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Company Overview - Kilroy Realty Corporation (NYSE: KRC) is a publicly traded real estate investment trust (REIT) that focuses on owning, acquiring, developing, and operating Class A office and life science properties primarily in California and Washington, with additional assets in Austin and Seattle [1] Investment Strategy - Noor Darwish, a former management consultant at The Boston Consulting Group, emphasizes investing in companies trading at substantial discounts to their net asset value or liquidation value, as well as in crypto-related equities [1] - Darwish achieved a 250% portfolio gain by rotating into crypto, specifically investing in GDLC at $6 per share and selling at $21, outperforming both Bitcoin and the broader market [1] - The portfolio was later rotated into Grayscale private placements, resulting in an 80% gain in 6 months [1] Tax Strategy - Darwish relocated to Puerto Rico to benefit from a 0% capital gains tax rate on equities and cryptocurrencies under the Act 60 program, anticipating significant capital gains on his GDLC position [1] - The 250% gain and subsequent gains will be untaxed due to this relocation [1] Job Application Service - The company OverApply, run by Darwish, provides a job application service that allows clients to outsource their job search to human virtual assistants, applying to over 1,000 jobs monthly [1] - OverApply has applied to more than 300,000 jobs on behalf of its clients, resulting in over 4,000 interviews and 500 job offers [1]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (I.R.S. Employer Identification No.) For the quarterly period ended March 31, 2025 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 1-12675 (Kilroy Realty Corporation) Commission File Number: 000-54005 (Kilroy Realty, L.P.) KI ...

Kilroy Realty (KRC) Q1 2025 Earnings Call May 06, 2025 01:00 PM ET Company Participants Douglas Bettisworth - VP - Corporate financeAngela Aman - CEOEliott Trencher - EVP & CIOJeffrey Kuehling - EVP, CFO & TreasurerMichael Carroll - Managing Director & Head of US Real Estate ResearchJana Galan - DirectorA. Robert Paratte - Executive VP & Chief Leasing OfficerSydney McEntee - Equity Research Senior Associate - REITsCaitlin Burrows - Vice PresidentNicholas Yulico - Managing DirectorJohn Kim - Managing Directo ...

Financial Data and Key Metrics Changes - The company reported FFO of $1.2 per diluted share, with cash same property NOI declining by 160 basis points year over year [19] - Average occupancy ended the quarter at 81.4%, down from 82.8% at year-end [19] - Cash same property base rent growth was 90 basis points despite a 300 basis point decline in average occupancy [19] Business Line Data and Key Metrics Changes - In the office segment, there was a 60% year-over-year increase in tour activity in the San Francisco portfolio, indicating strong future leasing visibility [5][6] - The life science sector remains robust, with no discernible impact on leasing momentum despite market volatility [8][9] - The company signed a significant 60,000 square foot lease with a technology company in San Francisco, marking the largest lease execution since 2019 [5] Market Data and Key Metrics Changes - San Francisco is experiencing a rebound in office demand, driven by return-to-office mandates and a growing AI industry [4][5] - The company noted a positive trend in leasing activity across various markets, with notable increases in Silicon Valley and Seattle [12][14] - The overall office sales volume in Q1 was roughly flat year-over-year, but there is a wider array of capital pursuing deals [12] Company Strategy and Development Direction - The company is focused on maximizing value through selective sales and evaluating land parcels for future development [9][16] - There is an emphasis on maintaining financial flexibility and exploring various paths for the Flower Mart site to adapt to market conditions [25][28] - The company aims to balance economics, future growth plans, and balance sheet strength in its capital allocation strategy [10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery in San Francisco, citing improvements in safety and vibrancy [4][5] - The company remains committed to corporate responsibility and sustainability goals, with new ambitious targets set for 2030 [10] - Management acknowledged the challenges posed by macroeconomic uncertainty but highlighted strong leasing