Kilroy Realty Corp Q4 FY2025 Earnings Call

Hello, everyone, and welcome to the KRC 4Q '25 Earnings Conference Call. My name is Emily, and I'll be coordinating your call today. I will now hand over to Doug Bettisworth, Vice President of Corporate Finance to begin. Please go ahead, Doug.

Good morning, everyone. Thank you for joining us. On the call with me today are Angela Aman, CEO; Jeffrey Kuehling, EVP and CFO and Treasurer; and Eliott Trencher, EVP, CIO. In addition, Justin Smart, President; and Rob Paratte, EVP, Chief Leasing Officer, will be available for Q&A. Please note that some of the information we will be discussing during this call is forward-looking in nature. Please refer to our supplemental package for a statement regarding the forward-looking information on this call and in the supplemental. This call is being webcast live on our website and will be available for replay for the next 8 days; our earnings release and supplemental package have been filed on a Form 8-K with the SEC, and both are also available on our website. Angela will start the call with a strategic overview and quarterly highlights. Eliott will provide an update on the recent transaction activity, and Jeffrey will discuss our financial results and provide you with our 2026 guidance. Then we'll be happy to take your questions. Angela?

Thanks, Doug, and thank you all for joining today's call. 2025 was a year of meaningful progress and momentum for Kilroy, highlighted by disciplined execution across our entire platform. We remain focused on driving leasing across both our operating and development portfolios, harvesting value through non-core asset sales, monetizing or advancing strategic plans for parcels within our future development pipeline, and thoughtfully redeploying proceeds into select opportunities that have enhanced the long-term growth and durability of our cash flow stream. I'm grateful for the way this team has demonstrated its creativity and discipline while navigating a rapidly improving operational and transactional environment. Fourth quarter leasing totaled approximately 827,000 square feet, marking our strongest fourth quarter performance in 6 years and resulting in total full-year leasing of approximately 2.1 million square feet, which is a significant increase on a year-over-year basis. Across our markets, we are experiencing the healthiest level of office demand since 2019, with a forward leasing pipeline that has grown by more than 65% over the last year. New business formation in our innovation-driven West Coast markets has dramatically improved. The dynamics for multi-tenant buildings and spec suites, while larger tenants are increasingly reclaiming sublease space for their own operations or reengaging on expansion plans that have been previously deferred. Key leasing highlights in our portfolio during the quarter included: In Hollywood, a 93,000 square foot new lease with the Fitler Club. At Columbia Square, we backfilled the space recently vacated by Noy House following their bankruptcy filing, minimizing downtime and avoiding outsized capital investment on a highly specialized space. In West L.A., a 79,000 square foot renewal with Riot Games for the Arena building, providing several years of ongoing cash flow as we evaluate the highest and best use of the site going forward. In Beverly Hills, a total of eight new and renewal lease executions at Maple Plaza, our recent acquisition, improving the lease rate by 230 basis points during the quarter and further validating our conviction in the growth potential of this asset and the Beverly Hill submarket. In Seattle, we have 74,000 square feet of new long-term lease executions at West 8th, our recently renovated and repositioned project in the Denny Regrade submarket. In San Francisco, additional AI leasing during the quarter and a growing pipeline of AI and other tenants for spec suite space that we currently have under construction in the SoMa submarket. Importantly, in South San Francisco, we had 316,000 square feet of lease executions at Kilroy Oyster Point Phase 2, our recently completed premier life science development project, including a 280,000 square foot full building lease with UCSF, bringing the lease rate at KOP 2 to 44%. We are thrilled by the momentum we've captured at KOP 2 over the last 2 quarters, demonstrating a meaningful resurgence in life science demand and providing confidence in our pipeline as we move into 2026. Biotech equities have significantly outperformed over the last 6 months, which has led to a reopening of the IPO and follow-on market. Last week alone, four biotech companies completed IPO transactions, selectively raising nearly $1 billion. In addition, M&A activity picked up considerably during 2025, including in the fourth quarter, and expectations for 2026 volume are robust. At the same time, the innovation pipeline remains exceptionally active with more than 50 novel drug therapies anticipated to receive FDA approval in 2026, reflecting continued scientific advancement and investment. Against this encouraging backdrop, we have executed on our holistic long-term plan for KOP 2 while being mindful to create an innovation ecosystem at the project that will support future growth while also maximizing risk-adjusted returns. We have captured exposure to fast-growing early-stage biotech companies through our strategic lease