KRC | Q3 2024

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Overview

• FFO/share of $1.17 (+4.5% Y/Y).

• Revenue of $289.94M (+2.2% Y/Y) beats by $13.82M.

Takeaways

Kilroy Realty Corporation (KRC) had a strong third quarter in 2024, showing solid growth in funds from operations (FFO).

For Q3, KRC reported FFO per share of $1.17, which is a $0.07 increase from the previous quarter. These positive results allowed KRC to raise its full-year FFO guidance by $0.15, displaying optimism about the months ahead.

Leasing activity also grew, with around 436,000 square feet of leases signed this quarter. However, a lot of these leases are short-term, with tenants planning to move out or downsize in the near future.

Looking only at the longer-term leases, Kilroy achieved an average lease term of 5.5 years and a cash leasing spread of 7%, showing strong terms for its long-term agreements.

One key indicator of Kilroy’s success is its ability to maintain and, in some areas, grow occupancy across its various markets.

The Pacific Northwest market saw a boost thanks to Amazon’s new five-day in-office policy, part of a bigger trend where West Coast employers are reducing remote work. In places like Bellevue and Seattle’s South Lake Union, Kilroy has experienced steady demand, with large tech tenants like SAP and NVIDIA renewing their leases.

San Diego is also looking hot, with physical occupancy levels returning to pre-pandemic norms.

Some tenants here are expanding their office spaces as they realize they need more room than expected with the shift back from remote work. This trend reflects a broader shift, as many companies are being faced with the reality that their need for office space may be greater than they thought.

In addition to occupancy gains, Kilroy’s acquisition strategy aligns with its long-term goals.

For example, the company recently acquired Junction at Del Mar, a 104,000-square-foot campus close to Kilroy’s One Paseo project in San Diego. This purchase strengthens Kilroy’s position in a high-demand area and offers potential for future redevelopment.

Kilroy's CIO, Eliott Trencher, said this deal allows Kilroy to leverage its expertise in the Del Mar area while adding value to One Paseo. Kilroy expects this will create both immediate returns and long-term growth.

Leasing activity in other major markets is also picking up, helped by local return-to-office trends.

In San Francisco, companies like Salesforce are increasing in-office work, reviving office spaces and nearby retail around Kilroy properties. LA’s Westside and Culver City areas are seeing more activity from the professional services and tech sectors, while Seattle’s new in-office rule for city employees is expected to add around 13,000 workers to the downtown area.

Kilroy’s strategy also benefits from AI-related growth, especially in the Bay Area. Rising venture capital investment in AI is driving more demand for office space here—a trend likely to continue as the AI industry continues to boom.

On the development side, Kilroy is set to deliver the next phase of its South San Francisco Kilroy Oyster Point (KOP) campus next month. This development serves a range of tenants from life sciences to tech companies and recently saw an uptick in tour activity.

Overall, KRC’s Q3 results reflect a resilient company taking advantage of higher demand for office space. As more companies return to in-person work, Kilroy is well-positioned to meet the growing occupancy needs across its portfolio.

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