Bản ghi lời thoại thu nhập Q1 2026 của Kilroy Realty (KRC)

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DATE

Tuesday, April 28, 2026 at 1 p.m. ET

CALL PARTICIPANTS

- President and Chief Executive Officer — Angela Aman

- Chief Investment Officer — Eliott Trencher

- Executive Vice President, Leasing and Business Development — Robert Paratte

- Senior Vice President, Finance and Accounting — Jeffrey Kuehling

Full Conference Call Transcript

Angela Aman: Thanks, Doug. And thank you all for joining us today. Over the last several quarters, fundamentals across our West Coast markets have meaningfully improved. As return-to-office momentum has intensified, space rationalizations by large users have abated, and the artificial intelligence ecosystem has created considerable new business formation and growth, all contributing to a resurgence in space requirements from rapidly scaling new companies and well-established players alike. Recent tenant behavior, both within our portfolio and across the markets in which we operate, points to a constructive dynamic around technological change with companies seeking to utilize AI to enhance their growth and augment their talented team, rather than automating simply to manage costs.

Against this backdrop, our team's disciplined execution drove our strongest first quarter leasing results since 2017, with total productivity of approximately 568 thousand square feet, more than double our first quarter performance last year, positioning us to increase our full-year average occupancy guidance by 25 basis points at the midpoint. Importantly, leases signed but not yet commenced now represent nearly $78 million of contractually obligated annualized base rent to be realized over the coming years, providing significant visibility on future growth.

To hit on a few highlights across our regions, in San Francisco, the epicenter of the AI innovation ecosystem, market conditions continue to tighten, as first quarter leasing exceeded 3 million square feet, more than 10% above pre-pandemic quarterly averages, resulting in the third consecutive positive quarter of net absorption and positioning us well to capitalize on broad-based demand across our Bay Area portfolio. In the San Francisco CBD, we have seen significant momentum at our assets in the South of Market, or SoMa, submarket. At 201 Third, our lease rate improved from 26% at year-end 2024 to over 80% this quarter.

We have successfully captured demand from a wide range of growing tenants, including both larger format users such as Tubi and Harvey AI, and a variety of smaller format users. As you may recall, in 2025, Harvey AI leased 93 thousand square feet at 201 Third, before signing a 62 thousand square foot expansion this quarter, with occupancy occurring in April 2026, just one month following lease execution.

This significant expansion occurring within one year of the original lease execution speaks to both the impressive growth trajectories we are seeing for a number of rapidly scaling AI companies and also to the discipline that they have generally employed with respect to their real estate decisions, taking space only when necessitated by the current needs of the business. In addition, our team has captured outsized market share at 201 Third through the deployment of a creative and disciplined spec suites program, with all five of our recently constructed spec suites leased by completion. We are also thrilled to be experiencing strong demand across other core Bay Area submarkets.

At Crossing 900 in Downtown Redwood City, we completed a 27 thousand square foot direct lease with a current subtenant during the quarter, generating an increase in cash base rent of more than 40%, underscoring the depth of demand for high quality, well-located space in this transit-oriented, walkable, and well-amenitized submarket. In Seattle, the strength we have seen in Bellevue over the last several years continues, optimally positioning space we recently recaptured for near-term releasing and rent upside. In addition, the momentum we discussed last quarter in the Denny Regrade submarket further accelerated, benefiting our recently repositioned project, West 8th.

Following approximately 74 thousand square feet of new lease executions at West 8th in the fourth quarter of last year, we are pleased to announce an additional 76 thousand square feet of new leases signed at the project year to date, including a 43 thousand square foot lease with General Motors signed in the first quarter and a 33 thousand square foot lease with SoFi, signed in the first few days of the second quarter.

With additional tenant discussions underway, we have good visibility into the future pipeline, reflecting the strength and competitiveness of this asset as the recent renovations and enhanced amenity offerings continue to resonate with tenants and position the property to capture a meaningful share of growing market demand. In Los Angeles, leasing activity within our portfolio has improved meaningfully over the last year, with trailing twelve-month productivity up approximately 66%, reflecting both a continued gradual improvement in the overall market and the significant portfolio repositioning work that we have done in LA over the last two years.

