and that is really unique. Most of the stuff that’s going on that can be build over and around the Brannan Corridor or what not, does not have those kinds of floor plates and these are very much in demand. So I think it has some physical characteristics that put it up to the towards the top in receptivity. So I think it’s going to be very strong site. I have to tell you that when I first went to San Francisco five years ago, I thought Mission Bay was 10 years off and everything changed so quickly. And when I first was looking at the areas out here where 100 Hooper is and so forth, I thought that was probably six, seven, eight years off and five years later it’s all happened. And it’s just again the fact that there is a limited amount of space and products that people want to be in and then of course it’s Prop M site. So I feel strongly we don’t buy something or to think about building something that isn’t in our view going to be long term. And I want to make that perfectly clearly, that doesn’t mean there are other sites that aren’t better, I think the Flower Mart is a better location and particularly for transportation, so little bit easier. But I think it’s a very good site.

Your next question comes from the line of Vincent Chao with Deutsche Bank. Please proceed.

Just going back to your comments about San Francisco not really seeing any signs of slowdown here, but I am just curious there was an article in the journals today talking about a unicorn bubble. And I am just curious if you having thoughts on that and then also if you had seen any shift in the sort of tenants that are taking space? I know you mentioned IBM and Apple, which are obviously high credit tenants. But, are you seeing more sort of the newer stage companies taking space at this point?

Well, there’s lot of coming looking for space, there are newer stage and older stage and all the rest. And you have to make some decisions along the way with regard to their credit and what their likelihood of survival is, or what they’re likelihood of expansion is and so forth. We’ve always said, there is going to be some failures, the nature of -- it’s just like baseball. Not everybody gets up and it’s a homerun and not every team with a winning season wins every game. I don’t mean to be queue here, except for there are going to be companies that fail, this is the nature of it. What is very important is that there are -- it's that there is just strong demand, just fantastic demand. So what happens is some of these companies reduce their footprint if they do they generally get snapped up by somebody else. So I think if anybody thought that all these companies are going to survive, they’d be smoked at some point.

I guess question is more I mean there is a lot of demand overall. But are you seeing any change in the quality of the demand, I guess, overall?

In some respect I think the quality has improved because you end up with some of the big name companies that have come in and with companies like Airbnb --, or a couple of years ago you would have called those companies probably unicorns and today's there's real cash flow big companies that have really strong financial wherewithal so that's the other side of the evolution, the nature of evolution is some of them don't make it and some of them become strong. But we are seeing more and more strong companies coming into the marketplace which is encouraging.

Okay thanks for that, and then just a different topic. If you include the second tranche of the San Diego portfolio what's the total gain right now?

Total gain?

Total gain on sale.

Of what, of the two dispositions?

Yes.

San Diego tranche is about a 125 million roughly off the top of my head.

Got it, and any additional thoughts on sort of what, I mean it doesn't sound like 1031, it's probably going to work out given where prices are but any thoughts on that.

Well, we've been successful in doing reverse exchanges into development in sense of both the Dexter project and the Hooper project were used as exchange properties for those gains, so at the moment in terms of whether you're getting at, whether we're going to need a special dividend or not if we don't find anything else. That amount would be very small if any at all, but that's more to come on that, it's a complicated transaction, or complicated calculation, so we were, but we have been successful in reversing into development.

Your next question comes from the line of Manny Pushman with Citi. Please proceed.

Hey guys, it's Jill Sawyer here for Manny, I just had a quick question in regards to asset sales that you mentioned that are in the work or rather second half of this year early next year. I understand that obviously we won't be getting specifics on those yet, any sort of color on perhaps asset type or geography or magnitude of the sales that are in the works.

No.

Okay. All right that does it for me, thank you.

Your next question comes from the line of John Guinee with Stifel. Please proceed.

Just total curiosity question probably Jeff, any of you guys been to your El Segundo assets or Long Beach assets in the last year, and do you have any pricing power in that segment of LA county.

In El Segundo and at Long Beach?

Yes, you have a couple million square feet down or used to be a core part of your portfolio now sort of a tertiary part, we're just curious as to strength of West LA is going as far as Long Beach or El Segundo.

Yes, I think between the two we're definitely seeing an uptick in El Segundo, there's been a lot of activity and a lot more folks moving to El Segundo and rents are going up pretty significantly so I think we're definitely seeing a rise in the tide in El Segundo, Long Beach is, I think steady, I don't think we've seen as much in Long Beach, I mean the benefit of Long Beach it serves both counties, both Orange County and LA. But that's been a great project for us for a long time but I don't we're seeing as much of a lift in Long Beach as El Segundo.

And at this time we have no further questions. I would now like to turn the call back over to Mr. Tyler Rose for any closing remarks.

Thank you for joining us today. We appreciate your interest in KRC.

Ladies and gentlemen that concludes today's conference, thank you for your participation, you may now disconnect, have a great day.