Kilroy Realty Corporation and Kilroy Realty, L.P. Announce Quarterly Results for the Period Ended March 31, 2025
Kilroy Realty Corporation and Kilroy Realty, L.P. (the “Company”) reported financial results for the quarter ended March 31, 2025. The Company’s net income was $[insert amount], with net income attributable to common shareholders of $[insert amount]. Funds from operations (“FFO”) and adjusted FFO (“AFFO”) were $[insert amount] and $[insert amount], respectively. The Company’s same-store net operating income (“NOI”) increased by [insert percentage] compared to the same period last year. The Company also reported a [insert percentage] increase in same-store occupancy and a [insert percentage] decrease in same-store average rent. The Company’s balance sheet reflected a cash and cash equivalents balance of $[insert amount] and total debt of $[insert amount].
Overview of Kilroy Realty Corporation
Kilroy Realty Corporation is a real estate investment trust (REIT) that owns, develops, and manages office, life science, and mixed-use properties primarily on the West Coast of the United States. The company operates through its subsidiary, Kilroy Realty, L.P., which owns the majority of the company’s real estate assets and conducts its business operations.
Financial Performance
For the three months ended March 31, 2025, Kilroy Realty reported net income of $43.7 million, down 21.6% from the same period in 2024. This decrease was driven by a 3.9% decline in net operating income, which measures the company’s core property operations.
The drop in net operating income was largely due to a 3.0% decrease in total operating revenues from the company’s “same property” portfolio, which includes properties owned and stabilized throughout the reporting periods. This was primarily caused by a $6.6 million decrease in straight-line rent due to the burn-off of abated rent and aging leases, as well as a $2.3 million decrease in amortization of deferred revenue from tenant move-outs.
Partially offsetting the revenue decline was a 1.8% increase in property expenses and real estate taxes. Interest expense also decreased by 19.9% due to lower average debt balances and capitalized interest on development projects.
Leasing Activity and Occupancy
Kilroy Realty’s stabilized portfolio occupancy rate declined from 82.8% at the end of 2024 to 81.4% as of March 31, 2025. This was driven by a decrease in occupancy across all of the company’s major markets, including Los Angeles, San Diego, the San Francisco Bay Area, Seattle, and Austin.
During the first quarter of 2025, the company executed 21 new leases and 14 lease renewals, totaling 244,189 square feet. Rental rates on new leases decreased by 15.8% compared to expiring leases, while renewal rates declined by 23.0%. The company’s tenant retention rate, including subtenants, was 33.9%.
Looking ahead, leases representing 17.2% of the occupied square footage in Kilroy Realty’s stabilized portfolio are scheduled to expire during the remainder of 2025 and in 2026. This includes approximately 1.9 million square feet, or 11.3% of the portfolio, that is currently available for sublease, primarily in the San Francisco Bay Area.
Development and Redevelopment
As of March 31, 2025, Kilroy Realty had one development project in the tenant improvement phase (Kilroy Oyster Point Phase 2 in South San Francisco) and two redevelopment projects in the tenant improvement phase (4690 Executive Drive in San Diego and 4400 Bohannon Drive in Menlo Park, California).
The company’s future development pipeline includes eight projects across its key markets, with an aggregate cost basis of approximately $1.5 billion. These projects could potentially add more than 6.0 million square feet of office space and 1,750 residential units to Kilroy Realty’s portfolio.
Strengths and Weaknesses
Strengths:
- Diversified portfolio of high-quality office, life science, and mixed-use properties in strategic West Coast markets
- Strong balance sheet with low leverage and ample liquidity, including $146.7 million in cash and $1.1 billion available on the company’s unsecured revolving credit facility
- Experienced management team with a track record of successful development, redevelopment, and capital recycling activities
- Exposure to growing industries like technology, life sciences, and media/entertainment
Weaknesses:
- Declining occupancy and rental rates in the company’s stabilized portfolio, particularly in the San Francisco Bay Area
- Significant upcoming lease expirations, with 17.2% of occupied square footage scheduled to expire in 2025 and 2026
- Reliance on development and redevelopment projects to drive future growth, which carry execution risks and are subject to market conditions
- Concentration of assets in West Coast markets, which could be vulnerable to regional economic downturns
Outlook and Future Prospects
Kilroy Realty faces near-term headwinds from softening demand and declining rents in its stabilized portfolio, particularly in the San Francisco Bay Area. The company’s ability to re-lease expiring space and maintain occupancy will be critical to its financial performance over the next 12-24 months.
However, the company’s strong balance sheet, ample liquidity, and experienced management team position it well to navigate these challenges. Kilroy Realty’s focus on growing markets and industries, as well as its pipeline of development and redevelopment projects, could provide opportunities for future growth if executed successfully.
Ultimately, the company’s performance will depend on its ability to adapt to changing market conditions, maintain occupancy and rental rates, and effectively deploy capital into new development and acquisition opportunities. Investors should monitor Kilroy Realty’s progress in these areas, as well as any potential impact from broader economic and real estate market trends.
