Kilroy Realty Corporation

for Q&A after management's prepared remarks. If you would like to enter the queue for questions, please dial star followed by one on your telephone keypad. I would now like to hand the conference over to Doug Bettesworth, Senior Director of Corporate Finance. Thank you. You may proceed.

Good morning, everyone. Thank you for joining us. On the call with me today are Angela Ahman, CEO, Jeffrey Keeling, EVP CFO and Treasurer, and Elliot Trencher, EVP CIO. In addition, Justin Smart, President, and Rob Perot, EVP, Chief Leasing Officer, will be available for Q&A. Please note that some of the information we will be discussing during this call is forward-looking in nature. Please refer to our supplemental package for a statement regarding the forward-looking information on this call and in the supplemental. This call is being webcast live on our website and will be available for replay for the next eight days. Our earnings release and supplemental package have been filed on a Form 8K with the SEC, and both are also available on our website. Angela will start the call with a strategic overview and quarterly highlights. Elliot will provide a transaction market outlook, and Jeffrey will discuss our financial results and provide you with our 2025 guidance. Then we'll be happy to take your questions. Angela?

Thanks, Doug. I'm pleased to report on a strong end to 2024, which was capped off by outperformance in our financial results and a material acceleration in leasing activity. In addition, throughout the course of last year, this team worked tirelessly to prepare for the recovery we knew would take hold in our markets, making critical senior hires across the platform, rethinking processes and systems to be more efficient and nimble, successfully completing several in-process development and major repositioning projects, taking significant steps to address our future development pipeline and other non-income producing assets, including the sale of our corporate airplane, which closed in the fourth quarter, and actively monitoring the market for opportunistic transactions. The Kilroy team has risen to every challenge that has presented itself, and the recent devastation in Los Angeles, the location of our corporate headquarters, is no exception. I've been inspired by the strength and resilience of this team as they've worked to support our Los Angeles tenants and each other as we've collectively navigated a very challenging start to 2025. During the fourth quarter of last year, we signed approximately 708,000 square feet of leases, achieving our highest level of leasing activity since the fourth quarter of 2019. a testament to the ongoing demand for high-quality spaces that align with evolving tenant needs. The quarter was headlined by two significant deals. First, we executed a multi-floor lease with Walmart at Skyline Tower in Bellevue, Washington. A regional team worked creatively to accommodate Walmart's significant requirement and accelerated timeline, simultaneously executing an early termination with an existing tenant for a portion of the space that Walmart will occupy, addressing a late 2025 expiration and achieving a meaningful rent increase in the process. In addition, we executed a 274,000 square foot new lease in the San Francisco Bay Area with a global technology company that is the sub-tenant occupying our largest 2026 expiration. Over 70% of the square footage for this expiration has now been addressed through the lease signed this quarter and a 157,000 square foot lease signed with the same tenant in the fourth quarter of 2023. This execution combined with the SAP renewal in Bellevue, Washington, announced last quarter, underscores both the proactivity of our team as it relates to addressing our 2026 lease expirations and the increased willingness of tenants to engage and make long-term commitments related to their space needs. Given historically low levels of new supply and increased workplace attendance requirements taking effect, our markets are demonstrating important signs of sustained recovery, and we expect these trends to continue to accelerate over the next several years. Kilroy has a number of unique opportunities to capture this growing momentum as we executed over the course of this year. One particular area of focus is the embedded upside inherent in our highest quality vacancies, specifically those concentrated and recently developed or repositioned assets, including West 8th in Seattle, 2100 Kettner in San Diego, and Indeed Tower in Austin. These properties set the standard for quality, functionality, and market-leading amenitization, ideally positioning them within their respective markets. Vacant space at these assets alone represented 410 basis points of leased occupancy upside at year end, highlighting an exceptional source of future growth for the company. And while not reflected in our occupancy statistics until early 2026, the second phase of Kilroy Oyster Point in South San Francisco will be a substantial growth driver for the company in the coming years. The project received its temporary certificate of occupancy in January 2025, following some slight delays in municipal approval and is now fully ready to welcome tenants. The spec suites, conference facilities, food and beverage offerings, and outdoor meeting and event spaces set this project apart from competitive supply in the market and are driving constructive conversations with several life science and office users. While the environment in South San Francisco remains highly competitive, we are convicted in the quality of what we're delivering in Oyster Point and the long-term success of this project. As discussed on prior calls, we continue to proactively assess our future development pipeline and are executing on various programs to de-risk, accelerate, and maximize value realization for our shareholders. We expect to continue to hold certain parcels, such as the land associated with future phases of Kilroy Oyster Point, as our current program continues to represent the best path forward. In other cases, including some of our sites in Southern California, it is clear that the path to maximizing value will be a full re-entitlement to an alternative use, such as residential. and we're focused on defining the execution path that will best balance our desire to maximize proceeds with accelerating the timing of monetization. In still other cases, such as with the Flower Mart parcel in San Francisco, the path to value maximization will require more work and exploration. The original plans for the Flower Mart were created against the backdrop of a very different market environment and contemplated 2.3 million square feet of primarily office space to be supported by significant infrastructure investments in the site, which limit the ability to face construction. Our team is actively working to create additional optionality for this project that will allow us to be responsive to the market as the recovery continues. Although the steps we are taking now will maximize the value of the site over time, there will likely be an earnings implication in the second half of the year if our planning and design efforts conclude and development is still unwarranted based on market conditions. Jeffrey will provide some additional details in a moment. In conclusion, our fourth quarter and full year results, including our robust leasing volume, speak to the strength we see emerging across our markets. And the Kilroy team is prepared for a busy year across every part of our platform. I want to thank the team again for their hard work and dedication in 2024 and for the energy and enthusiasm they're bringing to 2025.