Kilroy reports lackluster earnings as West Coast tenants downsize

Kilroy Realty’s earnings last quarter were fair to middling as office and life sciences occupancy slackened further across its 17.1-million-square-foot portfolio in San Francisco, Los Angeles, Seattle and San Diego, the company reported Tuesday.

Kilroy’s funds from operations were $122.3 million, or $1.02 per diluted share in the first quarter, down 8.5 percent from $133.7 million, or $1.11 during the same period last year.

But Kilroy CEO Angela Aman said she still has faith in San Francisco, where the artificial intelligence boom is boosting leasing activity and Mayor Daniel Lurie has allied himself with return-to-office crusaders by proposing city employees work in-person at least four days a week.

“We’re very bullish about what we’re seeing in the city of San Francisco from a leasing standpoint, and from a safety and vibrancy standpoint, particularly over the last few months,” Aman told investors in a conference call following the release of earnings.

Data analytics platform Amplitude renewed 57,560 square feet at Kilroy’s 201 Third Street in downtown San Francisco, the largest lease Kilroy has signed with any tenant in the city since 2019, according to Aman.

And in Seattle, AI firm Databricks expanded its outpost at Kilroy’s West8, a 539,226-square-foot office tower at 2001 8th Avenue that previously saw occupancy plunge to just 20 percent when Amazon left the property in 2023.

“We have numerous transactions right now that are promising,” said Robert Paratte, chief leasing officer at Kilroy, in the conference call. “And I think it’s going to be a matter of time before it plays out.”

How those negotiations play out will be crucial to improve occupancy across Kilroy’s office and life sciences portfolio, which fell to 81.4 percent last quarter from 83.9 percent at the end of the fourth quarter of 2024, and from 84.2 percent at the same time last year.

Though the company signed 248,000 square feet worth of leases last quarter, tenants vacated another 216,000 square feet during the same period, Kilroy reported.

Among those shrinking their footprint is California biotech company DermTech, which cut its staff by more than half when it filed for bankruptcy last year, and in April moved out of 81,000 square feet at Kilroy’s 12340 El Camino Real, a 370,144-square-foot office complex in San Diego.

And 23andMe, which is also undergoing restructuring through Chapter 11, will likely let go of 65,000 square feet at its 349 Oyster Point Boulevard headquarters in South San Francisco, according to Jeffrey Kuehling, Kilroy’s CFO. Kuehling said the move-out will happen in the second quarter of 2025, and could continue to suppress occupancy across the company’s entire portfolio.

“Obviously, if that happens in the quarter, you’ll see the occupancy [in the portfolio] move down just a bit,” Kuehling said. “When we think about the third quarter, I just want to remind everyone that we do have two development properties that will be coming into the stabilized pool, which will affect occupancy.”

Those two projects are the 48,000-square-foot 4400 Bohannon Drive in San Francisco and the 52,000-square-foot 4690 Executive Drive in San Diego, according to Kilroy’s public filing.

The company paused its development pipeline last year, as TRD previously reported. And that won’t change in 2025, company executives said in the conference call.

In fact, Kilroy is looking to bring in about $150 million by handing off several development sites over the next year. The company is in contract to sell a portion of its 22-acre Santa Fe Summit site in San Diego for $38 million, chief investment officer Eliott Trencher told investors. It’s unclear who is planning to buy the site.

This article originally appeared on The Real Deal. Click here to read the full story.