execution with MBC BioLab, a well-established life science incubator in the San Francisco Bay area, that has the financial wherewithal and scientific expertise to capably bet and support early-stage companies. In addition, we gained exposure to mid-stage and late-stage life science companies in our spec suites, where our capital investment is specifically designed to be highly reusable by future tenants in the same space. Now, with the execution of the full building UCSF lease, we have established a high-quality anchor for the project that has continued to elevate KOP's profile in the market while providing long-term cash flow stability through a 16.5-year lease to an institutional tenant with exceptional credit quality. Taken together, these tenants build a promising foundation of long-term leasing prospects for future phases of the project while also ensuring that tenant credit risk is appropriately managed within Phase 2. Across the KOP 2 leasing transactions completed to date, we expect varying occupancy commencement timelines based on the scale and complexity of each tenant's build-out. However, occupancy has already commenced in one of the spec suites, beginning the activation of the campus. As we move forward, our entire team is focused on accelerating tenant build-out timelines, and we will continue to update you as additional progress is made. Given our leasing success to date, we have now refined our expectations for total project costs at KOP 2 as reported in our supplemental financial package. With these refinements incorporated, our anticipated yield at KOP 2 is now in the mid-5% range, approximately 100 basis points below our original underwriting. While this is not reflective of where we would begin a new project today, we continue to believe in the exceptional long-term growth and value creation potential of Kilroy Oyster Point. Turning to our broader capital allocation strategy, we successfully paired fourth quarter leasing and operational wins with strategic portfolio repositioning initiatives. In December, we completed the sale of Sunset Media Center in Hollywood for $61 million, monetizing a mature, capital-intensive asset that no longer met our stringent criteria for incremental investments. In January, we closed on the sale of Kilroy Sabre Springs, or KSS, in the I-15 corridor submarket of San Diego for $125 million. Over the last 10 years, fundamentals in the I-15 corridor have not kept pace with the sustained strength we have observed in clusters such as Del Mar and Torrey Pines. Over time, KSS has experienced significant tenant churn, resulting in higher average vacancy rates and requiring consistently elevated capital investment, impacting both historical and anticipated future returns. In late 2025, we successfully identified a user interested in purchasing the totality of the campus, resulting in a highly efficient execution for both parties. In addition to these operating portfolio sales, we also entered into an agreement to sell the remaining portion of the Santa Fe Summit land parcel held in our future development pipeline for $86 million in gross sales proceeds. With this agreement, commitments for land parcel dispositions under contract represent $165 million in gross proceeds, exceeding our previously communicated goal of $159. With respect to capital deployment, during the fourth quarter, as momentum continued to build across the Life Science sector, we further strengthened our platform with the acquisition of Nautilus, a multi-tenant life science campus in Torrey Pines for $192 million. This was truly a generational opportunity to enter one of the most supply-constrained and tightly held life science clusters in the country, supported by proximity to leading research institutions, a deep talent pool, and a world-class innovation ecosystem. Nautilus provides meaningful scale and is one of the well-amenitized Class A campuses consistently considered for a wide range of active tenant requirements in the market. This acquisition not only strengthens our San Diego presence, but also enhances our platform scale and relevance in the life science sector, positioning Kilroy to capture cutting-edge lab and associated office demand across all of our West Coast markets. I couldn't be any more pleased with the quality and long-term value creation potential of the investments we've sourced over the last 6 months. Our value-add acquisitions in Beverly Hills and Torrey Pines represent historic opportunities to reshape the portfolio in response to a rapidly evolving environment. As we look forward, it will be imperative that we continue to proactively rationalize our portfolio and concentrate our investments in high-conviction assets that will enhance the durability and growth of our cash flow over time. Accordingly, we will continue to pursue dispositions of non-core assets with forward returns of lower cost of capital. As we evaluate redeployment alternatives, we will be mindful of the signals we are receiving from both the public and private markets, our long-term portfolio construction goals, and balance sheet strength and flexibility. In conclusion, I want to thank the entire Kilroy team for an extraordinary effort during 2025 that drove exceptional results. I'm incredibly grateful to be part of this team, and I'm looking forward with enthusiasm to what we can deliver together in 2026. Eliott?

