Kilroy Realty's 2025 Q1 Earnings Call: Unpacking Contradictions in Occupancy, Leasing, and AI Impact

Occupancy and leasing activity, KOP Phase 2 lease-up and stabilization, Flower Mart site redevelopment strategy, AI companies as leasing drivers, and occupancy guidance and lease strategy at KOP 2 are the key contradictions discussed in Kilroy Realty's latest 2025Q1 earnings call.



Strong Leasing Activity and Pipeline:
- Kilroy Realty Corporation reported a significant increase in leasing activity in Q1, executing a nearly 60,000 square foot lease with a technology company at its 201 3rd Street asset in San Francisco.
- This trend is driven by the ongoing solidification of return-to-office mandates, improvements in submarket safety and vibrancy, and the growing demand from the burgeoning AI industry.

Occupancy and Lease Renewals:
- Kilroy's occupancy ended the quarter at 81.4%, down from 82.8% at year-end, with an expected 160 basis point decline in same-property cash NOI.
- The decline was partially due to expected move-outs of large tenants, but the company highlighted a significant 40% year-over-year improvement in the forward leasing pipeline.

Life Science and Development Projects:
- At the KOP Phase 2 development project in South San Francisco, Kilroy continues to see meaningful tenant engagement and is actively working with potential tenants on space plans.
- The project's differentiated design and high-quality construction support the demand for life science space despite market volatility, reflecting a strong outlook for the sector.

Capital Allocation and Disposals:
- Kilroy is actively monetizing land parcels, with the first phase of its Santa Fe Summit disposition now under contract, and expects to achieve gross proceeds exceeding $150 million.
- The company is evaluating operating property dispositions to achieve attractive valuations and advance strategic goals, while considering redeployment opportunities such as stock buybacks and leverage reductions.