"Kilroy Realty Corporation" Second Quarter 2026 Earnings Call - Leasing Spreads Turn Decisively Positive as Demand Surges and Pipeline Expands

Moderator: Hello, everyone. Thank you for joining us, and welcome to the Kilroy Realty Corporation Second Quarter 2026 Earnings Conference Call. After today’s prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. On the call today are Angela Aman, CEO, Jeffrey Kuehling, EVP, CFO, and Treasurer, and Eliott Trencher, EVP, CIO. In addition, Justin Smart, President, and Rob Paratte, EVP, Chief Leasing Officer, will be available for Q&A. Please note that some of the information that will be discussed during this call is forward-looking in nature. Please refer to the company’s supplemental package for a statement regarding the forward-looking information on this call and in the supplemental. This call is being webcast live on the company’s website and will be available for replay.

The company’s earnings release and supplemental package have been filed on a Form 8-K with the SEC, and both are also available on the company’s website. I will now turn the call over to Angela Aman. Please go ahead, Angela.

Angela Aman, CEO, Kilroy Realty Corporation: Thanks, Marina, and thank you all for joining us today. We are pleased to report on a strong quarter of disciplined execution across every facet of our business as we capitalize on the ongoing recovery to drive strategic leasing activity while prudently allocating capital and proactively ensuring financial strength and flexibility. The second quarter saw a continuation and broadening of the recovery that has been taking hold over the last year across our innovation-driven markets. Strong new business formation and growth, both within and outside of the artificial intelligence ecosystem, and shrinking shadow supply as large-scale space rationalizations by legacy tenants are being addressed, are resulting in a diminishing inventory of high-quality available space and improving lease economics.

Existing tenants within our markets and within our own portfolio are taking note, demonstrating a greater sense of urgency as it relates to early renewal discussions in order to secure their long-term occupancy needs. As we execute during the second half of this year, we intend to capitalize on growing levels of tenant activity while remaining mindful of the positive inflection in supply-demand dynamics. During the second quarter, we executed approximately 376,000 square feet of new and renewal leases, bringing year-to-date leasing volume to roughly 944,000 square feet, an increase of more than 40% versus the first six months of 2025. For all comparable leases signed during the quarter, GAAP rental rates were up 21% and cash rents were up 6.1%. When excluding leases signed on spaces vacant for longer than 12 months, re-leasing spreads improved further to 27.3% and 15.6% on a GAAP and cash basis, respectively.

As we look ahead, we’re focused on two primary data points related to the future growth potential of our portfolio. One, the magnitude of our signed but not yet commenced pool, and two, the size and quality of our forward leasing pipeline. At June 30th, the signed but not yet commenced pool consisted of over 1 million square feet of leases, representing more than $78 million of annualized base rent or ABR. It’s worth noting that the ABR per square foot associated with the signed but not yet commenced pool is over $75, 30% above our current portfolio-wide ABR per square foot. In addition, 86% of the signed but not yet commenced pool is comprised of triple-net lease structures versus 53% of the existing portfolio.

As a result, average commencements from this pool will have a disproportionately positive impact on NOI as they occur, providing important visibility on future bottom-line growth. In addition, over the last quarter, we’ve seen a material expansion in the size of the forward leasing pipeline. At June 30th, the total square footage represented by pipeline transactions was 34% higher than at the end of the first quarter, with the LOI and late-stage pipeline up approximately 77%, reflecting broad-based improvement across markets and tenant industries and the ongoing flight to quality trends that are driving demand for premium assets and sponsors. Our team is focused on converting these transactions to signed leases as expeditiously as possible, and we look forward to reporting our progress as we move through the balance of this year.

San Francisco, our largest market, continued to lead the West Coast recovery, posting its fourth consecutive quarter of positive net absorption. Flight to quality dynamics are readily apparent, with trophy and Class A assets capturing the overwhelming majority of recent leasing activity, which has helped to compress both competitive sublease availability and direct vacancy in the market. Many tenants continue to prioritize move-in-ready spaces and buildings or sponsors that can provide a seamless path to growth as the needs of their businesses rapidly evolve. Average deal size in the San Francisco market has steadily increased, while the availability of large, contiguous blocks, those 100,000 square feet and above, has materially declined, with only 20-25 high-quality opportunities of size remaining in the city for the more than 25 active tenants currently in the market looking for comparable spaces.

As a result, rent growth has returned to the market, with average effective rents increasing approximately 15% year-over-year. Looking forward, active tenant demand has now surpassed 10 million square feet, a level not seen since 2019, which was one of the strongest leasing execution years in San Francisco’s recent history. Encouragingly, the composition of demand is broad-based, supported by both traditional occupiers and the continued expansion of the AI ecosystem, which represents approximately a third of the active tenant demand pipeline in the market. Importantly, although the initial stages of the San Francisco recovery were promising, they were also relatively narrow in scope. Now we’re seeing tangible interest migrate across our multi-tenant assets in the South of Market or SoMa sub-market, which saw a sequential increase in tour activity during the second quarter of nearly 65%.

Turning to the Pacific Northwest, we’re encouraged by momentum in both of our primary sub-markets in the region. In Bellevue, recent large lease executions have constrained remaining high-quality availability, intensifying the competition we are seeing at Key Center and Skyline. In Seattle, while leasing in the CBD remains challenging, our portfolio, which is concentrated in South Lake Union and Denny Regrade, has seen a significant pickup in activity. Westlake continues to be the primary beneficiary, with approximately 150,000 square feet of new leases executed over the last several quarters and a robust forward pipeline comprised of additional new leasing activity from both new to sub-market tenants and existing tenants in the building looking to expand. In San Diego, suburban markets such as Del Mar, where the vast majority of our exposure is concentrated, continue to perform exceptionally well, with low office vacancy rates and limited sublease availability.

