KRC - NYSE

Hello, everyone, and welcome to the KRC 4Q '25 Earnings Conference Call. My name is Emily, and I'll be coordinating your call today. [Operator Instructions] 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 noncore asset sales, monetizing or advancing strategic plans for parcels within our future development pipeline and thoughtfully redeploying proceeds and to 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, 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 and 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, to backfill 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, 74,000 square feet of new long-term lease executions at West 8th, our recently renovated and repositioned project in 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. And importantly, in South San Francisco, 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, as we have executed on our holistic long-term plan for KOP 2, we've been 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 our capital investment is specifically designed to be highly reuseful by future tenants in the same space. And 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 time lines 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 time lines, 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 assets 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 noncore assets with forward returns of lower cost of capital. And as we evaluate redeployment alternative, 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, 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 to $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 noncore 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 of 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 and density 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 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, is 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 position 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 benefit 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 explorer 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 a 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. Noncash 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 1-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 its 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 reflect leases executed to date in prevailing market leasing economics for the remainder of the project. And finally, as a reminder, the project will not enter the same-property pool until 2028. With respect to the Flower Mart project, our assumptions remained 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. In addition, 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 on leasing, monetizing noncore assets and redeploying capital into high-quality opportunities to strengthen the durability of our cash flows and the flexibility of our platform. With that, we're happy to answer any of your questions. Operator?

[Operator Instructions] Our first question today comes from Jana Galan with Bank of America.

Congrats on the leasing at KOP 2. I was hoping if you could talk to the UCSF -- sorry, University of California, San Francisco anchor lease and kind of the late commencement on that? Is that due to kind of significant tenant build-out or waiting out other lease expirations? And maybe if you can kind of help us think about further going some leasing to occupancy on 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 4x. So 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. And 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 time lines, 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?

Well, what I would say, KOP 2, as Jeffrey mentioned in his remarks, doesn't go into the same property pool until 2028, though it is entering the stabilized portfolio. And as a result, our total portfolio occupancy statistics beginning in January. So there's a bit of a disconnect there. But that asset won't come into the same property pool until 2028. I would say at this point in time, nothing -- as we think about the $300 million of operating property dispositions that we communicated as part of guidance, I would note anything material as it relates to changes in the same property pool that we think needs to be called out.

Our next question comes from the line of Nick Yulico with Scotiabank.

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.

Okay. Great. And then I guess second question is on leasing, maybe for Rob, if you could just touch a little bit on sort of key highlights across markets. And particularly, I'd say, like in San Francisco, how sublease. Is that an impact -- competitive impact versus your portfolio? And then just a little bit more about sort of what drove the leasing at West 8th in Seattle.

Sure. Why don't we start with what you finished with, which is West 8th in Seattle and the Bellevue market. Bellevue is clearly a leader in the country in terms of not only demand and tenants in the market right now, but also we're really excited about the rental growth. We've seen the net effective rental growth. I would say unrelated to the growth and the rental increase in Bellevue, we're seeing a similar phenomenon starting to happen in Seattle. And we're really pleased over the last 90 days, with the new tenant activity that we're seeing at West 8th. And we're -- our team up there is very busy working on several fronts on West 8th. So the renovation that we did really is paying off and creating a sense of -- that it's a special project in a great location. In fact, underscored by the fact we did a law firm deal in the quarter that moved from the CBD to West 8th. So we're very excited about that. I would say one of the things we've been through the San Francisco recovery cycle before. I think one of the things that's most amazing about San Francisco is the recovery that's going on. And I'd say a couple of things, sublease space the really good premium sublease space is really virtually gone. There's still some but it's -- there are not big contiguous blocks of space like we had a year to 1.5 years ago. So that's a positive sign. And I think if you really look at it, yes, people can say there's 32% availability but -- and I want to emphasize this, 47% of that availability has not transacted since 2021. So I'm going to say that again, 47% hasn't transacted since 2021 of that 32% vacancy. And that's a really important metric because our product, our office buildings in San Francisco don't -- are not impacted by that. We've had activity on all fronts. So we see the San Francisco recovery as really having the clearest signs of a recovery of a market, and Silicon Valley also had a very, very strong 2025 4th quarter, and a lot of that is driven by Fortune 100 companies. So I think you're seeing diversity in the market in San Francisco and the Bay Area, meaning types of tenants and also the large tenants. We get a lot of questions over earnings calls about one of the large tenants coming back, they're back in the market now. L.A. We are continuing the Fitler Club lease was a major lease in the Hollywood submarket. We're really happy to have that. Fitler is a members-only lifestyle social club sponsored by Dean Adler and Associates, so very strong sponsorship we had other opportunities to do other leasing there, but Fitler saw the benefit of the space that Noy House freed up. So that was a very exciting December to get that started and closed very quickly. Other parts of Los Angeles on the West side, our tour activity is improving, and we expect to see that continue. So Culver City continue to do well. We're seeing net effective rent growth in Long Beach. So for us at Kilroy in our specific markets, we're very excited. And Maple Plaza has sort of led our leasing since we acquired it. San Diego, again, great success story, I wish we had more space at One Paseo, which we don't. And very excited to get our hands on Nautilus, and we're underway right now on working on several potential deals there. So San Diego continues to be a great market for us. And lastly, Austin, we continue to have activity in the space we have remaining. We don't have that much left and we're going to be fine there. Rates have helped. So we're continuing our program there in Austin.