activity and a growing pipeline [4][6] Other Important Information - The company introduced enhanced disclosures around rental income components and a new retention statistic that highlights the effect of direct leases executed with in-place subtenants [17][18] - The company is actively working on capitalizing on its land bank while also considering operating property dispositions [16][45] Q&A Session Summary Question: Update on the Flower Mart site - Management is exploring a wider range of uses for the Flower Mart site and is hopeful for positive engagement with the new city administration [25][26] Question: Impact of leasing activity and fires in LA - Management noted that some deals were pulled forward into Q4, impacting Q1 leasing activity, but expressed confidence in the pipeline moving forward [30][31] Question: Quantification of leasing pipeline - The leasing pipeline is up approximately 15% quarter-over-quarter, with around 50,000 to 60,000 square feet of deals slipping into April [38][41] Question: Sale of land at Santa Fe Summit - The company is evaluating additional sales of land parcels and focusing on maximizing value based on market demand [43][44] Question: Trends in renewals and expansions - Companies are generally retaining their existing footprints, with some new companies seeking more space, particularly in the AI sector [46][47] Question: Capitalized interest and future projects - Management provided details on capitalized interest for KOP Phase 2 and Flower Mart, indicating significant costs associated with these projects [49][51] Question: Demand in LA and recovery progress - The LA market is fragmented, with some areas like Long Beach performing well, while the Westside is experiencing slower recovery [100][102]

分组1 - Kilroy Realty (KRC) reported quarterly funds from operations (FFO) of $1.02 per share, missing the Zacks Consensus Estimate of $1.03 per share, and down from $1.11 per share a year ago, representing an FFO surprise of -0.97% [1] - The company posted revenues of $270.84 million for the quarter, missing the Zacks Consensus Estimate by 1.51%, and down from $278.58 million year-over-year [2] - Kilroy Realty shares have declined approximately 19.9% since the beginning of the year, compared to a decline of -3.3% for the S&P 500 [3] 分组2 - The current consensus FFO estimate for the upcoming quarter is $1.03 on revenues of $273.54 million, and for the current fiscal year, it is $4 on revenues of $1.09 billion [7] - The Zacks Industry Rank for REIT and Equity Trust - Other is currently in the bottom 37% of over 250 Zacks industries, indicating potential underperformance compared to higher-ranked industries [8]

Financial Performance - Revenues for Q1 2025 were $270.8 million, a decrease of 2.8% from $278.6 million in Q1 2024[8] - Net income available to common stockholders was $39.0 million, or $0.33 per diluted share, compared to $49.9 million, or $0.42 per diluted share in the prior year[8] - Funds from operations (FFO) for the quarter were $122.3 million, or $1.02 per diluted share, down from $133.7 million, or $1.11 per diluted share in Q1 2024[8] - Revenues for Q1 2025 were $270,844,000, a decrease of 5.4% compared to $286,379,000 in Q4 2024[27] - Net income available to common stockholders for Q1 2025 was $39,008,000, down 34.4% from $59,460,000 in Q4 2024[27] - Net operating income for Q1 2025 was $180,239,000, a decline of 6.9% from $193,645,000 in Q4 2024[27] - Funds from operations (FFO) for Q1 2025 were $122,310,000, compared to $144,875,000 in Q4 2024, representing a decrease of 15.6%[27] - The company's share of adjusted EBITDAre for Q1 2025 was $153,585,000, down from $168,788,000 in Q4 2024, a decrease of 9.0%[27] - The net income payout ratio for Q1 2025 was 147.6%, significantly higher than 99.0% in Q4 2024[29] - Total expenses for Q1 2025 were $196.992 million, slightly down from $198.376 million in Q4 2024[39] - Interest income for Q1 2025 was $1.134 million, a significant decrease from $4.790 million in Q4 2024[39] - Interest expense for Q1 2025 was $31.148 million, down from $33.245 million in Q4 2024, indicating a reduction of 6.3%[39] - The company reported a total of $161,999,000 in EBITDAre for Q1 2025, down from $181,421,000 in Q4 2024[1] - The company reported a decrease in EBITDA from $165,625,000 in Q4 2023 to $163,059,000 in Q1 2025[155] Occupancy and Leasing - The stabilized portfolio was 81.4% occupied and 83.9% leased as of March 