Kilroy Realty Corporation Q3 FY2025 earnings call

• Leasing momentum across West Coast office and life science markets, with return to office improving and AI reshaping demand. - Strong leasing in San Francisco, including 550,000 sq ft signed, and SOMA assets outperforming. - Life science market improvement with XBI up, KOP 2 leasing progress. - Capital allocation: Sold 4-building campus in Silicon Valley for $365M, acquired Maple Plaza in Beverly Hills for $205M. - Ongoing Flower Mart project with 4 development scenarios submitted to SF Planning Department, interest capitalization expected to continue until June 2026.

The office segment saw strong leasing activity with over 550,000 square feet of new and renewal leases signed during the quarter. San Francisco office demand reached a post-pandemic high of nearly 9 million square feet, driven by AI and tech companies, with SOMA submarket outperforming. The life science segment was encouraged by improving fundamentals, with Kilroy Oyster Point Phase 2 (KOP 2) signing 84,000 square feet of leases to date, including deals with Color, MBC BioLabs, and Acadia Pharmaceuticals. KOP 2 has a robust forward pipeline and is well-positioned to exceed lease execution goals.

• Raised 2025 FFO outlook to $4.18-$4.24 per share, up from prior expectations. - Adjustments include $0.05 noncash income from straight-line bad debt reversal, $0.03 from same-property NOI, and $0.02 from interest capitalization. - Flower Mart capitalization now expected to cease in June 2026 based on development process progress. - KOP 2 lease up progress to impact NOI and FFO in 2026.

• Dependence on new leasing to offset 2026 lease expirations, as remaining expiration pool is limited. - Market uncertainties affecting lease renewals and re-leasing dynamics. - Potential impact of bankruptcy-related move-outs, though efforts are underway to minimize downtime.

Q: Nick Yulico asks about 2026 expirations and retention.

A: Angela Aman states remaining 2026 expiration pool is ~970k sq ft, with focus on new leasing to offset move-outs.

Q: Nicholas Yulico asks about San Francisco space competitiveness and sublease space.

A: Angela Aman mentions tenants prioritizing quick move-in, and Rob Paratte discusses expanded tenant search and sublease space coming off the market.

Q: Jana Galan asks about KOP 2 leasing outlook.

A: A. Paratte and Angela Aman discuss strong life science demand, KOP 2 leasing progress, and diversity of demand including non-life science sectors.

Q: Steve Sakwa asks about NeueHouse lease.

A: Angela Aman and A. Paratte discuss occupancy impact and re-leasing efforts for NeueHouse space.

Q: Seth Bergey asks about KOP lease economics.

A: A. Paratte and Angela Aman discuss lease economics variability, rent alignment with underwriting, and TI capital considerations.

Q: Brendan Lynch asks about Q4 considerations and Austin leasing.

A: Jeffrey Kuehling discusses difficult comps and A. Paratte talks about Austin lease progress and ground floor space.

Q: John Kim asks about KOP 2 pipeline.

A: A. Paratte discusses strong pipeline and mix of tenants renewing and seeking upgraded space.

Q: Upal Rana asks about capital allocation and Flower Mart.

A: Eliott Trencher and Angela Aman discuss capital allocation strategy and Flower Mart development process.

Q: Caitlin Burrows asks about Flower Mart timeline and Silicon Valley sale.

A: Angela Aman discusses Flower Mart entitlement process timeline and Eliott Trencher mentions Silicon Valley sale closed end of month.

Q: Michael Carroll asks about Flower Mart partners and land sales.

A: Angela Aman talks about early stage Flower Mart discussions and Eliott Trencher mentions near-term land sales.

Q: Omotayo Okusanya asks about straight-line bad debt and tenant reimbursements.

A: Jeffrey Kuehling explains straight-line bad debt reversal and tenant reimbursements.

Q: Dylan Burzinski asks about capital markets and transaction environment.

A: Eliott Trencher and Angela Aman discuss focus on project-level risk-reward and cost of capital considerations.

Q: Caitlin Burrows asks about leasing pricing outlook.

A: Angela Aman discusses market-dependent pricing, occupancy stabilization, and future pricing power in San Francisco.