• FFO (Funds From Operations): $1.20 per diluted share in Q4 2024, impacted by onetime items totaling approximately $0.11 per share.
• Cash Same-Property NOI Growth: 70 basis points in Q4 2024, including a 90 basis points contribution from restoration and termination fee income.
• Occupancy Rate: Ended 2024 at 82.8%.
• 2025 FFO Guidance: $3.85 to $4.05 per diluted share, midpoint of $3.95.
• 2025 Average Occupancy Guidance: Expected to range between 80% and 82%.
• 2025 Cash Same-Property NOI Guidance: Projected to decline between negative 1.5% to negative 3%.
• Overhead Costs: $81 million in 2024, with 2025 guidance of $83 million to $85 million.
• Interest Income: Expected to decrease from $38 million in 2024 to about $6 million in 2025.
• Capitalized Interest: Expected to be approximately $72 million in 2025, down from $82.5 million in 2024.

• Warning! GuruFocus has detected 7 Warning Signs with KRC.

Release Date: February 11, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Kilroy Realty Corp (NYSE:KRC) reported strong financial results and a significant increase in leasing activity, achieving the highest level of leasing since Q4 2019.
• The company successfully executed major leases, including a multi-floor lease with Walmart and a 274,000 square foot lease with a global technology company in the San Francisco Bay area.
• KRC's markets are showing signs of sustained recovery, with historically low levels of new supply and increased workplace attendance requirements.
• The company has unique opportunities for growth, particularly in high-quality vacancies in recently developed or repositioned assets.
• KRC is actively managing its future development pipeline, including potential reentitlement of certain parcels for alternative uses like residential, to maximize value realization for shareholders.

Negative Points

• KRC's occupancy ended the year at 82.8%, impacted by several large move-outs, including Capital One and Microsoft.
• The company's 2025 FFO guidance indicates a decrease in average occupancy to between 80% and 82%, driven by expected move-outs and downsizings.
• Cash same-property NOI is projected to decline between negative 1.5% to negative 3% in 2025, with base rent and net recoveries detracting from growth.
• There is continued uncertainty in the transaction market, and KRC's guidance does not include any FFO impact from potential land sales.
• The Flower Mart project in San Francisco faces challenges, with potential earnings implications if development is deemed unwarranted based on market conditions.

Q & A Highlights

Q: What is Kilroy Realty Corp's visibility on occupancy for 2025, and do they expect it to bottom this year? A: Angela Aman, CEO, explained that significant move-outs are expected in the first quarter of 2025, including an 80,000 square foot move-out and a termination related to a new deal in Bellevue. After the first quarter, occupancy is expected to stabilize, with no remaining expiration in 2025 exceeding 50,000 square feet. The company is proactively addressing 2026 expirations, having already addressed over 70% of their largest 2026 expiration.

Q: Can you provide an update on the leasing activity and pipeline for Kilroy Oyster Point Phase 2? A: Angela Aman, CEO, noted that the completion of the project in January has improved the nature of conversations with potential tenants. The project is attracting interest from a broad range of tenants, including life science, technology, and financial services companies. Rob Paratte, Chief Leasing Officer, added that the project is the most notable newly delivered life science project on the West Coast, attracting significant attention from tenants and brokers.

Q: How is Kilroy Realty addressing the 2026 lease expirations, and what progress has been made? A: Angela Aman, CEO, stated that the largest 2026 expiration, a lease just under 600,000 square feet, has been addressed by over 70% through new deals. The company is focused on improving retention rates and proactively engaging with tenants to address expirations early.

Q: What is the status of the Flower Mart project, and what are the plans for its future development? A: Angela Aman, CEO, explained that the company is working to redesign the Flower Mart project to allow for phased construction, which is more responsive to market conditions. The focus is on maximizing value and evaluating the mix of uses for the site. Capitalization is expected to cease around the beginning of the fourth quarter of 2025.

Q: How is Kilroy Realty navigating the transaction market, and what types of capital are interested in office properties? A: Eliott Trencher, CFO, noted that the transaction market is seeing a diversification of capital, with more institutional funds and high-net-worth individuals showing interest. The company is cautiously testing the sales market and focusing on properties where current market value does not reflect medium-term risk. As a buyer, Kilroy Realty is looking for quality opportunities that meet their criteria for value creation.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.