While the downtown sub-market continues to be challenged, our remaining vacancy at 2100 Kettner in Little Italy continues to resonate with tenants with active space requirements. Our team has done an excellent job of driving consistent activity and capturing more than our fair share of leasing demand. In Los Angeles, we are cautiously optimistic as green shoots appear to be emerging with ongoing broad-based demand in Beverly Hills. Tech and AI demand expanding in Culver City. Aerospace, defense, robotics, and advanced manufacturing demand growing across the South Bay, and large tenant demand beginning to reemerge in Santa Monica and West L.A., where during the second quarter, we executed a 51,000 square foot lease with Universal Music Group at Santa Monica Media Center, bringing the project to 100% leased. Lastly, in Austin, the significant amount of supply that delivered over the last several years is being steadily absorbed.

Tenant demand appears to be positively inflecting, driving a notable improvement in the competitive landscape for remaining available class A space. With respect to the life sciences sector, industry fundamentals continue to improve. With the XBI up more than 70% year-over-year, the biotech IPO and follow-on equity markets open, and the M&A and licensing landscape exceptionally active, all of which helps to recycle capital within the ecosystem. In addition, FDA approvals have remained strong, with novel drug approvals on pace with 2025 levels, despite a period of leadership and staffing transition at the agency. At Kilroy Oyster Point Phase 2, where we executed the previously announced 38,000 square foot lease with Olema Pharmaceuticals during the quarter, we’ve seen a meaningful pickup in tour and proposal activity across a wide range of size requirements.

Today, we have active interest in all unleased space in our multi-tenant building. We’re seeing a variety of larger format users begin to reengage the market, a very encouraging sign for our remaining full building opportunity. While lease execution timelines remain elongated, it is difficult to predict with certainty which transactions will ultimately materialize and in what timeframe, we are optimistic by the overall level and quality of life science demand in the market, and the degree to which KOP’s differentiated tenant value proposition continues to resonate with prospective users. As we work to capitalize on recent momentum, we remain focused on both speed to occupancy and net effective rent maximization across the campus.

In terms of capital allocation, as Eliott will touch on in a moment, we continue to advance our objectives of simplifying and streamlining the portfolio while improving the long-term durability and growth of our cash list stream. We are pleased with our successful track record over the last several years and believe that the significant work that has been completed to rationalize the future development pipeline and monetize land parcels, dispose of lower quality and our capital-intensive assets that no longer meet our return objectives, and reinvest opportunistically both in our own portfolio and in markets where we have deep institutional knowledge and relationships, have significantly improved our ability to capitalize on improving market conditions.

As the West Coast recovery has continued, we have seen broader institutional interest in commercial real estate assets in our markets, resulting in greater certainty of execution for potential disposition transactions and a growing pipeline of investable acquisition opportunities, which will continue to be evaluated with rigor and discipline. As we execute on our business plan, we are also intently focused on maintaining a strong and flexible capital structure that supports our long-term value creation and cash flow objectives. As Jeffrey will cover shortly, during the second quarter, we executed an amendment and extension of our unsecured credit facilities, expanding available capacity, extending duration, and improving pricing. With approximately $1.6 billion of available liquidity, we are well positioned to navigate a dynamic operational and capital markets environment. In conclusion, I want to thank the entire Kilroy team for another strong quarter of hard work, focus, and execution.

As market conditions improve and opportunities emerge, your commitment to acting decisively and with discipline is creating value for all stakeholders. Eliott?

Eliott Trencher, EVP, CIO, Kilroy Realty Corporation: Thanks, Angela. The capital markets for office and life science continue to strengthen across our regions. There’s more depth to buyer pools, optimism on leasing fundamentals, and confidence in the financing market. As a result, deal volume nationally is up 20% year-over-year. San Francisco has been the biggest beneficiary of this trend among the markets in our portfolio. Sales volume is on track to be the highest since 2021. Deal size is increasing, with nine-figure deals becoming more common. Investment profiles are broadening out, with core plus and value add deals seeing more interest from sophisticated capital. For Kilroy, the improvements in the transaction market presents opportunity in several ways. First, as a seller, more deal volume has led to improved pricing and certainty of execution.

We have already capitalized on this by selling $348 million year-to-date, including the $202 million L.A. residential sale discussed last quarter. We’re pleased with the capital recycling completed to date. As market trends continue to evolve, we will explore additional disposition opportunities. Notably, we’re starting to see some instances of buyers pricing risk more generously, specifically as it relates to future leasing demand and/or CapEx requirements. We will evaluate these opportunities carefully and sell into strengths if we believe the risk-adjusted returns are favorable for shareholders. This presents opportunity as a buyer. More volume and better asset quality increase the chances of finding investments that meet our stringent criteria. We’re actively evaluating several acquisitions. We’ll be patient and picky as we keep our discipline in seeking appropriate risk-adjusted returns.

As we have demonstrated in the past, our investment decisions will continue to balance our goals of improving portfolio quality and strengthening our balance sheet. Turning to our future development pipeline, we continue to evaluate additional opportunities to sell non-strategic land and expect to have more to discuss later this year. As a reminder, we have $165 million of land sales under contract, with roughly half expected to close late this year or early next year. As it relates to the Flower Mart, our overall path forward remains consistent with what we discussed last quarter as we continue to work constructively with the City of San Francisco on a revised plan for the site. Importantly, the updated framework is expected to provide greater flexibility around phasing, as well as a broader range of uses, including residential, in order to maximize optionality as market conditions improve.

As current rents do not yet support development economics for either an office or residential project, we expect to stop expense capitalization at year-end 2026, consistent with our prior expectations. With that, I will turn the call over to Jeffrey.

Jeffrey Kuehling, EVP, CFO, and Treasurer, Kilroy Realty Corporation: Thanks, Elliot. FFO for the quarter was $0.92 per diluted share, which includes a $5.9 million bankruptcy settlement through 23andMe, representing $0.05 per share. This settlement was disclosed and incorporated in last quarter’s adjusted guidance. Portfolio occupancy, including KOP2, ended the quarter at 77%, down 60 basis points from the prior quarter, despite two previously communicated large move-outs that negatively impacted occupancy by approximately 140 basis points. Strong leasing activities over the last several quarters resulted in significant commencement activity during Q2, providing an important counterbalance to the quarter’s large move-outs. As Angela previously mentioned, tenant posture around renewal activity appears to be changing. During the second quarter, we executed approximately 75,000 square feet of renewals on space that we had previously anticipated would vacate. This helped to drive overall retention to 27.9% during the quarter, or 30% year-to-date, including subtenants.

