Kilroy Realty Corporation

yourselves to one question and one follow-up per person. I would now like to hand the conference over to Doug Bettisworth, Vice President, Corporate Finance. Thank you. Please go ahead.

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 Perotte, 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, Elliott will provide a transaction market outlook, and Jeffrey will discuss our financial results and provide you with updated 2025 guidance. Then we will be happy to take your questions. Angela?

Thanks, Doug, and thank you all for joining today's call. Despite an environment defined by volatility and macroeconomic uncertainty, I'm pleased to report on a positive start to 2025 with solid leasing activity executed during the quarter and encouraging forward leasing indicators across our portfolio. Office demand in our markets continues to rebound as we benefit from the ongoing solidification of return-to-office mandates, recent meaningful improvements in the health, safety, and vibrancy of some of our most important submarkets, and materially growing demand from the burgeoning AI industry. San Francisco best represents the intersection of these important trends. The rapid expansion of new AI business formation and growth in the city of San Francisco, combined with recent RTO mandates from major employers in the market, and a crime rate that is now the lowest in 23 years, have all contributed to growing foot traffic and the re-amendatization of major office corridors in the city. During Q1, we saw signs of this positive momentum playing out in our portfolio with the execution of a nearly 60,000 square foot lease with a technology company at our 201 3rd Street asset, representing our largest lease execution in the city since 2019. In addition, during the period, we also experienced a 60% year-over-year increase in tour activity in our San Francisco portfolio, providing strong visibility on the future pipeline. As discussed on prior calls, we have also seen some large, well-established AI users expand into other West Coast markets in the ongoing search for high-quality talent. As an example, during the first quarter, we signed a 34,000 square foot expansion of a 9,000 square foot data analytics and AI tenant that originally took occupancy just last year at our recently redeveloped West 8th asset in Seattle. This transaction represents a common theme in AI leasing. Tenants are being rational and disciplined as they initially lease space, while placing a high priority on landlords who will work with them to accommodate future growth needs. And often, as in this example, anticipated future growth is materializing quickly as these businesses rapidly scale. Across the entirety of our office portfolio, the forward leasing pipeline continues to expand in size and improvement quality. During the first quarter, we saw a 40% year-over-year portfolio-wide improvement in sewer activity, despite the increase in volatility that defined the first few months of this year. Although it's reasonable to question if recent headlines will impact the pace of future leasing activity, we have to date seen a de minimis impact on transaction volume or velocity. Turning to life science, the industry entered 2025 with a combination of hope related to the economic and market backdrop for the sector, and caution on the policy and regulatory outlook. Since then, market volatility has dampened some enthusiasm around a return of public market financing for the space, while the policy and regulatory outlook has proven more complicated than originally anticipated. That said, the scope of the opportunity for the life science sector remains unprecedented, and recent messaging from the newly appointed FDA commissioner that emphasized a commitment to protecting innovation and maintaining a science-based approach to regulation has been broadly encouraging. While there's little question that the sector will need to continue to adapt to a rapidly evolving financial and regulatory climate, consistent with what we have seen play out on the office side, there has been, to date, no discernible impact on life science leasing momentum in our portfolio. During Q1, at our KOP Phase II development project in South San Francisco, we continued to experience meaningful tenant engagement, supported by the project's differentiated design, high-quality construction, broad amenity offerings, and importantly, scale, which provides confidence in our ability to meet the ambitious future growth objectives of many of these prospects. We have advanced our discussions with several potential tenants and are actively working with them on space plans and pricing. Active demand requirements currently include tenants interested in our spec suites, as well as several users in discussions for full floors or multiple floors on the campus. We understand and appreciate the attention and focus that this project continues to receive from the investment community. and we will provide timely updates on the status of lease up when they are available. As Elliot will cover in a moment, we remain very active on the capital allocation front as we work towards monetizing those parcels in our future land bank with the highest and best use outside of the company's core competencies. Last night, announcing that the first phase of our Santa Fe Summit land parcel disposition is now under contract. In addition, we are also evaluating a number of operating property dispositions where we can achieve attractive valuations and advance our broader strategic goals for the portfolio. As we realize proceeds from these efforts, we will evaluate the full spectrum of redeployment opportunities, including acquisitions, leverage reductions, and or stock buybacks, appropriately balancing economics, future growth plans, and balance sheet strength. I'm also pleased to highlight that in April, we published our annual sustainability report, introducing new ambitious goals that we hope to achieve by 2030 across a wide range of important environmental and social topics. Corporate responsibility is embedded into our culture at Kilroy, and I am excited about the significant milestones that we as a team are committed to realizing over the coming years to maintain our leadership in this important area. Looking ahead, our focus remains on staying agile, investing in our tenants, portfolio, and platform, and maintaining superior financial and operational flexibility. I want to thank the Kilroy team for their hard work and dedication throughout a challenging start to 2025, particularly for our Los Angeles-based team that continued to execute despite significant disruption associated with the January fires and for continuing to respond to change with courage and innovation. Kilroy is well positioned to execute on our near and long-term goals and to capitalize on the exciting trends playing out across our West Coast market. Elliot?