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KILROY REALTY CORP (KRC)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered solid top-line and FFO growth with leasing momentum: Revenues rose to $286.4M (+6.5% YoY), GAAP diluted EPS was $0.50, and FFO/share (diluted) was $1.20; leasing reached ~708K sf, the highest quarterly volume since Q4 2019 .
  • Guidance reset for 2025 embeds a cautious occupancy trajectory: Nareit FFO/share $3.85–$4.05 (midpoint $3.95), average occupancy 80–82%, and same-store NOI expected at -1.5% to -3.0% as lease termination fees are excluded from NOI starting 2025 .
  • Key execution wins: multi-floor Walmart lease in Bellevue with a rent increase and a 274K sf San Francisco lease addressing >70% of the largest 2026 expiration; KOP Phase 2 reached TCO in January 2025, positioning for life science and office demand .
  • Balance sheet actions and catalysts: repaid $403.7M notes in December; sold corporate aircraft for $19.8M (gain ~$6.0M); liquidity of ~$1.3B supports capital recycling and selective dispositions/redevelopment; call commentary points to active testing of sales markets and potential land proceeds >$150M .
  • Estimates context: S&P Global consensus figures were unavailable at the time of this report; beat/miss vs. Street cannot be assessed. Management cited Q4 “outperformance” aided by one-time items (+$0.11/share) .

What Went Well and What Went Wrong

What Went Well

  • Leasing velocity and strategic wins: “approximately 708,000 square feet of leases” in Q4; Walmart at Skyline Tower (Bellevue) secured with “meaningful rent increase”; a new 274K sf SF lease addressed >70% of the largest 2026 expiration .
  • Same-store and FFO support: Q4 cash same-property NOI grew 0.7% YoY, with total same-store NOI up 4.5% YoY; FFO/share was $1.20 helped by a $6.0M aircraft gain and fee income (+$0.11/share one-time items) .
  • Development milestone: KOP Phase 2 received TCO in January 2025; management sees robust interest from life science, technology, and financial services tenants, with furnished spec suites enabling rapid occupancy .

What Went Wrong

  • Occupancy move-outs and lower cash spreads: Stabilized occupancy declined to 82.8% (vs. 84.3% Q3 and 85.0% Q4’23); cash rents on second-generation leasing decreased 8.6% in Q4 .
  • 2025 occupancy/NOI headwinds: Guidance implies average occupancy down ~300 bps vs. 2024 and same-store cash NOI of -1.5% to -3.0%, with nonrecurring fee income fading and lease termination fees excluded from NOI starting 2025 .
  • Capitalized interest likely to decline: Management expects capitalized interest to fall to ~$72M in 2025 (from ~$82.5M in 2024), with Flower Mart capitalization assumed to cease at the start of Q4 2025, pressuring FFO/NOI cadence .

Financial Results

Quarterly Performance vs. Prior Periods (oldest → newest)

MetricQ2 2024Q3 2024Q4 2024
Revenue ($M)$280.7 $289.9 $286.4
GAAP Diluted EPS ($)$0.41 $0.44 $0.50
FFO per share – diluted ($)$1.10 $1.17 $1.20
Net Operating Income Margin (%)67.5% 67.8% 68.5%
Stabilized Occupancy (%)83.7% 84.3% 82.8%
Stabilized Leased (%)85.4% 85.8% 84.9%

YoY Comparison (Q4 2024 vs. Q4 2023)

MetricQ4 2023Q4 2024
Revenue ($M)$269.0 $286.4
GAAP Diluted EPS ($)$0.40 $0.50
FFO per share – diluted ($)$1.08 $1.20
Net Operating Income Margin (%)68.7% 68.5%
Stabilized Occupancy (%)85.0% 82.8%

Regional Occupancy (Q3 → Q4 2024)

