• FFO (Funds From Operations): $1.17 per share for the third quarter, a sequential increase of $0.07.
• Full Year FFO Guidance: Increased by $0.15 per share at the midpoint of the range.
• Leasing Activity: Signed approximately 436,000 square feet of leases, including 209,000 square feet of short-term leases.
• Occupancy Guidance: Increased by 75 basis points to 84% at the midpoint.
• Acquisition: Junction at Del Mar, a 104,000 square foot campus, purchased for $35 million.
• Cash Same Property NOI Growth: 2.7% in the third quarter, including a 230 basis point impact from one-time items.
• 2024 Same Property NOI Growth Guidance: Updated to a range of -2% to -1.5%, a 175 basis point increase at the midpoint.
• 2024 FFO Guidance Range: $4.38 to $4.44 per share, an increase of $0.15 at the midpoint.
• G&A Guidance: Narrowed and lowered by $1 million at the midpoint.
• Available Liquidity: $1.7 billion, with plans to repay scheduled bond maturity using cash on hand.

• Warning! GuruFocus has detected 10 Warning Signs with KRC.

Release Date: October 29, 2024

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

Positive Points

• Kilroy Realty Corp (NYSE:KRC) reported a strong third quarter with FFO of $1.17 per share, a sequential increase of $0.07.
• The company increased its full-year FFO guidance by $0.15 per share at the midpoint, reflecting confidence in future performance.
• KRC signed approximately 436,000 square feet of leases during the quarter, including notable renewals with SAP and new leases with NVIDIA.
• The company reported a 75 basis point increase in the midpoint of its average occupancy guidance to 84%, driven by recent leasing activity.
• KRC completed its first acquisition since 2021, purchasing Junction at Del Mar, which is 96% leased and offers potential for future redevelopment.

Negative Points

• The short-term leasing activity includes tenants that may vacate or significantly downsize, potentially impacting future occupancy rates.
• The Los Angeles market remains soft, with aggregate demand still below pre-pandemic levels.
• The company faces a challenging transaction market, with financing markets still improving but not fully recovered.
• KRC's development spending is expected to moderate in 2025, potentially impacting growth prospects.
• The company is working on monetizing land parcels, but the process is expected to take time, delaying potential capital inflows.

Q & A Highlights

Q: Can you provide more details about the potential for traditional office users at Oyster Point Phase 2 and any expansion from Phase 1 tenants? A: Angela Aman, CEO, explained that the quality of the project is attracting interest from traditional office users. The demand reflects the project's high quality and amenities. Rob Paratte, EVP, added that the landscaping and conference center are enhancing the project's appeal. There's potential for expansion from Phase 1 tenants, but it's more likely in phases beyond Phase 2.

Q: How should we view the impact of short-term leases on occupancy and future vacancy? A: Angela Aman, CEO, clarified that short-term renewals are reflected in the lease expiration schedule. The short-term activity includes a large renewal for Capital One and a new lease with DermTech, which will vacate in the near term. These are already accounted for in occupancy projections.

Q: What was the rationale behind acquiring Junction at Del Mar, and are there plans for integration with One Paseo? A: Angela Aman, CEO, stated that the acquisition increases Kilroy's presence in a strong submarket and offers a compelling risk-adjusted return. There are strategic benefits for potential future redevelopment and integration with One Paseo. Eliott Trencher, CIO, emphasized the acquisition's alignment with Kilroy's market knowledge and brand extension.

Q: Can you elaborate on the decision to move certain assets to the tenant improvement grouping and the impact on stabilization timelines? A: Eliott Trencher, CIO, explained that the move to tenant improvement grouping is due to the completion of the cold shell. The leasing market is improving, and the delay in stabilization is due to adjustments in design following a tenant's bankruptcy.

Q: How do you view the political and business environment on the West Coast, and what are the implications of upcoming elections? A: Angela Aman, CEO, noted improvements in quality of life and safety policies in West Coast markets, including San Francisco. The company is monitoring election activities closely, expecting continued moderate policies that enhance market vibrancy.

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