Kilroy Realty has managed to find stability during the pandemic, despite decelerating market fundamentals. On its third-quarter earnings call, Kilroy reported strong rent collections at 96% portfolio-wide and 98% for office assets only. The firm's nearly $2 billion development pipeline is also well leased and will continue to generate earnings through 2022.
"We continue to perform well and remained optimistic about the future. Here at KRC, we remain focused on several key areas that position us well to play both defense and offense over the coming months and years," said John Kilroy, CEO of Kilroy Realty, on the call. "These include; maintaining a strong financial foundation, proactively managing lease expirations and our stabilized portfolio, executing our under construction development projects, positioning our future development for starts, working with governmental agencies to influence policy as much as possible and preparing for a post-COVID future, which includes continuously enhancing the quality of our portfolio from a sustainability and wellness perspective."
Kilroy added that strong rent collections have been consistent throughout the pandemic, particularly in the company's life science and technology segment. "These strong rent collection levels have remained consistent across the seven months of the pandemic as our well-capitalized technology and life science tenant base continues to outperform," he said.
While this is good news for the company, it isn't enough to offset the change in market dynamics. Mizuho Securities notes that the company's stock could be negatively impacted, although it had a 3Q20 FFO/sh of $0.99. In addition SS cash NOI growth decelerated to 3.8% year-over-year in 3Q20, down from 10.9% in 2Q20 and 14.9% in 1Q20. This was driven by SS revenue growth of 0.3% and SS expense growth of -7.1%.
However, has we move deeper through the pandemic, Kilroy is better understanding and responding to emerging trend. "While it's still early days in understanding of the pandemic's lasting impact, we do see some important themes developing," said Kilroy. "These include, the physical make-up of commercial workspace in the industries that drive its use. The first theme is life science. It's not a secret that the life science industry is positively impacted by COVID, and we believe it will continue to benefit for the foreseeable future."
These emerging trends also include the acceleration of life science growth. "The pandemic is moving more private and public investment into the sector and encouraging the creation of a range of new start-ups," said Kilroy. "We believe they will want to locate their labs and their talent and current life science clusters."
Kilroy has a significant life science exposure in its portfolio, which has helped to promote stabilization. "Several life science tenants within the KRC portfolio continued to do quite well, including Neurocrine, our largest San Diego tenant, the last quarter had two medicines approved by the FDA," says Kilroy. "And LabCorp, a South San Francisco tenant, they reported strong earnings last quarter, driven by increased COVID-19 testing volume. We believe our life science portfolio deserves more appreciation as it is essentially fully leased with strong tenants such as Acadia, Stanford University, 23andMe and so forth."
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to asset-and-logo-licensing@alm.com. For more information visit Asset & Logo Licensing.