Our next question comes from Steve Sakwa with Evercore ISI.

You guys have a little -- you 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 showed 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's contractually obligated already. And where 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. And 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.

Okay. Great. And just kind of second question. I appreciate the color on the KOP 2 yield at mid-5. I know you don't want to provide details on individual leases. But for the space that's left to lease, does that imply net rents are kind of equal to what you did on kind of the leasing thus far? Does it imply rents go up? Will it go down? Just how do we think about rents on the remaining space compared to kind of what's been leased thus far?

Yes. I think they're generally around the same ballpark, but we do believe, given the momentum we've demonstrated at the projects that we can push higher on the remaining vacancy. When you think about what we have left from a composition perspective at KOP 2. We have about half of the multi-tenant building remaining. That likely is going to be a combination of those remaining spec suites where we sort of already know what that capital looks like and some shelf space that we'll be talking to additional tenants that are in conversations with already. And then at least one full building remaining. And what I would say about the full building vacancy that we have remaining is that it is the most prominent building within Phase 2 of the project and arguably within the entire KOP ecosystem, Phases 1 through 5, it has some of the best views of the project. And we think we have a real opportunity there to appropriately push rate while also prioritizing near-term occupancy. So that's kind of how we're seeing the remaining vacancy and our expectations for how that will play out.

Our next question comes from Blaine Heck with Wells Fargo.

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 mark 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.

Okay. Great. That's very helpful. Second question, Angela, can you just comment a little bit about where each of your markets are politically, which of them you think are providing the best environments for businesses and their employees and what specific improvement you've seen in the time that you've been at Kilroy?

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 Mayer, 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. And 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.

Our next question comes from Seth Bergey with Citigroup.

Angela, I think in your prepared remarks, you talked a little bit about kind of 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, feel like we've got great momentum and visibility behind continued leasing there. And as I mentioned, then we'll have the 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, and I'll let Rob add to that.

I don't have much to add to what Angela said. Our pipeline has remained consistent overall. And even though we've executed the 300-plus thousand feet we did or the pipeline has refilled. And so our team there boots on the ground are responding via paper to proposals and things like that, our tour activity continues to be consistent in terms of every week, every other week, someone new is coming to the market. And the remarks I made last quarter hold true today that the project is really attracting a lot of the tension Bay Area wide from a variety of users. So we're excited about what we see in the pipeline in '26, and we're completely focused as we were in '25 on executing.

And then maybe moving towards your guidance. I think your guidance implies kind of $175 million of dispositions that you haven't announced. Just kind of as you kind of look across the portfolio, are those kind of targeted and specific markets? And just as the markets kind of continue to recover, can you talk a little bit about what type of capital is in the market that's interested in buying and just the depth of the buyer pool and how that's changed at all?

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. And 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 size continues to creep up in a good way. So we think we have a lot of options for what that means. And we're going to keep using the same sort of approach that 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 think 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 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.

Our next question comes from Anthony Paolone with JPMorgan.

Great. I was wondering if you could help on Page 29 of the supplemental. If we think about year-end 2026 after you do the land sales and Flower Mart comes out and so forth. Like what's left that you'll be capitalizing against at the end of this year?