As we look ahead, the balance of our 2026 expiration schedule becomes more granular, with no remaining expirations above 50,000 sq ft. Combined with the visibility provided by our signed but not commenced pipeline, which grew incrementally during the second quarter despite significant commencement activity, we are confident in the path to occupancy stabilization and growth. Cash same property NOI increased 1.5% in the second quarter, driven by the previously mentioned bankruptcy settlement from 23andMe and base rent growth. These gains were partially offset by non-recurring bad debt reversals and net expenses due to a difficult year-over-year comparison related to positive benefits recognized in the second quarter of 2025. On the leasing front, both GAAP and cash leasing spreads were meaningfully positive this quarter at 21% and 6.1%, respectively.

Leasing spreads on space vacant for 12 months or less were even stronger, generating positive GAAP spreads of 27.3% and cash spreads of 15.6%. This marks the first quarter that both GAAP and cash re-leasing spreads were positive in nearly two years, which we view as further evidence that the improved leasing environment we have discussed over the last several quarters is increasingly translating into stronger lease economics across the portfolio. While leasing spreads will fluctuate quarter-to-quarter based on the mix of transactions executed, we were encouraged by the breadth of positive mark-to-market activity achieved during the period. Turning to the balance sheet, during the quarter, we amended and extended our unsecured credit facilities, increasing the size, extending the term, and improving pricing by 20 basis points. We increased our revolver from $1.1 billion to $1.25 billion and extended the maturity date to July 2030.

The term loan was upsized from $200 million to $250 million and extended five years to July 2031. The incremental $50 million of term loan capacity is a delayed draw feature available to us through June 2027. We’re grateful for the continued support of our banking group, whose confidence allowed us to complete this transaction with improved terms and leaves us well positioned to navigate what remains a dynamic market. In July, we also elected to repay the outstanding $200 million of private placement notes with cash on hand, approximately three months ahead of their scheduled October maturity. Together, these actions reflect our continued commitment to proactively managing our liabilities and ensuring that we remain well positioned to capitalize on opportunities as market conditions continue to improve.

Lastly, turning to guidance, we affirmed our previous guidance range and assumptions last night with an FFO range of $3.49-$3.63 per diluted share and same property NOI growth range of 25-125 basis points. As it relates to the same property NOI growth trajectory, please note that in the third quarter of 2025, we recognized $4 million, or 230 basis points in restoration fees and net real estate tax refund benefits, which will create a difficult year-over-year comparison in Q3. In conclusion, this quarter marks meaningful progress across every operational and financial metric. Leasing momentum continues to improve, both GAAP and cash leasing spreads were positive. Our signed not commenced pipeline continued to expand. We further enhanced the strength and flexibility of our balance sheet. The environment is moving in the right direction, and we remain focused on capitalizing on it.

With that, we are happy to answer your questions. Marina?

Moderator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Yana Gallin with Bank of America. Please go ahead.

Yana Gallin, Analyst, Bank of America: Thank you, congrats on the quarter. Maybe digging into the leasing spreads, which were very strong and very encouraging to hear, was pretty broad-based across the various markets. Can you help us think about what we should expect moving forward? Something on the mark to market on the overall portfolio?

Angela Aman, CEO, Kilroy Realty Corporation: Sure. Yeah, I will jump in here, then certainly Rob and Geoffrey can jump in as well. I would say a few things. As Geoffrey mentioned and you highlighted, Yana, the spreads in the quarter were pretty broad based. This wasn’t a quarter that was driven by one or two leases. We had pretty consistently positive economics across most of the pool of leases that were signed during the quarter in a wide range of markets. Really encouraging activity, both new leases and renewals. As Geoffrey mentioned in his prepared remarks, spreads in any given quarter are going to depend a lot on the mix of transactions, the mix of markets those transactions are in. Spreads, even as we continue to move in the right direction in terms of the improvement in broader lease economics, spreads can vary quarter to quarter based on the pool.

As we think about the broader mark to market across the portfolio, I would say it’s reasonably consistent with what we’ve described on previous calls. Again, we continue to move in the right direction. We continue to be a bit above market in both San Francisco and L.A., and below market in our other three markets. I would just note that in San Francisco and L.A., but San Francisco to a larger degree, the degree to which we are currently sitting above market has compressed over the last quarter or two as we have seen that improvement in supply and demand dynamics translate into stronger leasing economics.

Yana Gallin, Analyst, Bank of America: Thank you. Maybe following up to some Flower Mart, where you’re kind of seeing current rents not yet supporting office or resi development, but both are moving very quickly. Any indication of which can make more sense or could this maybe go all office eventually?

Eliott Trencher, EVP, CIO, Kilroy Realty Corporation: Hey, Yana, it’s Eliott. You’re right. We’re still not quite there. Taking what Angela just said and applying it to Flower Mart, we’re obviously getting closer day by day because the market continues to strengthen. Right now, resi markets are a little bit closer to penciling in terms of where our rents need to be to justify development. Both are improving at a pretty good clip. We’ll just see how the next several quarters play out.

Moderator: Your next question comes from the line of Seth Berge with Citi. Your line is open. Please go ahead.

Seth Berge, Analyst, Citi: Hi, thanks for taking the question. Maybe just to follow up on Flower Mart, would you kind of look to carry the interest expense into 2027? Given that the current market isn’t supporting additional office or resi development, would you look to sell or JV that asset? When would you kind of expect to potentially announce something to the investment community?