Thanks, Angela. 2025 was a very active year for Kilroy on the capital allocation front. Starting with dispositions, we closed or entered into contracts on roughly $755 million of sales, broken down as follows: approximately $465 million of operating property sales across three transactions, a $125 million operating property sale that closed in January, and $165 million of land sales under contract across three transactions. To give a little more color on the four operating properties sold in 2025 and January 2026, occupancy was 79%, rents were approximately 15% above market, the weighted average remaining lease term was 2.5 years, and the CapEx to NOI ratio was over 30%. All of this translated into some of the lowest forward-looking returns in the portfolio and highlights the strategic rationale behind our decision to sell. Turning to land sales. As Angela mentioned, we put the remaining 17 acres of Santa Fe Summit under contract with a residential developer for $86 million, and the transaction is expected to close upon approvals for development. Unlike the 5-acre portion we put under contract earlier in 2025, the 17 acres require a change in zoning to accommodate residential, which we currently estimate to be complete in 2028. As a reminder, we continue to anticipate the 5-acre portion will close in 2026 for $38 million in gross proceeds. Now that we have three land sites under contract, we will look for additional opportunities to repurpose land and/or non-core properties to a higher and better use in order to position them for sale. Shifting to acquisitions, over the last 12 months, we closed on two significant investments, Nautilus, which Angela discussed, and Maple Plaza and Beverly Hills, which we talked about last quarter. These projects represent compelling opportunities to scale in high barrier, high-growth submarkets, which are leading the fundamental recovery in their respective regions. We have been underwriting deals in these submarkets for many years, patiently waiting for the right time to establish a presence. A host of factors came together over the last several months, and our patience paid off as we were fortunate to acquire these trophy projects at compelling risk-adjusted terms. Turning to Nautilus: San Diego is one of the primary life science hubs in the country, and Torrey Pines is the heart of the region. Torrey has the highest rents and lowest vacancy rates among all the submarkets in San Diego. Unlike several other life science clusters across the country, there is no new supply under construction, and over the last several years, the only new deliveries have come from demolishing and reconstructing existing buildings. Torrey Pines has both high density and restrictions that make it incredibly difficult to add net square footage. So inventory has essentially stayed the same over the last 20 years. The four-building Nautilus campus has been well maintained and invested in, with on-site food, fitness, and outdoor amenities, making it appealing to a wide variety of innovative life science companies. The campus has historically performed very well, averaging 94% occupancy over the last 10 years. However, a late 2025 move-out brought occupancy to 75% when we closed the acquisition. The purchase price of $192 million, or approximately $825 per square foot, compares very favorably with other comparable trades in the submarket and is well below the estimated replacement cost of $1,400 to $1,500 per square foot. Our business plan is to add additional spec suites to accelerate the lease-up of the remaining vacancy and continue to drive rent growth via the amenity offering at the campus and the overall appeal of the neighborhood. We expect stabilized yields in the upper single digits and unlevered IRRs in the low double digits. In summary, in 2025, we demonstrated the ability to raise capital via strategic dispositions and redeploy it into compelling opportunities. As we look forward to 2026, our top investment priority is to capitalize on the recovering leasing environment and improving capital markets and sell $300 million within the operating portfolio using the same disciplined approach we have employed in the past. As proceeds are raised, we will thoughtfully and strategically evaluate all of our alternatives, with the continued goal of maximizing shareholder value. With that, I will turn the call over to Jeffrey.