Yes. Tony, this is Jeffrey. So when we give the cap interest guidance for this year, we've effectively said anything that we're capitalizing on Q4, we're going to continue to keep capitalizing on. So the primary pieces of that are the future phases of KOP 3 and 4. So we've disclosed the big movers for Flower Mart in KOP 2 season, and that was contemplated in Q4's actual results. And then as we look forward into 2026, there's no real changes to those assumptions.

Yes. I mean the capitalized interest guidance this year really is Flower Mart and KOP. There's effectively nothing else being capitalized or assumed to be capitalized in 2026.

Okay. So all these other ones stay in there with the exception of the sales?

Yes. I mean, we may be holding them, but because we're not actively pursuing development of some of these parcels as we assess highest and best use and other things, we're not capitalizing on them. So some of them will be sold and when they're sold because we're not capitalizing on them that will all be upside. We'll be removing sort of a drag on -- that's sitting within the NOI from development guidance we got.

The next question comes from Vikram Malhotra with Mizuho.

I guess just first one going back to KOP. Just curious on two things sort of you look at the pipeline, you mentioned, what are the competitive spaces that you're sort of pitching against? And is there a point at which you'd maybe perhaps considering monetizing KOP in terms of a potential sale?

Yes, I'll take the last question first, and then I'd reiterate what I said in my prepared remarks. We continue to be big believers in the long-term growth and value creation potential of this project. I believe we've created a tremendous amount of value in Phase 2. I appreciate the 5.5% yield on Phase 2 is a challenging number in the context of the current market, but we fully believe that with the leases we're signing today over time, we're also going to create a ton of value in Phase 2. And future phases of KOP will be dependent on us getting to yields that make sense on future development and being substantially pre-leased and derisked. So we feel great when we think about the campus overall. South San Francisco remains one of the primary life science hubs in the country. And we have, I believe, the most compelling projects within that submarket. And we believe, over time, we're going to create a lot of value from that project. So I'd start there. I'll leave it to Rob to answer the pipeline questions again.

Yes. I don't have much to add. I mean, to what I said, the pipeline is continuing to grow, and we're executing. We're making market deals, positive NER and we're just going to keep aggressively going out there and securing our share of the deals.

Yes. And I think the only other thing I'd say is we can't share anything more specific about the tenants that are in the future pipeline. But we spent a lot of time in our prepared remarks talking about the quality of tenancy that we've already added at the project in Phase 1, a real mix of tenants that are going to provide sort of that innovation ecosystem that's going to drive future leasing growth at the project and balancing that with the stability that an institutional lease with someone like UCSF and their credit quality provides. So I think the leasing that we've done to date in Phase 2 has been highly strategic and really puts us in the best position possible to drive enhanced value at Phase 2 and future phases of the project as well.

Okay. That's helpful. And then just maybe a broader question. While there are a lot of AI tenants in the market like you highlighted, I'm just wondering, across the broader Bay Area in San Francisco city, there's probably a market concern about just software and the need or lack of need for future hiring in terms of software developers, engineers. I don't know if you've had conversations with any of your tenant base you can share. Just how are they thinking about space needs, especially tenants that fit into that broad software category?

I'll say a few things and then Eliott, Rob, Jeffrey, anybody can jump in to augment this. But what we're seeing in the San Francisco market is clearly a tremendous amount of new business formation and growth. Much of which is coming on the back of what's happened with AI over the last few years. And we believe that's a really exciting dynamic we're seeing in the city. We continue -- we have tenants that we've signed deals with from an AI perspective that are already talking about expansion and growth. And there are a lot of additional new companies in the market thinking about taking additional space. So right now, based on what we see and what we're actively navigating from a leasing transaction perspective, it has been and will continue to be a significant driver from an office using space capacity in the San Francisco market over time. As it relates to some big tech platforms where maybe that concern around job losses or how jobs are going to be allocated as a little more amplified. Again, it's early days as it relates to how AI is going to play out over the longer term. And candidly, none of us have a crystal ball or know very specifically. But we do know that there are big tech companies within the broader San Francisco Bay region that have recently done things like pull sublease space off the market with the intent to occupy. So we can only be responsive to the signals that are in the market. But I think the signals we're seeing in the real estate market and the office market in San Francisco or the Bay Area in general, do not support the thesis that we are retrenching from a space perspective.

