Skip to content
    KRC
    Earnings call· Mar 2026(Q1 FY26)

    KILROY REALTY Q1 FY26 earnings call KRC

    Apr 28, 2026 Source

    Executive summary

    Kilroy Realty Corporation Q1 FY26 — Strong Leasing, Strategic Dispositions, and AI-Driven Demand

    Kilroy Realty delivered a robust first quarter, driven by record leasing activity fueled by intensifying return-to-office trends and significant AI-driven demand across its West Coast markets. The company strategically recycled capital through dispositions, exceeding its full-year target, and opportunistically repurchased shares while investing in a new pre-leased development. Management maintains a balanced capital allocation approach, prioritizing balance sheet strength amidst market volatility.

    Highlights

    5

    • Strongest Q1 leasing results since 2017 with total productivity of approximately 568,000 square feet, more than double prior year.

    • Increased full-year average occupancy guidance by 25 basis points at the midpoint.

    • Signed but not yet commenced leases represent nearly $78 million of contractually obligated annualized base rent.

    • Successfully executed $350 million in year-to-date operating property dispositions, exceeding original full-year goal.

    • Opportunistically repurchased $73 million of stock at an average price of $30.80 per share.

    Concerns

    3

    • Overall GAAP leasing spreads were negative 10.6% and cash spreads negative 16.8% due to two specific San Francisco leases on space vacant for over 12 months.

    • Flower Mart expense capitalization is now expected to cease late in Q4 2026, impacting future earnings by approximately $1 million in quarterly operating expenses and $7 million in quarterly capitalized interest.

    • Anticipate an occupancy drop in Q2 FY26 due to the pace of scheduled move-outs.

    Guidance & targets

    4
    CategoryTargetConfidence
    FFO per diluted share
    $3.49 to $3.63
    high materiality
    High
    Cash same-property NOI growth
    25 to 125 basis points
    high materiality
    High
    Operating asset dispositions
    Raised top end of range
    medium materiality
    High
    Flower Mart expense capitalization cessation
    Late in the fourth quarter
    medium materiality
    High

    Segment performance

    5
    SegmentRevenueYoYQoQMargin
    San Francisco - Soma Submarket
    Significant momentum at 201 Third, capturing demand from large and small format users, including Tobi and RVI. All 5 recently constructed spec suites leased by completion.
    201 Third lease rate improved: 26% (YE 2024) to >80% (Q1 2026)
    		————
    Redwood City - Crossing 900
    Completed a direct lease with a current subtenant, generating significant cash base rent increase. Asset has remained 100% leased since delivery in 2015.
    27,000 sq ft direct lease completedCash base rent increase: >40%Re-leasing since Q4 2023: >80,000 sq ftCash rent spreads on re-leasing: up nearly 60%
    		————
    Seattle - Denny Regrade Submarket
    Momentum accelerated at recently repositioned West 8 project, following 74,000 sq ft of new leases in Q4 2025. Renovations and amenities resonate with tenants.
    New leases signed at West 8 YTD: 76,000 sq ft (43,000 sq ft GM in Q1, 33,000 sq ft SoFi in Q2)
    		————
    Los Angeles Portfolio
    Leasing activity improved meaningfully over the last year, reflecting gradual market improvement and portfolio repositioning. Arrow in Long Beach seeing pickup in tour activity, Blackwelder and Culver City seeing acceleration, Maple Plaza surpassing expectations.
    Trailing 12-month productivity: up approximately 66%
    		—up approximately 66%——
    Life Sciences - KOP 2
    Outperforming broader South San Francisco market. Future pipeline remains robust for remaining lease-up and full building opportunity.
    38,000 sq ft lease with Alima PharmaceuticalsProject leased: 49%
    		————

    Operational metrics

    12
    Total leasing productivity
    568,000more than double Q1 FY25
    Q1 FY26

    Strongest first quarter leasing results since 2017.

    Stock repurchases
    $73M
    Q1 FY26

    Opportunistically capitalized on recent capital markets volatility.

    Private placement notes redemption
    $50M
    April 2026

    Fully redeemed tranche scheduled to mature in July.

    23andMe bankruptcy settlement
    $5.9M
    April 2026

    Fully resolves economic interest in that process.

    Transamerica Pyramid sale price
    $1,050
    Recent

    First time institutional property eclipsed $1,000 a foot level in San Francisco since 2022.

    Net seller position from capital recycling
    $215M
    Last 2.5 years

    Result of $980M sales efforts (land and operating properties) and $765M redeployed into investments.

