Last Update 12 Dec 25

KRC: West Coast Office Recovery Will Depend On Leasing Execution Through 2027

Analysts have made a modest upward adjustment to their price target for Kilroy Realty, citing slightly improved profit margin expectations and healthier operating conditions across most REITs, even as updated project timelines temper near term funds from operations outlooks.

Analyst Commentary

Recent research updates present a nuanced view of Kilroy Realty, with modest target changes reflecting a balance between improving fundamentals and lingering execution risks. Analysts are largely in wait and see mode as the company navigates key project roll offs and market specific leasing dynamics.

Bullish Takeaways

Bullish analysts highlight incremental target price increases as a sign that healthy operating conditions and resilient Q3 2025 performance are gradually being reflected in valuation.
Upgrades tied to on the ground improvements in key West Coast markets, including better street conditions and leasing progress in San Francisco, support a view that asset quality and location can drive above peer recovery through 2027.
The higher price targets in the mid 40s range imply confidence that Kilroy can execute on its remaining lease roll and stabilize occupancy, supporting a more sustainable funds from operations growth trajectory.
Improved expectations around operating margins and stabilization of existing assets underpin the case that the current share price underestimates medium term earnings power.

Bearish Takeaways

Bearish analysts trim outer year FFO per share estimates as capitalized interest and expenses roll off on major projects starting in 2026, pressuring earnings before newer income streams fully ramp.
The Neutral and Equal Weight stances signal that, despite healthy sector level conditions, Kilroy still needs stronger leasing volume outside the San Francisco Bay Area to justify a higher valuation multiple.
Cautious views emphasize that execution risk on lease up and timing of cash flow contributions from developments could cap near term upside, even with quality assets and supportive long term fundamentals.
Price targets clustered in the low to mid 40s suggest limited multiple expansion until investors see clearer evidence of broad based occupancy gains and more consistent growth in funds from operations.

What's in the News

Acquired Maple Plaza, a 293,000-square-foot Class A office campus in Beverly Hills for $205 million, marking the company’s first entry into this supply constrained, low vacancy submarket. The acquisition was funded with cash on hand and disposition proceeds (Key Developments).
The Maple Plaza acquisition adds a recently renovated, LEED Gold and Fitwel certified asset that is approximately 75% leased to a diverse tenant base. The property has 45,000 square feet of leases signed over the past 12 months, enhancing Kilroy’s West Coast office portfolio quality (Key Developments).
Executed a 24,000-square-foot lease at Kilroy Oyster Point Phase 2 in South San Francisco with Color, a precision medicine and genomics company, supporting lease up momentum at the life science development (Key Developments).
Color’s new genomics lab at KOP 2, expected to begin occupancy in early Q2 2026, will anchor a portion of the 875,000-square-foot, purpose built life science campus. The campus offers high end amenities and is designed to attract top tier innovation tenants (Key Developments).
Reported no share repurchases during the July 1 to September 30, 2025 buyback tranche, leaving the existing authorization effectively unused over the period (Key Developments).

Valuation Changes

Fair Value: Unchanged at approximately $42.93 per share, indicating no revision to the intrinsic value estimate.
Discount Rate: Risen slightly from about 7.90% to 7.92%, reflecting a modest increase in the required return for Kilroy’s equity.
Revenue Growth: Fallen marginally from roughly 1.19% to 1.18%, signaling a slightly more conservative long term top line outlook.
Profit Margin: Improved modestly from about 5.35% to 5.40%, pointing to a minor upward adjustment in expected profitability.
Future P/E: Edged down from roughly 102.0x to 101.0x, suggesting a small reduction in the multiple applied to forward earnings.

Ongoing shifts to hybrid work and tech tenant consolidation threaten occupancy, rental income stability, and pricing power for core urban office assets.
Growing ESG investment needs and tenant downsizing trends pressure margins, capital requirements, and elevate risks in a cautious financial environment.
Strategic focus on high-quality assets, innovation clusters, and ESG standards strengthens revenue prospects, portfolio quality, and long-term shareholder returns amid evolving tenant demand.

Catalysts

About Kilroy Realty

Kilroy is a leading U.S. landlord and developer, with operations in San Diego, Los Angeles, the San Francisco Bay Area, Seattle, and Austin.What are the underlying business or industry changes driving this perspective?

Anticipated weakness in long-term office demand due to the persistent adoption of remote and hybrid work models is likely to keep Kilroy's occupancy rates and rent growth below historical averages, pressuring future revenues and NOI despite current leasing momentum.
Elevated exposure to tech sector tenants, who are increasingly consolidating space and embracing flexible work arrangements, creates vulnerability to future lease expirations and renewals at lower rates, increasing volatility in rental income and compressing net margins.
Continuing migration and corporate expansion into secondary markets could reduce the pricing power and demand for Kilroy's core West Coast urban assets, leading to weaker rent growth and potential asset revaluations, negatively impacting projected NAV and future earnings.
The need for ongoing significant ESG investments to keep buildings compliant with tenant and investor sustainability demands may strain capital expenditures; failure to keep up could risk reputation and occupancy, while maintaining compliance may weigh on net margins.
Industry-wide stagnant or declining rents and persistent tenant downsizing trends accelerate vacancy, necessitating costly repositioning of assets and increasing capital requirements, which will constrain FFO growth and elevate refinancing risks in a risk-averse capital market.

Kilroy Realty Earnings and Revenue Growth

Kilroy Realty Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Kilroy Realty's revenue will decrease by 0.2% annually over the next 3 years.
Analysts assume that profit margins will shrink from 19.2% today to 5.7% in 3 years time.
Analysts expect earnings to reach $64.0 million (and earnings per share of $0.66) by about September 2028, down from $218.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $117 million in earnings, and the most bearish expecting $29.9 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 95.5x on those 2028 earnings, up from 22.7x today. This future PE is greater than the current PE for the US Office REITs industry at 37.8x.
Analysts expect the number of shares outstanding to grow by 0.21% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.43%, as per the Simply Wall St company report.

Kilroy Realty Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The accelerated recovery and leasing momentum in key West Coast markets-especially in San Francisco with a surge in AI-driven tenant demand and tour activity-could drive revenue growth and occupancy stabilization, supporting higher long-term cash flows.
Kilroy's strategic repositioning towards trophy assets and innovation clusters (such as life science campuses in San Diego and San Francisco) leverages secular growth in AI, biotech, and healthcare sectors, potentially delivering above-average rent growth and improving net operating income.
Robust capital recycling efforts, including the disciplined sale of non-core or lower-growth assets at attractive valuations and redeployment into higher-growth submarkets, improve portfolio quality and support future earnings and margin resilience.
Kilroy's strong balance sheet, liquidity, and leverage-neutral flexibility (including share repurchase authorization) position the company to capitalize on value-accretive acquisition opportunities as weaker peers exit the market, potentially leading to enhanced shareholder returns and FFO expansion.
The continued industry emphasis on "flight to quality" and ESG demands benefits Kilroy's LEED and WELL-certified portfolio, allowing it to command premium rents, reduce operating expenses, and maintain high occupancy, all positively impacting revenue and net margins over the long term.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $39.933 for Kilroy Realty based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $55.0, and the most bearish reporting a price target of just $33.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $64.0 million, and it would be trading on a PE ratio of 95.5x, assuming you use a discount rate of 8.4%.
Given the current share price of $42.0, the analyst price target of $39.93 is 5.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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