Name: KILROY REALTY CORP Q2 2025 Earnings Call
Start: 2025-07-29T17:00:00.000Z

Executive Summary

Q2 2025 delivered broad-based execution: revenue rose 3.3% year over year to $289.9M and diluted EPS increased to $0.57; FFO/share was $1.13, aided by a $10.7M lease termination fee and other one-time items .
Against S&P Global consensus, KRC posted a clear beat: revenue $289.9M vs $269.7M*, Primary EPS $0.44 vs $0.31*, and FFO/share $1.13 vs $0.99*, with revenue upside driven by dispositions timing, lease termination fees, and operating discipline (values retrieved from S&P Global).
Guidance raised: 2025 Nareit FFO/share to $4.05–$4.15 (from $3.85–$4.05), with updated assumptions including continued capitalization of Flower Mart through year-end, higher GAAP lease termination fees, and improved same-property NOI trajectory .
Capital recycling accelerated: closed 501 Santa Monica sale ($40M), entered agreement to sell a 663K sf Silicon Valley campus ($365M), and monetized land (Santa Fe Summit $38M; post-quarter 1633 26th St $41M), positioning for reinvestment and deleveraging catalysts .

What Went Well and What Went Wrong

What Went Well
- Strong leasing throughput and pipeline: ~423K sf executed in Q2, including development/first generation activity; management highlighted acceleration across markets and AI-driven demand, with San Francisco and Seattle momentum building .
- Capital recycling progress: $40M sale of 501 Santa Monica, agreement to sell Silicon Valley campus for $365M, and land monetizations totaling $79M expected proceeds; increased institutional buyer depth vs prior quarters .
- Guidance raised on clearer Flower Mart timeline and one-time fee income; CFO quantified drivers: ~$0.08/share from Flower Mart capitalization through year-end, ~$0.05/share from Q2 termination fee, and improved same-property NOI .
What Went Wrong
- Re-leasing spreads negative: GAAP -11.2% and cash -15.2% on second-generation leasing (ex-short term), largely due to one large San Francisco lease done at lower base rents (limited capital, shorter term) .
- Occupancy drifted lower: stabilized occupancy fell to 80.8% (from 81.4% in Q1), impacted by known move-outs (DermTech downsizing, 23andMe bankruptcy) and assets reclassified/sold; CFO guided to modest Q3 decline before Q4 net absorption .
- Same-property Cash NOI outlook still negative for 2025 despite improvement: range refined to -1% to -2% given one-time benefit concentration in Q2 and tough comps from 2024 restoration income .

Financial Results

Metric	Q4 2024	Q1 2025	Q2 2025
Revenue ($USD Millions)	$286.4	$270.8	$289.9
Diluted EPS ($)	$0.50	$0.33	$0.57
FFO per share – diluted ($)	$1.20	$1.02	$1.13
Net Operating Income Margin (%)	67.6%	66.5%	65.8%

Vs. Wall Street consensus (S&P Global):

Metric	Consensus	Actual	Surprise
Revenue ($USD Millions)	$269.7M*	$289.9M	+$20.2M*
Primary EPS ($)	$0.31*	$0.44*	+$0.13*
FFO / Share (REIT) ($)	$0.99*	$1.13	+$0.14*

Values retrieved from S&P Global.

Segment/Portfolio KPIs (Q2 2025):

KPI	Value
Stabilized Occupancy (%)	80.8%
Stabilized Leased (%)	83.5%
New + Renewal Leases Executed (sf)	~423,000
New leasing on vacant space (sf)	225,000
Renewal leasing (sf)	172,000
First Gen/Development leasing (sf)	63,000
GAAP/Cash releasing spreads (2nd Gen, ex-short term)	-11.2% / -15.2%
Cash Same-Property NOI YoY (Q2)	+4.5%
Net Debt / Co.’s Share EBITDAre (TTM)	6.6x
Fixed Charge Coverage – EBITDAre	3.7x

Regional occupancy snapshot (Q2 2025):

Region	Occupied	Leased
Los Angeles	74.4%	76.4%
San Diego	85.0%	86.5%
San Francisco Bay Area	84.8%	86.9%
Seattle	78.5%	84.6%
Austin (CBD)	79.9%	83.2%

