KILROY REALTY CORP Q1 FY2025 earnings call

• Strategic Overview: Angela Aman noted a positive start to 2025 with solid leasing activity, office demand rebounding due to return to office mandates, improved submarket health/safety/vibrancy, and AI industry demand. In San Francisco, a 60,000 sq ft lease and 60% YOY tour activity in the portfolio were highlighted. In Seattle, a 34,000 sq ft expansion of an AI tenant at West 8th asset was mentioned. - Capital Allocation: Eliott Trencher discussed land parcel dispositions, with the first phase of Santa Fe Summit land parcel disposition under contract, and evaluating operating property dispositions to achieve attractive valuations. - Financial Disclosures: Jeffrey Kuehling highlighted enhancements to disclosures, including additional details on rental income components, a reconciliation from cash NOI to total NOI, and an additional retention statistic for direct leases with in-place subtenants.

Office: In Q1, Kilroy executed a nearly 60,000 square foot lease at 201 3rd Street in San Francisco, its largest in the city since 2019. There was a 60% year-over-year increase in tour activity in the San Francisco portfolio and a 40% portfolio-wide improvement in forward leasing activity despite market volatility. Life Science: At KOP Phase 2 in South San Francisco, there was meaningful tenant engagement, advanced discussions with potential tenants, and active demand for spec suites and full floors on the campus. Revenue contribution details weren't explicitly provided in absolute terms with percentages beyond the activity descriptions.

Kilroy is reaffirming its full-year guidance, including FFO, cash same-property NOI growth, and average occupancy expectations. The midpoint of the range implies a modest deceleration of FFO, assuming cessation of interest capitalization at the Flower Mart in the second half of the year. The company also has financial flexibility due to a significant unencumbered asset base, well-lettered debt maturity schedule, and substantial liquidity.

• Volatility and macroeconomic uncertainty could impact future leasing activity pace. - Delays in land sale closings for Santa Fe Summit and other land sites, with proceeds to be realized over several years. - Uncertainty around basis resets in markets affecting net effective rents as buyers with lower bases enter the market.

Q: Michael Carroll asked about the Flower Mart site update and potential options.

A: Angela Aman said they're exploring wider uses for the Flower Mart site, working with the city, and actively having conversations, with no perfect visibility on timing but expecting to continue talks this year.

Q: Jana Galen inquired about leasing pipeline and deals slipping.

A: Angela Aman said some deals pulled from Q1 into Q4 and some into early April, pipeline up 15% QoQ, tour activity up 40% portfolio-wide, driven by San Francisco and other markets. Robert Paratte added leasing teams are engaged, different markets have different dynamics, with San Francisco having net positive absorption in 5 years.

Q: Steve Sakwa asked about quantifying the leasing pipeline and slipped deals.

A: Angela Aman said pipeline up 15% QoQ, tour activity 40% portfolio-wide, driven by various markets including San Francisco with AI as a driver.

Q: Unidentified Analyst on land sale of Santa Fe Summit and monetizing land bank vs operating portfolio.

A: Eliott Trencher said land sales focus on higher and better uses outside core competencies, and they're also evaluating operating property dispositions based on third-party capital appetite and asset value outlook.

Q: Caitlin Burrows on capitalized interest and user types.

A: Jeffrey Kuehling said KOP 2 interest will come off in early 2026, Flower Mart has ~$7M capitalized interest per quarter plus ~$1M carry costs. Robert Paratte talked about user types in different markets like Bellevue, San Francisco, etc.

Q: Nicholas Yulico on occupancy guidance and KOP 2.

A: Jeffrey Kuehling mentioned Derm tech and 23andMe impacts on occupancy, development properties coming into stabilized pool affecting Q3 occupancy. Robert Paratte talked about KOP 2 leasing activity, ongoing conversations with users, and spec suite activity.

Q: John Kim on KOP 2 lease spreads and demand.

A: Angela Aman said the main driver of negative spreads was one large lease with little capital, Rob Paratte said they're aggressively pricing based on tenant needs.

Q: Dylan Burzinski on KOP 2 pipeline and net effectives.

A: Angela Aman said spec suites at KOP 2 have activity, Eliott Trencher said it's early to say on basis resets and tenant preference impact.

Q: Peter Abramowitz on DirecTV renewals and operating property sales.

A: Robert Paratte said they have discussions with DirecTV, Eliott Trencher said operating property sales evaluated based on asset characteristics and buyer pool.

Q: Upal Rana on Derm tech downsizing and demand.

A: Robert Paratte said the result was better than expected, and they're marketing the remaining space.

Q: Yang Ku on occupancy guidance and redevelopment assets.

A: Jeffrey Kuehling said redevelopment assets coming in Q3 were 0% leased, Angela Aman said stabilization is based on substantial completion time regardless of lease percentage.

Q: Brendan Lynch on Santa Fe Summit entitlements and San Diego capacity.

A: Eliott Trencher said Santa Fe Summit has residential as-of-right use, Angela Aman said San Diego is a strong market but Santa Fe Summit site isn't ideal for office/life sciences.

Q: Steve Sakwa on land sale math and land portfolio value.

A: Eliott Trencher said first phase of Santa Fe Summit is at right, balance may have different per acre value, and land sales are at or better than carrying value.

Q: Caitlin Burrows on disclosure updates.

A: Jeffrey Kuehling said they enhanced disclosures to simplify same-property NOI and reconcile cash to total NOI, and kept commenced leasing disclosures for forward-looking context.