Angela Aman, CEO, Kilroy Realty Corporation: Yeah, I think we’ve been really focused on making sure that as we move through a process with Flower Mart, that we are being very transparent and open with the investment community about how that is playing out and what that will mean for potential future decision making. We continue to work through a process with the city right now, we are confident that we will be at the end of that process sometime later in the fourth quarter of this year. That process we’ve been working through is going to give us the ability to build a different mix of uses or a wider range of uses on the site, as well as to give us some relief under the existing or legacy development agreement that really would have made it very difficult economically to phase the projects in any way that made sense.

In order to make whatever the next best decision is on the Flower Mart, it is really critical we get through this process with the city to enhance our flexibility and optionality at the site. Which is, I’m very confident, I think our whole team is very confident, is improving the economic value of the Flower Mart site long term. As we continue to navigate this process and we get into year-end, as we solidify the additional flexibility we expect to have, we’re continuing to evaluate the market, be really mindful of what the next best path might be, whether or not it is all resi, whether or not it’s all commercial, whether or not it’s probably most likely a mix of uses. We’ll be able to make better decisions around what that means in terms of our continued ownership of all or a part of the site.

Right now, the primary focus for everybody on this platform is that we get to the end of the process with the city, that we do everything we need to do to ensure that the Flower Mart site is placed into development, placed into service as soon as economically feasible in order to support the needs of the Central SoMa community.

Seth Berge, Analyst, Citi: Thanks. Just on KOP 2, encouraging to hear that the life science market is improving. Could you just maybe kind of bucket some of the increase in demand you’re seeing for the project into how much of that is just tour activity? How much of that do you expect to kind of convert into leases, and do you have any leases out? Just given kind of the overall strength of improving demand, have your yield expectations or timeline for stabilization changed for the project?

Rob Paratte, EVP, Chief Leasing Officer, Kilroy Realty Corporation: Sure. This is Rob. Let me just lay a backdrop for you regarding Q2 and leasing in South San Francisco and the peninsula. There were only 8 leases signed over 20,000 feet in Q2, which comes off a very big 2025, obviously. One of the largest was our deal with Olema, 2 others were in Silicon Valley, and 2 were in the East Bay. What’s changed dramatically is the amount of touring activity, which I know that is the highest predictor of where you’re going to go next, which is LOIs or leases. We went from 317,000 square feet of tours in Q1 of 2026 to over 800,000 feet of tours, and we’re talking to many of those firms now. Just to give more color on the level of activity we have, as Angela indicated in her comments, we have a broad range of sizes that we’re talking to.

A lot of the deals that are in the market right now are in the 20,000 to 40,000 foot range. Our last spec suite that’s available has multiple parties interested in it, and we expect to be able to report something shortly on that. We are also building 2 new floors of spec labs, and those will be available in December and January respectively, and we’ve got activity on the bulk of those already. Interestingly, when you flip to larger requirements, right now there are 8 requirements over 100,000 square feet. The next tier down is really that there are about 25 tenants in the 20,000 to 70,000 foot range. That is what’s driving the 800,000 feet of touring activity we’ve had.

I think one last point I’d make is that we’re seeing more and more in the peninsula, South San Francisco peninsula, and further south, that robotics companies are having large requirements, many of them over 100,000 feet. The result of that is that it’s going to reduce the amount of available space for life science companies to take in terms of R&D type space. We think that’s going to benefit Oyster Point really well. We’re not suited at KOP for R&D type space, but we could handle robotics of certain uses. We see demand coming in on multiple fronts right now, and it just hasn’t looked this good in quite a while.

Moderator: Your next question comes from the line of Steve Sakwa with Evercore ISI. Your line is open. Please go ahead.

Steve Sakwa, Analyst, Evercore ISI: Yeah, thanks. I guess good morning out there. Obviously, your commentary, excuse me, around leasing is certainly constructive. As you look at the pace of the recovery over the next couple of years, I guess, what are the things that are maybe positively surprising you and maybe what are the things that could slow or hamper the overall recovery in the Kilroy portfolio?

Angela Aman, CEO, Kilroy Realty Corporation: Yeah. Thanks, Steve. I appreciate the question. We do feel really good about what we’ve seen, even just over the last quarter or two as it relates to strengthening of the leasing environment. It’s true across markets. There are different drivers for that across all of our different markets. In San Francisco, our largest market, we’ve really seen a pretty significant change in tone that’s been driven by just the degree to which availability has been taken up, the focus on high quality space and the flight to quality trends that have really limited the remaining blocks that are available for tenants and high quality in nature. We’ve seen that translate pretty quickly into improved lease economics.

As I mentioned in my speech, one of the most encouraging dynamics we’ve seen is that bringing many of our existing tenants to the table that have longer dated expirations that are realizing availability and options down the road will be much more limited. That large blocks will be at a premium and wanting to engage in conversations about early renewal activity sooner certainly than we expected it to. There’s no one data point in any of these markets, including San Francisco, that’s really making us feel good about the durability of the recovery. It does feel really broad based.

It feels like we’re seeing all of these things sort of fall into place in the order we would like to see and expect to, but on a compressed timeframe that’s really just driven by the amount of new business formation and growth we’ve seen in markets like San Francisco, and the degree to which that’s pulling all tenants off the sidelines to re-engage and demonstrate a higher propensity to transact. Really encouraging there. Even in markets that over the last couple of years have been much slower for us, like Los Angeles, really seeing some good trends kind of come out across many sub-markets, like I mentioned earlier. Specifically what we’re seeing in the South Bay down through Long Beach in terms of defense, aerospace, robotics, those kinds of uses has been really exciting and encouraging as well. I think lots of reasons to be optimistic.

We, over the last year or two, have continued to underscore that the recovery is not going to be a perfectly straight line. That leasing activity, as an example, spread activity, is not going to consistently improve quarter to quarter to quarter. We feel very good about the trends. We feel very good about the size of the pipeline right now, about the degree to which rents are firming up in our markets, and look forward to executing through the balance of the year.

Steve Sakwa, Analyst, Evercore ISI: Okay, thanks. Maybe just as a follow-up to that comment, you’ve got the DirecTV space, I guess, coming due maybe a little over one year from now. You talked about the defense tech and robotics. To what extent do you have more confidence around re-leasing that building, or do you still kind of view that as possibly a better sell candidate?