    Residential sales cap rate
    around 4%
    YTD FY26

    For the two Hollywood residential assets sold subsequent to quarter end.

    Overall sales cap rate
    mid-single digits
    YTD FY26

    Average cap rate on all sales announced year-to-date.

    San Francisco market availability absorbed
    5M
    Since mid-2025

    Availability rate was a headline concern, now significantly reduced.

    San Francisco Q1 deals >100,000 sq ft
    13
    Q1 FY26

    Very big number for the city, indicating expansionary activity.

    San Francisco rolling 12-month leasing totals
    9M
    Trailing 12 months

    Returned to historical averages.

    Signed-not-commenced leases - Net Lease Mix
    86%
    Current

    Analyst question regarding the high percentage of net leases in the signed-not-commenced pool; management clarified it's a mix issue.

    Industry KPIs

    7
    MetricValueDetails
    Occupancy rate77.6%%
    Disposition volume$146MUSD
    Same store noi growth1.8%%
    Leasing bookings volume signed568,000square feet
    Ffo core ffo normalized ffo per share$0.91per diluted share
    Development pipeline under construction$330M to $350MUSD
    Lease renewal spread re leasing recapture-10.6%%

    Orderbook & backlog

    3
    Land sales under contract$165MQ1 FY26

    Roughly half expected to close late 2026 or early 2027.

    Signed-not-commenced leasing backlog (Annualized Base Rent)$78MQ1 FY26

    Contractually obligated annualized base rent to be realized over coming years, providing significant visibility on future growth.

    Signed-not-commenced leasing backlog (Square Feet)1MQ1 FY26

    Total square footage of signed but not commenced leases.

    Deals & partnerships

    9
    Lane PartnersDevelopment of 1900 Broadway, a 250,000 sq ft office projectTotal anticipated cost $330M-$350M

    Joint venture to develop a premier substantially pre-leased Class A office asset in downtown Redwood City. Anchor tenant Cooley signed a 20-year lease for 145,000 sq ft (60% of building).

    Cooley20-year lease for office space20 years

    Executed concurrently with closing on the 1900 Broadway joint venture.

    Alima PharmaceuticalsLease for life science space

    38,000 square foot lease executed subsequent to quarter end at KOP 2.

    General MotorsNew lease for office space

    43,000 square foot lease signed in Q1 FY26 at West 8 in Seattle.

    SoFiNew lease for office space

    33,000 square foot lease signed in early Q2 FY26 at West 8 in Seattle.

    RVIExpansion lease for office space

    62,000 square foot expansion lease signed this quarter, following a 93,000 sq ft lease in Q2 2025.

    Not statedSale of Kilroy Sabre Springs office property$125M

    Office property in San Diego, sold in Q1 FY26.

    Not statedSale of Delmar Tech Center office property$21M

    40,000 square foot building in Del Mar submarket of San Diego, sold in Q1 FY26.

    Not statedSale of two Hollywood residential assets (Columbia Square Living and Jarden)$202M

    Sold subsequent to quarter end. These towers were developed by Kilroy as part of Columbia Square and Online project. Lack of synergies with office and demand for high-quality apartments drove sale.

    Capital programs

    2
    1900 Broadway DevelopmentJoint venture closed, pre-leased$330M to $350M
    Funding: Equity investment prefunded through land parcel sales
    Start: Next year (groundbreaking)

    Benefit: 250,000 square foot office project, 60% pre-leased (145,000 sq ft)

    Premier substantially pre-leased Class A office asset in downtown Redwood City. Kilroy's share will be 97% upon completion. Stabilized yields expected in the low to mid-9% range.

    Flower Mart Project Redesign and EntitlementUnderway

    Benefit: Flexibility to develop a broader mix of uses, amend development agreement, create special use district

    Working with the city of San Francisco to redesign and reimagine the project, maintaining and building upon current approvals. Expense capitalization to cease late Q4 2026.

    Risks & headwinds

    3
    Delay in Flower Mart project redesign and entitlement approvalThrough Q4 FY26

    Expense capitalization will cease late Q4 2026, leading to approximately $1 million of quarterly operating expenses and $7 million of quarterly capitalized interest impacting earnings.

    Mitigation: Working with the city of San Francisco on an alternative approval process to increase long-term flexibility and optionality for a broader mix of uses.

    Negative GAAP and cash leasing spreadsQ1 FY26

    GAAP spreads of negative 10.6% and cash spreads of negative 16.8% for Q1 FY26.

