Kilroy Realty Corp. BofA NY Global Real Estate Conference 2026

Great. Sounds good. Thank you, and thank you for having us. We're happy to be with all of you today. We're happy to be here to tell the story about Kilroy and what's been going on in our markets and across our portfolio over the last couple of years. For those of you who aren't familiar with the company, we are a primarily West Coast-based company, office and life science assets across the West Coast and in Austin, Texas. It's a very high quality portfolio.

About half of the portfolio is actually in the San Francisco Bay Area, which a few years ago, if we were at this conference, would've been the most challenging part of the story and now has become one of the most exciting parts of the story, given the momentum we're seeing in that market from a wide breadth of tenants, including those tenants in the AI and tech space, but more broadly across other sectors, professional services, legal, et cetera. We have been experiencing, I think, across all of our markets, a real inflection over the last few quarters in leasing volume and momentum and activity. It's been most pronounced certainly in the San Francisco Bay Area, but as Rob will touch on later, I'm sure we're seeing good activity and momentum in the Pacific Northwest and our portfolio in Bellevue.

That activity in Bellevue is now spilling over into the Seattle side of our portfolio, where we have a few high quality assets in Denny Regrade and South Lake Union up through Fremont. We've seen very strong activity really over the last several years in our San Diego portfolio, where we own a significant concentration of assets in Del Mar, which has been one of the best performing West Coast office markets really over the course of the last cycle. We've seen recently a real uptick in activity in our Austin portfolio, where we have one significant asset there that has been in lease up, and I think there's been very exciting momentum around completing the lease up of that project.

Los Angeles, where the company is based, has also seen some green shoots recently, with activity in the defense and aerospace, robotics, and advanced manufacturing sectors coming back to the South Bay, where we have some vacancy and opportunity for portfolio improvement, and really across the board, particularly in new assets we bought over the last couple of years in Beverly Hills, primarily. Across the board, we feel like activity has returned and continues to get better. At the same time, over the last three years, we've been very intentional about improving and rationalizing the portfolio and being as thoughtful and strategic as we can be from a capital allocation perspective.

We've made, I think, some smart disposition decisions over the last few years, both to take advantage of situations where we felt like we had maximized value in the portfolio and could raise really attractively priced capital to reinvest elsewhere. And places in the portfolio where we really felt our ability to create value and to drive cash flow over the longer term was going to be compromised based on location or quality or just CapEx burdens at some of those assets. All of our intentional efforts over the last couple of years, I think, have made this a more focused portfolio and a portfolio that's really well positioned for durable growth over the coming years.

I'll jump in and then turn it over to Rob. Like I was mentioning, we're seeing really good demand in the San Francisco Bay Area, and there's sort of different pockets of activity happening in different parts of the market. Obviously, AI and the amount of leasing that's happening from an AI perspective certainly receives the most headlines in the San Francisco CBD, and it certainly has been an important driver of activity and demand. We have assets in that market that really tell the full story of the inflection in the San Francisco market. One asset that Rob and I like to talk about a lot is our 201 Third Street asset that went from effectively fully leased down to about 20% occupancy, with a big move out of a financial services user in the fourth quarter of 2024, and is now back to 90%.

That improvement has been through leasing up space to some larger, well capitalized, later stage kind of AI and tech companies, and also a very intentional spec suites program that's been able to tap into some of that earlier stage AI demand that's been in the market. In addition to some more traditional firms. We did a full floor deal with a streaming use. There's been other activity in the building that I think just points to how broad based the demand and activity has been in that market. It's a great story of sort of a full ride in San Francisco and how quickly activity has really improved and come back.

As we look at the broader San Francisco portfolio outside of AI and some of the tech-based uses that are in that market, one of the key themes we've been seeing over the last really quarter or 2 has been kind of a resurgence in larger format activity and interest, given the success of leasing over the last couple of years market wide. As I'm sure you're all very aware of some of the market statistics about remaining vacancy in the market, we think it's important to really bifurcate that into what's truly competitive supply in the space versus what is effectively obsolete or functionally obsolete space in the market. Right now we think there's 35, 36 large contiguous blocks left in the city in total. That's blocks over 100,000 sq ft.

More than half of them are really not competitive to the type of product that Kilroy owns today. So probably 15 to 20 of those 35 or 36 opportunities are truly competitive to what we own. Right now in the market, you've got 31 tenants looking for space above 100,000 sq ft. So there's truly, for some of those larger blocks of space, more demand in the market than there is supply to meet that demand. Where we've seen that show up in our portfolio, yes, is on the demand side for some of the larger contiguous blocks we have left. But as importantly, more larger format tenants in the market coming to speak with us about potential early renewal. I think that speaks to 2 things.

Certainly, the trend in rent and the inflection we've seen just in asking rate and net effect of rents over the last year has been significant, and I think everybody's watching that trend closely. But increasingly, some of these tenants that have been in our portfolio for a while are looking down the road, thinking about their expiration that might be coming a few years out and beginning to voice some concerns about locking in space today. Particularly if you're in a building that has other vacancy or you're in a building that has another lease expiration coming up, I think people are becoming concerned you could be displaced by a landlord looking at some of the bigger demands that are, or requirements that are in the market. All of those are really healthy fundamentals, right?

Both on the occupancy side, you really are seeing rates start to move in these markets, which is very exciting as well. Further down the peninsula and through Silicon Valley, you are seeing in addition to just the tech users that have really changed the way they are using space in some of those markets, some of them taking significant sublease space off of the market over the course of the last year. We have seen a lot of demand and activity from robotics uses in those markets, and that has really been a driver of activity as well. Bellevue, we have seen good activity really over the course of the cycle, or over the course of the last few years in the Bellevue market, have been able to push both occupancy and rate in that market for a while.

Over the course of the last few quarters, we have seen more tension in the market on the Seattle side as well. We have one project that was subject to a major repositioning that delivered a couple of years ago, and it had been very quiet from a tour and demand perspective until probably two or three quarters ago. We completed that major repositioning, brand new lobbies, new food and beverage offerings, great outdoor space and amenities, a conference facility, a fitness facility, everything that tenants who are in the market were looking for, but there just was not enough depth of demand on the Seattle side or in South Lake Union. Over the last two, 2.5 quarters, we have signed over 150,000 sq ft of really high-quality leasing in that project.