Kilroy Realty(KRC) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - FFO was $1.20 per diluted share in Q4 2024, impacted by one-time items totaling approximately $0.11 per share [22] - Cash same-property NOI growth was 70 basis points in Q4 2024, including a 90 basis point contribution from restoration and termination fee income [22] - Occupancy ended the year at 82.8%, affected by large move-outs including Capital One and Microsoft [23] Business Line Data and Key Metrics Changes - The company signed approximately 708,000 square feet of leases in Q4 2024, the highest level of leasing activity since Q4 2019 [8] - Significant deals included a multi-floor lease with Walmart and a 274,000 square foot lease with a global technology company [9][10] - The company expects average occupancy in 2025 to range between 80% and 82%, a decrease of approximately 300 basis points compared to 2024 [23] Market Data and Key Metrics Changes - The transaction market showed positive trends with increased deal volume and financing levels year-over-year, particularly for smaller deals [17] - In Q4 2024, notable core deals were observed in Austin and the Bay Area with going-in yields in the mid-6% to low-7% range [18] - VC funding for life sciences reached $11.1 billion in 2024, up 39% from 2023, indicating strong demand in that sector [50] Company Strategy and Development Direction - The company is focused on maximizing value realization for shareholders by assessing future development pipelines and exploring alternative uses for certain land parcels [14] - The completion of Kilroy Oyster Point Phase 2 is expected to drive growth, with the project now fully ready to welcome tenants [13] - The company aims to maintain a flexible balance sheet and monetize non-core assets while delivering high-quality developments [31] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of markets, expecting sustained trends to accelerate over the next several years [11] - The company anticipates a busy year across all parts of its platform, with a focus on addressing lease expirations proactively [16] - Management noted that after Q1 2025, they expect more stability in occupancy levels throughout the year [36] Other Important Information - The company sold its corporate airplane in Q4 2024, contributing to financial results [7] - The company is in advanced discussions with residential developers on two sites expected to generate over $150 million in proceeds [20] - Non-cash GAAP NOI adjustments are expected to decline significantly in 2025, reflecting the cadence of leasing activity over the last 24 months [26] Q&A Session Summary Question: Current visibility on occupancy for 2025 - Management indicated significant move-outs in Q1 2025 but expects stability in occupancy levels after that [36] Question: Conversations regarding KOP Phase 2 - Management noted that the completion of KOP Phase 2 has changed the nature of tenant conversations, leading to increased interest [41][42] Question: Addressing 2026 lease expirations - Management confirmed that the largest expiration in 2026 is still reflected in the schedule, as it involves a direct deal with a subtenant [54] Question: Impact of AI and NIH funding on tenant decisions - Management has not observed any deals being put on hold due to recent headlines regarding AI or NIH funding [99] Question: Thoughts on retaining multifamily towers - Management views the retained multifamily towers as significant growth drivers integrated with other uses [103] Question: Demand for higher-quality repositioned assets - Management believes that the demand for high-quality assets allows them to maintain steady concessions without undercutting the market [112][115]