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KILROY REALTY CORP (KRC)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 EPS of $0.33 beat S&P Global consensus of ~$0.29, while revenue of $270.8M missed the ~$276.8M consensus; FFO/diluted came in at $1.02. Management affirmed FY25 FFO guidance and raised FY25 diluted net income per share guidance range to $1.08–$1.29 . EPS consensus and revenue consensus values are from S&P Global.*
  • Top operating themes: leasing momentum in San Francisco and Seattle (AI, RTO tailwinds), negative second-generation re‑leasing spreads due to one large low‑capital renewal, and occupancy stepped down 140 bps q/q to 81.4% (known Q1 move‑outs) .
  • Guidance catalysts: FY25 FFO per share reaffirmed at $3.85–$4.05; diluted net income per share range increased; average occupancy still guided to 80–82% for 2025, and cash same‑property NOI growth guided to −1.5% to −3.0% .
  • Capital allocation: entered agreement to sell five acres at Santa Fe Summit for $38M (as‑of‑right residential), with broader land monetization over time; dividend maintained at $0.54/share (declared/payed in April; next declared May 20) .

What Went Well and What Went Wrong

What Went Well

  • Strong strategic positioning in SF: “rapid expansion of new AI business formation… RTO mandates… crime rate now the lowest in 23 years” driving tours up 60% y/y and largest SF lease since 2019 at 201 3rd Street (~60k sf) .
  • Pipeline build and regional activity: portfolio‑wide tour activity up 40% y/y; Bellevue and San Diego highlighted as strongest markets; Indeed Tower (Austin) and West 8th (Seattle) seeing improving lease rates and activity .
  • FY25 net income per share guidance raised versus February; FFO per share guidance affirmed, signaling confidence in plan despite volatility .

What Went Wrong

  • Re‑leasing spreads: second‑gen GAAP and cash re‑leasing spreads were −15.8% and −23.0%, largely due to one short‑term, low‑capital transaction; excluding it, cash spreads would have been ~−8.3% (similar to Q4) .
  • Occupancy/Leased step‑down: stabilized occupancy declined to 81.4% (from 82.8% in Q4) and leased to 83.9% (from 84.9%), reflecting known Q1 move‑outs (DermTech downsizing, 23andMe expected in Q2) and redevelopment assets entering the stabilized pool later in 2025 .
  • Cash same‑property NOI fell 1.6% y/y; CFO cited negative mix from occupancy trajectory and fewer nonrecurring items relative to 2H24 .

Financial Results

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$289.9 $286.4 $270.8
Diluted EPS ($USD)$0.44 $0.50 $0.33
FFO per diluted share ($USD)$1.17 $1.20 $1.02
NOI Margin (%)67.3% 67.6% 66.5%
Stabilized Occupancy (%)84.3% 82.8% 81.4%
Stabilized Leased (%)85.8% 84.9% 83.9%
KPIQ3 2024Q4 2024Q1 2025
Leases signed (sq ft)436k 708k ~248k
GAAP re‑leasing spread (2nd gen)+26.0% ~flat y/y context−15.8%
Cash re‑leasing spread (2nd gen)+7.1% ~flat y/y context−23.0%
Retention rate (incl. subtenants)n/a42% (FY24 illustrative) 33.9%
Cash same‑property NOI y/yn/a+0.7% (Q4) −1.6% (Q1)

Segment/Region Occupancy (Stabilized Office):

RegionQ1 2024 OccupancyQ1 2025 Occupancy
Los Angeles76.5% 72.7%
San Diego87.9% 87.5%
San Francisco Bay Area89.9% 86.8%
Seattle83.6% 78.6%
Austin71.5% 76.4%
Weighted average84.2% 81.4%

Why the miss/beat:

  • Revenue miss versus consensus reflects lower stabilized occupancy and negative spreads, offset partially by contractual escalators; cash same‑property NOI declined 1.6% y/y . EPS beat versus consensus likely aided by lower interest expense vs Q1 2024 ($31.1M vs $38.9M) and broader cost discipline . EPS/revenue consensus values are from S&P Global.*