Thanks, Eliott. As we look back on the year, our consistent execution across the platform has strengthened our financial performance and positioned us well for the year ahead. Turning to our financial results, FFO was $0.97 per diluted share in the fourth quarter. Occupancy ended the year at 81.6%, representing a 60 basis point sequential improvement as we successfully accelerated rent commencement dates on recently leased space. In addition, occupancy benefited from recent capital recycling activity, which had a net positive impact of approximately 30 basis points during the quarter. Cash same-property NOI growth was negative 7.2% in the fourth quarter, primarily reflecting a sizable restoration fee recognized in the fourth quarter of 2024, which detracted 350 basis points from current year growth. Base rent detracted 190 basis points due to a year-over-year decline in average occupancy, while net recoveries detracted 140 basis points, impacted by the change in occupancy and real estate tax appeal wins recognized in 2024. Leasing spreads in the fourth quarter were negatively impacted by two unique transactions in the L.A. market. First, we executed a renewal with Riot Games for their arena space, allowing us to maintain occupancy and preserve cash flow over the next several years while we evaluate the highest and best use for the property and explore upzoning. Second, we executed a new lease for the former Noy House space in Hollywood, where we were able to quickly release a dynamic and complex space to a well-capitalized and reputable sponsor. The long-term nature of the lease, minimal downtime, and moderate capital investment resulted in strong net effective rent, albeit at a lower face rate than the prior tenant. Excluding these two deals, GAAP rents on leases signed would have increased 16.2%, and cash rents would have decreased only 2.6% from prior levels, comparing very favorably to spreads reported in recent quarters. Now let's discuss 2026 guidance. Our 2026 FFO guidance range is $3.25 to $3.45 per diluted share, representing a midpoint of $3.35. 2026 average occupancy is expected to range between 76% and 78%, reflecting a year-over-year decline of 390 basis points at the midpoint of the range. The decrease is almost entirely driven by KOP 2, which entered the stabilized portfolio in January 2026. Excluding KOP 2, 2026 average occupancy is expected to range between 80% and 81.5%, roughly in line with 2025 average occupancy at the midpoint. As a reminder, 2026 lease expirations are front half weighted, and several larger tenant move-outs are expected to weigh on portfolio occupancy during the first half of the year. Cash same-property NOI growth, which excludes KOP 2, is projected to be flat to negative 1.5% at the midpoint of the range, base rent is expected to contribute approximately 50 basis points to growth, while net recoveries are expected to detract approximately 125 basis points. Non-cash GAAP NOI adjustments are expected to range between $12 million and $14 million, up from a little over $8 million in 2025 as recent new leasing activity takes occupancy across the portfolio. Our guidance for NOI from development properties and capitalized interest are primarily driven by two projects, KOP 2 and Flower Mart, which we'll cover together. KOP 2 expense capitalization ceased at the end of January 2026, following the one-year anniversary of substantial completion of the base building components. As a result, operating expenses and real estate taxes at KOP 2, which totaled approximately $5 million per quarter, and capitalized interest, which totaled approximately $10 million per quarter, will begin flowing through earnings beginning in February of 2026. The carry costs for KOP 2 will slowly moderate as tenants take occupancy over the course of the year. As Angela previously mentioned, we have updated KOP 2's total estimated costs, and the supplemental reflects leases executed to date in prevailing market leasing economics for the remainder of the project. Lastly, as a reminder, the project will not enter the same-property pool until 2028. With respect to the Flower Mart project, our assumptions remain unchanged from last quarter. We continue to assume that capitalization will cease at the end of June 2026, at which point approximately $1 million of quarterly operating expenses in real estate taxes and $7 million of quarterly capitalized interest expense will begin impacting earnings. The NOI impact of KOP 2 and Flower Mart represents the majority of our guidance for NOI from development properties, which is expected to range from negative $23.5 million to negative $25 million. Additionally, our capitalized interest guidance of $32 million to $34 million reflects our fourth quarter capitalized interest run rate adjusted for KOP 2 and Flower Mart as previously detailed. In addition, in last night's release, we also provided line-item guidance for GAAP lease formation fee income, interest income, and combined G&A and leasing costs. Please note that while our G&A and leasing cost guidance reflects a year-over-year increase, 2026 levels remain below our historical averages. As it relates to capital recycling activity, we expect to complete approximately $325 million of operating dispositions in 2026, which includes the $125 million disposition of Kilroy Sabre Springs reported last night. As Angela and Eliott highlighted, we will take a balanced and disciplined approach to capital allocation, evaluating all available options to maximize shareholder value while also prioritizing balance sheet strength and flexibility. In closing, we head into 2026 with the same disciplined execution that has guided our progress this year. Our focus is on leasing, monetizing non-core assets, and redeploying capital into high-quality opportunities to strengthen the durability of our cash flows and the flexibility of our platform.