Of particular note within the region, Arrow in Long Beach is seeing a pickup in tour activity, as the local market begins to experience a resurgence in defense and aerospace requirements. Blackwelder in Culver City is seeing an acceleration in activity from a wide variety of users, including technology and AI companies. And Maple Plaza, a recent acquisition in Beverly Hills, is continuing to experience strong, broad-based demand from the financial services and media and entertainment sectors, notably surpassing our original expectations.

In life sciences, KOP2 continues to outperform the broader South San Francisco market, as the project’s purpose-built life science space and top-tier amenitization offerings resonate with decision makers who are showing a higher propensity to execute than they have at any time over the last several years. Subsequent to quarter end, we executed a 38 thousand square foot lease with Olema Pharmaceuticals, bringing the project to 49% leased. The future pipeline remains robust as we evaluate opportunities to complete the remaining lease-up of our multi-tenant building while also engaging with several large-format users for the remaining full-building opportunity, which represents the most compelling offering within KOP phase two, featuring premium views and the most prominent location within the project.

Turning to capital allocation, during the first quarter, we continued to raise attractively priced capital through dispositions of non-core and non-strategic assets, with a long-term goal of enhancing the durability and growth profile of the company's cash flow stream. During the period, we sold two office properties, Kilroy Sabre Springs and Del Mar Tech Center, both in San Diego, for aggregate gross proceeds of $146 million. In both cases, these assets benefited from the consistent demand we have seen across markets from owner-users for well-located, high-quality real estate, driving a highly efficient execution for our shareholders.

Subsequent to quarter end, we closed on the sale of our two Hollywood residential assets, Columbia Square Living and Jardine, for aggregate gross proceeds of $[inaudible], resulting in year-to-date operating property dispositions of approximately $350 million, exceeding our original full-year goal. Residential sales followed the implementation of a holistic asset management strategy for our residential portfolio through which we recognized significant margin expansion, resulting in a materially better valuation at the time of disposition. Following the transaction, our residential exposure is now limited to One Paseo Living, which we view as a core long-term holding given the asset's significant synergies with the retail and office components of the broader One Paseo campus, where we continue to achieve record-setting commercial rents.

With proceeds from our first quarter dispositions, we elected to opportunistically capitalize on recent capital markets volatility, repurchasing approximately $73 million of stock at an average price of $30.80 per share. And in April, we fully redeemed the $50 million tranche of private placement notes scheduled to mature in July. Looking forward, we will continue to explore opportunities to harvest attractively priced capital from our existing portfolio while exploring the full range of redeployment alternatives available to us. In last night's release, we also announced the formation of a joint venture to develop a premier, substantially pre-leased Class A office asset in Downtown Redwood City, one of the strongest submarkets in the entire Kilroy Realty Corporation portfolio.

This complex transaction was a long time in the making, requiring substantial effort and coordination across our platform, with our partner and with the project's anchor tenant. 1900 Broadway, which is fully entitled for a 250 thousand square foot office project, is located just blocks from Kilroy Realty Corporation’s highly successful Crossing 900 asset, which has remained 100% leased since delivery in 2015. Over time, we have consistently captured meaningful rent growth at Crossing 900, releasing over 80 thousand square feet since 2023, with cash rent spreads up nearly 60%.

Concurrently with closing on the venture, we executed a 20-year lease with a top-tier global law firm for 145 thousand square feet, representing approximately 60% of the building, at the highest rates ever realized in the Kilroy Realty Corporation portfolio. Since closing, we have experienced strong inbound interest from a wide range of high-quality tenants, and we look forward to updating you on our progress as the project advances. Eliott will cover project costs, estimated returns, and timing in a few moments, but I would note that substantially all of our equity investment in this project has been prefunded through the land parcel sales that are currently under contract.