Angela Aman, CEO, Kilroy Realty Corporation: We continue to evaluate all options with respect to the Kilroy Airport Center campus. I think we’ll have multiple different paths we can take there. I do think what’s happening in that market, like I mentioned, based on sort of some industries that used to be pretty prevalent in that market really coming back in a pretty significant way. Excuse me. Given the way that technology is changing, and that you’ve got new companies in that space and existing companies that are expanding or changing the way they’re using their space is pretty interesting. We feel like things are moving in the right direction in that market, either for re-leasing or for a disposition. As you mentioned, the bulk of that lease expiration doesn’t happen until the fourth quarter of 2027. We have some time, but we will continue to explore all possible options to maximize value there.

Moderator: Your next question comes from the line of Caitlin Burrows with Goldman Sachs. Your line is open. Please go ahead.

Caitlin Burrows, Analyst, Goldman Sachs: Hi. Good morning there. My question, first one, was going to be about 2027 renewals, which probably follows up on that last point. Realize that there might be some overlap there. I guess when you look at the lease expirations that you have in 2027, it’s around 1 million sq ft, which is essentially the same as one year ago. I’m wondering, when do you really start working on or making progress on those 2027 expirations? Giving the weighting to L.A., kind of how does that make you feel about the 2027 retention versus 2026?

Angela Aman, CEO, Kilroy Realty Corporation: Yeah. The weight in L.A. is primarily driven by that DirecTV AT&T expiration in the fourth quarter of 2027. Outside of that, across the balance of the 2027 expiration pool, it’s highly granular in nature. I think maybe we have one other expiration that’s give or take around 80,000-90,000 sq ft, and after that it drops down to below 50,000 sq ft. We feel good about the granularity of the pool. Obviously, we need to work through DirecTV AT&T at Kilroy Airport Center. As I mentioned, we’re exploring a wide range of options for that campus and that location. Outside of that, we feel actually pretty good about renewal possibilities given the granularity and how diversified the rest of the pool really is.

Caitlin Burrows, Analyst, Goldman Sachs: Okay. On the development front, I think guidance for development spend is now ±$150 million for the year. Can you go through which project or projects you expect to be active on in the second half?

Jeffrey Kuehling, EVP, CFO, and Treasurer, Kilroy Realty Corporation: Hey, Caitlin, it’s Jeffrey. The primary component of the development spend is for KOP2. As leasing activity and the build out from some of the leases you see in those signed but not commenced pipelines continues, you’ll see the capital spend accelerate in the second half of the year.

Moderator: Your next question comes from the line of Blaine Heck with Wells Fargo. Your line is open. Please go ahead.

Blaine Heck, Analyst, Wells Fargo: Great. Thanks. Angela, your remarks on the markets are really helpful, but I was hoping you or Rob could talk a little bit about the relative strength of the Silicon Valley and Peninsula markets versus San Francisco CBD. Are you seeing any tenants being priced out or not finding large enough contiguous space in San Francisco and looking more toward the Valley or Peninsula?

Rob Paratte, EVP, Chief Leasing Officer, Kilroy Realty Corporation: Hi, Blaine, it’s Rob. It’s a good question. I think what we’re seeing is equilibrium coming back between San Francisco and the Valley. For years, the Valley had a lot of vacant space on the market. That is being absorbed, and as I mentioned earlier, there’s a lot of robotics companies. It’s actually amazing how much autonomous vehicles and robotics companies related to vehicles as well as other medical, et cetera, is coming into the market. I think certain formats lend themselves better to the Valley, like Waymo, which is in one of our buildings, and other formats lend themselves better to a San Francisco or South San Francisco type location. We’re not really seeing displacement. It’s more a choice between San Francisco and Silicon Valley.

I would really hone in on our assets in Redwood City, where we’re continuing to be really pleased with the activity we see, not only at Crossing 900, I wish we had more space there. Also at 1900 Broadway, our new development. Redwood City has really come onto its own as a key city or factor in Silicon Valley office market. To me, it looks like a pretty broad-based recovery and demand profile across Silicon Valley up to San Francisco.

Angela Aman, CEO, Kilroy Realty Corporation: Yeah. The only thing I’d add to that is that we’ve also seen in the Valley, sublease space coming off the market at a pretty good clip as well. Existing users pulling space off. I think we might have even talked about that on last quarter’s call. Over the last couple of quarters, that’s been a significant driver to kind of tighten up the Silicon Valley market in addition.

Blaine Heck, Analyst, Wells Fargo: Great. That’s very helpful. Maybe sticking with Rob, can you talk about trends with respect to CapEx or concessions? It looks like the concessions on executed leases decreased a bit this quarter. Was that just a mix issue, or are there any trends to read into with respect to TIs and free rent in particular?

Rob Paratte, EVP, Chief Leasing Officer, Kilroy Realty Corporation: As the markets have improved, if you look at San Francisco and in quarters past, the numbers we gave you at 201 Third, leasing that we started doing at 50 or so IG, going up into the high 70s IG, does mean we have a little bit more leverage. We’re able, in many cases, to negotiate down CapEx. Again, it’s sort of deal specific. It’s going to depend on the space, whether you’re going from shell or not. I think the best thing that we’ve had going is our spec suite program, where we really have a tight control on the costs. We’re spending the money, we’re designing it, and we’re building it, and tenants are using them largely unchanged. To me, that’s a real positive.

As the markets improve, hopefully leverage continues to move into the landlord’s favor.

Angela Aman, CEO, Kilroy Realty Corporation: Yeah. One other thing I’d note is that we had been running across our markets. Markets had been running with about a month per year of the lease as free rent. During the current quarter with the population we executed, we were actually closer to a half a month per year of the lease, which is the most favorable it’s been in the last several years. Rob and I continue to debate whether that’s a trend or whether that was a mix issue. Certainly things across the board moving in the right direction as it relates to holistic lease economics.