Two points I'd add is that, again, as I said, leasing is going very strong in San Francisco, 2/3 of the leases, large leases done, which is 30,000 square feet or greater done in San Francisco in '25 were expansion focused. So I think that's a really important piece of color. Also, I just look at -- we usually give you some kind of sense of how many deals over 100,000 feet are in the market in 2025. There were 16 deals over 100,000 feet that got completed and some bigger ones. So that metric of the 100,000 feet in 16 goes right back to 2018, 2017 sort of the boom years in the last cycle. So all things are pointing in the right direction, and we're planning to capitalize on that.

Thank you. Next question comes from Brendan Lynch with Barclays.

I want to follow up on Jeffrey's comment about the Riot Games renewal. Are there any other unique renewal considerations or fixed rate options or anything like that, that we should expect to impact the re-leasing spreads in 2026?

Look, the spreads in any given quarter are going to depend on the special mix of leases we have in that quarter. But I don't have anything in particular to point out to you right now. And as I look at the activity in our very near-term pipeline, we actually feel really good about where spreads are shaking out. Again, it's the mix of leases that have already been executed in Q1 that we expect to execute in the first quarter or 2 of this year. But certainly, as we pointed out, and Jeffrey pointed out in his comments, one lease, sometimes has the ability to change what those metrics look like. But nothing in particular I'd point out to you. And again, the near-term pipeline, we feel pretty good about from a rent spread perspective.

Okay. Great. That's helpful. And maybe while we're talking about the pipeline, congratulations on being up 65% year-over-year. Can you tell us what that means in terms of square footage and what your historic conversion rate of that pipeline has been?

Yes, we haven't typically given sort of the aggregate square footage of the pipeline in part, to your point, because at any different point, it's very different mix of early-stage deals, middle stage deals or late-stage deals. But, as I mentioned in response to a prior question about our lease expirations, we feel really good about the near-term pipeline that's embedded within that number and our ability to execute and meet or exceed our occupancy guidance as we move through the year.

Our next question comes from Caitlin Burrows with Goldman Sachs.

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. That's the timing of retiring them. So as proceeds come in from the disposition program, I think part of the question can be what are the immediate opportunities for cash. And as we said in our prepared remarks, we're going to evaluate pretty much every opportunity out there. So if it's acquisitions, share buybacks, reducing debt. All of them are on the table. So at a point in time in the year depending on kind of 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 sort of 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.

Got it. Okay. And then back earlier in the call, Jeffrey, I think you mentioned that recoveries would be a headwind in 2026. So assuming you did say that, I was just wondering if you could go through why is that? And is it related to occupancy levels so you might have said something about real estate tax appeals, but yes.

Yes. So I want to point back to some of our comments in calls earlier this year. We did have some pretty sizable tax refunds in Q2 and through Q3 of 2025, which are going to act to the headwind as we go into 2026. And then as we look at kind of the leasing pipeline and the activity that we're seeing within our operating markets, it's very important for us to make sure that we're putting the right OpEx expenditures in the assets to make sure that we can get the best leasing activity and really present our assets in the right way. So you're going to see a slight uptick in OpEx perspective, but that's really going to be, I think, pretty impactful for how we drive revenue going forward.

The next question comes from Michael Carroll with RBC.

I wanted to circle back on your comments regarding the leasing pipeline. I appreciate the color on the increase over the past year. But has that improvement been pretty steady over the past 12 months? I'm just -- I'm trying to understand if the pipeline continues to build at these levels or at what point could it plateau at the levels that you're talking about?

Yes, the pipeline is pretty consistently grown 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 side continue to improve 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've got markets where we've recently seen substantial activity and a real recovery, and I would put San Francisco and Seattle, Denny Regrade, Freemont Lake Union in that bucket. And because of the portfolio allocation work we've done, our capital recycling work we've done 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 of our markets. And 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 grow as well. So we are more than backfilling that pipeline.

Great. And then what about the breakout of the pipeline? I know you said that there is different categories of early-stage and late-stage type leasing activity. Has all those categories kind of grown in a similar amount? Or has there been a focus where you're seeing more growth in the early stages, for example, I guess what's the breakout? And how has that trended over the past 12 months?

Yes, the pipeline really started to accelerate. Obviously, you start by seeing it really build in the early-stage deals. And it's hard to kind of call like this and communicate a tremendous amount of conviction in those early stages where you don't know how much of that is going to convert. Over the last couple of quarters, we have seen it sort of even out. And so you've seen what started earlier in this recovery as a real expansion of the early-stage pipeline move to the mid-stage pipeline and the late-stage pipeline, and that's really what's underscored the elevated executions we've had over the last couple of quarters as well. So I think it's all consistent. It's playing out the way you would expect it to. I think just based on how transaction activity comes together, but we've continued to see it in really all three of those buckets and continue to build that funnel with additional early-stage deals that we believe are more likely than they might have been 24 months ago to continue to move through the pipeline.

