Kilroy Realty's Q4 2024 Earnings Call: Contradictions in Occupancy, Land Sales, and Financial Guidance

These are the key contradictions discussed in Kilroy Realty's latest 2024Q4 earnings call, specifically including: Occupancy Projections and Leasing Activity, Land Sales Strategy, Occupancy expectations and leasing activity, and financial guidance adjustments:



Strong Leasing Activity and Market Recovery:
- Kilroy Realty Corporation reported 708,000 square feet of leases signed in the fourth quarter of 2024, marking the highest level since the fourth quarter of 2019.
- The strong leasing activity was driven by increased demand for high-quality spaces aligning with evolving tenant needs and a material acceleration in leasing activity, with significant deals including a multi-floor lease with Walmart and a lease with a global technology company in the San Francisco Bay area.

Occupancy Challenges and Move-outs:
- Kilroy's occupancy ended the year at 82.8%, impacted by large move-outs, such as those from Capital One and Microsoft in the San Francisco Bay Area.
- The decline in occupancy is primarily attributed to known move-outs and downtime in Los Angeles, with expected move-outs in the first quarter of 2025 totaling approximately 216,000 square feet.

KOP2 Leasing and Market Demand:
- The completion of Kilroy Oyster Point Phase 2 in South San Francisco was highlighted, with a focus on a range of uses, including life science and technology tenants.
- The project is seeing significant interest and constructive conversations with tenants, benefiting from its campus-like nature and leading-edge amenities, although the broader South San Francisco market remains competitive.

Financial Guidance and Outlook:
- Kilroy's 2025 FFO guidance range is $3.85 to $4.05 per diluted share, with a midpoint of $3.95, representing a decline from the 2024 average occupancy of 82% to 80%-82%.
- The decline in occupancy is expected due to the significant move-outs and the limited detraction from base rent highlighting the strength of contractual rent growth across the portfolio, with nonrecurring items such as restoration fee income excluded from NOI guidance.