Our first question today comes from Jana Galan with Bank of America.

Congratulations on the leasing at KOP 2. Could you discuss the University of California, San Francisco anchor lease and the delays associated with it? Is this due to extensive tenant build-out or waiting for other lease expirations to conclude? It would be helpful if you could provide some insight on the transition from leasing to occupancy for that asset.

Sure. Thanks for the question. We appreciate it. We are thrilled about the progress that we've made at KOP this year. As you remember, we originally put out a goal of 100,000 square feet of lease execution during 2025 and exceeded that goal by almost four times. We're really pleased with the progress we made. As you point out, the UCSF lease was an important part of getting to that level. Remember that this is a brand-new development project, so the building that they're taking is currently in shell condition. We have multiple user groups that will be moving into that facility. It's just going to take time from a space planning and build-out perspective. As I mentioned in my prepared remarks, our entire team is focused on accelerating and doing everything we can, and that's in our power to accelerate occupancy commencement timelines, not only on the UCSF lease but on all the leases we've signed at KOP as we move forward and getting tenants into occupancy and rent commenced as quickly as possible.

And then just to clarify, on the same store other than the addition of KOP 2, is there anything else we should think about in terms of acquisitions, dispositions?

KOP 2, as Jeffrey noted, will not be included in the same property pool until 2028, although it is becoming part of the stabilized portfolio. This means our overall portfolio occupancy statistics will begin in January, creating a slight disconnect. However, this asset will not be part of the same property pool until 2028. At this time, regarding the $300 million of operating property dispositions mentioned in our guidance, I would emphasize that there are no significant changes related to the same property pool that we believe should be highlighted.

So Angela, I appreciate the commentary on the mid-5% yield now on KOP 2. Can you just unpack that a little bit? I just want to be clear if that's a gap or a cash yield and how we should think about the TIs? I wasn't sure if that was kind of already built into the new cost you have in this up.

Yes. Thanks, Nick. That's a cash stabilized yield number. And as it relates to TIs, yes, we've reflected all of the transactions that have been signed to date. And as Jeffrey mentioned in his remarks, we've also incorporated our estimates of prevailing market leasing economics for the remaining vacancy of the project.

Sure. Let's begin with your last point about West 8th in Seattle and the Bellevue market. Bellevue is certainly a leader nationally in terms of current demand and tenant activity, and we're very enthusiastic about the rental growth occurring there. We have seen net effective rental growth, and independently from the increases in Bellevue, we are witnessing a similar trend starting to emerge in Seattle. Over the past 90 days, we are happy with the new tenant activity at West 8th. Our team is actively engaged in multiple efforts at West 8th. The renovations have proven successful, establishing it as a unique project in a prime location. This is further highlighted by a law firm relocating from the CBD to West 8th, which we find very encouraging. Having experienced the San Francisco recovery cycle before, I must say the current recovery in San Francisco is impressive. Notably, while there might be a 32% availability rate, 47% of that space has not been leased since 2021. That statistic is significant because our office buildings in San Francisco are not affected by this. We are seeing activity across the board, which suggests a clear recovery in San Francisco, and Silicon Valley also saw a very strong fourth quarter in 2025, largely driven by Fortune 100 companies. There is a notable diversity in the types of tenants in both San Francisco and the Bay Area, including larger tenants as well.