Before turning the call over, I want to provide a few comments on the Flower Mart project. As Jeffrey will touch on in a moment, we have revised our expense capitalization assumptions for Flower Mart to reflect continued capitalization through the fourth quarter of this year. As we previously stated, we are working with the City of San Francisco to redesign and reimagine the Flower Mart project while maintaining and building upon our current approvals. In addition to seeking flexibility to develop a broader mix of uses, we are also looking to amend the existing development agreement and create a special use district to provide relief from certain planning code requirements, the specifics of which are still under discussion.

The city, which has been a constructive and valued partner in this process, has suggested an alternative approach to analyzing and documenting the changes in the special use district, which we believe will ultimately increase our long-term flexibility and optionality, though the alternative approval process will take additional time. We now expect the process to be completed late in the fourth quarter and would assume that expense capitalization ceases at that time. We are highly convicted that the path we are pursuing at the Flower Mart will result in the best possible outcome for shareholders, and as always, we will continue to update you as the process unfolds.

In conclusion, I want to thank the entire Kilroy Realty Corporation team for an incredibly busy quarter across nearly every facet of our business. Your efforts are creating meaningful value for all of our stakeholders, and I am grateful for your continued energy and enthusiasm. Eliott?

Eliott Trencher: Thanks, Angela. Over the last several months, the capital markets have demonstrated continued momentum as buyers recognize the inflection in fundamentals and the positive impact AI is having on our market. As a result, transaction size is increasing and asset quality is improving. For example, the Transamerica Pyramid in San Francisco recently traded for $1.05 thousand per square foot, the first time an institutional property has eclipsed the $1 thousand a foot level in that market since 2022. Kilroy Realty Corporation continues to be an active seller, and during the quarter, we closed on $146 million comprised of the previously announced Kilroy Sabre Springs at $125 million and Del Mar Tech Center sold in March for $21 million.

Del Mar Tech Center is a 40 thousand square foot building in the Del Mar submarket of San Diego, and at the time of sale, the building was roughly 50% leased with a weighted average remaining lease term of one year. We remain big believers in Del Mar Heights and are still the largest owner in the submarket, but selling this property made economic sense. Additionally, last week, we closed on the sale of our two residential towers in Hollywood for $[inaudible], resulting in year-to-date operating property dispositions of approximately $350 million, exceeding our original full-year goal. Residential sales followed the implementation of a holistic asset management strategy for our residential portfolio through which we recognized significant margin expansion, resulting in a materially better valuation at the time of disposition. Following the transaction, our residential exposure is now limited to One Paseo Living, which we view as a core long-term holding given the asset's significant synergies with the retail and office components of the broader One Paseo campus, where we continue to achieve record-setting commercial rents.

With proceeds from our first quarter dispositions, we elected to opportunistically capitalize on recent capital markets volatility, repurchasing approximately $73 million of stock at an average price of $30.80 per share. And in April, we fully redeemed the $50 million tranche of private placement notes scheduled to mature in July. Looking forward, we will continue to explore opportunities to harvest attractively priced capital from our existing portfolio while exploring the full range of redeployment alternatives available to us. In last night's release, we also announced the formation of a joint venture to develop a premier, substantially pre-leased Class A office asset in Downtown Redwood City, one of the strongest submarkets in the entire Kilroy Realty Corporation portfolio.

This complex transaction was a long time in the making, requiring substantial effort and coordination across our platform, with our partner and with the project’s anchor tenant. 1900 Broadway, which is fully entitled for a 250 thousand square foot office project, is located just blocks from Kilroy Realty Corporation’s highly successful Crossing 900 asset, which has remained 100% leased since delivery in 2015. Over time, we have consistently captured meaningful rent growth at Crossing 900, releasing over 80 thousand square feet since 2023, with cash rent spreads up nearly 60%.

Concurrently with closing on the venture, we executed a 20-year lease with a top-tier global law firm for 145 thousand square feet, representing approximately 60% of the building, at the highest rates ever realized in the Kilroy Realty Corporation portfolio. Since closing, we have experienced strong inbound interest from a wide range of high-quality tenants, and we look forward to updating you on our progress as the project advances.