Our next question comes from John Kim with BMI.

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. We, I think, have acted in a way that's been highly opportunistic, and we would continue to expect it 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. And with enough scale, I think, to really be able 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. So I think this was a really interesting transaction that accomplished a lot for us strategically, but we certainly don't feel any mandate. And as we've talked about in our prepared remarks and prior Q&A questions, as we look at sort of the set of available capital deployment opportunities at this point in time, we're going to be very mindful of the signals we're receiving from both the public and private markets. And I think we've got a lot of interesting opportunities on the table for capital deployment. And then, Eliott?

And to the second part of your question, so we have about 50,000 square feet to lease at the campus and that's going to be the main driver that gets us up to that mean -- that upper single-digit return. So you can assume we underwrote it conservatively because that's how we approach these sorts of things, but that is the main factor that will get us there.

Right. 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 as Eliott points out, that 50,000 to 55,000 square foot range and the spec suite program we think is going to be highly effective there.

Okay. And then can I get your latest views on Flower Mart? I think you've said in the past, you prefer not to do stand-alone multifamily development. But just given how much San Francisco rents have moved, would you contemplate changing that strategy and keeping that asset for development, if you could develop that at an attractive yield?

Look, everything is on the table, right? And so I think as we've talked about since we began this process of reimagining Flower Mart, it was important to us from the very beginning to appreciate that the San Francisco market has in the past and could very likely come back very quickly. And so what we didn't want to do was commit to a different entitlement path at the project that was less dense or took away opportunities we already have embedded in the current entitlement. So we've been pursuing the word I'd continue to use as it relates to what we're working towards at the Flower Mart. There's a lot of optionality and flexibility around our entitlements and around the mix of uses we can develop at the site. We are fully on track with the work that we've been doing at the Flower Mart, Jeffrey reiterated in his prepared remarks that things are playing out the way we expected them to, our guidance around when we'll stop capitalizing Flower Mart consistent with what we communicated last year. So things are fully on track as it relates to getting that additional flexibility. And as we get closer to the point in time where we have that flexibility in place, we'll continue to assess how different asset classes are penciling and what that means for the path going forward. I would be hesitant for us as Kilroy to on a stand-alone basis, develop multifamily. I don't think we have a cost of capital that makes a tremendous amount of sense for us to do that. But there are many opportunities where we can joint venture or contribute the land or sell outright if we decide that, that multifamily path for a portion of the project makes sense. And as we continue to get closer, Rob mentioned in his comments about San Francisco as well. that the number of big contiguous blocks that are left and available in the market has dwindled significantly. And we think over the next quarter or 2, that picture is going to continue to shift and evolve in our favor. And so that's why flexibility around the path for Flower Mart has been more important than driving to one outcome at a point in time. And I feel like we've put all the right pieces in place to be able to make the absolute best decision when we get there, and we'll know more as this year evolves.

Our next question comes from Peter Abramowitz with Deutsche Bank.

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, with the real path on both of those projects to getting 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 sort of a path to get there. We mentioned -- I mentioned in my prepared remarks, 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.

And 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. And 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 kind of manage that discrepancy.

Yes. Eliott thinking really important point here, which is that 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. And things like the land sales certainly make that easier. But 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.

Okay. That's helpful. And then a strategic one or a question on kind of strategy on capital allocation as well. I think, Eliott, you talked about in your comments, you really focus on the lack of supply in Torrey Pines in San Diego overall. I guess I'm just curious, one, sort of what do you see from a demand perspective? Do you feel like that has bottomed in the life science market in San Diego? And then two, the supply dynamic is maybe not as favorable in the Bay Area. So is that to say, maybe asking John's question a different way, would you be willing to invest in more life science assets if they were in the Bay Area? Or is this more specific to kind of a better backdrop in San Diego and what you view as unique opportunities?