You guys have a little over 1 million feet, I guess, now expiring in '26. Can you just remind us what your kind of broad retention expectations are on that kind of $1.050 million? And as you think about new leasing activity, is there kind of a pipeline that you could sort of quantify of leases that are set to commence in '26? How do we think about kind of the, I guess, retention and the new leases starting?

Sure. Thanks, Steve. You're right. The current lease expiration schedule shows just over 1 million square feet of remaining 2026 expirations. We had mentioned on last quarter's call that we expect substantial move-outs from that pool, and we continue to believe that's right. There is a footnote on that page of the supplemental that points out that we've already backfilled about 140,000 square feet of that $1.05 million. We've made some progress already on backfilling it with additional items, including some subtenants, where there won't be downtime between those leases. There's a small additional, I would probably say expect another somewhere between 50,000 and 100,000 square feet of potential renewals out of that pool. But the biggest driver of addressing that vacancy is really going to come from the signed but not yet commenced pool. We've got probably 300,000 square feet sitting there that are contractually obligated already. We have high confidence we can get them into occupancy over the course of 2026. So that cuts that lease expiration number by more than half, I believe. That gets us to sort of the commentary about the forward-looking pipeline. I mentioned in my script, our pipeline as we sit here today, is about 65% higher than it was a year ago, including the later stage part of the pipeline where we've got great visibility and activity there to get additional leases closed over the next couple of quarters, which can have an impact on 2026 occupancy. So we feel very optimistic about the occupancy guidance we put out. We're going to push really hard to meet or exceed that guidance and think that there's a pretty clear path to doing it, particularly given Rob's commentary about the recovery we're seeing across our markets and most importantly, in our most significant market, which is San Francisco.

Great. Just following up on the leasing environment. I was hoping you guys could give us an update on the mark-to-market in each of your target markets and whether you've seen any change in that metric recently, especially in Los Angeles where you have a pretty large proportion of your expirations over the next 2 years.

Yes. Eliott will give some more specific commentary on mark-to-market. But what I would say specifically when you think about the Los Angeles market is that, that is a market in which we have been clear over the course of the last 18 to 24 months that we had portfolio repositioning work to do, and it's the market where we've completed most of the portfolio repositioning marked by selling an asset in Santa Monica, by now selling Sunset Media Center in Hollywood, and by buying Maple Plaza, which Rob mentioned earlier, has been a real driver of activity and success within the Los Angeles market. When we look at how spreads are trending across the market, I would say we are seeing rents comp up in Beverly Hills, not huge numbers, but certainly above prior rents and marginally above where we underwrote rents for that project. We're seeing rents comp up nicely in Long Beach, where we've got a significant amount of activity. So despite sort of pressure on the Los Angeles market overall, our portfolio is doing much better than it did a year ago, in part because of the capital recycling activity that we've completed and because now we've got opportunities within the Los Angeles market in submarkets where there is a lot of activity and where our in-place rents are reasonably compelling.

Blaine. So if we look at it market by market, L.A. and San Francisco were about 10% above market, San Diego and Washington, we're about 5% below market, and then Austin is about 15% below market.

Yes. I mean, San Francisco clearly has had the biggest story and the biggest momentum over the course of the last couple of years. The new Mayor and the Board of Supervisors have really been working together to put forward, I think, policies that are, yes, good for the business environment but good for the community at large within that market. We've seen a real change in approach to how they're interacting with businesses and interacting with developers in particular in the city. That's sort of been the thread behind a lot of the work we're doing at Flower Mart right now is to engage with the city in a way that we think can really help get a project off the ground in the Central SoMa district as quickly as possible and do so in a way from an execution standpoint that can be best for the community at large. So that's clearly the market where we've seen the most momentum and additional progress over the last couple of years without a question.

Angela, I think in your prepared remarks, you talked a little bit about the IPO market and M&A environment for life science. I was wondering just with KOP 2, if you could comment a little bit more on any changes in the number of tours that have gone on? And just anything specifically within the pipeline as it relates to life science.