    Mitigation: Primarily driven by two capital-light San Francisco leases on space vacant for longer than 12 months, generating attractive net effective rent outcomes. Spreads on space vacant for less than 12 months were positive (GAAP +19.2%, cash +5.3%).

    Anticipated portfolio occupancy dropQ2 FY26

    Occupancy expected to drop in Q2 FY26.

    Mitigation: Due to the pace of scheduled move-outs, Q2 is the biggest move-out quarter for 2026. Management expects the bulk of remaining 2026 expirations (740,000 sq ft) to be move-outs.

    What to watch in Q2 FY26

    5

    Flower Mart expense capitalization

    Late Q4 FY26
    CurrentCapitalized through Q4 FY26
    TargetCessation of capitalization

    Why it matters

    Cessation will impact earnings by $1M quarterly operating expenses and $7M quarterly capitalized interest, affecting FFO.

    With respect to Flow Mart, as Angela discussed, we are now assuming that expense capitalization will cease late in the fourth quarter, at that point, a little less than $1 million of quarterly operating expenses and real estate taxes along with $7 million of quarterly capitalized interest will begin impacting earnings.

    Q&A highlights

    6

    Seeking more detail on leasing demand and recovery progress in LA and San Diego, contrasting with San Francisco's recent positive response.

    Rob Paratte confirmed increased activity (tours, proposals, deals) across the portfolio, including LA and San Diego. Noted 24 deals signed in LA in Q1, with growing pipeline. Emphasized "flight to quality" benefiting Kilroy's high-quality assets. Mentioned 400,000 sq ft of tours at Nautilus and successful spec suite program in Del Mar.

    “what we're seeing is this continued flight to quality. There's a world of haves and have nots. So the recovery is not the same for all owners or all properties. And we're benefiting from having these high-quality assets in L.A., San Diego, et cetera.”

    asked by Manus [indiscernible] · answered by A. Paratte

    2 min read6 chapters

    Detailed Narrative

    01

    West Coast Market Resurgence and AI Impact

    Fundamentals across West Coast markets have significantly improved, driven by intensified return-to-office momentum, abated space rationalization, and the burgeoning AI ecosystem. This has led to increased space requirements from rapidly scaling new companies and established players, particularly in San Francisco, which is experiencing broad-based demand and positive net absorption, with Q1 leasing exceeding 3 million square feet, over 10% above pre-pandemic averages.

    02

    Strong Leasing Performance and Future Growth Visibility

    The company achieved its strongest first-quarter leasing results since 2017, with total productivity of approximately 568,000 square feet, more than double the prior year. This performance led to an increase in full-year average occupancy guidance by 25 basis points at the midpoint. Signed but not yet commenced leases now represent nearly $78 million of contractually obligated annualized base rent, providing significant visibility into future growth.

    03

    Strategic Capital Recycling and Redeployment

    Kilroy continued its strategy of raising attractively priced capital through dispositions of noncore assets, selling $146 million in Q1 and an additional $202 million post-quarter end, totaling $350 million year-to-date. Proceeds were redeployed into opportunistic share repurchases ($73 million) and debt repayment, as well as high-caliber, infill multi-tenant investments totaling $765 million, enhancing the portfolio's durability and growth profile.

    04

    1900 Broadway Joint Venture Development

    The company formed a joint venture to develop 1900 Broadway, a 250,000 square foot Class A office project in downtown Redwood City, already 60% pre-leased for 20 years. This project, with an anticipated total cost of $330 million to $350 million and expected stabilized yields in the low to mid-9% range, leverages Kilroy's market insight and relationships, with equity investment largely prefunded by land parcel sales.

    05

    Flower Mart Project Redesign and Entitlement

    The Flower Mart project in San Francisco is undergoing a redesign and re-entitlement process with the city to allow for a broader mix of uses and amend existing development agreements. This alternative approval process will extend expense capitalization through Q4 2026, after which approximately $1 million of quarterly operating expenses and $7 million of quarterly capitalized interest will begin impacting earnings. The company is committed to maximizing shareholder value through this process.

    06

    Market-Specific Momentum

    San Francisco's Soma submarket, particularly at 201 Third, saw lease rates improve from 26% to over 80%, driven by AI companies and a successful spec suites program. Seattle's Denny Regrade submarket also accelerated with 76,000 square feet of new leases year-to-date. Los Angeles experienced meaningful improvement in leasing activity, with trailing 12-month productivity up 66%, benefiting from portfolio repositioning.

    AI-generated summary of the company’s earnings call. Not investment advice.