Yes, we do think that Torrey Pines is a really unique opportunity with great, not only physicality of the asset, but great submarket dynamics as well. We have, I think, significantly out leased the competition in South San Francisco. We have additional vacancy there at that project to work through. And so I think we'd be harder pressed to buy additional vacancy in the South San Francisco market today, despite the fact that we feel great about not only what we accomplished at KOP in '25, but the future pipeline there as well. This was great campus, Nautilus was great campus and a great submarket, great long-term fundamentals and a very manageable amount of leasing to complete to get to a stabilized yield number. So I think it just it really things really lined up. We think it was a tremendous opportunity that was in the best interest of shareholders. And as we move forward, we're going to be thinking about not only the opportunities that present themselves in the market but importantly, signals we're getting from the public market as well as we think about redeployment for disposition proceeds.

The next question comes from Dylan Burzinski with Green Street Advisors.

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 that a lot of the expirations are one-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, I would say, 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 sort of 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.

Appreciate that. And then maybe turning over to demand. Obviously, you guys mentioned or highlighted several times, there's a strong demand environment across nearly all of your markets. So sort of just curious the backdrop for demand, if you look at sort of office using jobs, it would suggest that demand is much stronger than job creation and where it's been over the last 18 months. It seems like demand has benefited not only in your guys' market footprint, but across the U.S. in general, as RTOs picked up, you've seen this flood of pent-up demand. So any sort of sense of when you guys think any demand will be back to being driven by the job growth outlook rather than the sort of pent-up demand environment we've been in?

Yes. I mean, look, it's different market to market, right, and even in some cases, submarket to submarket. But what I can tell you across our West Coast markets is that well generally, yes, I think there's been some pent-up demand as people have brought folks back into the office. But the bigger component we're seeing is what's been happening from a new business formation and growth perspective in our innovation-driven West Coast markets. And companies from outside of the West Coast, establishing presences in some of our markets in order to tap into the tech talent that's resident in those markets. And that's been a really powerful driver of leasing demand and growth over the last couple of quarters, particularly in San Francisco, particularly in Bellevue, particularly in Seattle, where you've got significant concentrations of high talent available. So RTO is a component of it, certainly. But I think what's happening from a new business formation and growth perspective is what's really exciting about the West Coast markets right now.

The next question comes from Upal Rana with Keycorp (sic) [ KeyBanc ]

Just on the disposition front, you've already mentioned how you're thinking about capital recycling this year. But just thinking about it broadly, how much more is there to do, not just this year, but just going forward overall, just to optimize the portfolio?

Upal, it's Eliott. Look, I think there's always something to do in part that's because the dynamics in our markets are constantly evolving. And so it's on us to be actively evaluating what those trends are and how they impact different parts of the portfolio. So historically, we've always been asset sellers, and we think that, that will set be something that we can continue to do and should continue to do over time in order to deliver a portfolio that -- and have that optimal cash flow stream that's diverse and growing and stable.

Okay. Great. That was helpful. And then just last one for me. On the short-term leasing. It did come down this quarter. I'm just curious if you've seen any of those leases start to convert to longer-term leases? Or are they still continuing to release in the shorter-term increments?

I mean some of it's been renewal activity as people just need a little bit more time to make decisions to finalize renewals or to relocate in certain circumstances. Some of it has been short-term new and people taking temporary space ahead of their permanent space being available. So that's been a dynamic we've seen over the last couple of quarters as well. I think it speaks to the broader dynamics we've been talking about over the last several quarters, particularly in markets like San Francisco, where there's been a real priority on space that's ready and available today. So some of the short-term new leasing has reflected our team doing a really great job of being creative and finding space in the portfolio to put tenants in temporarily while we build out and complete their space. And that, in some cases, is one long-term deal. So I'm really thrilled with the way we're executing and how we're approaching it, how we're understanding what tenants need and what's going to get deals across the finish line. And that's probably going to continue to be some part of the leasing activity going forward. But to your point, overall short-term leasing has come down pretty significantly.

Thank you. Our final question comes from Anthony Paolone with JPMorgan.

Okay. I was wondering, can you maybe give us a sense as to like where the FFO run rate kind of finishes the year relative to the, say, $3.35 midpoint?

I think we're hesitant to give much of a trajectory as it relates to that. What I will say, and this is the biggest thing to note as it relates to the FFO trajectory is the guidance around Flower Mart, right? And the expectation that Flower Mart ceases capitalization at the end of the second quarter so first half from an FFO perspective, like it looks higher than second half, which might be what's embedded in your question. But I don't think at this point, it makes sense for us to be more specific on that.