Yes, I'll ask Rob to jump in here a little bit. But what I would say is, I think the leasing progress we made during 2025 clearly demonstrates that the team at KOP has been exceptionally active and busy fielding requests and tour activity and prospects from all the tenants we closed last year, but certainly a much broader set behind that. We feel really good about the pipeline at KOP as we head into 2026, particularly for the remaining vacancy within the multi-tenant building, feeling like we've got great momentum and visibility behind continued leasing there. As I mentioned, we will have one full building to go and really feel great about how that project or that building sits within the broader project. So we're feeling great about not only what we accomplished but about the pipeline from here.

Seth, it's Eliott. So the buyer pool has definitely improved. We've seen more capital. We touched on prior calls how we're seeing more institutional capital come in. Some of the results of that is that transaction size is able to grow. I think San Francisco is the best example of this, where deal sizes continue to creep up in a good way. We think we have a lot of options for what that means. We'll keep using the same sort of approach we have in the past to evaluate the entire portfolio, project forward where we think returns are going to be asset by asset, and look for where we can get the most efficient pricing. So that's our plan for '26.

Yes. I mean, I think Eliott said it really well. We're seeing significant renewed institutional appetite and interest in West Coast commercial assets, in particular, I would say, appetite for residential assets have continued over the course of the last couple of years. We've got a number of different opportunities available to us, and we're going to be opportunistic as we execute going forward.

Maybe as you guys look at the debt maturities that you have in the second half, wondering if you can discuss your plans for those? And what would make you use disposition proceeds on debt reduction versus using those proceeds for acquisitions?

Caitlin, it's Jeffrey. So we have three maturities in the back half of the year. Two of them are private placement notes. So the wonderful part about that for us is we have a bunch of flexibility on the timing of retiring them. As proceeds come in from the disposition program, I think part of the question can be what are the immediate opportunities for cash. As we said in our prepared remarks, we will evaluate pretty much every opportunity out there. Whether it's acquisitions, share buybacks, or reducing debt, all of them are on the table. At a point in time in the year, depending on where our marginal cost of capital sits, we'll make that decision.

Yes, I think that's very well said. The only thing I'd add to that is that to the extent we are exercising the share buyback opportunity, that would be done in a leverage-neutral to slightly deleveraging way. So those two options will need to be paired together.

I wanted to follow up on your comments about the leasing pipeline. I appreciate the insight on the increase over the past year. However, has that improvement been consistent over the last 12 months? I am trying to understand if the pipeline continues to grow at these levels or when it might plateau at the levels you've mentioned.

Yes, the pipeline has grown pretty consistently over the last several quarters. We've had some big executions out of that pipeline as well and have more than backfilled that number. So we do feel like there's additional momentum to see lease executions continue to improve as well as the pipeline continue to build behind it. What you heard from Rob is that we've got great activity and momentum in markets that have been consistently strong performers over the last few years, like Bellevue and San Diego. We have markets where we've recently seen substantial activity and a real recovery, and I would put San Francisco and Seattle, Denny Regrade, Fremont Lake Union in that bucket. Because of the portfolio allocation work we've done and our capital recycling work we've completed in LA, we've got a lot more traction and activity in LA than we had 24 months ago. So, it has been pretty broad-based across all our markets. I think there are good fundamental reasons why we're seeing that improvement in the pipeline. I would just reiterate that the pipeline has continued to grow despite the fact that executions have continued to rise too. So we are more than backfilling that pipeline.

On the Nautilus campus, do you anticipate acquiring more life science assets, given there's a lot of the market from willing sellers? Or is it really just focused on this opportunity because of Torrey Pine? And I was wondering if you can give us the timing of the occupancy ramp to get to your upper single-digit yield.

