Kilroy Realty is raking in a profit even as it sees a slight dip in occupancy across its properties.
The Los Angeles-based real estate investment trust reported $59.3 million in net income from January through March — a 25 percent increase from the prior quarter. The company also reported $1.16 per share in funds from operations, up from $1.05 in the fourth quarter of last year.
“Traffic is up. Public transportation is more crowded. Cities are cleaning up and starting to feel more vibrant,” CEO John Kilroy said on an earnings call Thursday. “Many of our largest customers started returning to the office in recent weeks, the effects of which are tangible in our markets.”
Despite the jump in profit, occupancy across Kilroy’s portfolio dipped by almost 1 percent. Around 91 percent of the company’s real estate was occupied in the first quarter.
Kilroy signed 183,000 square feet of new leases and renewals in the first quarter. Robotics and delivery vehicle maker Nuro was a highlight, signing a 114,000-square-foot lease renewal and expansion at 1290 Terra Bella Avenue in Mountain View. Previously, Nuro leased 56,000 square feet at the building.
The total came to just under half of the new leases and renewals Kilroy signed in the fourth quarter, however.
The trend could shift this year–Kilroy said in its “late stage negotiations” to lease more than 350,000 square feet of office space.
On the earnings call, Kilroy’s head of leasing, Robert Paratte, reassured investors that the San Francisco office market was coming back to life — even as total office availability hit 29 percent in the first quarter, according to CBRE. Kilroy did not report any lease deals across its San Francisco properties.
“Sublease space has dropped to about 6.5 million feet from a high of 9.4 million during the pandemic,” Paratte said. “So we’re seeing a good uptick in activity in the street.”
Paratte did concede — none of this has translated into “big tech making big moves.”
Kilroy is betting on continued demand for life science space, especially in San Diego. The company started construction on two redevelopments in the California market — a 209,220-square-foot property in Del Mar and a 47,800-square-foot building in University City.
About 30 percent of the company’s total net operating income could come from life science projects, Kilroy said on the earnings call.
On the heels of the company’s $580 million acquisition of the 36-story Indeed Tower in Austin, Kilroy also bought three acres in the Texas city for $40 million, with plans to build 493,000 square feet of new office space. Kilroy said the firm plans to spend $700 per square foot on that development.
Kilroy is still looking to expand in Austin, the CEO said on the earnings call.
But the firm still hasn’t fully leased Indeed Tower. Around 254,000 square feet — 35 percent — of the building is currently available for lease, according to CBRE’s online listing of the property.