Moderator: Your next question comes from the line of Dylan Brzezinski with Green Street. Your line is open. Please go ahead.

Dylan Brzezinski, Analyst, Green Street: Hi, good morning. Thanks for taking the question and appreciate the comments so far on sort of the demand environment across your guys’ market footprint. Maybe just a quick question for you, Eliott. You mentioned that you guys are in process of sort of evaluating several acquisition opportunities. You mentioned capital markets are improving and therefore there being sort of a larger depth of assets to go after. Are you seeing any sort of divergences in your guys’ mind with where you guys seen demand and fundamentals head, versus where maybe cap rates or price per square feet are across your markets? I guess, let me say it another way. Is there any sort of opportunity for you guys to take advantage of pricing being slower to react to that fundamental backdrop that you guys are seeing across any of your markets?

Eliott Trencher, EVP, CIO, Kilroy Realty Corporation: Yeah, I think it’s a really good question, Dylan, and the answer is potentially. I think it applies not just to what we would buy, but also to what we would sell, and tried to allude to that in my remarks as well. What you’re really hitting on is a lot of our investment philosophy in a nutshell, where we’re really looking like asset by asset, taking a forward-looking view of what we think the fundamentals will be like, and then overlaying where we think values are. We definitely have seen some of those mismatches, which is why we’ve sold some of the things that we’ve sold in late last year and early this year in some of our L.A. markets, et cetera. Also, I think that was part of what we liked about our Maple Plaza opportunity, which is playing out favorably.

That’s really the whole trick of what we’re trying to do, is look for those mispricings, and if we see something that’s compelling, then we won’t hesitate to move on it. If we don’t, we’re totally comfortable being patient.

Dylan Brzezinski, Analyst, Green Street: Maybe just a follow-up to that. Within that opportunity set on the acquisition side, are you guys continuing to look at life science assets? Any sort of commentary in regards to that?

Eliott Trencher, EVP, CIO, Kilroy Realty Corporation: We are. We’re kind of looking at office and life science, because that’s sort of what we feel like where our expertise is. It’s important to be very picky about the right kind of life science asset to be in the right cluster, to be in a supply-constrained location, and to find something that we think can really outperform over the coming years. It’s part of what we’ll do, and we’ll continue to do it, but there’s no strategic goal of doing more or doing less. It’s really as the opportunities present themselves.

Moderator: Your next question comes from the line of Michael Carroll with RBC Capital Markets. Your line is open. Please go ahead.

Michael Carroll, Analyst, RBC Capital Markets: Yeah, thanks. I wanted to follow up Eliott, on that line of questioning, just the types of acquisition opportunities that Kilroy might be interested in. Can you kind of give us some ideas of the type of deals that you find intriguing? Is it more of these lease up type deals or some CapEx that require repositioning? Are there any specific markets that are more interesting than others right now?

Eliott Trencher, EVP, CIO, Kilroy Realty Corporation: Yeah. I’ll start with the second part. I think as far as the markets, we’re really focused on the five markets that we’re in and looking for opportunities within those markets. To the first part of your question, kind of looking at some of the things that we’ve done in the past, there tends to be some sort of value add component that we bring to the table, that could be leasing up some vacancy, that could be investing some capital, or that could be taking a position on future lease roll and what that might look like. We haven’t historically bought a lot of core assets. Not to say that we wouldn’t, but we haven’t found the good risk-adjusted returns in core profiles.

It’s generally been somewhere around that core plus or value add where there’s some expertise that we bring to the table, maybe some scale that we have in a particular geography, something that makes us a better buyer for that particular opportunity.

Michael Carroll, Analyst, RBC Capital Markets: Okay. I appreciate that. Just circling back on San Francisco too, I know we’ve been talking a little bit about tenants are now ready to make decisions just given the overall activity. Within San Francisco specifically, just with the number of tenants looking for space, it looks like the available blocks, especially large blocks, are kind of dwindling. How motivated are tenants right now making decisions? I’m just trying to understand the level of FOMO that’s in the market right now, and is that going to continue to ramp up here over the next few quarters?

Angela Aman, CEO, Kilroy Realty Corporation: Yeah, I’ll start, I’d ask Rob to jump in as well. There’s definitely some degree of FOMO in the market. I think we’ve seen that on the new lease side for a while, where people who are new tenants looking for new space were acting pretty decisively and prioritizing things like we’ve talked about, move-in ready space and space that they thought could accommodate future growth objectives. There was real sense of urgency for many of those tenants and continues to be for many of those tenants. The shift or change over the last quarter has really been on existing tenants who have some time, but are really thinking about how the market is shifting and changing. It’s a combination of, yes, seeing the trajectory of rents in the market, but it’s also, I think, really importantly about just availability of space.

The priority that’s being put on larger blocks as some of these companies that were even startup companies a couple of years ago have matured and are looking for larger floor plates, larger sizes. That really has changed the tone and tenor from existing tenants. We’ve been in an environment for the last several years where those tenants have been sort of slow playing things, wanted to see how the market would evolve, assuming that there was always sort of a better deal to be cut down the road, that they would have their pick of availability, and that feeling has definitely receded. The belief is if they’ve got space they like now, they should be engaging in conversations to make sure that they can hold onto that space.

I think these are all really positive dynamics, and I do think something I mentioned earlier was some of the recovery had been encouraging but was pretty narrow. It’s just broadening across the board and certainly broadening with legacy tenants in a wider range of industries who are seeing the way the market’s shifting.

Rob Paratte, EVP, Chief Leasing Officer, Kilroy Realty Corporation: Yeah, this is Rob. Just to add a couple of points to what Angela was saying. There’s 10 million sq ft of demand right now in San Francisco. To give you sort of an order of magnitude of what’s happening, 7.5 million sq ft has been leased year-to-date in the city. Availability dropped 4.5 million sq ft. That’s what is that? 8, 9, 10 depending, 400,000-500,000 sq ft buildings. That’s a pretty dramatic drop in availability, and that is focusing tenants on what is left and whether or not their expiration is now or 2 or 3 years from now. They’re not seeing that letup in demand. Areas like Showplace Square, Mission Bay, Jackson Square have had the highest demand in the last couple of quarters, but now the South Financial District is seeing that demand.