31, 2025[8] - Approximately 248,000 square feet of leases were signed during the quarter, including 98,000 square feet of new leasing on previously vacant space[8] - Average occupancy rate decreased to 81.3% in Q1 2025 from 84.3% in Q1 2024[1] - The total leased rate for the stabilized portfolio is 83.9% as of March 31, 2025, down from 84.9% on December 31, 2024[58] - The company executed 21 new and renewal leases totaling 244,189 square feet, with a retention rate of 19.3% for the quarter[66] - The company is focusing on maintaining and improving occupancy rates through strategic leasing efforts[63] - The overall trend shows a slight decline in occupancy rates across the portfolio, which may require further analysis and strategic adjustments[63] Dividends and Shareholder Returns - The board declared a quarterly cash dividend of $0.54 per share, equivalent to an annual rate of $2.16 per share[6] - The company declared dividends of $0.54 per common share, consistent with the previous quarters[29] - The FFO Payout Ratio is calculated as current-quarter dividends divided by FFO attributable to common stockholders, indicating the proportion of earnings distributed[133] Debt and Financial Ratios - As of March 31, 2025, total debt amounts to $4,630,149, representing 54.2% of total market capitalization of $8,542,327[98] - The company has a fixed charge coverage ratio of 3.3x, exceeding the required minimum of 1.5x[106] - The total principal amount of debt is $4,630,149, with net debt calculated at $4,483,438[106] - The company's share of trailing 12-month EBITDAre is $677,632, with a net debt to EBITDAre ratio of 6.6x[106] - The secured debt to total asset value ratio is 5%, well below the 40% limit[106] - The company’s unsecured debt ratio stands at 3.04x, above the required minimum of 1.67x[106] Future Outlook and Guidance - The company affirmed FFO per share guidance for the full year 2025 at $3.85 to $4.05 per diluted share[9] - Same Property Cash Net Operating Income (NOI) growth guidance for 2025 is projected to be between (1.5%) to (3.0%)[10] - Total annualized base rent for 2025 is projected to be $447,571,000, representing a 3.3% increase[75] - The company expects a total of 1,900,007 rentable square feet by 2026, with a 13.9% increase in annualized base rent to $89,927,000[75] - In 2027, total rentable square feet is anticipated to be 1,078,806, with a 7.9% increase in annualized base rent to $43,722,000[75] Property and Portfolio Management - The total assets as of March 31, 2025, were $10,878,685,000, a slight decrease from $10,898,357,000 at the end of Q4 2024[33] - The total liabilities as of March 31, 2025, were $5,298,700,000, compared to $5,289,488,000 at the end of Q4 2024[33] - The company maintains a diversified tenant industry portfolio, with significant contributions from technology and entertainment sectors[80] - The company has ongoing projects with a total estimated investment of $1,105 million, including 975,000 square feet of office/life science space[89] - The company plans to stabilize the Kilroy Oyster Point - Phase 2 project by Q1 2026, with an estimated rentable area of 875,000 square feet[89] Changes in Accounting and Metrics - The company began excluding lease termination fees from Net Operating Income starting January 1, 2025, aligning with a new definition[1] - The Company began excluding lease termination fees from the calculation of rental revenue for Net Operating Income (NOI) metrics starting January 1, 2025, to provide a more accurate measure of operating performance[111] - The Company's Funds From Operations (FFO) is calculated in accordance with the 2018 Restated White Paper on FFO, excluding depreciation and amortization related to real estate, and is considered a standard measure for REITs[118] - The Company computes Funds Available for Distribution (FAD) by adjusting FFO for recurring tenant improvements, leasing commissions, and capital expenditures, providing insight into liquidity[122] - The Company calculates EBITDAre as a supplemental measure of operating performance, which excludes financing costs and depreciation, providing a clearer view of operational results[115]