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Nareit FFO/share – diluted	FY 2025	$3.85–$4.05	$4.05–$4.15	Raised
Same-Property Cash NOI growth	FY 2025	-1.5% to -3.0%	-1.0% to -2.0%	Raised (midpoint)
Avg full-year occupancy	FY 2025	80%–82%	80.5%–81.5%	Slightly raised
GAAP lease termination fee income	FY 2025	±$3M	±$13M	Raised
Non-cash GAAP NOI adjustments	FY 2025	$2M–$5M	$4M–$6M	Raised
Interest income	FY 2025	±$6.0M	±$4.5M	Lowered
Capitalized interest	FY 2025	— (not specified)	$81M–$83M	Added (assumes Flower Mart capitalization through YE)
Total development spending	FY 2025	$100M–$200M	$100M–$200M	Maintained
Dividend per share (quarterly)	Q2 2025	$0.54	$0.54	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4’24)	Previous Mentions (Q1’25)	Current Period (Q2’25)	Trend
AI demand & tech momentum	Highest leasing since 2019; AI expansion in SF, Seattle; return-to-office improving	Pipeline/tours up (SF +60% YoY); AI expansions in Seattle; SF crime down; RTO solidifying	AI seen as net opportunity; strong SF/Seattle pipeline; accelerated tours and design planning	Improving
Flower Mart (entitlements & capitalization)	Exploring phasing/mix; potential stop capitalization in H2’25	Capitalization assumed to cease around Q4 start (midpoint)	Assumption refined: capitalization through YE’25; no 2026 capitalization assumed	Clarified timeline
Capital recycling (dispositions/land)	Testing market; core capital returning; land proceeds >$150M targeted	Santa Fe Summit (5 acres) under contract for $38M; evaluating operating asset sales	Closed 501 Santa Monica; SV campus at $365M under contract; 20 Sixth St and Santa Fe Summit land monetizations; buyers breadth expanding	Accelerating
Leasing spreads & concessions	Short-term deals limited; strong net effective rents despite negative spreads in select cases	Cash spreads impacted by one large SF deal; capital-light, shorter term	GAAP -11.2% / Cash -15.2% (ex-short term), driven by one SF lease; excluding it, cash spreads ~+1%	Mixed (quality-focused)
Occupancy trajectory	2025 expected lower avg occupancy; known Q1 move-outs	Q3 dip from redevelopment assets, Q4 net absorption expected	Q2 to 80.8%; modest Q3 decline; Q4 positive absorption; leased-to-occupied gap widened to 270 bps	Nearing inflection

Management Commentary

“We are pleased to report on a strong quarter of execution across every facet of our business…leasing momentum accelerated…[and] significant progress…on dispositions, as institutional interest in West Coast office assets continues to improve.” — Angela Aman, CEO .
“FFO for the quarter was $1.13 per diluted share, which includes approximately $0.11 per share of one-time items, including…a $10.7 million lease termination fee…[and] ~$6.9 million…bad debt reversals and net real estate refund benefits.” — Jeffrey Kuehling, CFO .
“These four transactions will raise over $480,000,000 of gross proceeds…we are confident that we will further distinguish the Kilroy portfolio and better position the company for outsized cash flow growth.” — Eliott Trencher, CIO .

Q&A Highlights

Disposition market depth: mix of institutional, HNW, and owner-user buyers; confidence rising especially in West Coast office recovery .
Use of proceeds: reinvestment and debt repayment; authorization remains for leverage-neutral buybacks (~$400M capacity) .
KOP Phase 2 leasing: active negotiations for ~100K sf (life science/healthcare), spec suites provide faster occupancy; broader pipeline across full floors .
AI net impact: management views AI as a growth catalyst across SF/Seattle/San Diego; demand for high-quality, amenitized space .
Flower Mart timeline: city receptive to program modifications; guidance assumes capitalization through YE’25, none in 2026 absent qualifying activity .
Occupancy cadence: modest Q3 decline (redevelopment assets entering pool), positive net absorption expected in Q4 .

Estimates Context

Q2 2025 beats: Revenue $289.9M vs $269.7M*, Primary EPS $0.44 vs $0.31*, FFO/share $1.13 vs $0.99* (values retrieved from S&P Global).
Implications: Street may raise FY FFO/share and NOI assumptions as one-time benefits are parsed; management already raised FY FFO/share guidance to $4.05–$4.15, with a clearer Flower Mart capitalization timeline .
Note: Company-reported diluted EPS was $0.57; S&P “Primary EPS actual” may reflect different methodology—use company figure for GAAP comparison and S&P consensus for beat/miss analytics .

Key Takeaways for Investors

Clear beat across revenue, EPS and FFO/share vs consensus*; near-term catalysts include closing the $365M Silicon Valley sale and continued leasing commencements in Q4 (values retrieved from S&P Global) .
Guidance raised; Flower Mart capitalization through year-end reduces 2025 headwind risk and adds clarity to earnings trajectory .
Leasing quality focus remains intact amid negative headline spreads; shorter-term, capital-light SF deal supports net effective economics while preserving repricing optionality .
Occupancy trough likely in Q3 given redevelopment entries; expect Q4 positive net absorption, with 270 bps leased-to-occupied gap as embedded growth .
Capital recycling and land monetization are de-risking the portfolio and funding optionality (deleveraging, selective acquisitions, potential buybacks) — watch execution timing and reinvestment IRRs .
Regional mix and asset quality (Bellevue, UTC/Del Mar, Austin CBD, premier SF assets) position KRC to capture AI/professional services demand as RTO strengthens .
Monitor 2026 expirations and KOP Phase 2 lease-up cadence; spec suites can accelerate NOI timing while larger lab/office deals drive medium-term growth .