Kilroy CEO: office still “center of the work ecosystem”

Lifescience chips in as LA-based landlord’s quarterly net income rises 34 percent

Kilroy Realty CEO John Kilroy (Kilroy, Getty)
Kilroy Realty CEO John Kilroy (Kilroy, Getty)

Hybrid is here but its effects will be limited.

That’s the view from Los Angeles-based Kilroy Realty, where CEO John Kilroy took the opportunity of a quarterly earnings call last week to declare that “the office will remain the center of the work ecosystem.”

He conceded that hybrid work is “going to be a given,” but told investors that the impact will “be minimal in terms of space demand reduction or footprint shrinkage.”

The company which owns 15.1 million square feet of office properties across the West Coast and the 730,000-square-foot Indeed Tower in Austin, Texas, reported $232.3 million in revenue in the third quarter.

That was a 1.8 percent gain that came even as most companies have kept their offices shut.

Kilroy also reported $47 million in net income — an increase from $35 million in the second quarter — and $0.98 per share in funds from operations.

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The bump in earnings came even though the percentage of its portfolio that is leased hasn’t changed. The firm said 93 percent of its properties were leased as of the end of September, the same as the prior quarter.

Part of this is attributable to the fact that Kilroy has added new and converted life science properties to its portfolio.

The firm finished construction on a 235,000-square-foot building at its Oyster Point development in South San Francisco, which is fully leased to Cytokinetics.

Kilroy is also planning to convert three office buildings in San Diego into life science properties, after signing three new leases across the buildings.

In San Diego, the firm hasn’t yet secured a tenant at 2100 Kettner — an office building it recently completed. But Kilroy said has shown the facility to three potential tenants in the past couple of weeks, and has received one request for proposal.

Further north, the company said it’s hopeful that sublease space will keep getting absorbed in Los Angeles, driven by activity from gaming, technology and entertainment firms.

But the firm said it did not have an update on DirecTV, which is looking to sublease 500,000 square feet of space across three buildings in El Segundo — one of which is Kilroy’s.