When you look at 100 First, for example, vacancy in that sub-market where our asset is, 100 First and Salesforce campus vacancies dropped to about 12%. There is a lot of demand that’s driving tenants to make decisions quicker than they would. The last thing I’d say is we have the good fortune of being pretty highly leased in San Francisco. We went from 25% leased at 201 Third to almost 90% in over a year. We’re really focused on 303 and 360 now.

Eliott Trencher, EVP, CIO, Kilroy Realty Corporation: Your next question comes from the line of John Kim with BMO Capital Markets. Your line is open. Please go ahead.

John Kim, Analyst, BMO Capital Markets: Thank you. Angela, you mentioned the demand for move-in ready space. I think we’ve heard that from some other office landlords as well. I was wondering if, because of that, you’re providing or you plan to provide more prebuilt space to accommodate that demand. If so, how much of your portfolio can that be? If you could discuss what the leasing economics look like versus a standard lease.

Angela Aman, CEO, Kilroy Realty Corporation: Yeah. We certainly have thought long and hard about it within the San Francisco market, though we’ve been executing spec suite strategies across the entirety of the portfolio. I think we’ve been really intentional and measured, even in a market like San Francisco, where the demand has been primarily up until now a lot of the move-in ready spaces. That has come from a combination, though, to be clear, of spec suites that we’re building out, as well as space that have been recently vacated by other users, where tenants have been willing and able to reuse existing improvements, kind of bringing down that overall capital requirement. It’s been an encouraging dynamic overall.

We have been intentional about making sure we’re designing and we’re planning for additional spec suites, but in certain cases, including like at 201 Third, we’ve seen demand for some of these companies have grown and evolved, demand for non-spec suites really start showing up ahead of the building out of some of those spec suites. An encouraging dynamic as it relates to the maturity of some of the demand we’re seeing in the market also.

When we think about the remaining vacancy we have in the portfolio, I think it’s really important to acknowledge there are some places that a spec suite strategy will be really effective, and other places where we don’t think it’s the right use of capital, and that space is really better left in kind of shell condition, and the right tenant for that space is going to want to do a full build out. It’s not a one size fits all approach. We’re trying to be really targeted and strategic by how we spend that capital, where we spend it, and making sure that we have high conviction around being able to lease that space really quickly. In the case of 201 Third, we actually leased all those spec suites while they were still in construction.

Those are the kind of stories we’re looking for and trying to deliver on.

John Kim, Analyst, BMO Capital Markets: Okay, you mentioned sublease activity or sublease availability compressing in many of your markets. Hey, John, it’s Eliott. We’re around the 7%-8% range available, and that’s down from low double digits at its peak.

Moderator: Your next question comes from the line of Brendan Lynch with Barclays. Your line is open. Please go ahead.

Annabelle, Analyst, Barclays: Hi, this is Annabelle on for Brendan. Thank you for taking our question. How should we think about the pace of move-in from your growing backlog of signed but not yet commenced leases?

Jeffrey Kuehling, EVP, CFO, and Treasurer, Kilroy Realty Corporation: Hey, Annabelle, it’s Jeffrey. The best place to really start when you think about that is the signed but not occupied disclosure on page 18 of the Supplemental. The really important piece to pick up this quarter was the leasing activity that Rob and team done effectively increased the size of that pool. The second half commencements stayed pretty consistent with what they were last quarter, but also a pretty sizable increase in 2027. We still see a lot of positive momentum from that perspective. As new leasing activity comes in, that’s really what’s going to help drive that occupancy level higher.

Annabelle, Analyst, Barclays: Thank you. Can you give me just a little bit more color on your leasing pipeline and how much of that is for new leases versus renewals?

Rob Paratte, EVP, Chief Leasing Officer, Kilroy Realty Corporation: I’m not going to get too specific on details, but I can just tell you that I always say this, just because the quarter end does not stop the pipeline we have. In fact, I think I illustrated pretty well what we have going on at KOP, going from 300,000 feet of tours and activity to over 800,000. I’d say Angela covered it really well in her commentary. Across the board, we’re seeing an uptick in demand. We’re seeing at West8, we’re really happy with what we’re seeing. We’re bringing premier tenants to that building. We are seeing it in Austin, which is a nice change given that it’s the middle of summer and generally people leave Austin. We’ve had a significant impact or increase in tour activity and transactional work we’re doing. I’m very happy with the pipeline we’re working on and more to come.

Angela Aman, CEO, Kilroy Realty Corporation: Yeah. I’ll just add a little bit and kind of thread the last couple of questions together here. When we look at the signed but not commenced pool, one thing I note is that pool has been driven in large part from some of the high quality vacancies we have in the portfolio that we’ve talked about historically. Projects like KOP 2 delivering and being significant contributors there as well. That is all part of what’s driven the rent and the composition of the leases in the signed but not commenced pool to really be a significant and disproportionate contributor to NOI as those leases deliver. The rent in that pool is very high. Again, a lot of first generation kind of leasing activity that we’re really excited about, and it provides a really strong foundation for growth as we look ahead.

Moderator: I do think part of the expansion in the pipeline we’ve seen more recently has been, as we’ve been talking about, sort of a resurgence in tenants looking to talk about renewals as well. Right? That part of the pipeline had been not entirely missing, but had been more limited over the last couple of years as tenants were, again, sort of slow playing. Maybe they’d sign shorter term renewals, preserve optionality and flexibility, and now we have more of those potential renewals and early renewals in the pipeline than we’ve had historically. Without breaking down, I would say the composition’s certainly becoming more balanced than it was before, and again, sort of speaking to how broad based the recovery is at this point. Your next question comes from the line of Upal Rana with KeyBanc Capital Markets. Your line is open. Please go ahead.

