Kilroy Realty NYSE: KRC executives said improving West Coast office fundamentals—particularly in San Francisco—helped drive the company’s strongest first-quarter leasing performance since 2017, while asset sales and a new Redwood City development joint venture reshaped capital allocation plans.
Leasing momentum strengthens across key West Coast markets
CEO Angela Aman said market conditions have “meaningfully improved” over recent quarters as return-to-office momentum has strengthened, large-user space rationalizations have slowed, and demand tied to the artificial intelligence ecosystem has increased. She characterized recent tenant behavior as “a constructive dynamic” in which companies are using AI to “enhance their growth” rather than simply automate to cut costs.
Aman said the company delivered roughly 568,000 square feet of first-quarter leasing productivity—more than double the year-ago quarter—and said that result supported an increase in full-year average occupancy guidance by 25 basis points at the midpoint. She also highlighted a growing backlog of future revenue: leases signed but not yet commenced represent nearly $78 million of contractually obligated annualized base rent, scheduled to be realized over coming years.
In San Francisco, Aman pointed to a tightening market supported by strong leasing and positive net absorption. She said first-quarter leasing in the city exceeded 3 million square feet, “resulting in the third consecutive positive quarter of net absorption.” Within the South of Market submarket, she noted a sharp improvement at 201 Third, where the lease rate rose from 26% at year-end 2024 to more than 80% in the quarter. The company cited leasing to tenants including Tubi and Harvey AI.
Aman highlighted Harvey AI’s recent expansion at 201 Third, noting the tenant leased 93,000 square feet in the second quarter of 2025 and signed a 62,000-square-foot expansion in the first quarter of 2026 with occupancy slated for April 2026. She also said the company’s spec suite program at the asset has been successful, with all five newly constructed spec suites leased by completion.
Elsewhere in the Bay Area, Aman said Kilroy executed a 27,000-square-foot direct lease at Crossing 900 in downtown Redwood City with a current subtenant, generating a cash base rent increase of more than 40%.
Seattle and Los Angeles updates: renovations, flight to quality, and gradual recovery
In Seattle, Aman said Bellevue has remained strong and that demand in the Denny Regrade submarket “further accelerated,” benefiting the recently repositioned West Eighth project. She said the company has signed 76,000 square feet of new leases at West Eighth year to date, including a 43,000-square-foot lease with General Motors in the first quarter and a 33,000-square-foot lease with SoFi signed in the first days of the second quarter.
During the Q&A, Chief Leasing Officer Rob Paratte said both SoFi and GM were “new to market” and attributed traction at West Eighth to renovations, amenities, and the location’s appeal to talent. He added that tenants generally choose between Bellevue and Seattle rather than shifting directly based on Bellevue’s higher rents, though he said the company expects potential tenant flow over time.
In Los Angeles, Aman said leasing improved over the past year, with trailing 12-month productivity up about 66%, reflecting both gradual market improvement and “significant portfolio repositioning work” over the past two years. She pointed to increased tour activity at Arrow in Long Beach as defense and aerospace requirements rebound, and said Blackwelder in Culver City is seeing increased activity from a range of users, including technology and AI companies. She also said Maple Plaza, a recent Beverly Hills acquisition, has seen stronger-than-expected demand across financial services and media and entertainment.
Paratte told analysts the company signed 24 deals in Los Angeles in the first quarter and said activity is rising across multiple assets. He emphasized an ongoing “flight to quality,” saying the recovery is not uniform across owners and properties.
Life sciences: KOPT leasing and yield expectations
On life sciences, Aman said KOPT has outperformed the broader South San Francisco market and that decision-makers are showing a higher propensity to execute than in recent years. She said that after quarter-end the company executed a 38,000-square-foot lease with Olema Pharmaceuticals, bringing KOPT to 49% leased. She also said the pipeline remains robust, with the company evaluating ways to complete the lease-up of the multi-tenant building while engaging with large-format users for the remaining full-building opportunity in Phase II.
Asked about yields, Aman said the mid-5% yield expectations previously shared remain “fully intact.”
Capital allocation: dispositions, share repurchases, and a new Redwood City development JV
Management emphasized capital recycling and balance sheet flexibility. Aman said Kilroy sold two San Diego office assets—Kilroy Sabre Springs and Del Mar Tech Center—for total gross proceeds of $146 million in the first quarter. Elliot Trencher, EVP and chief investment officer, said the company also closed after quarter-end on the sale of two Hollywood residential towers, Columbia Square Living and Jardine, for aggregate gross proceeds of $202 million. Trencher said the cap rate on all sales announced year to date averages in the mid-single digits, and later told analysts the residential sales were “around in the 4% range.”