RegionQ3 2024 Occupied (%)Q4 2024 Occupied (%)Q3 2024 Leased (%)Q4 2024 Leased (%)
Los Angeles76.7 75.0 78.0 77.6
San Diego87.9 89.2 90.5 91.2
San Francisco Bay Area91.1 87.4 91.7 88.1
Seattle80.4 80.5 81.6 83.8
Austin74.2 74.7 80.7 80.6

KPIs (oldest → newest)

KPIQ2 2024Q3 2024Q4 2024
Leases Signed (sf)~235,000 ~436,000 ~708,000
GAAP Rent Change (2nd gen)+7.2% +26.0% +3.4%
Cash Rent Change (2nd gen)-4.6% +7.1% -8.6%
Same-Store NOI YoY (%)-5.7% +1.5% +4.5%
Cash Same-Store NOI YoY (%)+0.2% +2.7% +0.7%
Cash Lease Termination Fees ($000s)2,465 50 10
Capitalized Interest & Debt Costs ($000s)20,515 20,827 21,312
Gain on Sale ($000s)——5,979

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
FFO/share (Nareit, diluted)FY 2025N/A$3.85–$4.05 Newly initiated
Average OccupancyFY 2025N/A80%–82% Newly initiated
Same-Store NOI (cash)FY 2025N/A-1.5% to -3.0% (lease termination fees excluded from NOI) Newly initiated
GAAP Lease Termination Fee IncomeFY 2025N/A+/-$3M Newly initiated
Non-cash GAAP NOI AdjustmentsFY 2025N/A$2M–$5M Newly initiated
G&A + Leasing CostsFY 2025N/A$83M–$85M Newly initiated
Interest IncomeFY 2025N/A+/-$6M Newly initiated
Total Development SpendingFY 2025N/A$100M–$200M Newly initiated
FFO/share (diluted)FY 2024$4.21–$4.31 (July) $4.38–$4.44 (Oct) Raised
Same-Store Cash NOIFY 2024-3.0% to -4.0% (July) -1.5% to -2.0% (Oct) Raised
Average OccupancyFY 202482.75%–83.75% (July) 83.75%–84.25% (Oct) Raised
G&AFY 2024$72M–$80M (July) $74M–$76M (Oct) Narrowed

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
AI/Technology DemandSF tenant demand doubled over 18 months; AI fueling new-to-market tenants; spec suites strategy expanding; NVIDIA lease; Amazon return-to-office aiding Seattle “86 AI deals” in SF during 2024; pipeline ~6.5M sf; expected 1.0–1.5M sf AI absorption in 2025; spillover to Seattle; no deals on hold due to AI headlines Strengthening, broader and more prepared demand
KOP Phase 2Approaching delivery; spec labs delivering; improved VC funding supporting life science demand TCO in Jan 2025; furnished spec suites; attraction from life science, tech, financial services; larger-format interest (40–60K sf); timing delays mainly municipal approvals Milestone reached; leasing pipeline active
Occupancy Trajectory2024 heavier move-outs (Salesforce, Capital One, Microsoft) offset by backfilling; 2025 expiration granularity; 2026 larger year – engagement underway 2025 expected to bottom after Q1 move-outs (~216K sf); stability thereafter; >70% of largest 2026 expiration addressed via subtenant deals Near-term headwind; improving visibility
Capital Recycling & Land MonetizationEvaluating alternative uses (residential) and re-entitlement; potential proceeds phased into 2025–2027 Two SoCal sites in advanced talks; expected >$150M proceeds; guidance excludes FFO impact due to elongated closings Building momentum; timing elongated
Flower Mart (SF)High-density entitlements; rephasing needed; difficult to start near-term; planning underway Capitalization assumed to cease at start of Q4 2025; redesign to enable phasing; evaluating mix of uses responsive to market/community Planning shift; potential earnings impact in 2H’25
G&A/Platform EfficiencyLowered 2024 G&A midpoint; personnel changes; focus on efficiency 2024 G&A+leasing totaled just under $81M (vs. ~$100M 2023); 2025 guide $83–$85M “appropriate run rate” Structural reset complete