Upal Rana, Analyst, KeyBanc Capital Markets: Great. Thank you. Jeffrey, the company generated $1.83 in the first half. The full year earnings guidance implies a step down in the back half. Could you walk us through the specific items driving the sequential step down and the timing, particularly dispositions, no move-outs, signed but not commenced leases and development carry? Just trying to get a sense of what is going to get you to the high end or the low end of your guidance range.

Jeffrey Kuehling, EVP, CFO, and Treasurer, Kilroy Realty Corporation: Yeah, sure. The easiest place to start is really just to take the Q2 run rate. When you back out the one time item for $0.05 for the non-recurring income for 23andMe, just take that and effectively carry that forward, that should get you to the midpoint of the guidance range. From there, the real question just really revolves around some of the capital recycling assumptions. We do have a pretty wide range from a disposition perspective. Obviously, there shouldn’t be much movement at this point from interest expense or capitalized interest. It’s really going to be how capital recycling plays out for the back half of the year.

Upal Rana, Analyst, KeyBanc Capital Markets: Okay, great. That was helpful. Then, maybe Rob, similar to Harvey AI and how they expanded pretty quickly. Are you seeing a potential second wave of expansions from AI tenants that are either already in your portfolio or not? Just trying to get a sense of whether the upside from AI demand is just new tenant formation or like a second wave I had mentioned.

Rob Paratte, EVP, Chief Leasing Officer, Kilroy Realty Corporation: Yeah. I think probably the best example in San Francisco is Anthropic, that did a 249,000 square foot new lease at 500 Howard. They followed up pretty quickly thereafter with a 72,000 foot new lease at 405 Howard. We are seeing it, we’ve seen it, not only with Harvey in our portfolio, but we have other tenants that we’ve talked to that are looking at expansion.

Angela Aman, CEO, Kilroy Realty Corporation: We had one deal during the quarter where one of the tenants that originally leased one of the spec suites at 201 Third already expanded into part of another floor. Smaller in scale than the Harvey deal certainly, but we’ve definitely seen some of those companies sort of, again, taking the space they need when they need it, and then being prepared to expand pretty quickly after that.

Moderator: Your next question comes from the line of Vikram Malhotra with Mizuho. Your line is open. Please go ahead.

Vikram Malhotra, Analyst, Mizuho: Morning. Thanks for taking the questions. Just going back to the guidance piece. Clearly, obviously the signed but not commenced will have an impact over time as you laid out. Anything new you sign is likely more 2027 commencement. I’m just wondering, in terms of the biggest swing factors in the second half, just puts and takes to get you to the bottom or the high end. Do you mind just walking us through, just in light of all the positive commentary, I’m wondering, are there levers very near term that get you to the high end?

Jeffrey Kuehling, EVP, CFO, and Treasurer, Kilroy Realty Corporation: To really push to the high end is going to be a function of our ability to accelerate rent commencements into 2026. It won’t have probably a huge impact on the cash flow and property and high growth, but it would really build more of a non-cash straight line GAAP effect. The team, as we were in the second quarter, is hustling to get every tenant we can into the spaces as quickly as possible. Obviously, spec suite leasing activity can drive short term occupancy and growth. The lead time to get those tenants into the spaces is much shorter than your traditional leasing cycle. There’s certainly things we can do on the day to day, blocking and tackling to push to the top end. It all just continues to require continued execution on our end.

Vikram Malhotra, Analyst, Mizuho: Just lastly, do you mind clarifying? The snow pipeline, the information you gave, I just want to be clear. One, that’s all triple net. Theoretically, is there a margin benefit as you go into next year and all of that commences? Do you mind giving us some high level, maybe a range, or how much TI or leasing CapEx is associated with that that’ll hit the income statement or the FFO next year?

Jeffrey Kuehling, EVP, CFO, and Treasurer, Kilroy Realty Corporation: Sure. Angela has consistently highlighted the importance of having triple net leases in the snow pipeline. The ABR number we disclose is a GAAP number consistent with all of our disclosures. You’re right. As these leases commence, you will see a larger impact on NOI than our standard kind of occupancy would suggest.

Angela Aman, CEO, Kilroy Realty Corporation: 86% of the leases in the signed but not commenced pipeline are triple net, and that is actually disclosed with that disclosure on page 18 of the SUP.

Jeffrey Kuehling, EVP, CFO, and Treasurer, Kilroy Realty Corporation: When we look at the pipeline, it’s about 50/50 first generation, second generation. To get a frame of reference on how to think about capital, if you look at our historical disclosures on just the amount of first and second generation capital we need, that will give you a good starting point.

Moderator: Your next question comes from the line of Anthony Paolone with J.P. Morgan. Your line is open. Please go ahead.

Anthony Paolone, Analyst, J.P. Morgan: Thanks. I think I just have one left on numbers, and it might be overlapping some of the things you just mentioned. If I look at the $22.5 million to $24 million of NOI drag from development properties this year, do you have that number for 2Q and/or the first half just so we can kind of understand the cadence there?

Jeffrey Kuehling, EVP, CFO, and Treasurer, Kilroy Realty Corporation: Yeah. As we noted in the supplemental, the primary driver of that is really KOP2. You’re seeing it kind of accelerate throughout the year. We did capitalize part of KOP2 in the first quarter. When you get to the second quarter, the run rate is much more stabilized for that property. It’s pretty easy to just take, from my perspective, the total disclosed number and assume that’s relatively ratable throughout the year.

Angela Aman, CEO, Kilroy Realty Corporation: Yeah. Q2 is a pretty good number. We’re at a point because you got a full quarter of KOP2 in the stabilized pool in Q2. From there, it will be incrementally offset as some of these tenants take occupancy. Q2 is a good starting point.

Anthony Paolone, Analyst, J.P. Morgan: sorry, I missed it there. Did you give us the 2Q number?

Jeffrey Kuehling, EVP, CFO, and Treasurer, Kilroy Realty Corporation: We didn’t explicitly call it out, but the total amount of the pool is KOP2, so you can just spread it throughout the year.

Anthony Paolone, Analyst, J.P. Morgan: Okay. it was pretty ratable