Kilroy Realty won’t start any new developments in 2024
LA-based REIT reports lower occupancy and revenues for portfolio
Cities won’t see any new developments from Kilroy come online this year.
“We do not anticipate starting any new developments in 2024,” Justin Smart, Kilroy’s president, said on a conference call Tuesday discussing the real estate investment trust’s fourth-quarter earnings.
Instead, the L.A.-based firm is focused on its 17 million-square-foot office and life science portfolio, which saw occupancy dip over the course of 2023.
Kilroy’s properties were 85 percent occupied at the end of last year. By comparison, at the end of 2022, Kilroy’s portfolio was about 92 percent occupied.
Revenues dipped alongside occupancy.
The company’s revenues totaled $269 million in the fourth quarter, down from $284 million during the same period in 2022, according to an earnings release on Monday.
Kilroy reeled in about $185 million in net operating income in the last three months of 2023, a 7.5 percent drop from the fourth quarter of 2022. The Los Angeles-based REIT reported $1.08 per share in funds from operations in the fourth quarter, compared to $1.17 a share a year prior.
“The REIT’s occupancy rate declined materially in 2023 and will decline further in 2024 as leasing activity remains modest in most of its markets,” Moody’s wrote in a report on Kilroy last month.
On the Tuesday call, CEO Angela Aman said leasing activity was strong, adding the firm signed 590,000 square feet worth of leases — “the highest quarterly leasing volume since 2019,” she noted.
While Moody’s kept its credit ratings on Kilroy steady last month, citing “excellent portfolio quality,” the ratings agency tagged the company with a negative outlook.
Moody’s expressed concern about Kilroy’s net debt to EBITDA ratio of 6.5 — a metric measuring how much cash from operations is available to pay off company debt. The lower the ratio, the more likely a company can pay off its debt successfully.
There’s “persistent weakness in the operating environment for office space,” Moody’s said in its report, which will “reduce the REIT’s ability to improve occupancy and grow earnings.”
About $22 million of the firm’s expenses in the fourth quarter — roughly 11 percent of the total — was dedicated to the retirement of the company’s now former CEO John Kilroy.
Kilroy retired last month and was succeeded by Aman, who previously ran Brixmor Property Trust.