Management Commentary

  • “Leasing activity meaningfully accelerated to more than 700,000 square feet in the fourth quarter… We are well positioned to capitalize on continued improvements … in 2025.” — CEO Angela Aman .
  • “First, we executed a multi-floor lease with Walmart at Skyline Tower in Bellevue… achieving a meaningful rent increase… We executed a 274,000 square foot new lease in the San Francisco Bay area with a global technology company…” — CEO Angela Aman .
  • “Our 2025 FFO guidance range is $3.85 to $4.05… average occupancy… between 80% and 82%… Cash same-property NOI is projected to decline between negative 1.5% to negative 3%.” — CFO Jeffrey Kuehling .
  • “Capitalized interest… expected to result in… approximately $72 million in 2025… versus $82.5 million recognized in 2024.” — CFO Jeffrey Kuehling .
  • “We are in advanced discussions with residential developers on 2 sites… expected to generate in excess of $150 million of proceeds.” — CIO Eliott Trencher .

Q&A Highlights

  • Occupancy bottoming and cadence: After sizable Q1 2025 move-outs (~216K sf), management expects occupancy to stabilize for the rest of 2025; largest expirations in 2026 are being proactively addressed (>70% of the largest) .
  • KOP Phase 2 leasing timelines: Spec suite tenants can occupy “by the weekend”; larger shell-to-tenant build-outs typically 9–12 months (up to ~18 depending on complexity) .
  • Flower Mart milestones/capitalization: Capitalization ceasing assumed at start of Q4 2025 as redesign enables phased construction; focus on mix of uses aligned to market and community needs .
  • Concessions discipline: Competitive markets acknowledged, but management aims not to “do the crazy things” (e.g., multi-year free rent) at premier assets; monetize amenity value to hold net effective economics .
  • Transaction market and land sales: Core capital has returned; cap rates mid-6% to low-7% on notable core deals; KRC will test dispositions meeting stringent criteria; >$150M land proceeds targeted, but excluded from guidance .
  • Tenant credit assurance: Cruise lease carries GM credit; no payment concerns .

Estimates Context

  • S&P Global consensus estimates for EPS, revenue, and FFO/share were unavailable at the time of this report due to provider request limits; thus, we cannot assess beats/misses vs. Street for Q4 2024. Management noted Q4 “outperformance” aided by one-time items (~$0.11/share), including a $6.0M aircraft gain and fee income .

Key Takeaways for Investors

  • Leasing inflection: Q4’s ~708K sf signed (highest since 2019) and key wins (Walmart Bellevue; 274K sf SF tech) signal demand recovery, especially for high-quality assets in Bellevue/San Diego/SF; watch follow-through in H1’25 .
  • Near-term occupancy headwinds: Expect Q1 2025 vacancy to pressure metrics; management guides average occupancy to 80–82% and cash same-store NOI to -1.5% to -3.0% for FY 2025 as nonrecurring items fade and fees are excluded from NOI .
  • KOP Phase 2 is a multi-year growth driver: TCO achieved; furnished spec labs plus campus amenities broaden target tenant pool (life science + select office); leasing cadence and tenant mix will shape 2026 occupancy uplift .
  • Capital recycling optionality: Advanced re-entitlement discussions with residential developers (> $150M expected proceeds) and active market testing create optionality to delever or fund accretive acquisitions; timing elongated and excluded from FY 2025 FFO .
  • Balance sheet resilience: December note repayment and ~$1.3B liquidity provide flexibility amid choppy transaction markets; net debt/EBITDA metrics remain stable (6.4x trailing) per supplemental .
  • Pricing discipline at premier assets: Management intends to defend economics (avoid outsized free rent); KPI mix (cash rent spreads, TI/LC) warrants close monitoring by submarket in 2025 .
  • 2026 setup improving: >70% of the largest 2026 expiration already addressed; proactive engagement could smooth rollover risk profile as markets recover .

All claims and data points are sourced from company press releases, the Q4 2024 earnings call transcript, and the supplemental 8-K, as cited.