Acquired Properties to Provide Significant Development Opportunity in the Urban Neighborhoods of Culver City in Los Angeles and East Village in San Diego
LOS ANGELES–(BUSINESS WIRE)–Kilroy Realty Corporation (NYSE: KRC) today announced that it completed the acquisition of two properties, including the purchase of an existing campus in the Culver City submarket of Los Angeles and a land site in the East Village submarket of downtown San Diego for a combined total purchase price of approximately $226 million. Both properties are located in vibrant urban neighborhoods with strong public transit options and rapidly developing infrastructure and amenities that are attracting both employers and residents. The two properties also provide for development or redevelopment opportunity over time.
Culver City Acquisition. In October, KRC paid $186 million for the 158,000 square-foot, 100% leased Blackwelder office campus situated on a 6.9 acre site at 3101-3243 La Cienega Blvd. The campus consists of 19 one and two-story buildings leased to creative tenants with an average in-place lease term of 39 months. In-place rents are approximately 35% below market rental rates. The Company intends to significantly increase the project’s square footage through the redevelopment of the campus over time.
In recent years, Culver City has become a magnet for the area’s creative industries and their employees. Major media content producers in the area now include Amazon, Apple, HBO and Sony Pictures. Class A office space in Culver City has experienced rapid rental rate growth in the past three years and vacancy rates are now at frictional levels.
The site is in close proximity to the Hayden Track and downtown Culver City. It also offers multiple transit options, including access to public transportation. The Metro Expo Line is about a 5-minute walk from Blackwelder and provides for a 20-minute ride to Santa Monica and a 25-minute ride to downtown Los Angeles. The site offers easy access to Interstates 405 and 10 as well as Los Angeles International Airport and Burbank Airport. Further, Blackwelder sits amid a range of new commercial, retail and residential development, including The Cumulus project, which is under construction and is scheduled to deliver in 2021. The Cumulus project encompasses 1,200 residential units, including a 30-story residential tower, 100,000 square feet of retail space and a one-acre public park.
San Diego Acquisition. In August, KRC paid $40 million to acquire a fully-entitled 2.3-acre land site, a full city block at 1335 Broadway and an adjacent partial city block at 901 Park Boulevard, in the East Village submarket of downtown San Diego. The site offers flexible zoning for the development of a mixed-use project. The company envisions a state-of-the-art development project reflective of the neighborhood’s urban, mixed-use design character, which may include rooftop decks and balconies, street-level retail and ground level open space.
The neighborhood has increasingly been attractive to the city’s burgeoning Millennial population. Over the past five years, approximately 4,500 new residential units have been delivered in the area with another 3,000 units under construction and 2,500 units approved or in planning review. Retail amenities and cultural institutions, including Petco Park, the new San Diego Central Library, and UCSD’s new East Village extension campus, have followed. Employers, attracted by the young, well-educated workforce, are now boosting demand for modern office space. The site also offers convenient access to public transportation options, including Amtrak and the MTS trolley station, as well as major freeways, including Interstate 5 and SR 163 and 94.
The acquisition also includes three existing buildings leased to the prior owner through mid-2021.
“We continue to evaluate new value-add opportunities in our markets that make strategic sense,” said John Kilroy, KRC’s chairman and chief executive officer. “We are excited to add these two terrific projects to our portfolio. They offer us significant upside through development and redevelopment, and in the case of the Culver City campus provide near-term earnings growth through rents that are well below market.
About Kilroy Realty Corporation. Kilroy Realty Corporation (KRC), a publicly traded real estate investment trust and member of the S&P MidCap 400 Index, is one of the West Coast’s premier landlords. The company has over 70 years of experience developing, acquiring and managing office and mixed-use real estate assets. The company provides physical work environments that foster creativity and productivity and serves a broad roster of dynamic, innovation-driven tenants, including technology, entertainment, digital media and health care companies.