Core Viewpoint - J.P. Morgan analyst Anthony Paolone maintains an Overweight rating on Kilroy Realty Corporation (KRC) while lowering the price forecast to $42 from $49, citing the company's high-quality assets and strong balance sheet compared to other office REITs [1] Group 1: Company Portfolio and Market Outlook - The analyst expresses a positive view on Kilroy Realty's portfolio, highlighting its high-quality assets and strong balance sheet [1] - Leasing activity in key West Coast markets is expected to improve, particularly as tech companies encourage employees to return to the office [1][2] - Operational expense growth is projected to stabilize [2] Group 2: Valuation and Financial Projections - The stock appears undervalued based on a 9%+ implied cap rate and a current occupancy rate of around 80%, indicating it is cheap from a real estate valuation perspective [3] - During peak cycles, Kilroy Realty's assets were valued at cap rates in the low 4% range, further supporting the view that the stock is discounted [3] - The analyst has revised financial outlooks for 2025 and 2026, lowering FFO/share estimates to $4.01 for 2025 and $3.52 for 2026, reflecting a 12.3% year-over-year decline [4] Group 3: Factors Influencing Financial Revisions - The downward revisions in financial outlook are primarily driven by a reduction in capitalized interest, assuming that another $1 billion in land and projects will be excluded from active development [5] - This includes an estimated $600+ million from the Flower Mart project, over $200 million from the SIX0 development, and an additional $100-$200 million from various smaller projects [5] Group 4: Current Market Performance - KRC shares are trading higher by 1.10% to $33.22 as of the latest check [6]

Portfolio Overview - As of December 31, 2024, the stabilized portfolio included 123 office properties with a total rentable area of 17,142,721 square feet and an occupancy rate of 82.8%[26] - The stabilized residential properties consisted of 3 properties with 1,001 units and an occupancy rate of 92.5%[28] - As of December 31, 2024, approximately 17.2% of the total square footage of stabilized office properties was unoccupied[94] - The company owns fourteen office buildings with approximately 2.3 million aggregate rentable square feet, representing 13.6% of its total stabilized portfolio located on leased parcels[111] - The company has a total of 493 leases in its stabilized portfolio, covering 13,794,740 square feet[212] Future Development and Projects - The future development pipeline includes eight sites representing approximately 64 gross acres of undeveloped land, with the potential to develop over 6.0 million square feet of office, life science, residential, and retail space[41] - The company had two redevelopment projects in the tenant improvement phase totaling approximately 100,000 square feet and one development project under construction totaling approximately 875,000 square feet[41] - As of December 31, 2024, the company has 100,000 square feet of tenant improvement projects in the San Francisco Bay Area and San Diego, with stabilization dates ranging from Q3 2025 to Q3 2025[195] - The company is currently constructing the Kilroy Oyster Point - Phase 2 project, which will add 875,000 square feet of office/life science space, estimated to stabilize in Q1 2026[198] - The future development pipeline includes approximately 2,300,000 square feet at the Flower Mart in SOMA and 1,100 residential units at Kilroy East Village in San Diego[200] Sustainability and Environmental Initiatives - The company achieved a GRESB 5 Star designation for both its standing assets and development portfolio in 2024, reflecting its commitment to sustainability[47] - The company has been recognized with the U.S. EPA ENERGY STAR Partner of the Year Sustained Excellence Award for nine consecutive years[47] - The company has achieved carbon neutral operations since 2020, offsetting all Scope 1, Scope 2, and Scope 3 emissions through various sustainability measures[49] - The company aims to incorporate green lease language into all new leases, aligning financial and energy incentives with tenants[47] - The company plans to invest $2 billion in sustainability initiatives over the next five years[6] Financial Performance and Revenue - The company reported a total revenue of $151.76 million, reflecting a 5.0% increase year-over-year[1] - For the year ended December 31, 2024, approximately 98.5% of the company's revenues were derived from rental income[91] - The company reported a total annualized rent of $1,199,995,400, representing a 4.7% increase year-over-year[1] - The company reported a revenue increase of 8.3% year-over-year, reaching $4.5 