Trencher also noted $165 million of land sales under contract, with roughly half expected to close late this year or early next year. He said that over the past 2.5 years, Kilroy has completed or put under contract about $980 million of land and operating property sales, and has redeployed part of the proceeds into “four high caliber infill, amenitized, multi-tenant investments totaling roughly $765 million,” including the full cost of building out 1900 Broadway.
Aman said the company repurchased about $73 million of stock at an average price of $30.80 per share and in April fully redeemed a $50 million tranche of private placement notes scheduled to mature in July. She said future repurchase decisions will be evaluated alongside other alternatives, with “balance sheet strength and flexibility” as priorities and an emphasis on being prepared for periods of market volatility and “significant or extreme dislocation.”
Kilroy also announced a joint venture to develop 1900 Broadway in downtown Redwood City, which is fully entitled for 250,000 square feet of office space. Aman said the company executed a 20-year lease with a “top-tier global law firm” for 145,000 square feet, representing about 60% of the building, at the highest rates ever realized in Kilroy’s portfolio. Trencher identified the anchor tenant as Cooley and said the company intends to break ground next year, with Cooley expected to take occupancy in early 2030. He said total anticipated cost is $330 million to $350 million and that Kilroy’s share will be 97% upon completion, with stabilized yields expected in the low-to-mid 9% range.
Financial results and updated 2026 guidance; Flower Mart timing shifts
CFO Jeffrey Kuehling reported first-quarter FFO of $0.91 per diluted share. Portfolio occupancy ended the quarter at 77.6%, reflecting KOPT’s entry into the stabilized pool; excluding KOPT, occupancy would have been 81.5%, down 10 basis points despite previously communicated move-outs. Cash same-property NOI increased 1.0% in the quarter, helped by lower bad debt and other income items, partially offset by lower base rent due to free rent on some new leases.
Leasing spreads in the quarter were negative overall—GAAP spreads of -10.6% and cash spreads of -16.8%—which Kuehling attributed primarily to two San Francisco leases involving space vacant longer than 12 months. He said leasing on space vacant for less than 12 months generated positive GAAP spreads of 19.2% and cash spreads of 5.2%.
Kuehling said Kilroy increased 2026 FFO guidance by $0.21 at the midpoint to a range of $3.49 to $3.63 per diluted share. He attributed the change to improving core portfolio performance and updated assumptions for Flower Mart expense capitalization. Management said it now expects expense capitalization at Flower Mart to cease late in the fourth quarter; at that point, Kuehling said “a little less than $1 million of quarterly operating expenses and real estate taxes,” plus $7 million of quarterly capitalized interest, would begin impacting earnings.
Cash same-property NOI growth guidance was raised to 25 to 125 basis points, representing a 150 basis point midpoint increase. Kuehling said the increase includes a $5.9 million settlement received in April related to the 23andMe bankruptcy, which “fully resolves” the company’s economic interest and contributes about 90 basis points to NOI growth, as well as about 60 basis points from improving net expenses and higher average occupancy.
On Flower Mart’s future, Aman said the company is working with the City of San Francisco to redesign and “reimagine” the project, including pursuing flexibility for a broader mix of uses and seeking amendments such as a Special Use District. She said the alternative city approval process will take additional time, and the company now expects the process to be completed late in the fourth quarter, when it assumes expense capitalization would cease. She described a continuation of capitalization beyond that point as a “low probability,” though “not a 0% probability,” depending on market demand.
About Kilroy Realty NYSE: KRC
Kilroy Realty Corporation NYSE: KRC is a publicly traded real estate investment trust focused on the development, acquisition and management of high‐quality office and mixed‐use properties along the U.S. West Coast. The company's portfolio encompasses major urban markets including Los Angeles, San Diego, the San Francisco Bay Area and Seattle. Kilroy Realty targets properties in transit‐oriented submarkets, blending workplace space with retail, residential and hospitality amenities to create vibrant, walkable neighborhoods.
Founded in the mid‐20th century by members of the Kilroy family, the company evolved from a regional landlord into one of the leading West Coast office landlords.
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