At September 30, 2019, the company’s stabilized portfolio totaled approximately 13.3 million square feet of office space located in the coastal regions of Los Angeles, San Diego, the San Francisco Bay Area and Greater Seattle and 200 residential units located in the Hollywood submarket of Los Angeles. The stabilized portfolio was 92.1% occupied and 97.3% leased. In addition, KRC had six projects totaling approximately 2.3 million square feet of office and life science space that were 63% leased and 564 residential units under construction. KRC also completed 237 residential units, with a third of the units leased, and had two projects in the tenant improvement phase, The Exchange on 16th, totaling approximately 750,000 square feet, with the office space fully leased to Dropbox, and 96,000 square feet of retail at One Paseo, which was 100% leased.
The company’s commitment and leadership position in sustainability has been recognized by various industry groups across the world. In September 2019, the company was recognized by GRESB as the sustainability leader in the Americas across all asset classes for the fifth time. Other sustainability accolades include NAREIT’s Leader in the Light award for the past five years and the EPA’s highest honor of ENERGY STAR Partner of the Year Sustained Excellence award for the past four years. The company is listed in the Dow Jones Sustainability World Index. At the end of the third quarter, the company’s stabilized portfolio was 61% LEED certified and 72% of eligible properties were ENERGY STAR certified. More information is available at http://www.kilroyrealty.com.
Forward-Looking Statements. This press release 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, and are not guarantees of future performance. Forward-looking statements are inherently subject to uncertainties, risks, changes in circumstances, trends and factors that are difficult to predict, many of which are outside of our control. Accordingly, actual performance, results and events may vary materially from those indicated or implied in the forward-looking statements, and you should not rely on the forward-looking statements as predictions of future performance, results or events. Numerous factors could cause actual future performance, results and events to differ materially from those indicated in the forward-looking statements, including, among others: global market and general economic conditions and their effect on our liquidity and financial conditions and those of our tenants; adverse economic or real estate conditions generally, and specifically, in the States of California and Washington; risks associated with our investment in real estate assets, which are illiquid, and with trends in the real estate industry; defaults on or non-renewal of leases by tenants; any significant downturn in tenants’ businesses; our ability to re-lease property at or above current market rates; costs to comply with government regulations, including environmental remediation; the availability of cash for distribution and debt service and exposure to risk of default under debt obligations; increases in interest rates and our ability to manage interest rate exposure; the availability of financing on attractive terms or at all, which may adversely impact our future interest expense and our ability to pursue development, redevelopment and acquisition opportunities and refinance existing debt; a decline in real estate asset valuations, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing, and which may result in write-offs or impairment charges; significant competition, which may decrease the occupancy and rental rates of properties; potential losses that may not be covered by insurance; the ability to successfully complete acquisitions and dispositions on announced terms; the ability to successfully operate acquired, developed and redeveloped properties; the ability to successfully complete development and redevelopment projects on schedule and within budgeted amounts; delays or refusals in obtaining all necessary zoning, land use and other required entitlements, governmental permits and authorizations for our development and redevelopment properties; increases in anticipated capital expenditures, tenant improvement and/or leasing costs; defaults on leases for land on which some of our properties are located; adverse changes to, or enactment or implementations of, tax laws or other applicable laws, regulations or legislation, as well as business and consumer reactions to such changes; risks associated with joint venture investments, including our lack of sole decision-making authority, our reliance on co-venturers’ financial condition and disputes between us and our co-venturers; environmental uncertainties and risks related to natural disasters; and our ability to maintain our status as a REIT. These factors are not exhaustive and additional factors could adversely affect our business and financial performance. For a discussion of additional factors that could materially adversely affect our business and financial performance, see the factors included under the caption “Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2018 and our other filings with the Securities and Exchange Commission. All forward-looking statements are based on currently available information and speak only as of the dates on which they are made. We assume no obligation to update any forward-looking statement made in this press release that becomes untrue because of subsequent events, new information or otherwise, except to the extent we are required to do so in connection with our ongoing requirements under federal securities laws.
Tyler H. Rose
Executive Vice President
and Chief Financial Officer
Senior Vice President