billion[1] - The company reported a revenue of $1.28 billion, representing a 5.7% increase year-over-year[1] Tenant and Lease Information - As of December 31, 2024, the 20 largest tenants accounted for approximately 53.6% of total annualized base rental revenues[50] - The company's 20 largest tenants contribute an annualized base rental revenue of $423.4 million, representing 53.6% of total annualized base rental revenue[203] - 54% of the tenants operated in the technology industry, 17% in life science and health care, 9% in professional services, 7% in media, and 6% in finance, insurance, and real estate as of December 31, 2024[93] - The weighted average lease term for significant tenants is 6.0 years, with the longest lease expiration extending to 2037[203] - Leases representing approximately 5.2% and 14.0% of the leased rentable square footage of the company's properties are scheduled to expire in 2025 and 2026, respectively[94] Employee and Community Engagement - The company employed 229 people as of December 31, 2024, with a workforce that was 56% female and 46% ethnically diverse[53] - The company reported a 17% increase in volunteer hours provided by employees, totaling over 1,200 hours dedicated to community service[57] - The company has a comprehensive health benefits program, with over 90% of premiums absorbed by the company[55] - The company focuses on talent acquisition and retention, emphasizing a performance-based culture and diversity initiatives[53] - The company has implemented various training and education programs to support employee growth and development[54] Risks and Challenges - The company faces significant competition in the commercial real estate market, which may affect occupancy and rental rates[68] - The company is subject to various environmental regulations that may impact its operations and financial condition[68] - The company may not be able to meet its debt service obligations, which could adversely affect its financial condition[15] - Rising inflation may increase general and administrative expenses, impacting the company's results of operations and cash flows[77] - The company faces risks associated with ground leases and restrictive agreements that limit property use and transferability, potentially leading to property loss[15] Debt and Financing - The company had $200 million outstanding under its unsecured term loan facility as of December 31, 2024, with no borrowings under its unsecured revolving credit facility[78] - The company has approximately $4.6 billion in aggregate principal amount of indebtedness as of December 31, 2024, with $606.2 million in principal payments expected during the year ending December 31, 2025[134] - Total debt represented 49.0% of the company's total market capitalization as of December 31, 2024[134] - The company may issue additional common units and shares of capital stock without unitholder or stockholder approval, potentially diluting existing investments[15] - The company is required to distribute at least 90% of its taxable income to maintain its REIT status, which may limit its ability to fund future capital needs from operating cash flows[144] Technology and Cybersecurity - The company is gradually incorporating artificial intelligence into its decision-making processes, which may be subject to increased regulatory scrutiny and could impact operational efficiency[128] - The company has developed a cybersecurity risk management program integrated with its overall enterprise risk management[170] - The company cannot guarantee that its IT systems or those of third-party service providers are free from exploitable defects, which could lead to security breaches[121] - Any cybersecurity incidents could adversely impact the company's financial condition, results of operations, and ability to satisfy debt obligations[123] - The company must maintain adequate security measures to comply with varying state laws around data breaches, requiring significant investments in resources[127]

Group 1 - Kilroy Realty Corporation (NYSE: KRC) shares have not participated in the equity rally over the past year, remaining largely flat due to higher interest rates and a challenging office leasing environment [1] - The company has faced difficulties in the office leasing market, which has impacted its stock performance [1] Group 2 - The article does not provide specific financial metrics or performance data related to Kilroy Realty Corporation [2]