Guidance Changes

MetricPeriodPrevious Guidance (Feb 2025)Current Guidance (May 2025)Change
FFO per diluted shareFY 2025$3.85–$4.05 $3.85–$4.05 Maintained
Diluted net income per shareFY 2025$1.01–$1.22 $1.08–$1.29 Raised
Average occupancyFY 202580%–82% 80%–82% Maintained
Same‑property cash NOI growthFY 2025−1.5% to −3.0% −1.5% to −3.0% Maintained
GAAP lease termination fee incomeFY 2025±$3M ±$3M Maintained
Non‑cash GAAP NOI adjustmentsFY 2025$2M–$5M $2M–$5M Maintained
G&A + Leasing costsFY 2025$83M–$85M $83M–$85M Maintained
Interest incomeFY 2025±$6M ±$6M Maintained
Development spendingFY 2025$100M–$200M $100M–$200M Maintained
DividendQuarterly$0.54/share (paid Apr 9) $0.54/share (declared May 20) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024)Previous Mentions (Q4 2024)Current Period (Q1 2025)Trend
AI/tech leasingEarly pipeline; SF absorption starting to improve Strong acceleration in leasing; Walmart at Bellevue; largest 2026 expiration addressed via tech subtenant SF tours +60% y/y; largest SF lease since 2019; AI/data analytics expansion at West 8th (Seattle) Improving
Return-to-office and city safetyStabilized occupancy 84.3% RTO mandates supporting recovery; tour activity building SF safety/vibrancy highlighted; portfolio tours +40% y/y Improving
Life science/KOP2Project progressing; competitive SSF supply TCO received Jan; spec suites, amenities completed; demand forming (40–60k sf) Active engagements (spec suites and multi‑floor); shell users 9–12 months to occupy Building but competitive
Land monetization/entitlements$150M+ land sale proceeds targeted Evaluating residential re‑entitlements (Southern CA); Flower Mart phasing redesign $38M Santa Fe Summit phase 1 under contract (as‑of‑right residential) Executing
Capitalized interestN/AFlower Mart cap interest ~$7M/qtr; potential cessation in 2H25; KOP2 cap stops early 2026 Reiterated in Q&A context; FY25 assumptions intact Transitioning
Transaction marketN/AMore core capital returning; selective dispositions to maximize value Institutional/HNW/user capital active; notable SF recaps and user purchases Improving liquidity

Management Commentary

  • “Office demand in our markets continues to rebound… materially growing demand from the burgeoning AI industry. San Francisco best represents the intersection of these important trends.” — Angela Aman, CEO .
  • “We remain very active on the capital allocation front… signed an agreement to sell a portion of our Santa Fe Summit site in San Diego for a gross price of $38 million.” — Angela Aman .
  • “FFO was $1.02 per diluted share… cash same‑property NOI declined 160 bps y/y. Occupancy ended the quarter at 81.4%, down from 82.8% at year‑end.” — Jeffrey Kuehling, CFO .
  • “The transaction market… a wider array of capital pursuing deals… endorsement that the changes in the city are tangible and putting San Francisco on the right track.” — Eliott Trencher, CIO .

Q&A Highlights

  • Flower Mart: Company actively redesigning to enable phased execution; current assumption is stopping capitalization in 2H25 without near‑term development; timing uncertain pending city dialogue .
  • Leasing spreads: One large short‑term, low‑capital deal depressed cash/GAAP spreads; excluding it, cash spreads ~−8.3%, similar to Q4 .
  • Occupancy guidance: DermTech downsizing (81k sf) moved to Q2; 23andMe (~65k sf) contemplated; redevelopment assets entering stabilized pool will pressure occupancy in Q3; Q4 expected positive net absorption .
  • KOP2 leasing/occupancy timing: Spec suite tenants can move “quickly”; full‑floor shell users typically 9–12+ months to occupy .
  • Santa Fe Summit entitlements: Phase 1 is as‑of‑right residential; confidence in execution; broader site likely not office/life science (higher/better use) .

Estimates Context

Metric (Q1 2025)ConsensusActual# of Estimates
Primary EPS ($USD)0.292*0.33 3*
Revenue ($USD)276.764M*270.844M 7*
  • EPS beat; revenue miss. Near‑term estimate implications: model lower occupancy trajectory and negative second‑gen spreads, offset by cost control and lower interest expense; FY25 FFO range maintained. Values retrieved from S&P Global.*

Key Takeaways for Investors

  • EPS beat with revenue miss: occupancy and spreads pressured top line, but cost/interest dynamics supported EPS; monitor spread normalization excluding short‑term anomalies .
  • Guidance quality: FFO per share reaffirmed; diluted net income per share raised—confidence in execution despite occupancy headwinds and competitive SSF life‑science supply .
  • Leasing momentum catalysts: AI and RTO tailwinds strongest in SF/Seattle; pipeline up ~15% q/q with tours +40% y/y; watch SF deal flow and Bellevue/San Diego activity for 2H25 absorption .
  • Land monetization: $38M Santa Fe Summit under contract; management targets $150M+ over time—potential upside to balance sheet flexibility and capital deployment (debt reduction/buybacks) .
  • Occupancy trajectory: Q2 likely reflects remaining known move‑outs; redevelopment assets enter stabilized pool in Q3 (denominator effect); Q4 targeted for positive net absorption .
  • SSF KOP2: amenity‑rich, scale‑capable campus draws life‑science and selective office uses; spec suites enable faster occupancy; shell users 9–12+ months—expect contribution in 2026 .
  • Dividend stability: $0.54/share maintained; watch FFO coverage (FFO/FAD payout ratios) and capital recycling to sustain distributions through the cycle .
* Values retrieved from S&P Global

Citations: Press release and supplemental: . Earnings call transcript: . Prior quarter materials: .