Yes, I would say, look, we don't have any specific mandates to acquire life science to get to a certain percentage of the portfolio or anything like that. I think we have acted in a way that's been highly opportunistic, and we would continue to expect to navigate kind of capital deployment in that way as well. We're really thrilled about this opportunity. As I mentioned, I really view this as a generational opportunity to enter a market that is tightly held as Torrey Pines is. We have enough scale, I think, to establish a presence there and continue to benefit not only life science projects we have in other submarkets within the San Diego portfolio but even sort of the broader, more national reputation around life science. This was a great campus; Nautilus was a great campus and a great submarket, with great long-term fundamentals and a manageable amount of leasing to complete to get to a stabilized yield number. I think things really lined up. We think it was a tremendous opportunity that was in the best interest of shareholders.

We have about 50,000 square feet available for lease at the campus, and that will primarily drive us towards achieving an upper single-digit return. You can assume we took a conservative approach in our underwriting because that's our standard practice, but that is the key factor that will help us reach our goal.

Yes, and as Eliott said in his prepared remarks, we're working on spec suites at the project, it's a very manageable amount of square footage to lease, the 50,000 to 55,000 square foot range, and the spec suite program we think is going to be highly effective there.

Yes. Just wondering if you could talk sort of about the cumulative NOI impact of the capital recycling activity, particularly Sabre Spring, Sunset Media Center, and then the offset from acquisition in Nautilus. I guess how should we think about kind of the overall NOI impact and how that's based into the guidance for 2026?

Yes. I'd say, look, I think if we just talk about sort of cap rates and returns for a moment. When we step back and look at all the activity we completed over the course of 2025 and then KSS, which closed in early January. As we think about 2026, sort of implied cap rate on that pool is probably in and around 8%, probably a bit inside of 8% across the entirety of that pool. Eliott mentioned in his prepared remarks, and it's pretty consistent with what we had reported on Maple Plaza as well, that we're in sort of in the mid- to slightly above mid-single-digit going-in return. The real path on both of those projects is to get into the stabilized yields in the high single digits. So I think once we hit stabilization on those projects, we're actually net accretive relative to where the sales have been, but there is a path to get there. We've had great success on lease-up at Maple Plaza, and we just talked about Nautilus. There's 50,000 square feet to lease there to get to that stabilized yield number. So the path is pretty clear, and we feel a high degree of conviction in both of those lease-up and stabilization exercises.

Just to add to that, as we thought about it, we're touching on the 2026 impact, but I think it's also important to consider the impact beyond that. When you take that, call it, 8-ish cap rate that Angela referenced, layer on the above-market in-place rents at the assets that we sold later on the short lease term, and that's going to bring the future returns a lot lower. On top of that, the CapEx flows to the economic returns are even lower. None of these actually factor in the last piece, which is the land sales, which we're obviously selling at 0 or negative cap rates. So it really helps manage that discrepancy.

Yes, Eliott, that’s an important point here. We're working to be very balanced. I think we are IRR long-term return buyers and sellers, but we are very cognizant of the near-term impact on earnings associated with this portfolio recycling activity, and we're really working hard to balance those two things. Things like the land sales certainly make that easier. Even across the operating portfolio dispositions, I think we're doing a very effective job and managing that dilution while also creating a portfolio that's stronger where the cash flow is more durable and that will grow faster over the medium to longer term.

Good to hear you guys sort of occupancy guidance and '26 is sort of flattish versus where it was in '25. Are you able to sort of give any sort of guardrails around the ramp of that occupancy throughout the year? Jeffrey, you mentioned a lot of the expirations are front-half weighted. So it seems like occupancy to sort of ramp towards the back half? Are you able to give any sort of guidance as to sort of where year-end occupancy, '26 will land versus where it ended '25?

Yes. I mean, just as it relates to the trajectory of occupancy, not surprisingly based on the disclosure on the lease expiration page, you should expect it to drop during 2026 in the second quarter. And that just speaks to the move-out activity we have in the first half of the year and the pace of moving some of those leases and the signed but not commenced bucket into occupancy over the course of the year. We give guidance on sort of average occupancy. We haven't given guidance on year-end occupancy, but we'll continue to evaluate that and provide as much color and context as we can around occupancy as we move through the year.

Thank you. Those are all the questions we have. And so this concludes our call. Thank you all for your participation. You may now disconnect your lines.