Kilroy Realty ((KRC)) has held its Q3 earnings call. Read on for the main highlights of the call.
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Kilroy Realty’s recent earnings call painted a picture of a robust quarter, characterized by impressive leasing activity, particularly in San Francisco and the life science sector. The company strategically enhanced its portfolio through acquisitions and sales, although it faces challenges with upcoming lease expirations and the need to re-lease vacated spaces. Despite these hurdles, the positive aspects, especially in leasing, overshadow the challenges.
Strong Leasing Activity
Kilroy Realty reported signing over 550,000 square feet of new and renewal leases during the quarter, marking the highest third-quarter leasing activity and the strongest year-to-date performance in six years. The SOMA submarket in San Francisco was particularly active, with tour activity increasing by 170% year-over-year.
Significant Progress in San Francisco
San Francisco’s office demand reached a post-pandemic high of nearly 9 million square feet, driven by AI and technology companies. The city led all U.S. metros in office leasing growth over the last 12 months, showcasing a strong recovery and demand for office spaces.
Life Science Market Improvement
The life science sector also showed significant improvement, with Kilroy Oyster Point Phase 2 signing 84,000 square feet of leases with biotech companies, surpassing previous expectations. The demand for life science spaces rose by over 20% in the quarter.
Successful Transactions
Kilroy completed the sale of a 4-building campus in Silicon Valley for $365 million and acquired Maple Plaza in Beverly Hills for $205 million. These transactions represent strategic investments, particularly in the low-vacancy market of Beverly Hills.
Challenges in Lease Expirations
The company faces challenges with lease expirations, totaling approximately 970,000 square feet by 2026. With limited opportunities for renewals, there is a potential risk of move-outs, which could impact occupancy rates.
NeueHouse Move-Out
The bankruptcy-related move-out of NeueHouse, a 95,000 square foot tenant at Columbia Square, presents a challenge as it will impact occupancy and necessitate re-leasing efforts to fill the vacated space.
Forward-Looking Guidance
Looking ahead, Kilroy Realty anticipates continued growth in office demand, particularly in San Francisco, with expectations to exceed 100,000 square feet of lease executions by year-end. The company raised its FFO outlook to a range of $4.18 to $4.24 per share, reflecting improvements in leasing and financial adjustments.
In conclusion, Kilroy Realty’s earnings call highlighted a strong quarter with significant leasing activity and strategic transactions, despite facing challenges with lease expirations and re-leasing efforts. The positive momentum in leasing, particularly in San Francisco and the life science sector, sets a promising tone for the company’s future performance.